CASTLIGHT HEALTH, INC., 10-K filed on 3/1/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Jun. 30, 2016
Feb. 24, 2017
Class A
Feb. 24, 2017
Class B
Class of Stock [Line Items]
 
 
 
 
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
 
Document Fiscal Year Focus
2016 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Trading Symbol
CSLT 
 
 
 
Entity Registrant Name
CASTLIGHT HEALTH, INC. 
 
 
 
Entity Central Index Key
0001433714 
 
 
 
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
Accelerated Filer 
 
 
 
Entity Public Float
 
$ 273,500,000 
 
 
Entity Common Stock, Shares Outstanding
 
 
54,288,009 
51,106,127 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 48,722 
$ 19,150 
Marketable securities
65,882 
101,274 
Accounts receivable, net
14,806 
12,751 
Deferred commissions
8,218 
5,438 
Prepaid expenses and other current assets
3,382 
3,772 
Total current assets
141,010 
142,385 
Property and equipment, net
5,285 
6,896 
Marketable securities, noncurrent
13,335 
Restricted cash, noncurrent
1,144 
1,000 
Deferred commissions, noncurrent
5,050 
4,923 
Other assets
4,677 
4,735 
Total assets
157,166 
173,274 
Current liabilities:
 
 
Accounts payable
2,288 
3,384 
Accrued expenses and other current liabilities
6,369 
4,550 
Accrued compensation
9,443 
11,477 
Deferred revenue
30,623 
26,590 
Total current liabilities
48,723 
46,001 
Deferred revenue, noncurrent
5,245 
7,522 
Other liabilities, noncurrent
1,236 
1,397 
Total liabilities
55,204 
54,920 
Commitments and contingencies
   
   
Stockholders’ equity (deficit):
 
 
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of December 31, 2016 and 2015; no shares issued and outstanding as of December 31, 2016 and 2015
Additional paid-in capital
457,596 
415,519 
Accumulated other comprehensive income
(79)
Accumulated deficit
(355,644)
(297,096)
Total stockholders’ equity (deficit)
101,962 
118,354 
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)
157,166 
173,274 
Convertible Preferred Stock [Member]
 
 
Current liabilities:
 
 
Convertible preferred stock, $0.0001 par value; no and 64,475,662 shares authorized as of December 31, 2014 and 2013; no and 64,475,633 shares issued and outstanding as of December 31, 2014 and 2013
Class A
 
 
Stockholders’ equity (deficit):
 
 
Common stock value issued
Class B
 
 
Stockholders’ equity (deficit):
 
 
Common stock value issued
$ 5 
$ 4 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2016
Dec. 31, 2015
Preferred Stock
 
 
Par Value
$ 0.0001 
$ 0.0001 
Shares Authorized
10,000,000 
10,000,000 
Shares Issued
Shares Outstanding
Convertible Preferred Stock [Member]
 
 
Convertible Preferred Stock
 
 
Par Value
$ 0.0001 
$ 0.0001 
Shares Authorized
Shares Issued
Shares Outstanding
Class A
 
 
Common Stock
 
 
Par Value
$ 0.0001 
$ 0.0001 
Shares Authorized
200,000,000 
200,000,000 
Shares Issued
54,295,405 
54,517,785 
Shares Outstanding
54,295,405 
54,517,785 
Shares Subject to Repurchase
Class B
 
 
Common Stock
 
 
Par Value
$ 0.0001 
$ 0.0001 
Shares Authorized
800,000,000 
800,000,000 
Shares Issued
50,015,518 
41,100,307 
Shares Outstanding
50,015,518 
41,100,307 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Revenue:
 
 
 
Subscription
$ 95,016 
$ 70,350 
$ 41,602 
Professional services
6,684 
4,965 
4,003 
Total revenue
101,700 
75,315 
45,605 
Cost of revenue:
 
 
 
Cost of subscription
16,463 1
12,417 1
10,472 1
Cost of professional services
18,098 1
21,351 1
17,300 1
Total cost of revenue
34,561 
33,768 
27,772 
Gross profit
67,139 
41,547 
17,833 
Operating expenses:
 
 
 
Sales and marketing
58,800 1
67,414 1
62,065 1
Research and development
40,460 1
30,077 1
22,917 1
General and administrative
26,859 1
24,274 1
19,009 1
Total operating expenses
126,119 
121,765 
103,991 
Operating loss
(58,980)
(80,218)
(86,158)
Other income, net
432 
298 
218 
Net loss
$ (58,548)
$ (79,920)
$ (85,940)
Net loss per share, basic and diluted
$ (0.58)
$ (0.85)
$ (1.16)
Weighted-average shares used to compute basic and diluted net loss per share
100,798 
93,753 
74,381 
Consolidated Statements of Operations Parenthetical (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cost of subscription [Member]
 
 
 
Allocated Share-based Compensation Expense
$ 506 
$ 283 
$ 180 
Cost of professional services [Member]
 
 
 
Allocated Share-based Compensation Expense
1,961 
2,175 
1,220 
Sales and marketing [Member]
 
 
 
Allocated Share-based Compensation Expense
8,843 
7,705 
5,933 
Research and development [Member]
 
 
 
Allocated Share-based Compensation Expense
5,959 
3,498 
2,556 
General and administrative [Member]
 
 
 
Allocated Share-based Compensation Expense
$ 4,743 
$ 4,169 
$ 4,312 
Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Consolidated Statement of Comprehensive Loss:
 
 
 
Net loss
$ (58,548)
$ (79,920)
$ (85,940)
Other comprehensive loss:
 
 
 
Net change in unrealized loss on available-for-sale marketable securities
79 
(39)
(40)
Other comprehensive gain (loss)
79 
(39)
(40)
Comprehensive loss
$ (58,469)
$ (79,959)
$ (85,980)
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Operating activities:
 
 
 
Net loss
$ (58,548)
$ (79,920)
$ (85,940)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
3,168 
2,024 
1,354 
Stock-based compensation
22,012 
17,830 
14,201 
Amortization of deferred commissions
5,070 
3,510 
4,092 
Accretion and amortization of marketable securities
481 
1,385 
1,489 
Expense related to warrant
2,639 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,055)
(1,654)
(6,032)
Deferred commissions
(7,977)
(7,633)
(4,861)
Prepaid expenses and other assets
448 
328 
(1,895)
Accounts payable
(1,035)
646 
147 
Accrued expenses and other liabilities
1,743 
(1,158)
1,870 
Deferred revenue
1,756 
6,752 
15,887 
Accrued compensation
(2,034)
1,022 
2,412 
Net cash used in operating activities
(36,971)
(56,868)
(54,637)
Increase (Decrease) in Restricted Cash
(144)
(1,000)
 
Investing activities:
 
 
 
Restricted cash
 
 
101 
Payments to Acquire Interest in Subsidiaries and Affiliates
(4,125)
Purchase of property and equipment, net
(1,702)
(5,376)
(1,860)
Purchase of marketable securities
(98,184)
(119,867)
(230,316)
Sales of marketable securities
5,000 
13,000 
Maturities of marketable securities
146,508 
180,111 
76,527 
Net cash provided by (used in) investing activities
46,478 
54,743 
(142,548)
Financing activities:
 
 
 
Proceeds from the exercise of stock options and warrants
2,829 
3,944 
3,294 
Proceeds from initial public offering
189,943 
Payments of deferred financing costs
(122)
(94)
(3,781)
Net cash provided by financing activities
20,065 
3,850 
189,456 
Net increase (decrease) in cash and cash equivalents
29,572 
1,725 
(7,729)
Cash and cash equivalents at beginning of period
19,150 
17,425 
 
Cash and cash equivalents at end of period
48,722 
19,150 
17,425 
Noncash investing and financing activity:
 
 
 
Vesting of early exercised stock options, restricted common stock, and warrants
(321)
Purchase of property and equipment, accrued but not paid
(20)
(165)
(600)
Deferred offering costs, accrued but not paid
$ 0 
$ 0 
$ (94)
Consolidated Statements of Convertible Preferred Stock and Stockholders' (Deficit)/Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Deficit [Member]
Convertible Preferred Stock [Member]
Beginning balance at Dec. 31, 2013
$ (124,350)
$ 1 
$ 6,885 
$ 0 
$ (131,236)
 
Beginning balance at Dec. 31, 2013
 
 
 
 
 
180,423 
Beginning balance (in shares) at Dec. 31, 2013
 
 
 
 
 
64,475,633 
Beginning balance (in shares) at Dec. 31, 2013
 
10,994,074,000 
 
 
 
 
Increase (Decrease) in Temporary Equity [Roll Forward]
 
 
 
 
 
 
Conversion of preferred stock to common stock (in shares)
(64,475,633)
64,475,633,000 
 
 
 
 
Conversion of preferred stock to common stock
180,423 
180,416 
(180,423)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Vesting of restricted stock units
21 
 
 
 
 
 
Exercise of stock options (in shares)
 
2,956,676,000 
 
 
 
 
Exercise of stock options, net
3,294 
 
3,294 
 
 
 
Vesting of early exercised stock options, restricted common stock, and warrants
321 
 
21 
 
 
 
Vesting of early exercised warrant issued
300 
 
300 
 
 
 
Stock-based compensation
14,215 
 
14,215 
 
 
 
Expense related to warrant
2,639 
 
2,639 
 
 
 
Issuance of common stock upon initial public offering, net of issuance costs (in shares)
 
12,765,000,000 
 
 
 
 
Issuance of common stock upon initial public offering, net
185,628 
185,627 
 
 
 
Comprehensive loss
(85,980)
 
 
(40)
(85,940)
 
Ending balance at Dec. 31, 2014
176,190 
393,397 
(40)
(217,176)
 
Ending balance at Dec. 31, 2014
 
 
 
 
 
Ending balance (in shares) at Dec. 31, 2014
 
 
 
 
 
Ending balance (in shares) at Dec. 31, 2014
 
91,191,383,000 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Vesting of restricted stock units
 
 
 
 
Vesting of restricted stock units (in shares)
 
295,468,000 
 
 
 
 
Exercise of stock options (in shares)
 
4,131,241,000 
 
 
 
 
Exercise of stock options, net
3,944 
3,943 
 
 
 
Vesting of early exercised stock options, restricted common stock, and warrants
 
 
 
 
 
Stock-based compensation
18,179 
 
18,179 
 
 
 
Comprehensive loss
(79,959)
 
 
(39)
(79,920)
 
Ending balance at Dec. 31, 2015
118,354 
10 
415,519 
(79)
(297,096)
 
Ending balance at Dec. 31, 2015
 
 
 
 
 
Ending balance (in shares) at Dec. 31, 2015
 
 
 
 
 
Ending balance (in shares) at Dec. 31, 2015
 
95,618,092,000 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Vesting of restricted stock units (in shares)
 
1,984,407,000 
 
 
 
 
Exercise of stock options (in shares)
 
1,945,766,000 
 
 
 
 
Exercise of stock options, net
2,829 
2,829 
 
 
 
Vesting of early exercised stock options, restricted common stock, and warrants
 
 
 
 
 
Issuance of common stock and warrants to SAP, net, shares
 
4,762,658,000 
 
 
 
 
Issuance of common stock and warrants to SAP, net
17,236 
 
17,236 
 
 
 
Stock-based compensation
22,012 
 
22,012 
 
 
 
Comprehensive loss
(58,469)
 
 
79 
(58,548)
 
Ending balance at Dec. 31, 2016
101,962 
10 
457,596 
(355,644)
 
Ending balance at Dec. 31, 2016
 
 
 
 
 
$ 0 
Ending balance (in shares) at Dec. 31, 2016
 
 
 
 
 
Ending balance (in shares) at Dec. 31, 2016
 
104,310,923,000 
 
 
 
 
Organization and Description of Business
Organization and Description of Business
Organization and Description of Business

Description of Business
Castlight Health Inc. ("the Company") offers a health benefits platform that engages employees to make better health care decisions and enables employers to communicate and measure their benefit programs. The Company provides a simple, personalized, and powerful way for employees to shop for and manage their health care. At the same time, the Company enables employers to understand their employees’ needs and guide them to the right care, right providers and right programs at the right time. The Company's comprehensive technology offering aggregates complex, large-scale data and applies sophisticated analytics to make health care data transparent and useful. The Company was incorporated in the State of Delaware in January 2008. The Company's principal executive offices are located in San Francisco, California.

Initial Public Offering
On March 19, 2014, the Company completed its initial public offering (IPO), in which it sold 12.8 million shares of Class B common stock at a price to the public of $16.00 per share. The aggregate offering price for shares sold in the offering was approximately $204.2 million. The Company raised approximately $185.6 million in net proceeds from the offering, after deducting underwriter discounts and commissions of approximately $14.3 million and other offering expenses of approximately $4.3 million.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation
The consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In the opinion of management, the information herein reflects all adjustments, consisting only of normal recurring adjustments, except as otherwise noted, considered necessary for a fair statement of results of operations, financial position and cash flows. The consolidated financial statements include the results of Castlight and its wholly owned U.S. subsidiary.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, the determination of the relative selling prices for the Company's services and certain assumptions used in the valuation of its equity awards. Actual results could differ from those estimates, and such differences could be material to the Company's consolidated financial position and results of operations.

Segment Information
The Company's chief operating decision maker, its CEO, reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reportable segment, cloud-based products.

Revenue Recognition
The Company derives its revenue from sales of cloud-based subscription service and professional services contracts. The Company sells subscriptions to its cloud-based subscription service through contracts that are generally three years in length.
The Company's cloud-based subscription service contracts do not provide customers with the right to take possession of the software supporting the cloud-based service and, as a result, are accounted for as service contracts.
The Company commences revenue recognition for its cloud-based subscription service and professional services when all of the following criteria are met:
there is persuasive evidence of an arrangement;
the service has been provided to the customer;
collection of the fees is reasonably assured; and
the amount of fees to be paid by the customer is fixed or determinable.
The Company's subscription and professional service arrangements do not contain refund provisions for fees earned related to services performed. The Company does, however, have commitments under service-level agreements, as discussed under "Warranties and Indemnification" below.
Subscription Revenue. Subscription revenue recognition commences on the date that the Company's cloud-based service is made available to the customer, which is considered the launch date, provided all of the other criteria described above are met. Revenue is recognized based on usage or on a straight-line bases if fees are fixed.
Some of the Company's cloud-based subscription arrangements include performance incentives that are generally based upon employee engagement. Fees for performance incentives are considered contingent revenue, and are recognized over the remaining term of the related subscription arrangement commencing at the time they are earned.
Professional Services Revenue. Professional services revenue is primarily comprised of implementation services and communication services related to the Company's cloud-based subscription service. Nearly all of the Company's professional services are sold on a fixed-fee basis. The Company does not have standalone value for its implementation services. Accordingly, the Company recognizes implementation services revenue in the same manner as the associated cloud-based subscription service, beginning on the launch date, provided all other criteria described above have been met. Communication services have standalone value and the associated revenue is recognized over the contractual term, generally one year, commencing when the revenue recognition criteria have been met.
Multiple Deliverable Arrangements. To date, the Company has generated substantially all its revenue from multiple deliverable arrangements consisting of multi-year cloud-based subscription services and professional services, including implementation services and communication services. For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables do not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the Company's cloud-based subscription service, and revenue for the combined unit is recognized over the remaining term of the cloud-based subscription service.
The Company's deliverables have standalone value if we or any other vendor sells a similar service separately. The Company has concluded that it has standalone value for its cloud-based subscription service as it sells these services separately through renewals and for its communication services as other vendors sell similar services separately. Conversely, the Company has concluded that its implementation services do not have standalone value, as the Company and others do not yet sell these services separately. Accordingly, the Company considers the separate units of accounting in its multiple deliverable arrangements to be the communication services and a combined deliverable comprised of cloud-based subscription services and implementation services.
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence, or VSOE, of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence, or TPE, of selling price is used to establish the selling price if it exists. If TPE does not exist, the Company estimates the best estimated selling price, or BESP. VSOE does not currently exist for any of its deliverables. Additionally, the Company does not believe TPE is a practical alternative due to differences in its cloud-based subscription service compared to other parties and the availability of relevant third-party pricing information for its cloud-based subscription service and its other services. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, the Company allocates the arrangement fee to the separate units of accounting based on its BESP. The amount of arrangement fee allocated is limited by contingent revenue, if any.
The Company determines BESP for its deliverables by considering its overall pricing objectives and market conditions. This includes evaluating the Company's pricing practices, its target prices, the size of its transactions, historical sales and its go-to-market strategy. The determination of BESP is made through consultation with and approval by management. For financial statement presentation purposes, the Company allocates the fees from its combined units of accounting to subscription and professional services based upon their relative selling price.

Costs of Revenue

Cost of revenue consists of the cost of subscription revenue and cost of professional services revenue.

Cost of subscription revenue primarily consists of data fees, employee-related expenses (including salaries, benefits and stock-based compensation) related to hosting costs of its cloud-based service, cost of subcontractors, expenses for service delivery (which includes call center support), allocated overhead, the costs of data center capacity, amortization of internal-use software and depreciation of owned computer equipment and software. Amortization of internal-use software was $0.9 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively.

Cost of professional services revenue consists primarily of employee-related expenses associated with these services, the cost of subcontractors and travel costs. The time and costs of the Company's customer implementations vary based on the source and condition of the data the Company receive from third parties, the configurations that the Company agrees to provide and the size of the customer.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Company's cash and cash equivalents generally consist of investments in money market funds and U.S. agency obligations. Cash and cash equivalents are stated at fair value.

Marketable Securities

The Company's marketable securities consist of U.S. agency obligations and U.S. treasury securities, with maturities at the time of purchase of greater than three months. Marketable securities with remaining maturities in excess of one year are classified as noncurrent. The Company classifies its marketable securities as available-for-sale at the time of purchase based on its intent and are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive loss. The Company evaluates its investments to assess whether those with unrealized loss positions are other than temporarily impaired. The Company consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely it will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income, net in the consolidated statements of operations.

Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. For all periods presented, the allowance for doubtful accounts was not significant.

Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with the noncancellable portion of cloud-based subscription service contracts with customers and consist of sales commissions paid to the Company's direct sales force and channel partners. The commissions are deferred and amortized over the noncancellable terms of the related contracts. The deferred commission amounts are recoverable through the future revenue streams under the noncancellable customer contracts. Amortization of deferred commissions is included in sales and marketing expense in the consolidated statements of operations.

Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:
Software
  
3–5 years
Computer equipment
  
3 years
Furniture and equipment
  
5–7 years
Leasehold improvements
  
Shorter of the lease term or the estimated useful lives of the improvements

Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations for the period realized.
Restricted Cash
Restricted cash consists of a letter of credit related to the Company's leased office space.

Internal-use Software

For the Company's development costs related to its cloud-based service, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project and post-implementation stages are expensed as incurred. Capitalized software development costs are included as part of property, plant and equipment and are amortized on a straight-line basis over the technology's estimated useful life, which is generally three years. The amortization expense is recorded as a component of cost of subscription revenue.
The Company did not have any capitalized software development costs for the year ended December 31, 2016. Capitalized software development cost was $2.6 million for the year ended December 31, 2015.

Deferred Revenue
Deferred revenue consists of professional services and cloud-based subscription services that have been billed in advance of revenue being recognized. Additionally, deferred revenue consists of professional services that have been billed and delivered but the revenue is being deferred and recognized together with a cloud-based subscription contract as a combined unit of accounting. The Company invoices its customers for its cloud-based subscription services based on the terms of the contract, which can be annual, quarterly or monthly installments. The Company invoices its customers for its professional services and the first year of communication services generally at contract execution. Deferred revenue that is anticipated to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent.

Stock-based Compensation
All stock-based compensation to employees is measured based on the grant-date fair value of the awards and recognized in the Company's consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model. For restricted stock units, fair value is based on the closing price of the Company's Class B common stock on the grant date. Compensation expense is recognized over the vesting period of the applicable award using the straight-line method. For awards with performance based and service vesting conditions, compensation cost is recognized over the requisite service period if it is probable that the performance condition will be satisfied based on the accelerated attribution method.
Compensation expense for non-employee stock options and warrants is calculated using the Black-Scholes option-pricing model and is recorded as the options vest. Options subject to vesting are required to be periodically revalued over their service period, which is generally the same as the vesting period. 

Income Taxes
The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. The Company's evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.

Warranties and Indemnification
The Company's cloud-based service is generally warranted to be performed in a professional manner and in a manner that will comply with the terms of the customer agreements.

The Company's arrangements generally include certain provisions for indemnifying customers against liabilities if there is a breach of a customer’s data or if the Company's service infringes a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in the financial statements. The Company has entered into service-level agreements with certain customers warranting, among other things, defined levels of performance and response times and permitting those customers to receive credits for prepaid amounts related to subscription services in the event that the Company fails to meet those levels. To date, the Company has not experienced any significant failures to meet defined levels of performance and response times as a result of those agreements.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as its director or officer or that person’s services provided to any other company or enterprise at the Company's request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.

Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $0.6 million, $0.4 million and $0.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Concentrations of Risk and Significant Customers
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.
The Company serves its customers and users from outsourced data center facilities located in Colorado and Arizona. The Company has internal procedures to restore all of its production customer facing services in the event of disasters at the Colorado facility. Procedures utilizing currently deployed hardware, software and services at the Company's disaster recovery location in Arizona allow its cloud-based service to be restored within 48 hours during the implementation of the procedures to restore services.
Revenue from customers representing 10% or more of total revenue for the respective years, is summarized as follows:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue:
 
 
 
 
 
Customer A
10
%
 
*
 
14
%
  * Less than 10%
During the years ended December 31, 2016, 2015 and 2014, all of the Company's revenue was generated by customers located in the United States.
Accounts receivable from customers representing 10% or more of total accounts receivable as of the respective dates is summarized as follows:
 
As of December 31,
 
2016
 
2015
Accounts Receivable:
 
 
 
Customer B
18
%
 
19
%
 * Less than 10%
Recently Issued and Adopted Accounting Pronouncements
    
Statement of Cash Flows

In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-18, “Statement of Cash Flows”. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The standard will become effective for the Company beginning January 1, 2018, and early adoption is permitted. At this point in time, the Company does not intend to adopt the standard early. Based on the Company’s evaluation, the standard will not have a material impact on its consolidated financial statements.

Consolidation
    
In October 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-17, “Consolidation”. The standard addresses how companies evaluate whether a reporting entity is the primary beneficiary of a VIE by changing how the reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The standard will become effective for the Company beginning January 1, 2017.  The Company has evaluated the accounting, transition and disclosure requirements of the standard and does not believe the standard will have a material impact on its consolidated financial statements.
Classification of Certain Cash Receipts and Cash Payments

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-1, “Classification of Certain Cash Receipts and Cash Payments.” The guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows and how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This guidance will be effective for the Company beginning January 1, 2018 and earlier adoption is permitted in any interim period. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption. At this point in time, the Company does not intend to adopt the standard early.
Stock-based Compensation
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation: Improvements to Employee Share-Based Payment.” The guidance will change how companies account for certain aspects of share-based payments to employees. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted in any interim or annual period. Accordingly, the standard is effective for the Company beginning January 1, 2017, and the Company has elected not to early adopt. Based on the Company’s evaluation, the standard will not have a material impact on its consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases.” The guidance will require lessees to put all leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner similar to current practice. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The guidance will be effective for the Company beginning January 1, 2019 and early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption. At this point in time, the Company does not intend to adopt the standard early.

Financial Instruments

In January 2016, the FASB issued ASU 2016-1, “Financial Instruments.” The guidance provides a new measurement alternative for equity investments that don’t have readily determinable fair values and don’t qualify for the net asset value practical expedient. Under this alternative, these investments can be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment if the same issuer. This guidance will be effective for the Company beginning January 1, 2018 and earlier adoption is not permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption at this point in time.

Cloud Computing Arrangements

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The guidance is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement, primarily to determine whether the arrangement includes a sale or license of software. The Company adopted this guidance on January 1, 2016 and the standard did not have a material impact on its consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and has since updated the ASU. This ASU replaces existing revenue recognition standards with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The new standard will be effective for the Company beginning January 1, 2018 with early adoption permitted beginning January 1, 2017. The Company has elected not to early adopt the new standard.

The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company currently plans to adopt under the full retrospective method. However, a final decision regarding the adoption method has not been finalized at this time.

The Company is in the initial stages of its assessment of the impact of the new standard on its accounting policies, processes, and controls, including system requirements. The Company has assigned internal resources and has also engaged a third party service provider to assist in its assessment.

Based on its assessment to date, the Company currently believes a significant impact from the adoption of the new standard will be related to the Company’s costs to fulfill as well as its costs to obtain contracts with customers. For fulfilment costs, the new standard states that an entity shall recognize an asset from the costs incurred to fulfill a contract if certain criteria are met. The Company believes these criteria will be met and these costs will be recognized as an asset under the new standard.  The costs to fulfill a contract that are recognized as an asset are then amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The Company currently expenses costs to fulfill a contract when they are incurred. Similar to fulfillment costs, for costs to obtain a contract (which are primarily sales commissions), the standard states that costs to obtain a contract shall be amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The Company currently capitalizes certain sales commissions and amortizes those costs over the non-cancelable portion of its subscription contracts. Under the new standard, the amortization period for the Company’s costs to obtain a contract could be longer. Lastly, based on its assessment, the Company currently believes areas of impact related to the Company’s revenue recognition will be related to the estimation of variable consideration, the accounting for contract modifications, and the allocation of the transaction price to the Company’s multiple performance obligations.

While the Company continues to assess the potential impacts of the new standard, including the areas described above, and anticipates the standard could have a material impact on its consolidated financial statements, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the new standard on the Company’s financial statements at this time.
Marketable Securities
Marketable Securities
Marketable Securities
At December 31, 2016 and December 31, 2015, respectively, marketable securities consisted of the following (in thousands):
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
December 31, 2016
 
 
 
 
 
 
 
U.S. treasury securities
$
37,864

 
$

 
$
(2
)
 
$
37,862

U.S. agency obligations
33,019

 
5

 
(3
)
 
33,021

Money market mutual funds
7,965

 

 


 
7,965

 
78,848

 
5

 
(5
)
 
78,848

Included in cash and cash equivalents
12,966

 


 

 
12,966

Included in marketable securities
$
65,882

 
$
5

 
$
(5
)
 
$
65,882


 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
December 31, 2015
 
 
 
 
 
 
 
U.S. agency obligations
$
83,763

 
$

 
$
(48
)
 
$
83,715

U.S. treasury securities
33,924

 

 
(31
)
 
33,893

Money market mutual funds
1,038

 

 

 
1,038

 
118,725

 

 
(79
)
 
118,646

Included in cash and cash equivalents
4,038

 

 
(1
)
 
4,037

Included in marketable securities
$
101,334

 
$

 
$
(60
)
 
$
101,274

Included in marketable securities, noncurrent
$
13,353

 
$

 
$
(18
)
 
$
13,335

Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires that the Company maximizes the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
 
The fair value of marketable securities included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from a third-party pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established third party pricing vendors and broker-dealers. There have been no changes in valuation techniques in the periods presented. The Company has no financial assets or liabilities measured using Level 3 inputs. There were no significant transfers between Levels 1 and 2 assets as of December 31, 2016 and December 31, 2015. The following tables present information about the Company's assets that are measured at fair value on a recurring basis using the above input categories (in thousands):
 
Level 1
 
Level 2
 
Total
December 31, 2016
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market mutual funds
$
7,965

 
$

 
$
7,965

U.S. treasury securities

 
5,000

 
5,000

Marketable securities:
 
 
 
 
 
U.S. agency obligations

 
33,021

 
33,021

U.S. treasury securities

 
32,862

 
32,862

 
$
7,965


$
70,883


$
78,848

 
 
Level 1
 
Level 2
 
Total
December 31, 2015
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market mutual funds
$
1,038

 
$

 
$
1,038

U.S. agency obligations

 
3,000

 
3,000

Marketable securities:
 
 
 
 
 
U.S. agency obligations

 
80,715

 
80,715

U.S. treasury securities

 
33,893

 
33,893

 
$
1,038


$
117,608


$
118,646


Gross unrealized gains and losses for cash equivalents and marketable securities as of December 31, 2016 and December 31, 2015 were not material. The Company does not believe the unrealized losses represent other-than-temporary impairments based on its evaluation of available evidence as of December 31, 2016.
There were no realized gains or losses for the years ended December 31, 2016 and 2015. As of December 31, 2016 and 2015 those securities with maturities at the time of purchase of greater than one year are reflected in the noncurrent portion of the Company's consolidated balance sheets. Marketable securities on the balance sheets consist of securities with original or remaining maturities at the time of purchase of greater than three months, and the remainder of the securities is reflected in cash and cash equivalents. As of December 31, 2016, all of the Company's marketable securities mature within one year.
Prepaid Expenses and Other Current Assets
Prepaid Expenses and Other Current Assets
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Prepaid expenses and advances


 
$
3,033

Security deposit

 
228

Interest receivable on marketable securities

 
361

Other current assets

 
150

Total


 
$
3,772

Property and equipment, net
Property and equipment
Property and Equipment
Property and equipment consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Leasehold improvements
$
2,061

 
$
2,046

Computer equipment
5,487

 
4,345

Software
1,099

 
885

Internal-use software
2,925

 
2,925

Furniture and equipment
931

 
853

Total
12,503

 
11,054

Accumulated depreciation
(7,218
)
 
(4,158
)
Property and equipment, net
$
5,285

 
$
6,896


Depreciation and amortization expense for the years ended December 31, 2016, 2015 and 2014 was $3.2 million, $2.0 million and $1.4 million, respectively. Depreciation is recorded on a straight-line basis.
Related Party Transactions (Notes)
Related Party Transactions Disclosure [Text Block]
In the second quarter of 2015, the Company announced a strategic alliance with Lyra Health ("Lyra"), to develop and bring to market an integrated behavioral health solution. In connection with this strategic alliance, the Company made an initial preferred stock investment in Lyra of $3.1 million and its chief executive officer, Dr. Colella, joined the Lyra board. Additionally, the Company made a subsequent preferred stock investment in Lyra of $1.0 million in August 2015.  In March 2016, the Company amended the strategic alliance to modify the manner in which the Company collaborates with Lyra on the solution. In connection with this amendment, Dr. Colella ceased service on the Lyra board of directors.

Lyra is considered a related party to the Company because two of the Company’s directors, Dr. Roberts and Mr. Ebersman, serve on the Lyra board of directors and Mr. Ebersman is the Lyra chief executive officer. An independent committee of the Company’s board of directors, comprised of directors without any involvement in any external behavioral health business initiatives, approved the strategic alliance with and investment in Lyra.

The Company has evaluated all its transactions with Lyra and has determined that Lyra is a variable interest entity (“VIE”) for the Company. In determining that the Company is not the VIE's primary beneficiary, the Company considered qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the characteristics of the Company's involvement; and the obligation or likelihood for the Company to provide incremental financial support. Based on the Company's evaluation, the Company determined it is not required to consolidate the operations of the VIE. The Company's maximum exposure to loss as a result of its involvement with this unconsolidated VIE is limited to its investment of $4.1 million and it is not obligated to provide incremental financial support to Lyra.

The investment in Lyra is accounted for under the cost method and is included under other assets in the Company's consolidated financial statements. The Company has not estimated the fair value of its investment because there have been no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. The Company assesses its investment for impairment on a quarterly basis or based on facts or circumstances that may require it to reassess the fair value of its investment. Based on the facts and circumstances as of December 31, 2016, the Company concluded that its investment was appropriately valued.
Accrued Compensation
Accrued Compensation
Accrued Compensation
Accrued compensation consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Accrued commissions
$
3,637

 
$
5,212

Accrued bonuses
3,388

 
4,034

Other employee and benefits payable
2,418

 
2,231

Total
$
9,443

 
$
11,477

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Leases and Contractual Obligations
We lease office space under noncancellable operating leases in San Francisco, California and Sunnyvale, California, including two office spaces in San Francisco with expiration dates in 2017 and 2021, respectively. In anticipation of the expiration of the lease in 2017, we executed an amendment in September 2016 to extend the term of our other lease to 2022 and add incremental rentable square feet (“RSF”). As a result of the amendment, our office space increased by 8,247 RSF.
Contractual obligations relate to our service agreements for our data centers in Colorado and Arizona and other third party service providers. As of December 31, 2015 , the future minimum lease payments under noncancellable operating leases are as follows (in thousands).

As of December 31, 2016, the future minimum lease payments under noncancellable operating leases are as follows (in thousands):
 
Operating
Leases (1)
 
Contractual
Obligations
2017
$
2,651

 
$
714

2018
2,113

 
714

2019
2,177

 
535

2020
2,190

 

2021 and later
2,883

 

 
$
12,014

 
$
1,963



(1) Minimum payments have not been reduced by sublease rentals of $1.3 million due in the future under a noncancelable sublease.
The Company's facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense for the years ended December 31, 2016, 2015 and 2014 was $3.3 million, $2.1 million and $1.2 million, respectively.
Legal Matters

During the second quarter of 2015, four purported securities class action lawsuits, which were later consolidated into a single action, were filed in the Superior Court of the State of California, County of San Mateo, against the Company, certain of its current and former directors, executive officers, significant stockholders and underwriters associated with its initial public offering (“IPO”). The lawsuits were brought by purported stockholders of the Company seeking to represent a class consisting of all those who purchased the Company’s stock pursuant or traceable to the Registration Statement and Prospectus issued in connection with its IPO, alleging claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. On March 28, 2016, the parties to the consolidated actions reached a mutually acceptable resolution by way of a mediated cash settlement for an aggregate amount of $9.5 million, and the Court entered final approval of the settlement on October 28, 2016. As a result of the settlement Castlight recorded a net charge of $2.9 million to general and administrative expense in 2016. This amount represents the portion of settlement that was not covered by insurance and legal fees incurred in 2016 regarding this matter. 

From time to time, the Company may become subject to other legal proceedings, claims or litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patents or other intellectual property rights. If an unfavorable outcome were to occur in litigation, the impact could be material to the Company’s business, financial condition, cash flow or results of operations, depending on the specific circumstances of the outcome. The Company accrues for loss contingencies when it is both probable that it will incur the loss and when it can reasonably estimate the amount of the loss or range of loss
Stock Compensation
Stockholders' Equity (Deficit)
Stock Compensation
Stock Options Activity
The following table summarizes activities for stock options:
 
Options Outstanding
 
Number of
Shares
Outstanding
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Life in
Years
 
Aggregate
Intrinsic
Value
Balance at December 31, 2015
9,561,713

 
$
5.62

 
6.9
 
$
16,694

Stock options granted
3,854,646

 
$
3.16

 
 
 
 
Stock options exercised
(1,945,766
)
 
$
1.45

 
 
 
 
Stock options canceled and forfeited
(3,827,640
)
 
$
9.08

 
 
 
 
Balance at December 31, 2016
7,642,953

 
$
3.71

 
7.19
 
$
18,537

Vested or expected to vest December 31, 2016
7,218,516

 
$
3.70

 
7.09
 
$
17,810

Exercisable as of December 31, 2016
4,378,055

 
$
3.52

 
5.94
 
$
12,940


The total grant-date fair value of stock options granted during the years ended December 31, 2016, 2015 and 2014 was $3.6 million, $2.5 million and $39.9 million, respectively.
The total grant-date fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was $4.9 million, $10.8 million and $9.7 million, respectively.
The total intrinsic value of the options exercised during the years ended December 31, 2016, 2015 and 2014, was $4.7 million, $25.3 million and $31.1 million, respectively. The intrinsic value is the difference of the current fair value of the stock and the exercise price of the stock option.
As of December 31, 2016, the Company had $5.2 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 2.4 years.

The options granted and canceled in the year ended December 31, 2016 in the table above include options that were exchanged under the Company’s stock option exchange program. Pursuant to the stock option exchange program, 108 out of 132 eligible employees tendered options covering an aggregate of 2,685,396 shares of the Company’s Class A and Class B common stock at a weighted average exercise price of $11.03, in exchange for options to purchase 2,685,396 shares of its Class B common stock at an exercise price of $2.99 per share, the closing sale price reported on the New York Stock Exchange on February 24, 2016. Each new grant began a new vesting period commencing on the date of grant over five years in equal monthly installments. As of  February 15, 2016  the incremental expense related to this offer was $1.8 million, which will be recognized over five years.
Restricted Stock Units
The following table summarizes activities for RSUs:
 
Restricted Stock Units Outstanding
 
Number of shares
 
Weighted Average Grant-Date Fair Value
Balance at December 31, 2015
6,685,118

 
$
7.63

Restricted Stock Units granted (1)
7,759,565

 
$
3.66

Restricted Stock Units vested
(1,984,407
)
 
$
7.80

Restricted Stock Units forfeited/canceled (2)
(1,918,610
)
 
$
6.82

Balance at December 31, 2016
10,541,666

 
$
4.82

_______________________
(1) Includes performance stock units (“PSUs”) that were granted in 2016.
(2) Includes PSUs that were granted in the prior year, which were canceled because performance targets were not achieved.
The total grant-date fair value of RSUs granted during the years ended December 31, 2016 and 2015 was $28.4 million and $47.1 million, respectively.
The total grant-date fair value of RSUs vested during the year ended December 31, 2016 was $15.5 million. No RSUs vested during the year ended December 31, 2015.
As of December 31, 2016, the Company had $43.6 million in unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of approximately 2.8 years.

In February 2016, the Company awarded PSUs to certain employees. The number of shares that can eventually vest depends on achievement of performance targets for 2016, as determined by the compensation committee of the Company's board of directors, and may range from 0 to 150% of the targeted award amount. Once the performance is determined and a targeted award amount is fixed, the target number of PSUs, if any, will vest in eight quarterly installments, subject to recipients' continued service, beginning on February 16, 2017. As of December 31, 2016, vesting of these PSUs was not considered probable. As a result, no compensation expense was recognized.
Stock-Based Compensation to Employees
All stock-based compensation to employees is measured based on the grant-date fair value of the awards and is generally recognized in the Company's statement of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock options granted using the Black-Scholes option-valuation model. For restricted stock units, fair value is based on the closing price of the Company's Class B common stock on the grant date. Compensation cost is generally recognized over the vesting period of the applicable award using the straight-line method. For awards with performance based and service vesting conditions, compensation cost is recognized over the requisite service period if it is probable that the performance condition will be satisfied based on the accelerated attribution method.
The assumptions used in the Black-Scholes option-valuation model were determined as follows:
Volatility. Since the Company does not have a trading history for its Class B common stock, the expected volatility was derived from the historical stock volatilities of peer group companies within the Company's industry. In evaluating peer companies, the Company considered factors such as nature of business, customer base, service offerings and markets served.
Risk-Free Interest Rate. The risk-free rate that the Company used is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Expected Life. The expected term represents the period that the Company's stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options.
Dividend Yield. The Company has never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future, and therefore, the Company uses an expected dividend yield of zero.
Fair Value of Common Stock. Prior to the Company's initial public offering in March 2014, the Company's board of directors considered numerous objective and subjective factors to determine the fair value of the Company's Class A common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of Class A common stock performed by unrelated third-party specialists; (ii) the prices for the Company's Preferred Stock sold to outside investors; (iii) the rights, preferences and privileges of the Company's Preferred Stock relative to its Class A common stock; (iv) the lack of marketability of the Company's Class A common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of the Company, given prevailing market conditions.
Since the Company's initial public offering, the Company has used the market closing price for its Class B common stock as reported on the New York Stock Exchange to determine the fair value of the Company's common stock.
In addition to assumptions used in the Black-Scholes option-pricing model, the Company must also estimate a forfeiture rate to calculate the stock-based compensation for its awards. The Company's forfeiture rate is based on an analysis of its actual forfeitures. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-valuation mode    l with the following assumptions and fair value per share:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Volatility
45% - 47%
 
53%
 
60%
Expected life (in years)
5.31 - 6.12
 
6.2
 
5.0-6.3
Risk-free interest rate
0.95 - 1.37%
 
1.38%-1.91%
 
1.53%-2.05%
Dividend yield
—%
 
—%
 
—%
Weighted-average fair value of underlying common stock
$3.16
 
$8.95
 
$14.74

Warrants
On December 11, 2013, the Company issued a warrant to purchase an aggregate of 175,000 shares of Class A common stock at an exercise price of $5.00 per share to a third-party service provider. The warrant provides for an early exercise right and has a 10 year term. As of December 31, 2014, the warrants were fully vested. Expense for the warrants is calculated using the Black-Scholes option-pricing model and is recorded over the service performance period, which is the same as the vesting period. For the year ended December 31, 2014, the Company recorded $2.6 million in expense associated with this warrant. During 2016, the Company issued an additional warrant to SAP Technologies, Inc. Refer to Note 10 for further discussion of this warrant.
Stockholders' Equity
Stockholders' Equity
Stockholders' Equity
Initial Public Offering
On March 19, 2014, the Company completed its IPO, in which it sold 12.8 million shares of Class B common stock at a price to the public of $16.00 per share. Upon the consummation of the IPO, all outstanding shares of convertible preferred stock were converted into shares of Class A common stock.
Common Stock
As of December 31, 2016 , the Company had 54,295,405 shares of Class A common stock and 50,015,518 shares of Class B common stock outstanding.
Transactions with SAP Technologies, Inc.

In May 2016, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with SAP Technologies, Inc. (“SAP”) pursuant to which it sold and issued to SAP 4.7 million shares (“Shares”) of its Class B Common Stock and a warrant (“Warrant”) to purchase up to 1.9 million shares of its Class B Common Stock. The net proceeds from this transaction were $17.8 million and will be used for working capital and other general corporate purposes.
The exercise price of the Warrant is $4.91 per share and will expire four years from the date the Company enters into agreements with SAP related to both SAP’s Connected Health platform (the “Platform Agreement”) and SAP’s distribution of the Company’s solutions (the “Distribution Agreement”, and together, with the Platform Agreement, the “Alliance Agreements”). The Alliance Agreements will be focused on a strategic, multi-pronged business relationship aimed at delivering integrated healthcare technologies that can help lower healthcare costs, improve outcomes and increase benefits satisfaction for customers. If the Company does not enter into the Alliance Agreements with SAP by May 17, 2017, then the Warrant will become void.
The Shares and Warrant are considered freestanding instruments from each other and are classified within stockholders’ equity. The Company preliminarily allocated the net proceeds to the Shares and Warrant and also to a customer prepayment liability classified within accrued expenses and other current liabilities that represents the future benefits of the Alliance Agreements. Additional accounting for the Warrants and the customer prepayment liability is dependent on, if and when, the Alliance Agreements are executed.
Employee Equity Plans

        The Company adopted a 2014 Equity Incentive Plan (EIP) that became effective on March 12, 2014 and serves as the successor to the Company's 2008 Stock Incentive Plan. Shares issued under the 2008 Stock Plan were Class A common stock and shares issued under the EIP are Class B common stock. The Company's 2014 Equity Incentive Plan authorizes the award of stock options, restricted stock awards (RSAs), stock appreciation rights (SARs), restricted stock units (RSUs), performance awards and stock bonuses. The Company began granting RSUs in the fourth quarter of 2014.

The Company adopted a 2014 Employee Stock Purchase Plan (ESPP) that became effective on March 13, 2014 that enables eligible employees to purchase shares of the Company's Class B common stock at a discount. The Company has not yet established a start date of the initial purchasing period under the ESPP.
Income Taxes
Income Taxes
Income Taxes
The components of loss from continuing operations before income taxes were generated solely in the United States as follows (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
United States
$
(58,548
)
 
$
(79,920
)
 
$
(85,940
)

As a result of the Company's history of net operating losses and full valuation allowance against its deferred tax assets, there was no current or deferred income tax provision for the years ended December 31, 2016, 2015 and 2014.
Reconciliations of the statutory federal income tax rate and the Company's effective tax rate consist of the following (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Tax at federal statutory rate
$
(19,812
)
 
$
(27,173
)
 
$
(29,220
)
State statutory rate (net of federal benefit)
(1,259
)
 
(1,560
)
 
(1,728
)
Non-deductible stock compensation
1,594

 
2,334

 
(19
)
Change in valuation allowance
14,365

 
24,332

 
30,571

Other
5,112

 
2,067

 
396

 
$

 
$

 
$



Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):
 
As of December 31,
Deferred tax assets:
2016
 
2015
Net operating loss carryforwards
$
105,100

 
$
93,165

Deferred rent
580

 
235

Accrued compensation
1,291

 
326

Stock-based compensation
6,369

 
6,224

Other reserves and accruals
3

 
4

Property and equipment
649

 
322

Deferred revenue
3,879

 
3,017

 
117,871

 
103,293

Valuation allowance
(117,871
)
 
(103,293
)
Net deferred tax assets
$

 
$


The Company has provided a full valuation allowance for its deferred tax assets at December 31, 2016 and 2015, due to the uncertainty surrounding the future realization of such assets. Therefore, no benefit has been recognized for the net operating loss carryforwards and other deferred tax assets.
The valuation allowance increased by $14.6 million and $24.1 million during the years ended December 31, 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, the Company recorded no tax benefits related to stock-based compensation.
As of December 31, 2016, the Company had approximately $304.2 million of federal and $174.7 million of state net operating loss carryforwards available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards begin to expire in 2028 and 2017, respectively.
The deferred tax asset related to the Company's net operating losses does not include amounts relating to the tax benefit of stock option exercises, which, when realized, will be recorded as a credit to additional paid-in capital. As of December 31, 2016, the Company also had approximately $6.4 million and $7.2 million of research and development tax credit carryforwards available to reduce future taxable income if any, for federal and California purposes, respectively. The federal credit carryforwards expire beginning in 2028 and the California research credits do not expire and may be carried forward indefinitely.
The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. In the event the Company should experience an ownership change, as defined, utilization of the Company's net operating loss carryforwards and tax credits could be limited.

     The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefit is as follows (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Gross unrecognized tax benefits at the beginning of the year
$
9,540

 
$
7,214

 
$
4,513

Increases for tax positions of prior years

 
133

 
871

Decreases for tax positions of prior years
(125
)
 
(346
)
 
(831
)
Increases for tax positions related to the current year
4,153

 
2,539

 
2,661

Gross unrecognized tax benefits at the end of the year
$
13,568

 
$
9,540

 
$
7,214


At December 31, 2016, all unrecognized tax benefits are subject to a full valuation allowance and, if recognized, will not affect the Company's tax rate.

There were no material changes to the unrecognized tax benefits in the year ended December 31, 2016, and the Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.
The Company's policy is to include interest and penalties related to unrecognized tax benefits within its provision for income taxes. Due to the Company's net operating loss position, the Company has not recorded an accrual for interest or penalties related to uncertain tax positions for the years ended December 31, 2016, 2015 or 2014.
Net Loss per Share
Net Loss per Share
Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less the weighted-average unvested common stock subject to repurchase. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including Preferred Stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.
When shares of both Class A and Class B common stock are outstanding, net loss is allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the net loss is allocated on a proportionate basis.
 
The following table presents the calculation of basic and diluted net loss per share for the Company's common stock (in thousands, except per share data):
 
Year Ended December 31,
 
 
 
2016
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Net loss
$
(31,610
)
 
$
(26,938
)
 
$
(48,116
)
 
$
(31,804
)
 
$
(67,655
)
 
$
(18,285
)
Weighted-average shares used to compute basic and diluted net loss per share
54,421

 
46,377

 
56,444

 
37,309

 
58,555

 
15,826

Basic and diluted net loss per share
$
(0.58
)
 
$
(0.58
)
 
$
(0.85
)
 
$
(0.85
)
 
$
(1.16
)
 
$
(1.16
)

The following securities were excluded from the calculation of diluted net loss per share for common stock because their effect would have been anti-dilutive for the periods presented (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Stock options and restricted common stock
18,185

 
16,247

 
17,791

Warrants
2,020

 
115

 
115

 
$
20,205

 
$
16,362

 
$
17,906

401(k) Plan
401(k) Plan
401(k) Plan
The Company has a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code covering eligible employees. Under the plan, participating employees may defer up to 100% of their pre-tax earnings, subject to the Internal Revenue Service annual contribution limits. Effective January 1, 2015, the Company began matching a portion of the employee contributions. The Company's contribution expense in 2016 totaled $1.0 million.
Reduction in Workforce
Reduction in Workforce
Reduction in Workforce
On May 10, 2016, the Company’s Board of Directors committed to a program to reduce the Company’s workforce in order to reduce expenses, align its operations with evolving business needs and improve efficiencies. Under this program, the Company undertook an initiative to reduce its workforce by approximately fourteen percent. For the year ended December 31, 2016 , the Company incurred charges of $0.8 million, all of which were related to severance costs. As of December 31, 2016, all costs have been fully paid out.
Selected Quarterly Financial Data (unaudited)
Selected Quarterly Financial Data (unaudited)
Selected Quarterly Financial Data (unaudited)

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in years 2016 and 2015 (in thousands, except per share data):
 
 
Quarter Ended
 
 
Mar 31,
2015
 
Jun 30,
2015
 
Sept 30,
2015
 
Dec 31,
2015
 
Mar 31,
2016
 
Jun 30,
2016
 
Sept 30,
2016
 
Dec 31,
2016
Total revenue
 
15,951

 
18,510

 
19,539

 
21,315

 
22,717

 
23,585

 
25,501

 
29,897

Gross profit
 
8,779

 
10,256

 
10,852

 
11,660

 
13,468

 
14,641

 
17,535

 
21,496

Net loss
 
$
(19,643
)
 
$
(21,212
)
 
$
(20,007
)
 
$
(19,058
)
 
$
(21,355
)
 
$
(16,692
)
 
$
(11,403
)
 
$
(9,098
)
Net loss per share, basic and diluted
 
$
(0.21
)
 
$
(0.23
)
 
$
(0.21
)
 
$
(0.20
)
 
$
(0.22
)
 
$
(0.17
)
 
$
(0.11
)
 
$
(0.09
)
Subsequent Events
Subsequent Events
Subsequent Events


On January 4, 2017, the Company entered into an Agreement and Plan of Merger and Reorganization (which is referred to as the merger agreement) with Jiff, Inc. ("Jiff"), an enterprise health benefits platform provider and, as described further below, a related party to the Company, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the merger agreement, that a wholly owned subsidiary of the Company will merge with and into Jiff, with Jiff becoming a wholly-owned subsidiary of the Company and the surviving corporation following the completion of the merger. Upon the completion of the merger, all outstanding capital stock and vested options of Jiff will be exchanged for an aggregate of approximately 27 million shares, and options exercisable to purchase shares, of Class B common stock, subject to certain adjustments as set forth in the merger agreement. Additionally as part of the merger, certain stockholders and option holders have the right to receive up to 4 million shares of Class B common stock or options with rights to Class B common stock, respectively, upon the achievement by the Jiff business of certain milestones in 2017. Former Jiff stock and option holders will receive an aggregate of 1 million shares of the Company's Class B common stock or options if the Jiff business achieves at least $25 million in revenue in 2017 and an aggregate of 3 million shares of Class B common stock or options if the Jiff business achieves at least $25 million in net new bookings during 2017. All options for Jiff common stock and Jiff restricted stock units held by Jiff employees who become continuing employees of the combined company will be converted into options to purchase the Company's Class B common stock and restricted stock units, if any, respectively. As partial security for such indemnification obligations, the parties have agreed to deposit 2.7 million shares of Class B common stock in a separate escrow fund for a period of 12 months after the completion of the merger.

Bryan Roberts, Chairman of the board of directors of the Company prior to the completion of the merger, is a Partner at Venrock, which beneficially owns 16,825,301 shares of the Company's Class A and Class B common stock, or approximately 16% of Castlight’s total issued and outstanding capital stock. Venrock also owns 8,040,910 shares of Jiff capital stock, or approximately 18% of the total issued and outstanding Jiff capital stock. Accordingly, this is a related party transaction. The board of directors of the Company appointed a Special Committee, comprised solely of disinterested directors, to which it delegated the full and exclusive power, authority and discretion of the Company's board of directors to evaluate, assess, and approve the Jiff transaction on its behalf. The Special Committee engaged its own independent legal and financial advisors to assist the Special Committee in evaluating the merger. After deliberations, the Special Committee concluded that the transaction terms were fair to the Company and the transaction was in the best interests of the Company and its stockholders and unanimously approved the transaction.

We intend to hold a special meeting of our stockholders on March 17, 2017 to ask for shareholder approval of the shares to be issued in this merger. Upon the completion of the merger, the Company's board of directors will include two members designated by Jiff. Immediately following the effective time of the merger, the Company's equity holders are expected to own approximately 80% of the outstanding capital stock of the combined company on a fully diluted basis, with Jiff stockholders owning approximately 20% of the combined company immediately following the completion of the merger.
Summary of Significant Accounting Policies (Policies)
Basis of Presentation and Principles of Consolidation
Use of Estimates
Segment Information
The Company's chief operating decision maker, its CEO, reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reportable segment, cloud-based products.
Revenue Recognition
The Company derives its revenue from sales of cloud-based subscription service and professional services contracts. The Company sells subscriptions to its cloud-based subscription service through contracts that are generally three years in length.
The Company's cloud-based subscription service contracts do not provide customers with the right to take possession of the software supporting the cloud-based service and, as a result, are accounted for as service contracts.
The Company commences revenue recognition for its cloud-based subscription service and professional services when all of the following criteria are met:
there is persuasive evidence of an arrangement;
the service has been provided to the customer;
collection of the fees is reasonably assured; and
the amount of fees to be paid by the customer is fixed or determinable.
The Company's subscription and professional service arrangements do not contain refund provisions for fees earned related to services performed. The Company does, however, have commitments under service-level agreements, as discussed under "Warranties and Indemnification" below.
Subscription Revenue. Subscription revenue recognition commences on the date that the Company's cloud-based service is made available to the customer, which is considered the launch date, provided all of the other criteria described above are met. Revenue is recognized based on usage or on a straight-line bases if fees are fixed.
Some of the Company's cloud-based subscription arrangements include performance incentives that are generally based upon employee engagement. Fees for performance incentives are considered contingent revenue, and are recognized over the remaining term of the related subscription arrangement commencing at the time they are earned.
Professional Services Revenue. Professional services revenue is primarily comprised of implementation services and communication services related to the Company's cloud-based subscription service. Nearly all of the Company's professional services are sold on a fixed-fee basis. The Company does not have standalone value for its implementation services. Accordingly, the Company recognizes implementation services revenue in the same manner as the associated cloud-based subscription service, beginning on the launch date, provided all other criteria described above have been met. Communication services have standalone value and the associated revenue is recognized over the contractual term, generally one year, commencing when the revenue recognition criteria have been met.
Multiple Deliverable Arrangements. To date, the Company has generated substantially all its revenue from multiple deliverable arrangements consisting of multi-year cloud-based subscription services and professional services, including implementation services and communication services. For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables do not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the Company's cloud-based subscription service, and revenue for the combined unit is recognized over the remaining term of the cloud-based subscription service.
The Company's deliverables have standalone value if we or any other vendor sells a similar service separately. The Company has concluded that it has standalone value for its cloud-based subscription service as it sells these services separately through renewals and for its communication services as other vendors sell similar services separately. Conversely, the Company has concluded that its implementation services do not have standalone value, as the Company and others do not yet sell these services separately. Accordingly, the Company considers the separate units of accounting in its multiple deliverable arrangements to be the communication services and a combined deliverable comprised of cloud-based subscription services and implementation services.
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence, or VSOE, of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence, or TPE, of selling price is used to establish the selling price if it exists. If TPE does not exist, the Company estimates the best estimated selling price, or BESP. VSOE does not currently exist for any of its deliverables. Additionally, the Company does not believe TPE is a practical alternative due to differences in its cloud-based subscription service compared to other parties and the availability of relevant third-party pricing information for its cloud-based subscription service and its other services. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, the Company allocates the arrangement fee to the separate units of accounting based on its BESP. The amount of arrangement fee allocated is limited by contingent revenue, if any.
The Company determines BESP for its deliverables by considering its overall pricing objectives and market conditions. This includes evaluating the Company's pricing practices, its target prices, the size of its transactions, historical sales and its go-to-market strategy. The determination of BESP is made through consultation with and approval by management. For financial statement presentation purposes, the Company allocates the fees from its combined units of accounting to subscription and professional services based upon their relative selling price.
Costs of Revenue

Cost of revenue consists of the cost of subscription revenue and cost of professional services revenue.

Cost of subscription revenue primarily consists of data fees, employee-related expenses (including salaries, benefits and stock-based compensation) related to hosting costs of its cloud-based service, cost of subcontractors, expenses for service delivery (which includes call center support), allocated overhead, the costs of data center capacity, amortization of internal-use software and depreciation of owned computer equipment and software. Amortization of internal-use software was $0.9 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively.

Cost of professional services revenue consists primarily of employee-related expenses associated with these services, the cost of subcontractors and travel costs. The time and costs of the Company's customer implementations vary based on the source and condition of the data the Company receive from third parties, the configurations that the Company agrees to provide and the size of the customer.
Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Company's cash and cash equivalents generally consist of investments in money market funds and U.S. agency obligations. Cash and cash equivalents are stated at fair value.
Marketable Securities

The Company's marketable securities consist of U.S. agency obligations and U.S. treasury securities, with maturities at the time of purchase of greater than three months. Marketable securities with remaining maturities in excess of one year are classified as noncurrent. The Company classifies its marketable securities as available-for-sale at the time of purchase based on its intent and are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive loss. The Company evaluates its investments to assess whether those with unrealized loss positions are other than temporarily impaired. The Company consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely it will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income, net in the consolidated statements of operations.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. For all periods presented, the allowance for doubtful accounts was not significant.
Deferred Commissions
Deferred commissions are the incremental costs that are directly associated with the noncancellable portion of cloud-based subscription service contracts with customers and consist of sales commissions paid to the Company's direct sales force and channel partners. The commissions are deferred and amortized over the noncancellable terms of the related contracts. The deferred commission amounts are recoverable through the future revenue streams under the noncancellable customer contracts. Amortization of deferred commissions is included in sales and marketing expense in the consolidated statements of operations.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:
Software
  
3–5 years
Computer equipment
  
3 years
Furniture and equipment
  
5–7 years
Leasehold improvements
  
Shorter of the lease term or the estimated useful lives of the improvements

Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations for the period realized.
Deferred Revenue
Deferred revenue consists of professional services and cloud-based subscription services that have been billed in advance of revenue being recognized. Additionally, deferred revenue consists of professional services that have been billed and delivered but the revenue is being deferred and recognized together with a cloud-based subscription contract as a combined unit of accounting. The Company invoices its customers for its cloud-based subscription services based on the terms of the contract, which can be annual, quarterly or monthly installments. The Company invoices its customers for its professional services and the first year of communication services generally at contract execution. Deferred revenue that is anticipated to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent.
Internal-use Software

For the Company's development costs related to its cloud-based service, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project and post-implementation stages are expensed as incurred. Capitalized software development costs are included as part of property, plant and equipment and are amortized on a straight-line basis over the technology's estimated useful life, which is generally three years. The amortization expense is recorded as a component of cost of subscription revenue.
The Company did not have any capitalized software development costs for the year ended December 31, 2016. Capitalized software development cost was $2.6 million for the year ended December 31, 2015.
Stock-based Compensation
All stock-based compensation to employees is measured based on the grant-date fair value of the awards and recognized in the Company's consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model. For restricted stock units, fair value is based on the closing price of the Company's Class B common stock on the grant date. Compensation expense is recognized over the vesting period of the applicable award using the straight-line method. For awards with performance based and service vesting conditions, compensation cost is recognized over the requisite service period if it is probable that the performance condition will be satisfied based on the accelerated attribution method.
Compensation expense for non-employee stock options and warrants is calculated using the Black-Scholes option-pricing model and is recorded as the options vest. Options subject to vesting are required to be periodically revalued over their service period, which is generally the same as the vesting period.
Income Taxes
The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. The Company's evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.
Warranties and Indemnification
The Company's cloud-based service is generally warranted to be performed in a professional manner and in a manner that will comply with the terms of the customer agreements.

The Company's arrangements generally include certain provisions for indemnifying customers against liabilities if there is a breach of a customer’s data or if the Company's service infringes a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in the financial statements. The Company has entered into service-level agreements with certain customers warranting, among other things, defined levels of performance and response times and permitting those customers to receive credits for prepaid amounts related to subscription services in the event that the Company fails to meet those levels. To date, the Company has not experienced any significant failures to meet defined levels of performance and response times as a result of those agreements.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as its director or officer or that person’s services provided to any other company or enterprise at the Company's request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Advertising Expenses
Advertising is expensed as incurred.
Concentrations of Risk and Significant Customers
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.
The Company serves its customers and users from outsourced data center facilities located in Colorado and Arizona. The Company has internal procedures to restore all of its production customer facing services in the event of disasters at the Colorado facility. Procedures utilizing currently deployed hardware, software and services at the Company's disaster recovery location in Arizona allow its cloud-based service to be restored within 48 hours during the implementation of the procedures to restore services.
Revenue from customers representing 10% or more of total revenue for the respective years, is summarized as follows:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue:
 
 
 
 
 
Customer A
10
%
 
*
 
14
%
  * Less than 10%
During the years ended December 31, 2016, 2015 and 2014, all of the Company's revenue was generated by customers located in the United States.
Accounts receivable from customers representing 10% or more of total accounts receivable as of the respective dates is summarized as follows:
 
As of December 31,
 
2016
 
2015
Accounts Receivable:
 
 
 
Customer B
18
%
 
19
%
 * Less than 10%
Recently Issued and Adopted Accounting Pronouncements
    
Statement of Cash Flows

In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-18, “Statement of Cash Flows”. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The standard will become effective for the Company beginning January 1, 2018, and early adoption is permitted. At this point in time, the Company does not intend to adopt the standard early. Based on the Company’s evaluation, the standard will not have a material impact on its consolidated financial statements.

Consolidation
    
In October 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-17, “Consolidation”. The standard addresses how companies evaluate whether a reporting entity is the primary beneficiary of a VIE by changing how the reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The standard will become effective for the Company beginning January 1, 2017.  The Company has evaluated the accounting, transition and disclosure requirements of the standard and does not believe the standard will have a material impact on its consolidated financial statements.
Classification of Certain Cash Receipts and Cash Payments

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-1, “Classification of Certain Cash Receipts and Cash Payments.” The guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows and how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This guidance will be effective for the Company beginning January 1, 2018 and earlier adoption is permitted in any interim period. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption. At this point in time, the Company does not intend to adopt the standard early.
Stock-based Compensation
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation: Improvements to Employee Share-Based Payment.” The guidance will change how companies account for certain aspects of share-based payments to employees. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted in any interim or annual period. Accordingly, the standard is effective for the Company beginning January 1, 2017, and the Company has elected not to early adopt. Based on the Company’s evaluation, the standard will not have a material impact on its consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases.” The guidance will require lessees to put all leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner similar to current practice. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The guidance will be effective for the Company beginning January 1, 2019 and early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption. At this point in time, the Company does not intend to adopt the standard early.

Financial Instruments

In January 2016, the FASB issued ASU 2016-1, “Financial Instruments.” The guidance provides a new measurement alternative for equity investments that don’t have readily determinable fair values and don’t qualify for the net asset value practical expedient. Under this alternative, these investments can be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment if the same issuer. This guidance will be effective for the Company beginning January 1, 2018 and earlier adoption is not permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption at this point in time.

Cloud Computing Arrangements

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The guidance is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement, primarily to determine whether the arrangement includes a sale or license of software. The Company adopted this guidance on January 1, 2016 and the standard did not have a material impact on its consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and has since updated the ASU. This ASU replaces existing revenue recognition standards with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The new standard will be effective for the Company beginning January 1, 2018 with early adoption permitted beginning January 1, 2017. The Company has elected not to early adopt the new standard.

The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company currently plans to adopt under the full retrospective method. However, a final decision regarding the adoption method has not been finalized at this time.

The Company is in the initial stages of its assessment of the impact of the new standard on its accounting policies, processes, and controls, including system requirements. The Company has assigned internal resources and has also engaged a third party service provider to assist in its assessment.

Based on its assessment to date, the Company currently believes a significant impact from the adoption of the new standard will be related to the Company’s costs to fulfill as well as its costs to obtain contracts with customers. For fulfilment costs, the new standard states that an entity shall recognize an asset from the costs incurred to fulfill a contract if certain criteria are met. The Company believes these criteria will be met and these costs will be recognized as an asset under the new standard.  The costs to fulfill a contract that are recognized as an asset are then amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The Company currently expenses costs to fulfill a contract when they are incurred. Similar to fulfillment costs, for costs to obtain a contract (which are primarily sales commissions), the standard states that costs to obtain a contract shall be amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The Company currently capitalizes certain sales commissions and amortizes those costs over the non-cancelable portion of its subscription contracts. Under the new standard, the amortization period for the Company’s costs to obtain a contract could be longer. Lastly, based on its assessment, the Company currently believes areas of impact related to the Company’s revenue recognition will be related to the estimation of variable consideration, the accounting for contract modifications, and the allocation of the transaction price to the Company’s multiple performance obligations.

While the Company continues to assess the potential impacts of the new standard, including the areas described above, and anticipates the standard could have a material impact on its consolidated financial statements, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the new standard on the Company’s financial statements at this time.
Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Tables)
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:
Software
  
3–5 years
Computer equipment
  
3 years
Furniture and equipment
  
5–7 years
Leasehold improvements
  
Shorter of the lease term or the estimated useful lives of the improvements
Property and equipment consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Leasehold improvements
$
2,061

 
$
2,046

Computer equipment
5,487

 
4,345

Software
1,099

 
885

Internal-use software
2,925

 
2,925

Furniture and equipment
931

 
853

Total
12,503

 
11,054

Accumulated depreciation
(7,218
)
 
(4,158
)
Property and equipment, net
$
5,285

 
$
6,896

Accounts receivable from customers representing 10% or more of total accounts receivable as of the respective dates is summarized as follows:
 
As of December 31,
 
2016
 
2015
Accounts Receivable:
 
 
 
Customer B
18
%
 
19
%
 * Less than 10%
Revenue from customers representing 10% or more of total revenue for the respective years, is summarized as follows:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Revenue:
 
 
 
 
 
Customer A
10
%
 
*
 
14
%
  * Less than 10%
Marketable Securities (Tables)
Available-for-sale Securities
At December 31, 2016 and December 31, 2015, respectively, marketable securities consisted of the following (in thousands):
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
December 31, 2016
 
 
 
 
 
 
 
U.S. treasury securities
$
37,864

 
$

 
$
(2
)
 
$
37,862

U.S. agency obligations
33,019

 
5

 
(3
)
 
33,021

Money market mutual funds
7,965

 

 


 
7,965

 
78,848

 
5

 
(5
)
 
78,848

Included in cash and cash equivalents
12,966

 


 

 
12,966

Included in marketable securities
$
65,882

 
$
5

 
$
(5
)
 
$
65,882


 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
December 31, 2015
 
 
 
 
 
 
 
U.S. agency obligations
$
83,763

 
$

 
$
(48
)
 
$
83,715

U.S. treasury securities
33,924

 

 
(31
)
 
33,893

Money market mutual funds
1,038

 

 

 
1,038

 
118,725

 

 
(79
)
 
118,646

Included in cash and cash equivalents
4,038

 

 
(1
)
 
4,037

Included in marketable securities
$
101,334

 
$

 
$
(60
)
 
$
101,274

Included in marketable securities, noncurrent
$
13,353

 
$

 
$
(18
)
 
$
13,335

Fair Value Measurements (Tables)
Fair Value, Assets Measured on Recurring Basis
The following tables present information about the Company's assets that are measured at fair value on a recurring basis using the above input categories (in thousands):
 
Level 1
 
Level 2
 
Total
December 31, 2016
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market mutual funds
$
7,965

 
$

 
$
7,965

U.S. treasury securities

 
5,000

 
5,000

Marketable securities:
 
 
 
 
 
U.S. agency obligations

 
33,021

 
33,021

U.S. treasury securities

 
32,862

 
32,862

 
$
7,965


$
70,883


$
78,848

 
 
Level 1
 
Level 2
 
Total
December 31, 2015
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Money market mutual funds
$
1,038

 
$

 
$
1,038

U.S. agency obligations

 
3,000

 
3,000

Marketable securities:
 
 
 
 
 
U.S. agency obligations

 
80,715

 
80,715

U.S. treasury securities

 
33,893

 
33,893

 
$
1,038


$
117,608


$
118,646

Prepaid Expenses and Other Current Assets (Tables)
Schedule of Accrued Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Prepaid expenses and advances


 
$
3,033

Security deposit

 
228

Interest receivable on marketable securities

 
361

Other current assets

 
150

Total


 
$
3,772

Property and equipment, net (Tables)
Property, Plant and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:
Software
  
3–5 years
Computer equipment
  
3 years
Furniture and equipment
  
5–7 years
Leasehold improvements
  
Shorter of the lease term or the estimated useful lives of the improvements
Property and equipment consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Leasehold improvements
$
2,061

 
$
2,046

Computer equipment
5,487

 
4,345

Software
1,099

 
885

Internal-use software
2,925

 
2,925

Furniture and equipment
931

 
853

Total
12,503

 
11,054

Accumulated depreciation
(7,218
)
 
(4,158
)
Property and equipment, net
$
5,285

 
$
6,896

Accrued Compensation (Tables)
Schedule of Accrued Compensation
Accrued compensation consisted of the following (in thousands):
 
As of December 31,
 
2016
 
2015
Accrued commissions
$
3,637

 
$
5,212

Accrued bonuses
3,388

 
4,034

Other employee and benefits payable
2,418

 
2,231

Total
$
9,443

 
$
11,477

Commitments and Contingencies Commitments and Contingencies (Tables)
As of December 31, 2016, the future minimum lease payments under noncancellable operating leases are as follows (in thousands):
 
Operating
Leases (1)
 
Contractual
Obligations
2017
$
2,651

 
$
714

2018
2,113

 
714

2019
2,177

 
535

2020
2,190

 

2021 and later
2,883