10-Q 1 xtly-10q_20150731.htm 10-Q xtly-10q_20150731.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 31, 2015

OR

o

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-37451

 

Xactly Corporation

(Exact name of registrant as specified in its charter) 

 

 

Delaware

11-3744289

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

300 Park Avenue, Suite 1700

San Jose, California 95110

(Address of principal executive offices)

Telephone Number (408) 977-3132

(Registrant’s telephone number, including area code) 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  ¨    No  þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

þ  (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨     No  þ

As of August 31, 2015, there were 29,150,130 shares of the registrant’s common stock outstanding.

 

 

 

 


 

Xactly Corporation

 

 

 

 

 

Page No.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited):

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

28

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

 

 

 

 

 

Item 1A.

 

Risk Factors

 

30

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

48

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

48

 

 

 

 

 

Item 5.

 

Other Information

 

48

 

 

 

 

 

Item 6.

 

Exhibits

 

49

 

 

 

 

 

 

 

Signatures

 

50

 

 

 

 

 

 

 

Exhibit Index

 

51

 


 

2


 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “plan,” “intend,” “expect” and similar expressions and the negative of those expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

·

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow and ability to achieve and maintain future profitability;

·

our ability to anticipate market needs and timely develop new and enhanced solutions and services to meet those needs, and our ability to successfully monetize them;

·

the evolution of technology affecting our solutions, services and markets;

·

the impact of competition in our industry and innovation by our competitors;

·

the anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

·

maintaining and expanding our customer base and our relationships with other companies;

·

our liquidity and working capital requirements;

·

our anticipated growth and growth strategies and our ability to effectively manage that growth and effect these strategies;

·

our ability to sell our solutions and expand internationally;

·

our failure to anticipate and adapt to future changes in our industry;

·

our reliance on our third-party service providers;

·

the impact of any failure of our solutions;

·

our ability to hire and retain necessary qualified employees to expand our operations;

·

our ability to adequately protect our intellectual property;

·

the anticipated effect on our business of litigation to which we are or may become a party;

·

our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the U.S. and internationally;

·

the increased expenses and administrative workload associated with being a public company;

·

our ability to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;

·

the estimates and estimate methodologies used in preparing our consolidated financial statements; and

·

the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.

These and other risks and uncertainties may cause our actual results to differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified below under “Risk Factors” and elsewhere in this report for additional detail regarding factors that may cause actual results to be different than those expressed in our forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

 

 

 

3


 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS

Xactly Corporation

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

(Unaudited)

 

 

 

July 31, 2015

 

 

January 31, 2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

71,102

 

 

$

19,325

 

Restricted cash, short term

 

 

286

 

 

 

102

 

Accounts receivable, net

 

 

14,276

 

 

 

17,172

 

Prepaid expenses and other current assets

 

 

4,404

 

 

 

3,875

 

Total current assets

 

 

90,068

 

 

 

40,474

 

Property and equipment, net

 

 

9,281

 

 

 

5,070

 

Goodwill

 

 

6,384

 

 

 

6,384

 

Other long-term assets

 

 

578

 

 

 

767

 

Total assets

 

$

106,311

 

 

$

52,695

 

Liabilities and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,015

 

 

$

1,891

 

Accrued expenses

 

 

9,122

 

 

 

7,166

 

Debt, current portion

 

 

6,371

 

 

 

6,369

 

Deferred revenue, current portion

 

 

33,845

 

 

 

31,839

 

Total current liabilities

 

 

51,353

 

 

 

47,265

 

Debt, less current portion

 

 

21,457

 

 

 

20,546

 

Other long-term liabilities

 

 

4,607

 

 

 

2,107

 

Preferred stock warrant liabilities

 

 

 

 

 

5,885

 

Deferred revenue, less current portion

 

 

3,552

 

 

 

2,304

 

Total liabilities

 

 

80,969

 

 

 

78,107

 

Commitments and contingencies (note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value; no shares and 79,000,000 shares

   authorized as of July 31, 2015 and January 31, 2015, respectively; no shares and

   17,871,971 shares issued and outstanding as of July 31, 2015 and January 31, 2015,

   respectively; aggregate liquidation preference of $0 and $102,643 as of July 31, 2015

   and January 31, 2015, respectively

 

 

 

 

 

83,018

 

Preferred stock, $0.001 par value; 20,000,000 shares and no shares authorized as of

   July 31, 2015 and January 31, 2015, respectively; no shares issued or outstanding as

   of July 31, 2015 and January 31, 2015

 

 

 

 

 

 

Common stock $0.001 par value; 1,000,000,000 and 120,000,000 shares authorized as

   of July 31, 2015 and January 31, 2015, respectively; 29,149,755 and 2,881,951

   shares issued and outstanding as of July 31, 2015 and January 31, 2015, respectively

 

 

29

 

 

 

3

 

Additional paid-in capital

 

 

149,655

 

 

 

7,422

 

Accumulated other comprehensive loss

 

 

(114

)

 

 

(96

)

Accumulated deficit

 

 

(124,228

)

 

 

(115,759

)

Total stockholders’ equity (deficit)

 

 

25,342

 

 

 

(25,412

)

Total liabilities and stockholders’ equity (deficit)

 

$

106,311

 

 

$

52,695

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

4


 

Xactly Corporation

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

 

Three months ended

July 31,

 

 

Six months ended

July 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription services

 

$

14,271

 

 

$

11,467

 

 

$

27,748

 

 

$

22,556

 

Professional services

 

 

4,081

 

 

 

3,434

 

 

 

8,427

 

 

 

7,626

 

Total revenue

 

 

18,352

 

 

 

14,901

 

 

 

36,175

 

 

 

30,182

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription services

 

 

4,130

 

 

 

2,738

 

 

 

7,718

 

 

 

5,668

 

Professional services

 

 

3,743

 

 

 

3,428

 

 

 

7,424

 

 

 

7,083

 

Total cost of revenue

 

 

7,873

 

 

 

6,166

 

 

 

15,142

 

 

 

12,751

 

Gross profit

 

 

10,479

 

 

 

8,735

 

 

 

21,033

 

 

 

17,431

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,852

 

 

 

2,695

 

 

 

7,361

 

 

 

5,465

 

Sales and marketing

 

 

8,623

 

 

 

8,064

 

 

 

15,767

 

 

 

14,059

 

General and administrative

 

 

3,574

 

 

 

2,112

 

 

 

7,123

 

 

 

5,138

 

Amortization of intangibles

 

 

 

 

 

181

 

 

 

 

 

 

362

 

Total operating expenses

 

 

16,049

 

 

 

13,052

 

 

 

30,251

 

 

 

25,024

 

Operating loss

 

 

(5,570

)

 

 

(4,317

)

 

 

(9,218

)

 

 

(7,593

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,345

)

 

 

(585

)

 

 

(2,641

)

 

 

(1,160

)

(Increase) decrease in fair value of preferred stock warrant

   liabilities

 

 

3,487

 

 

 

(56

)

 

 

3,542

 

 

 

(53

)

Other expense, net

 

 

(30

)

 

 

(10

)

 

 

(33

)

 

 

(24

)

Total other income (expense)

 

 

2,112

 

 

 

(651

)

 

 

868

 

 

 

(1,237

)

Loss before income taxes

 

 

(3,458

)

 

 

(4,968

)

 

 

(8,350

)

 

 

(8,830

)

Income tax expense

 

 

17

 

 

 

36

 

 

 

119

 

 

 

59

 

Net loss

 

$

(3,475

)

 

$

(5,004

)

 

$

(8,469

)

 

$

(8,889

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.28

)

 

$

(1.82

)

 

$

(1.10

)

 

$

(3.27

)

Weighted-average number of shares used in computing net loss per

   share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

12,280

 

 

 

2,751

 

 

 

7,679

 

 

 

2,719

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


 

Xactly Corporation

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three months ended

July 31,

 

 

Six months ended

July 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss

 

$

(3,475

)

 

$

(5,004

)

 

$

(8,469

)

 

$

(8,889

)

Other comprehensive income (loss)—foreign currency translation

   adjustments

 

 

(6

)

 

 

3

 

 

 

(18

)

 

 

24

 

Comprehensive loss

 

$

(3,481

)

 

$

(5,001

)

 

$

(8,487

)

 

$

(8,865

)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

 

6


 

Xactly Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six months ended July 31,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,469

)

 

$

(8,889

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,447

 

 

 

927

 

Amortization of intangible assets

 

 

 

 

 

362

 

Amortization of debt issuance costs

 

 

925

 

 

 

249

 

Stock-based compensation

 

 

1,282

 

 

 

809

 

Donation of common stock to XactlyOne Foundation

 

 

498

 

 

 

 

(Income) expense from change in fair value of warrant liabilities

 

 

(3,542

)

 

 

53

 

Loss from disposal on fixed assets

 

 

245

 

 

 

 

Facility exit costs

 

 

693

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,896

 

 

 

(635

)

Prepaid expenses and other current assets

 

 

(3,697

)

 

 

(242

)

Other long-term assets

 

 

5

 

 

 

3

 

Accounts payable

 

 

153

 

 

 

769

 

Accrued expenses

 

 

901

 

 

 

(236

)

Deferred revenue

 

 

3,254

 

 

 

253

 

Other long-term liabilities

 

 

469

 

 

 

(75

)

Net cash used in operating activities

 

 

(2,940

)

 

 

(6,652

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,660

)

 

 

(1,030

)

Net cash used in investing activities

 

 

(3,660

)

 

 

(1,030

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

 

 

 

2,510

 

Proceeds from exercise of warrants to acquire convertible preferred stock, net of

   issuance costs

 

 

37

 

 

 

25

 

Proceeds from exercise of stock options

 

 

554

 

 

 

126

 

Principal payments under capital lease obligations

 

 

(1

)

 

 

(286

)

Payment of deferred initial public offering costs

 

 

(1,042

)

 

 

(951

)

Proceeds from initial public offering

 

 

58,844

 

 

 

 

Net cash provided by financing activities

 

 

58,392

 

 

 

1,424

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(15

)

 

 

22

 

Net increase (decrease) in cash and cash equivalents

 

 

51,777

 

 

 

(6,236

)

Cash and cash equivalents at beginning of period

 

 

19,325

 

 

 

12,452

 

Cash and cash equivalents at end of period

 

$

71,102

 

 

$

6,216

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net

 

$

1,487

 

 

$

747

 

Income taxes

 

 

67

 

 

 

53

 

Noncash financing and investing activities:

 

 

 

 

 

 

 

 

Accrued equipment purchases

 

 

77

 

 

 

602

 

Leasehold improvements for deferred rent

 

 

2,275

 

 

 

 

Reclassification upon exercise of warrant for Series B convertible preferred stock

 

 

 

 

 

55

 

 

See Notes to Condensed Consolidated Financial Statements

 

 

 

7


 

Xactly Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1. Overview and Basis of Presentation

Company and Background

Xactly Corporation (the Company) was incorporated in Delaware in 2005. The Company is a provider of enterprise-class, cloud-based incentive compensation solutions for employee and sales performance management. The Company’s customers leverage these solutions to optimize incentive compensation and drive behavior by automating manual processes, streamlining workflows, providing visibility to users and delivering actionable analyses and insights. The Company’s solutions are delivered through a scalable, secure cloud-based platform that allows for fast innovation benefiting all customers while keeping their information secure. The Company is headquartered in San Jose, California. The Company’s fiscal year end is January 31 and its fiscal quarters end on April 30, July 31, October 31 and January 31.

Initial Public Offering

On July 1, 2015, the Company completed its initial public offering (IPO) in which it sold 7,909,125 shares of common stock, which includes 1,055,625 shares to cover over-allotments, to the public at $8.00 per share. The total gross proceeds from the offering were approximately $63,273,000. After deducting underwriting discounts and commissions, the aggregate net proceeds received totaled approximately $58,844,000, before offering costs of approximately $4,318,000, of which, approximately $1,709,000 were unpaid as of July 31, 2015. Upon the closing of the IPO, all shares of the Company’s then-outstanding convertible preferred stock automatically converted into an aggregate of 17,871,971 shares of common stock. In addition, upon the IPO, the Company’s outstanding convertible preferred stock warrants became warrants to purchase common stock and the Company’s outstanding preferred stock warrant liabilities became indexed to the Company's common stock and accordingly have been reclassified to additional paid-in capital. 

On June 11, 2015, a four-to-one reverse stock split of the Company's then-outstanding common stock and convertible preferred stock was effected in connection with the IPO. In this quarterly report on Form 10-Q, all information related to common stock, warrants to purchase common stock, stock awards, preferred stock, warrants to purchase convertible preferred stock and earnings per share has been retroactively adjusted to give effect to the four-to-one reverse stock split, without any change in the par value per share. Fractional shares resulting from the reverse stock split have been rounded down to the closest whole share.

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (US GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly they do not include all of the financial information and footnotes required by US GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act)  with the SEC on June 26, 2015 (the IPO Prospectus). There have been no changes to the Company’s significant accounting policies described in the IPO Prospectus that have had a material impact on the Company’s consolidated financial statements and related notes.

The consolidated balance sheet as of January 31, 2015, included herein was derived from the audited financial statements as of that date. These unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, the Company’s comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending January 31, 2016.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, revenue and sales allowances, allowance for doubtful accounts, determination of the fair value of common and preferred stock and preferred stock warrant liabilities (prior to IPO), stock-based compensation, determination of the fair value of acquired intangible assets, contingent liabilities and accounting for income taxes. These estimates and assumptions are based on management’s best judgment. Management evaluates its estimates and assumptions using historical experience and other factors, including the current economic environment, which management believes

 

8


 

to be reasonable under the circumstances. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Recent Accounting Pronouncements

In May 2014, the FASB issued an ASU on revenue from contracts with customers, which supersedes the current revenue recognition requirements. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard’s original effective date was the first quarter of fiscal year 2018 using one of two adoption methods.  However, in August 2015, the FASB issued an update to the ASU which provides the Company with the option to adopt in either the first quarter of fiscal year 2018 or fiscal year 2019. The Company will apply the guidance and disclosure provisions of the new standard in the first quarter of fiscal year 2019. The Company has not determined the potential effects of this standard on its consolidated financial statements or the planned method of adoption.

In August 2014, the FASB issued new guidance related to the disclosures around going concern. The new standard provides guidance around management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company will apply the guidance and disclosure provisions of the new standard and assess the impact upon effectiveness.

In April 2015, the FASB issued an ASU on the presentation of debt issuance costs. This ASU amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company will apply the guidance in the first quarter of fiscal year 2017 and does not expect this standard to have a material impact on its consolidated financial position or results of operations.

 

 

Note 2. Balance Sheet Components

Accounts receivable, net consisted of the following (in thousands):

 

 

 

July 31,

 

 

January 31,

 

 

 

2015

 

 

2015

 

Accounts receivable

 

$

13,699

 

 

$

16,498

 

Unbilled accounts receivable

 

 

617

 

 

 

714

 

Allowance for doubtful accounts

 

 

(40

)

 

 

(40

)

Accounts receivable, net

 

$

14,276

 

 

$

17,172

 

 

Accrued expenses consisted of (in thousands):

 

 

 

July 31,

 

 

January 31,

 

 

 

2015

 

 

2015

 

Accrued compensation and benefits

 

$

3,316

 

 

$

3,483

 

Accrued expenses

 

 

2,825

 

 

 

1,628

 

Deferred rent

 

 

1,239

 

 

 

563

 

Accrued legal settlement

 

 

500

 

 

 

500

 

Sales tax payable

 

 

463

 

 

 

360

 

Other

 

 

779

 

 

 

632

 

Total accrued expenses

 

$

9,122

 

 

$

7,166

 

 

 

9


 

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

 

 

 

July 31,

 

 

January 31,

 

 

 

2015

 

 

2015

 

Computer software and equipment

 

$

12,154

 

 

$

9,283

 

Furniture and fixtures

 

 

684

 

 

 

582

 

Leasehold improvements

 

 

4,368

 

 

 

978

 

Construction in progress

 

 

288

 

 

 

1,927

 

Gross property and equipment

 

 

17,494

 

 

 

12,770

 

Less accumulated depreciation and amortization

 

 

(8,213

)

 

 

(7,700

)

Property and equipment, net

 

$

9,281

 

 

$

5,070

 

 

Depreciation and amortization expense for the three months ended July 31, 2015 and 2014 was $848,000 and $463,000, respectively, and for the six months ended July 31, 2015 and 2014, was $1,447,000 and $927,000, respectively.

 

 

Note 3. Fair Value Measurements of Assets and Liabilities

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are:

Level 1

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2

Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3

Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Observable inputs are based on market data obtained from independent sources.

The following summarizes assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):

 

 

 

July 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

70,158

 

 

$

 

 

$

 

 

$

70,158

 

Restricted cash—money market funds

 

 

313

 

 

 

 

 

 

 

 

 

313

 

Restricted cash—bank certificates of deposit

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Total

 

$

70,573

 

 

$

 

 

$

 

 

$

70,573

 

 

 

 

January 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

17,938

 

 

$

 

 

$

 

 

$

17,938

 

Restricted cash—money market funds

 

 

313

 

 

 

 

 

 

 

 

 

313

 

Restricted cash—bank certificates of deposit

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Total

 

$

18,353

 

 

$

 

 

$

 

 

$

18,353

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C preferred stock warrants

 

$

 

 

$

 

 

$

343

 

 

$

343

 

Series D preferred stock warrants

 

 

 

 

 

 

 

 

145

 

 

 

145

 

Series D-1 preferred stock warrants

 

 

 

 

 

 

 

 

5,397

 

 

 

5,397

 

Total

 

$

 

 

$

 

 

$

5,885

 

 

$

5,885

 

 

The fair value of the preferred stock warrants is measured using the Black-Scholes option pricing model. Inputs to that model include: the warrants remaining contractual term, the risk-free interest rate over the term, expected volatility based on representative peer

 

10


 

companies and the estimated fair value of the underlying class of preferred stock. Changes in the Level 3 measurement of preferred stock warrants relate solely to unrealized gains (losses) resulting from remeasurement each period.

The change in the fair value of the preferred stock warrants was as follows (in thousands):

 

Balance at January 31, 2015

 

$

5,885

 

Decrease in fair value of warrants

 

 

(3,542

)

Reclassified to additional paid-in capital

 

 

(2,343

)

Balance at July 31, 2015

 

$

 

 

In connection with the Company's IPO, all outstanding convertible preferred stock converted to common stock. As a result, as of June 26, 2015, liabilities associated with the convertible preferred stock warrants were remeasured at fair value on the IPO date and have been reclassified to additional paid-in capital because all of these warrants to purchase convertible preferred stock have become warrants to purchase common stock and will no longer be remeasured at fair value each reporting period.

 

                                  

Note 4. Debt

The Company has an Amended and Restated Loan and Security Agreement (SVB Agreement) and a Mezzanine Loan and Security Agreement (Mezzanine Loan) with Silicon Valley Bank (SVB). The SVB Agreement provides the Company with a revolving line of credit for $11,000,000 and allows for an increase up to $13,000,000 if the Company meets certain milestones. As of July 31, 2015 and January 31, 2015, $6,500,000 had been borrowed under the SVB revolving line of credit, leaving $4,500,000 available for borrowing. As of July 31, 2015 and January 31, 2015, the interest rate on the revolving line of credit was 5.5%. The Mezzanine Loan provides for a $10,000,000 mezzanine term loan with a fixed interest rate of 9.5%. As of July 31, 2015 and January 31, 2015, $10,000,000 was outstanding under the mezzanine term loan.

The Company also has an Amended and Restated Loan and Security Agreement (Wellington Agreement) with Wellington Financial LP (Wellington). As of July 31, 2015 and January 31, 2015, $15,408,000 was outstanding under the Wellington Agreement. As of July 31, 2015 and January 31, 2015 the interest rate on the Wellington Agreement was a fixed rate of 9.5%.

The SVB Agreement and the Wellington Agreement both include various financial and non-financial covenants for which the Company was in compliance as of July 31, 2015 and January 31, 2015.

 

 

Note 5. Commitments and Contingencies

Minimum Service Commitments and Leases

The Company has certain contractual service contracts that contain non-cancellable minimum service commitments that expire on various dates through fiscal 2016 and leases office space and equipment under non-cancellable operating and capital leases that expire on various dates through the year ending January 31, 2022. These commitments as of January 31, 2015 are disclosed in the Company’s IPO Prospectus, and did not change materially during the six months ended July 31, 2015. Leases for certain office facilities include scheduled periods of abatement and escalation of rental payments. The Company recognizes minimum rental expenses and lease incentives for operating leases on a straight-line basis over the term of the leases.

On March 30, 2015, the Company moved its headquarters to 300 Park Avenue in San Jose, CA and ceased using the leased office space at its prior headquarters. The Company is obligated to continue to make rental payments on the lease for its prior headquarters through January 2016. Therefore, the Company recorded a liability based on the remaining lease rentals, net of estimated sublease income in the amount of $693,000 which was recognized in the Company’s consolidated statements of operations in general and administrative expense for the six months ended July 31, 2015. As of July 31, 2015, $566,000 is included in accrued liabilities in the Company’s condensed consolidated balances sheets. For accounting purposes, the lease commencement date was January 15, 2015 and the related future committed payments are included in the Company’s IPO Prospectus and did not change materially during the six months ended July 31, 2015. Also, in connection with exiting its prior headquarters, the Company wrote off abandoned leasehold improvements with a net book value of approximately $245,000 resulting in a charge included in general and administrative expenses for the six months ended July 31, 2015.

Indemnifications

In the normal course of business, the Company provides indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of the Company’s services and the Company may be subject to

 

11


 

claims by customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not been significant and the Company is unable to estimate the maximum potential impact of these indemnification provisions on future results of operations.

To the extent permitted under Delaware law, the Company has agreements to indemnify directors and officers for certain events or occurrences while the director or officer is or was serving at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that limits the Company’s exposure and enables the Company to recover a portion of any future amounts paid. The Company believes that the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Other Taxes

The Company conducts operations in many tax jurisdictions throughout the United States. In many of these jurisdictions, non-income based taxes, such as property taxes, sales and use taxes, and value-added taxes are assessed on the Company’s operations in that particular location. While the Company strives to ensure compliance with these various non-income based tax filing requirements, there have been instances where potential non-compliance exposures have been identified. In accordance with U.S. GAAP, the Company makes a provision for these exposures when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated.

 

 

Note 6. Stockholders’ Equity

Capital Structure

In June 2015, the Company’s board of directors and stockholders adopted an amendment to the Company’s certificate of incorporation to effect a reverse stock split of the Company's outstanding common stock and convertible preferred stock at a ratio of four-to-one. Accordingly, on June 11, 2015, (i) each four shares of outstanding common stock and convertible preferred stock (collectively referred to as “Capital Stock”) were exchanged and combined into one share of Capital Stock of the same class and series, as applicable; (ii) the number of shares of Capital Stock into which each outstanding warrant or option to purchase Capital Stock is exercisable was proportionately reduced on a four-to-one basis; and (iii) the exercise price of each outstanding warrant or option to purchase Capital Stock was proportionately increased on a four-to-one basis.

Prior to the IPO (Note 1), the Company had outstanding 2,663,142 shares of Series A convertible preferred stock, 2,375,363 shares of Series B convertible preferred stock, 2,972,423 shares of Series C convertible preferred stock, 3,875,111 shares of Series D convertible preferred stock, 1,729,518 shares of Series D-1 convertible preferred stock, 3,391,686 shares of Series E convertible preferred stock and 864,728 shares of Series F convertible preferred stock. Each share of convertible preferred stock was convertible to one share of common stock upon receipt of the required consent of preferred stockholders or upon conclusion of qualified IPO.

Upon the closing of the IPO on July 1, 2015, all then-outstanding convertible preferred stock converted into 17,871,971 shares of common stock.

In connection with the Company's IPO, the Company amended and restated its certificate of incorporation ("Amended and Restated Certificate of Incorporation"), pursuant to which the Company is authorized to issue 1,000,000,000 shares of common stock and 20,000,000 shares of preferred stock, both with a par value of $0.001 per share. The Amended and Restated Certificate of Incorporation was filed with the Delaware Secretary of State, and became effective on July 1, 2015.

As of July 31, 2015, there were 29,149,755 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.

Series E Preferred Stock Options

In connection with the Company’s acquisition of Centive, Inc. (Centive) in January 2009, the Company reserved for issuance 399,960 shares of Series E convertible preferred stock related to Series E convertible preferred stock options with an exercise price of $0.9580 per share, granted to former members of Centive management as designated by the former Centive shareholders. The shares may be issued to the former members of Centive management upon exercise of the options only upon the completion of a sale event of the Company or if the shares become freely tradable in a public securities market. In either case, the proceeds from the exercise of the options, once received by the Company or, in the case of a cashless exercise, any shares tendered back to the Company to satisfy the exercise price, will be distributed to the former Centive shareholders. If the shares underlying the options are not issued to the former

 

12


 

members of Centive management, either because they are never exercised or they terminate by their expiration date of January 22, 2019, then the shares will be distributed to the former Centive shareholders. As a result of the Company’s IPO, the options may be exercised commencing when the shares of common stock underlying such options become freely tradable in a public securities market and ending prior to March 31, 2016.

Warrants

As of January 31, 2015, the Company had outstanding warrants to purchase a total of 35,433, 15,789, 471,948 and 216,175 shares of Series C, D, D-1 and F convertible preferred stock, respectively. Prior to the IPO, the Company had determined that the warrants to purchase Series C, D and D-1 convertible preferred stock should be liability classified and the warrants to purchase Series F convertible preferred stock should be equity classified. Upon the IPO, the Company’s outstanding convertible preferred stock warrants became warrants to purchase common stock and the Company’s outstanding preferred stock warrant liabilities became indexed to the Company's common stock and accordingly have been reclassified to additional paid-in capital. 

Donation to the XactlyOne Foundation

In May 2015, the Company donated 50,000 shares of common stock to the XactlyOne Foundation. The Company recorded a share-based charge of $498,000 for the value of the donated shares to general and administrative expense in the three months ended July 31, 2015.

 

 

 

Note 7. Stock-based Awards and Stock-based Compensation

2005 Stock Option Plan

In 2005, the Company adopted a stock plan (2005 Plan), which was amended in September 2011 and again in March 2015. The 2005 Plan was terminated in connection with the IPO, and accordingly, no shares are available for future issuance under this plan. All shares that were available for the Company to grant under the 2005 Plan immediately prior to its termination were canceled. Awards under the 2005 Plan that expire or terminate without having been exercised subsequent to the IPO or are forfeited to or repurchased by the Company subsequent to the IPO will become available for issuance under the 2015 Equity Incentive Plan (2015 Plan), subject to the limits set forth in the 2015 Plan.

2015 Equity Incentive Plan

In June 2015, the Board adopted and the Company’s stockholders approved the 2015 Plan, which became effective upon the effectiveness of the IPO Prospectus. The 2015 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and consultants and the Company’s subsidiary corporations’ employees and consultants.

As of July 31, 2015, an aggregate of 2,808,400 common shares were reserved and available for issuance under the 2015 Plan.

2015 Employee Stock Purchase Plan

In June 2015, the Company’s Board of Directors adopted and the Company’s stockholders approved the 2015 Employee Stock Purchase Plan (the ESPP) with the first offering period under the ESPP beginning on the effectiveness of the IPO Prospectus. As of such date, an aggregate of 600,000 shares of common stock were reserved and are available for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of common stock at a discount through payroll deductions of up to 15% of their eligible compensation, at 85% of the fair market value, as defined in the ESPP, on the first day of the offering period or the last day of the purchase period, whichever is lower, and subject to any plan limitations. The ESPP provides for consecutive six-month purchase periods, starting on the first trading day on or after March 20 and September 20 of each year. The first purchase period began on the first trading day after the effective date of the registration statement and will end on March 20, 2016.

 

13


 

Stock option activity is as follows:

 

 

 

Number

of shares

 

 

Weighted

average

exercise

price

 

 

Weighted

average

remaining

contractual

term

 

Aggregate

intrinsic value

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at January 31, 2015

 

 

4,703,974

 

 

$

3.29

 

 

7.1 years

 

$

21,014

 

Granted

 

 

187,556

 

 

 

9.51

 

 

 

 

 

 

 

Exercised

 

 

(432,900

)

 

 

1.28

 

 

 

 

 

 

 

Forfeited

 

 

(77,844

)

 

 

6.77

 

 

 

 

 

 

 

Expired

 

 

(16,606

)

 

 

2.71

 

 

 

 

 

 

 

Balance at July 31, 2015

 

 

4,364,180

 

 

$

3.70

 

 

6.9 years

 

$

16,409

 

Vested and expected to vest as of July 31, 2015

 

 

4,254,970

 

 

$

3.62

 

 

6.8 years

 

$

16,315

 

Exercisable as of July 31, 2015

 

 

2,625,548

 

 

$

1.86

 

 

5.6 years

 

$

14,299

 

The intrinsic value for options exercised represents the difference between the fair market value based on the valuation of the common stock as determined by the Company’s Board of Directors prior to the IPO, or the closing market price of the Company’s common stock, following the IPO, on the date of exercise and the exercise price of the in-the-money stock options.

Valuation and Expense of Stock-Based Compensation

The fair value of stock options and ESPP awards is estimated at the grant date for options and issuance date for ESPP using the Black-Scholes option valuation model. The determination of fair value of stock options on the date of grant and ESPP awards on the date of issuance using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards based on average historical volatility of comparable entities with publicly traded shares and actual employee stock option exercise behavior.

Stock-based compensation included in the Company’s consolidated statements of operations is as follows (in thousands):

 

 

 

Three months ended

July 31,

 

 

Six months ended

July 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Cost of subscription services

 

$

93

 

 

$

56

 

 

$

165

 

 

$

112

 

Cost of professional services

 

 

68

 

 

 

14

 

 

 

109

 

 

 

27

 

Research and development

 

 

146

 

 

 

62

 

 

 

240

 

 

 

118

 

Sales and marketing

 

 

173

 

 

 

58

 

 

 

285

 

 

 

152

 

General and administrative

 

 

253

 

 

 

195

 

 

 

483

 

 

 

400

 

Total

 

$

733

 

 

$

385

 

 

$

1,282

 

 

$

809

 

 

As of July 31, 2015, there was $5,735,000 of unamortized share-based compensation expense, which is expected to be amortized over a weighted-average period of approximately 2.8 years.

The Company did not issue any shares under the ESPP during the six months ended July 31, 2015.

 

 

14


 

Restricted Stock Units

A summary of RSU activity during the six months ended July 31, 2015 was as follows:

 

 

 

Number

of shares

 

 

Weighted

average

grant-date

fair value

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2015

 

 

 

 

$

 

Granted

 

 

215,191

 

 

 

8.32

 

Released