10-Q 1 xtly-10q_20161031.htm 10-Q xtly-10q_20161031.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X]

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

For the quarterly period ended October 31, 2016

OR

[  ]

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  [X]    No  [  ]

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  [X]    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

[X]

 

 

 

 

Non-accelerated filer

[  ]  (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  [X]

As of November 30, 2016, there were 31,331,597 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

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

 

 

 

Item 1A.

 

Risk Factors

 

29

 

 

 

 

 

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

 

48

 

 

 

 

 

 

 

Signatures

 

49

 

 

 

 

 

 

 

Exhibit Index

 

50

 

 

 

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 (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). 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,” “could,” “target,” “project,” “should,” “predict,” “potential,” “would,” “seek” 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 positive cash flow from operations or 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;

the effects of seasonal trends on our operating results;

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 forward-looking statements are subject to a number of risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results may 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)

 

 

 

October 31, 2016

 

 

January 31, 2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,236

 

 

$

48,027

 

Short-term marketable securities

 

 

25,026

 

 

 

 

Restricted cash, short term

 

 

102

 

 

 

286

 

Accounts receivable, net

 

 

22,877

 

 

 

20,278

 

Prepaid expenses and other current assets

 

 

4,228

 

 

 

3,219

 

Total current assets

 

 

68,469

 

 

 

71,810

 

Property and equipment, net

 

 

9,485

 

 

 

8,410

 

Goodwill

 

 

6,384

 

 

 

6,384

 

Other long-term assets

 

 

282

 

 

 

280

 

Total assets

 

$

84,620

 

 

$

86,884

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,560

 

 

$

2,362

 

Accrued expenses

 

 

8,491

 

 

 

9,512

 

Debt, current portion

 

 

8,981

 

 

 

8,981

 

Deferred revenue, current portion

 

 

46,608

 

 

 

41,183

 

Total current liabilities

 

 

65,640

 

 

 

62,038

 

Debt, less current portion

 

 

4,966

 

 

 

6,826

 

Other long-term liabilities

 

 

3,585

 

 

 

4,257

 

Deferred revenue, less current portion

 

 

3,600

 

 

 

3,327

 

Total liabilities

 

 

77,791

 

 

 

76,448

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value;  20,000,000 shares authorized as of

   October 31, 2016 and January 31, 2016, no shares issued or outstanding as of

   October 31, 2016 and January 31, 2016

 

 

 

 

 

 

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

   October 31, 2016 and January 31, 2016; 31,272,236 and 29,542,537 shares issued

   and outstanding as of October 31, 2016 and January 31, 2016, respectively

 

 

31

 

 

 

30

 

Additional paid-in capital

 

 

160,352

 

 

 

151,064

 

Accumulated other comprehensive loss

 

 

(217

)

 

 

(180

)

Accumulated deficit

 

 

(153,337

)

 

 

(140,478

)

Total stockholders’ equity

 

 

6,829

 

 

 

10,436

 

Total liabilities and stockholders’ equity

 

$

84,620

 

 

$

86,884

 

 

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

October 31,

 

 

Nine months ended

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription services

 

$

18,455

 

 

$

15,157

 

 

$

53,943

 

 

$

42,905

 

Professional services

 

 

5,490

 

 

 

3,940

 

 

 

17,220

 

 

 

12,367

 

Total revenue

 

 

23,945

 

 

 

19,097

 

 

 

71,163

 

 

 

55,272

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription services

 

 

4,242

 

 

 

3,973

 

 

 

12,517

 

 

 

11,691

 

Professional services

 

 

4,958

 

 

 

3,877

 

 

 

15,659

 

 

 

11,301

 

Total cost of revenue

 

 

9,200

 

 

 

7,850

 

 

 

28,176

 

 

 

22,992

 

Gross profit

 

 

14,745

 

 

 

11,247

 

 

 

42,987

 

 

 

32,280

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,622

 

 

 

4,130

 

 

 

13,505

 

 

 

11,491

 

Sales and marketing

 

 

10,440

 

 

 

9,319

 

 

 

30,356

 

 

 

25,086

 

General and administrative

 

 

3,725

 

 

 

3,330

 

 

 

11,413

 

 

 

10,453

 

Total operating expenses

 

 

18,787

 

 

 

16,779

 

 

 

55,274

 

 

 

47,030

 

Operating loss

 

 

(4,042

)

 

 

(5,532

)

 

 

(12,287

)

 

 

(14,750

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(124

)

 

 

(3,227

)

 

 

(377

)

 

 

(5,868

)

Loss on extinguishment of debt

 

 

 

 

 

(1,524

)

 

 

 

 

 

(1,524

)

Decrease in fair value of preferred stock warrant liabilities

 

 

 

 

 

 

 

 

 

 

 

3,542

 

Other income (expense), net

 

 

20

 

 

 

(12

)

 

 

28

 

 

 

(45

)

Total other income (expense)

 

 

(104

)

 

 

(4,763

)

 

 

(349

)

 

 

(3,895

)

Loss before income taxes

 

 

(4,146

)

 

 

(10,295

)

 

 

(12,636

)

 

 

(18,645

)

Income tax expense

 

 

74

 

 

 

62

 

 

 

223

 

 

 

181

 

Net loss

 

$

(4,220

)

 

$

(10,357

)

 

$

(12,859

)

 

$

(18,826

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.14

)

 

$

(0.36

)

 

$

(0.42

)

 

$

(1.26

)

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

   share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

30,948

 

 

 

29,157

 

 

 

30,322

 

 

 

14,917

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

5


Xactly Corporation

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three months ended

October 31,

 

 

Nine months ended

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(4,220

)

 

$

(10,357

)

 

$

(12,859

)

 

$

(18,826

)

Change in fair value of marketable securities

   adjustments

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 

Other comprehensive income (loss)—foreign currency translation

   adjustments

 

 

(22

)

 

 

(21

)

 

 

(25

)

 

 

(39

)

Comprehensive loss

 

$

(4,254

)

 

$

(10,378

)

 

$

(12,896

)

 

$

(18,865

)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

6


Xactly Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Nine months ended

October 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,859

)

 

$

(18,826

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,739

 

 

 

2,278

 

Loss on extinguishment of debt

 

 

 

 

 

1,524

 

Amortization of debt issuance costs

 

 

18

 

 

 

3,501

 

Stock-based compensation

 

 

5,815

 

 

 

2,447

 

Donation of common stock to XactlyOne Foundation

 

 

 

 

 

498

 

(Income) from change in fair value of warrant liabilities

 

 

 

 

 

(3,542

)

Loss from disposal on fixed assets

 

 

31

 

 

 

245

 

Amortization of premium on marketable securities

 

 

1

 

 

 

 

Facility exit costs

 

 

 

 

 

693

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,599

)

 

 

1,938

 

Prepaid expenses and other current assets

 

 

(939

)

 

 

(2,936

)

Other long-term assets

 

 

 

 

 

7

 

Accounts payable

 

 

(753

)

 

 

959

 

Accrued expenses

 

 

(970

)

 

 

895

 

Deferred revenue

 

 

5,698

 

 

 

5,638

 

Other long-term liabilities

 

 

(723

)

 

 

46

 

Net cash used in operating activities

 

 

(4,541

)

 

 

(4,635

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,901

)

 

 

(3,888

)

Purchases of marketable securities

 

 

(25,112

)

 

 

 

Restricted cash

 

 

184

 

 

 

 

Net cash used in investing activities

 

 

(28,829

)

 

 

(3,888

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from principal on term debt, net of issuance costs

 

 

 

 

 

9,937

 

Payments of principal on term debt

 

 

(1,875

)

 

 

(25,408

)

Principal payments under capital lease obligations

 

 

(2

)

 

 

(2

)

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

   issuance costs

 

 

 

 

 

37

 

Proceeds from exercise of warrants to acquire common stock

 

 

581

 

 

 

 

Proceeds from exercise of stock options

 

 

2,263

 

 

 

582

 

Proceeds from issuance of common stock for ESPP

 

 

1,768

 

 

 

 

Taxes paid on exercise of options

 

 

(1,136

)

 

 

 

Payment of deferred initial public offering costs

 

 

 

 

 

(2,712

)

Proceeds from initial public offering, net of offering costs

 

 

 

 

 

58,844

 

Net cash provided by financing activities

 

 

1,599

 

 

 

41,278

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(20

)

 

 

(33

)

Net increase (decrease) in cash and cash equivalents

 

 

(31,791

)

 

 

32,722

 

Cash and cash equivalents at beginning of period

 

 

48,027

 

 

 

19,325

 

Cash and cash equivalents at end of period

 

$

16,236

 

 

$

52,047

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net

 

$

367

 

 

$

2,178

 

Income taxes

 

 

168

 

 

 

134

 

Noncash financing and investing activities:

 

 

 

 

 

 

 

 

Accrued equipment purchases

 

 

218

 

 

 

192

 

Leasehold improvements for deferred rent

 

 

 

 

 

2,275

 

 

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. 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, 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 and offering expenses, the aggregate net proceeds received totaled approximately $54,546,000. 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.

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. 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 U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. 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 Annual Report on Form 10-K for the fiscal year ended January 31, 2016, which was filed with the SEC on April 20, 2016.

The consolidated balance sheet as of January 31, 2016, 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, 2017.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 short-term marketable securities, 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 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.

 

 

 

8


Note 2. Balance Sheet Components

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

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Accounts receivable

 

$

21,864

 

 

$

19,378

 

Unbilled accounts receivable

 

 

1,053

 

 

 

940

 

Allowance for doubtful accounts

 

 

(40

)

 

 

(40

)

Accounts receivable, net

 

$

22,877

 

 

$

20,278

 

 

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

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Computer software and equipment

 

$

16,718

 

 

$

12,830

 

Furniture and fixtures

 

 

764

 

 

 

752

 

Leasehold improvements

 

 

4,559

 

 

 

4,366

 

Construction in progress

 

 

36

 

 

 

348

 

Gross property and equipment

 

 

22,077

 

 

 

18,296

 

Less accumulated depreciation and amortization

 

 

(12,592

)

 

 

(9,886

)

Property and equipment, net

 

$

9,485

 

 

$

8,410

 

 

Depreciation and amortization expense for the three months ended October 31, 2016 and 2015 was $976,000 and $831,000, respectively, and for the nine months ended October 31, 2016 and 2015 was $2,739,000 and $2,278,000, respectively.

 

Accrued expenses consisted of the following (in thousands):

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Accrued compensation and benefits

 

$

3,754

 

 

$

5,148

 

Accrued expenses

 

 

1,754

 

 

 

1,909

 

Deferred rent

 

 

960

 

 

 

948

 

Accrued legal settlement

 

 

500

 

 

 

500

 

Sales tax payable

 

 

516

 

 

 

460

 

Other

 

 

1,007

 

 

 

547

 

Total accrued expenses

 

$

8,491

 

 

$

9,512

 

 

Other long-term liabilities consisted of the following (in thousands):

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Deferred rent

 

$

3,364

 

 

$

4,088

 

Deferred tax liabilities

 

 

221

 

 

 

169

 

Total other long-term liabilities

 

$

3,585

 

 

$

4,257

 

 

 

 

 

9


Note 3. Marketable Securities

At October 31, 2016, marketable securities consisted of the following (in thousands):

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Aggregate

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Certificates of deposit

 

$

2,400

 

 

$

 

 

$

 

 

$

2,400

 

Commercial paper

 

 

3,788

 

 

 

 

 

 

(2

)

 

 

3,786

 

Corporate bonds

 

 

16,846

 

 

 

 

 

 

(9

)

 

 

16,837

 

U.S. government agencies

 

 

2,004

 

 

 

 

 

 

(1

)

 

 

2,003

 

Money market funds

 

 

2,919

 

 

 

 

 

 

 

 

 

2,919

 

 

 

$

27,957

 

 

$

 

 

$

(12

)

 

$

27,945

 

Included in cash and cash equivalents

 

$

2,919

 

 

$

 

 

$

 

 

$

2,919

 

Included in short-term marketable securities

 

$

25,038

 

 

$

 

 

$

(12

)

 

$

25,026

 

 

At January 31, 2016 the Company did not have any marketable securities.

 

The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. When evaluating an investment for other-than-temporary impairment the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of October 31, 2016, the Company does not consider any of its investments to be other-than-temporarily impaired. The Company classifies its marketable securities as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. The Company may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisitions, even if they have not yet reached maturity. As a result, the Company classifies its investments, including securities with maturities beyond twelve months as “current assets” in the accompanying condensed consolidated balance sheets. Marketable securities on the condensed consolidated balance sheets consist of securities with original maturities at the time of purchase greater than three months and the remaining securities are reflected in cash and cash equivalents. During the three and nine months ended October 31, 2016, the Company did not sell any of its marketable securities.

 

 

Note 4. 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.

 

10


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):

 

 

 

October 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

13,743

 

 

$

 

 

$

 

 

$

13,743

 

Restricted cash—money market funds

 

 

129

 

 

 

 

 

 

 

 

 

129

 

Restricted cash—bank certificates of deposit

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Certificates of deposit

 

 

 

 

 

2,400

 

 

 

 

 

 

2,400

 

Commercial paper

 

 

 

 

 

3,786

 

 

 

 

 

 

3,786

 

Corporate bonds

 

 

 

 

 

16,837

 

 

 

 

 

 

16,837

 

U.S. government agencies

 

 

 

 

 

2,003

 

 

 

 

 

 

2,003

 

Total

 

$

13,974

 

 

$

25,026

 

 

$

 

 

$

39,000

 

 

 

 

January 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

46,387

 

 

$

 

 

$

 

 

$

46,387

 

Restricted cash—money market funds

 

 

129

 

 

 

 

 

 

 

 

 

129

 

Restricted cash—bank certificates of deposit

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Total

 

$

46,618

 

 

$

 

 

$

 

 

$

46,618

 

 

 

 

Note 5. Debt

The Company has an Amended and Restated Loan and Security Agreement (Amended SVB Agreement) with Silicon Valley Bank (SVB), effective October 30, 2015. The Amended SVB Agreement amended the Company’s existing revolving line of credit (LOC) with SVB and provided the Company with a with a term loan (SVB Term Loan) to repay the Company’s existing Mezzanine Loan and Security Agreement, dated as of October 24, 2014, by and among the Company and SVB (Mezzanine Loan).

The LOC had provided the Company with a revolving line of credit for $11,000,000 and allowed for an increase up to $13,000,000 if the Company met certain milestones. The Amended SVB Agreement increased the LOC from $11,000,000 to $15,000,000, and extended the maturity date from August 2016 to October 2018. The LOC carries a variable interest rate equal to Prime plus 1.25% or LIBOR plus 2.5%. As of October 31, 2016 and January 31, 2016, $6,500,000 had been borrowed under the LOC, leaving $8,500,000 available for borrowing. As of October 31, 2016 and January 31, 2016, the interest rate on the LOC was 3.02% and 2.93%, respectively. The SVB Term Loan provides for a $10,000,000 term loan with a maturity date of September 2019. The SVB Term Loan carries a variable interest rate of Prime plus 1.25% or LIBOR plus 2.5% and requires equal quarterly principal payments and monthly interest payments through the maturity date in September 2019. The terms of the SVB Term Loan were substantially different than the Mezzanine Loan and therefore the amendment was accounted for as an extinguishment of the Mezzanine Loan. As such, the SVB Term Loan was recorded at fair value and the existing unamortized debt issuance costs were included in the calculation of any gain or loss on extinguishment.  As of October 31, 2016 and January 31, 2016, $7,500,000 and $9,375,000, respectively, was outstanding under the SVB Term Loan. As of October 31, 2016 and January 31, 2016, the interest rate on the SVB Term Loan was 3.03% and 2.93%, respectively.    

All of the Company’s agreements with SVB include various financial and non-financial covenants with which the Company was in compliance as of October 31, 2016 and January 31, 2016.

 

 

Note 6. 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 2018 and leases office space and equipment under non-cancellable operating and capital leases that expire on various dates through fiscal 2022. These commitments as of January 31, 2016 are disclosed in the Company’s Annual Report on Form 10-K, and did not change materially during the nine months ended October 31, 2016. 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.  

 

11


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 was obligated to continue to make rental payments on the lease for its prior headquarters through January 2016. Therefore, the Company recorded exit costs 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 nine months ended October 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 nine months ended October 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 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 noncompliance 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 7. 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.

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 October 31, 2016, there were 31,272,236 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

 

12


per share, granted to former members of Centive management as designated by the former Centive shareholders. Since the IPO, the shares are available to be issued to the former members of Centive management upon exercise of the options. 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. Upon the IPO, the Company’s outstanding convertible preferred stock options became options to purchase common stock. In December 2015 and January 2016, the former members of Centive management exercised their options on a cashless exercise basis.  As a result, 188,744 shares of common stock were issued and 211,216 shares were tendered back to the Company to satisfy the exercise price and required tax withholdings.

Warrants

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. 

 

 

Note 8. 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. During the nine months ended October 31, 2016, the Company, automatically by the terms of the 2015 Plan, increased the shares reserved and available for issuance under the 2015 Plan by 1,477,127.

As of October 31, 2016, an aggregate of 2,094,979 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 (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. During the nine months ended October 31, 2016, the Company, automatically by the terms of the ESPP, increased the shares reserved and available for issuance under the ESPP by 590,851.  The Company issued 333,501 shares under the ESPP during the nine months ended October 31, 2016. As of October 31, 2016, there were 857,350 shares reserved and 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.

As of October 31, 2016, the Company had $777,000 in unrecognized stock-based compensation expense, net of estimated forfeitures, related to purchase rights that will be recognized over the weighted average period of approximately 1.0 year.

 

 

13


Stock option activity

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, 2016

 

 

4,844,592

 

 

$

4.49

 

 

6.6 years

 

$

14,268

 

Granted

 

 

190,100

 

 

 

10.68

 

 

 

 

 

 

 

Exercised

 

 

(1,015,542

)

 

 

2.24

 

 

 

 

 

 

 

Forfeited

 

 

(107,064

)

 

 

8.02

 

 

 

 

 

 

 

Expired

 

 

(8,341

)

 

 

7.75

 

 

 

 

 

 

 

Balance at October 31, 2016

 

 

3,903,745

 

 

$

5.27

 

 

6.7 years

 

$

29,773

 

Vested and expected to vest as of October 31, 2016

 

 

3,815,270

 

 

$

5.19

 

 

6.7 years

 

$

29,398

 

Exercisable as of October 31, 2016

 

 

2,321,614

 

 

$

3.26

 

 

5.5 years

 

$

22,378

 

 

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.

 

As of October 31, 2016, there was $5,603,000 of unamortized stock-based compensation expense related to unvested stock options which will be recognized over a weighted average period of approximately 2.5 years.

 

Restricted stock units

A summary of RSU activity during the nine months ended October 31, 2016 was as follows:

 

 

 

Number

of shares

 

 

Weighted

average

grant-date

fair value

 

Balance at January 31, 2016

 

 

860,472

 

 

$

8.48

 

Granted

 

 

971,458

 

 

 

12.43

 

Released

 

 

(260,473

)

 

 

8.11

 

Forfeited

 

 

(76,551

)

 

 

8.81

 

Balance at October 31, 2016

 

 

1,494,906

 

 

$

11.09

 

 

As of October 31, 2016, there was a total of $15,408,000 in unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of approximately 3.4 years.

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. We recognize the stock-based compensation expense of RSUs, net of estimated forfeitures, over the vesting term. The stock-based compensation cost for RSUs is based on the fair value of our common stock on the date of grant.

 

14


Stock-based compensation from stock options, RSUs and the ESPP included in the Company’s condensed consolidated statements of operations is as follows (in thousands):

 

 

 

Three months ended

October 31,

 

 

Nine months ended

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Cost of subscription services

 

$

146

 

 

$

133

 

 

$

411

 

 

$

299

 

Cost of professional services

 

 

276

 

 

 

154

 

 

 

691

 

 

 

263

 

Research and development

 

 

570