10-Q 1 coup-10q_20170430.htm 10-Q coup-10q_20170430.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37901

 

COUPA SOFTWARE INCORPORATED

(Exact name of Registrant as specified in its charter)

 

 

Delaware

20-4429448

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1855 S. Grant Street

San Mateo, CA

94402

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 931-3200

 

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 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  

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

  

 

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

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

As of June 6, 2017, the Registrant had 52,987,247 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Consolidated Balance Sheets

 

2

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

Item 2.

 

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

 

15

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

26

Item 1A.

 

Risk Factors

 

26

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

Item 3.

 

Defaults Upon Senior Securities

 

45

Item 4.

 

Mine Safety Disclosures

 

45

Item 5.

 

Other Information

 

45

Item 6.

 

Exhibits

 

45

Signatures

 

46

Exhibit Index

 

47

 

 

 

i


 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements.  All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, customer lifetime value, strategy and plans, market size and opportunity, competitive position, industry environment, potential growth opportunities, product capabilities and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements.  We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and “Risk Factors.”

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

COUPA SOFTWARE INCORPORATED

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

April 30,

 

 

January 31,

 

 

 

2017

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

238,121

 

 

$

201,721

 

Accounts receivable, net of allowances

 

 

34,939

 

 

 

47,614

 

Prepaid expenses and other current assets

 

 

9,486

 

 

 

9,150

 

Deferred commissions, current portion

 

 

2,961

 

 

 

3,091

 

Total current assets

 

 

285,507

 

 

 

261,576

 

Property and equipment, net

 

 

4,600

 

 

 

4,642

 

Deferred commissions, net of current portion

 

 

2,872

 

 

 

2,895

 

Goodwill

 

 

6,306

 

 

 

6,306

 

Intangible assets, net

 

 

5,538

 

 

 

5,848

 

Other assets

 

 

3,257

 

 

 

2,597

 

Total assets

 

$

308,080

 

 

$

283,864

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,783

 

 

$

1,175

 

Accrued expenses and other current liabilities

 

 

18,096

 

 

 

17,490

 

Deferred revenue, current portion

 

 

87,939

 

 

 

89,872

 

Total current liabilities

 

 

107,818

 

 

 

108,537

 

Deferred revenue, net of current portion

 

 

677

 

 

 

968

 

Other liabilities

 

 

459

 

 

 

467

 

Total liabilities

 

 

108,954

 

 

 

109,972

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value per share; 25,000,000 shares authorized

   at April 30, 2017 and January 31, 2017; zero shares issued and outstanding

   at April 30, 2017 and January 31, 2017,  respectively

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value per share; 625,000,000 shares authorized

   at April 30, 2017 and January 31, 2017; 52,691,238 and 50,251,541

   shares issued and outstanding at April 30, 2017 and January 31, 2017, respectively

 

 

6

 

 

 

5

 

Additional paid-in capital

 

 

369,730

 

 

 

334,363

 

Accumulated deficit

 

 

(170,610

)

 

 

(160,476

)

Total stockholders’ equity

 

 

199,126

 

 

 

173,892

 

Total liabilities and stockholders’ equity

 

$

308,080

 

 

$

283,864

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

2


 

COUPA SOFTWARE INCORPORATED

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Subscription services

 

$

35,664

 

 

$

25,372

 

Professional services and other

 

 

5,473

 

 

 

3,811

 

Total revenues

 

 

41,137

 

 

 

29,183

 

Cost of revenues:

 

 

 

 

 

 

 

 

Subscription services

 

 

7,996

 

 

 

6,050

 

Professional services and other

 

 

5,501

 

 

 

5,968

 

Total cost of revenues

 

 

13,497

 

 

 

12,018

 

Gross profit

 

 

27,640

 

 

 

17,165

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

9,171

 

 

 

7,840

 

Sales and marketing

 

 

20,679

 

 

 

15,836

 

General and administrative

 

 

8,177

 

 

 

5,553

 

Total operating expenses

 

 

38,027

 

 

 

29,229

 

Loss from operations

 

 

(10,387

)

 

 

(12,064

)

Other income, net

 

 

433

 

 

 

323

 

Loss before provision for income taxes

 

 

(9,954

)

 

 

(11,741

)

Provision for income taxes

 

 

84

 

 

 

126

 

Net loss and comprehensive loss

 

$

(10,038

)

 

$

(11,867

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.20

)

 

$

(2.11

)

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

   share attributable to common stockholders, basic and diluted

 

 

50,577

 

 

 

5,612

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

3


 

COUPA SOFTWARE INCORPORATED

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(10,038

)

 

$

(11,867

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,536

 

 

 

1,005

 

Amortization of deferred commissions

 

 

1,040

 

 

 

1,039

 

Stock-based compensation

 

 

5,277

 

 

 

1,706

 

Other non-cash items

 

 

105

 

 

 

25

 

Changes in operating assets and liabilities net of effects from acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

12,570

 

 

 

(3,205

)

Prepaid expenses and other current assets

 

 

(336

)

 

 

(1,194

)

Other assets

 

 

(443

)

 

 

(598

)

Deferred commissions

 

 

(887

)

 

 

(585

)

Accounts payable

 

 

31

 

 

 

134

 

Accrued expenses and other liabilities

 

 

529

 

 

 

756

 

Deferred revenue

 

 

(2,224

)

 

 

2,558

 

Net cash provided by (used in) operating activities

 

 

7,160

 

 

 

(10,226

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(996

)

 

 

(1,386

)

Increase in restricted cash

 

 

(217

)

 

 

-

 

Purchase of intangible assets

 

 

(140

)

 

 

-

 

Net cash used in investing activities

 

 

(1,353

)

 

 

(1,386

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of underwriting

   discounts, commissions and offering costs

 

 

23,040

 

 

 

(1,616

)

Proceeds from the exercise of common stock options

 

 

4,527

 

 

 

378

 

Excess tax benefit from stock-based compensation

 

 

-

 

 

 

16

 

Proceeds from issuance of common stock for employee stock purchase plan

 

 

3,026

 

 

 

-

 

Net cash provided by (used in) financing activities

 

 

30,593

 

 

 

(1,222

)

Net increase (decrease) in cash and cash equivalents

 

 

36,400

 

 

 

(12,834

)

Cash and cash equivalents at beginning of period

 

 

201,721

 

 

 

92,348

 

Cash and cash equivalents at end of period

 

$

238,121

 

 

$

79,514

 

Supplemental disclosure of cash flow data

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

97

 

 

$

69

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

172

 

 

$

107

 

Property and equipment included in accounts payable and accrued expenses and other

   current liabilities

 

$

89

 

 

$

115

 

Offering costs included in accounts payable and accrued expenses and other

   current liabilities

 

$

777

 

 

$

1,462

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

4


 

COUPA SOFTWARE INCORPORATED

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1. Organization and Description of Business

Coupa Software Incorporated (the “Company” or “we” ) was incorporated in the state of Delaware in 2006. The Company provides a unified, cloud-based spend management platform that provides greater visibility into and control over how companies spend money. The platform enables businesses to achieve savings that drive profitability. The Company is based in San Mateo, California.

Follow-On Offering

In April 2017, we closed a follow-on offering (the “Offering”), in which we issued and sold 959,618 shares of common stock inclusive of the underwriters’ option to purchase additional shares, which was exercised in full.  The price per share to the public was $25.25.  The Company received aggregate proceeds of $24.0 million from the offering, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $0.8 million and inclusive of approximately $1.0 million received from selling stockholders due to the exercise of 244,387 options at an average per share exercise price of $3.93.

 

 

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. 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. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2017 filed with the SEC on April 3, 2017 (the “Form 10-K”).The consolidated financial statements include the results of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated during consolidation.

The condensed consolidated balance sheet as of January 31, 2017, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

There have been no changes to our significant accounting policies described in the Form 10-K.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates including the valuation of accounts receivable, the lives of tangible and intangible assets, stock-based compensation, revenue recognition, the valuation of acquired intangible assets, and provisions for income taxes. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.

Concentration of Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash deposits may, at times, exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. The Company has not experienced any losses on its deposits of cash and cash equivalents to date.

5


 

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss is composed only of net loss.

Recently Adopted Accounting Pronouncements

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payments, including allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur and immediate recognition of excess tax benefits in the income statement. The Company adopted ASU 2016-09 in the first quarter of fiscal 2018 and elected to account for forfeitures as they occur in calculating compensation costs. Also as a result of this adoption, the Company recorded a $6.7 million cumulative-effect adjustment decrease in accumulated deficit and an offsetting increase in deferred tax assets for previously unrecognized excess tax benefits that existed as of January 31, 2017. The realization of these deferred tax assets is not more likely than not to be achieved, therefore, the Company recorded a $6.7 million valuation allowance against these deferred tax assets with an offsetting increase in accumulated deficit.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 narrows the definition of a business and requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company has elected to early adopt this new guidance effective February 1, 2017. The adoption of this standard had no impact on the Company’s historical financial statements.

New Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. ASU 2014-09 is effective for public entities for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 31, 2017. Early adoption is permitted for all public entities only as of annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2016. The guidance allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company has not finalized a decision regarding the adoption method at this time. The Company is not planning to early adopt the new standard and is continuing to assess the impact of the adoption on its financial position, results of operations, cash flows and related disclosures and has not yet determined whether the effect will be material. The Company preliminarily believes that the new standard will impact revenue recognized due to the removal of the current limitation on contingent revenue. In addition commissions accounting under the new standard is expected to be significantly different than the Company’s current capitalization policy. The new standard will result in additional types of costs that will be capitalized and amounts will be amortized over a period longer that the Company’s current policy of amortizing the deferred amounts over the specific revenue contract-terms.  The new standard also requires incremental disclosures including information about the remaining transaction price and when the Company expects to recognize revenue. The Company continues to assess the new standard along with industry trends and additional interpretive guidance and may adjust its interpretation and implementation plan accordingly.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires an entity to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows, and an entity will no longer present transfers between cash and cash equivalents and

6


 

restricted cash and restricted cash equivalents in the statement of cash flows. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard update on the financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity’s testing of reporting units for goodwill impairment, and clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual reporting periods beginning after January 1, 2020 and interim periods within those fiscal years. The Company is currently assessing the potential impact of the adoption of ASC 2017-04 on its consolidated financial statements.

 

 

Note 3. Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions and credit risk.

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs other than quoted price in active markets for identical assets or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially full term of assets or liabilities.

 

Level 3—Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the assets or liabilities.

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis (in thousands):

 

April 30, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

207,575

 

 

$

-

 

 

$

-

 

 

$

207,575

 

January 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

178,245

 

 

$

-

 

 

$

-

 

 

$

178,245

 

 

 

(1)

Included in cash and cash equivalents.

 

 

7


 

Note 4. Property and Equipment

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

 

 

 

April 30,

 

 

January 31,

 

 

 

2017

 

 

2017

 

Furniture and equipment

 

$

1,415

 

 

$

1,415

 

Software development costs

 

 

13,437

 

 

 

12,376

 

Leasehold improvements

 

 

458

 

 

 

458

 

Total property and equipment

 

 

15,310

 

 

 

14,249

 

Less: accumulated depreciation and amortization

 

 

(10,710

)

 

 

(9,607

)

Property and equipment, net

 

$

4,600

 

 

$

4,642

 

 

Depreciation and amortization expense related to property and equipment, excluding software development costs, was approximately $115,000 and $90,000 for the three months ended April 30, 2017 and April 30, 2016, respectively. Amortization expense related to software development costs was approximately $989,000 and $727,000 for the three months ended April 30, 2017 and April 30, 2016, respectively.

 

 

Note 5. Goodwill and Other Intangible Assets

Goodwill

The following table represents the changes in goodwill (in thousands):

 

Balance at January 31, 2017

 

$

6,306

 

Additions from acquisitions

 

 

-

 

Balance at April 30, 2017

 

$

6,306

 

 

Other Intangible Assets

The following table summarizes the other intangible asset balances (in thousands):

 

 

 

As of

 

 

 

April 30,

2017

 

 

January 31,

2017

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Developed technology

 

$

7,385

 

 

$

(1,869

)

 

 

5,516

 

 

$

7,210

 

 

$

(1,393

)

 

 

5,817

 

Customer relationships

 

 

74

 

 

 

(52

)

 

 

22

 

 

 

74

 

 

 

(43

)

 

 

31

 

Total other intangible assets

 

$

7,459

 

 

$

(1,921

)

 

$

5,538

 

 

$

7,284

 

 

$

(1,436

)

 

$

5,848

 

 

Amortization expense related to other intangible assets was approximately $485,000 and $221,000 for the three months ended April 30, 2017 and April 30, 2016, respectively.

As of April 30, 2017, the future amortization expense of other intangible assets is as follows (in thousands):

 

Year Ending January 31,

 

 

 

 

2018 (remaining 9 months)

 

$

1,182

 

2019

 

 

1,174

 

2020

 

 

1,106

 

2021

 

 

1,086

 

2022

 

 

990

 

Total

 

$

5,538

 

 

 

8


 

Note 6. Common Stock and Stockholders’ Equity

Common Stock

Each share of common stock has the right to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors of the Company (the “Board of Directors”), subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared or paid since inception.

Preferred Stock 

As of April 30, 2017, the Company had authorized 25,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued and outstanding.

2016 Equity Incentive Plan

The 2016 Equity Incentive Plan (the “2016 Plan”) was approved by the Company’s stockholders in September 2016. The 2016 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights and performance cash awards. Awards could be granted under the 2016 Plan beginning on the effective date of the registration statement, October 5, 2016. The 2016 Plan replaced the Company’s 2006 Stock Plan; however, awards outstanding under the 2006 Stock Plan will continue to be governed by their existing terms.

The Company has reserved 5,526,247 shares of its common stock for issuance under the 2016 Plan. The number of shares reserved for issuance under the 2016 Plan will automatically increase on the first day of each fiscal year during the term of the 2016 Plan by a number of shares equal to 5% of its outstanding shares of common stock on the last day of the prior fiscal year. The number and class of shares reserved under the Company’s 2016 Plan will be adjusted in the event of a stock split, stock dividend or other changes in its capitalization.

The following table summarizes stock option activity under the Company’s 2006 Stock Plan and the 2016 Plan during the three months ended April 30, 2017 (aggregate intrinsic value in thousands):

 

 

 

Options Outstanding

 

 

 

Outstanding

Stock

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual Life

(in years)

 

 

Aggregate

Intrinsic

Value

 

Balance, January 31, 2017

 

 

13,016,402

 

 

$

5.60

 

 

 

7.92

 

 

$

265,542

 

Option grants

 

 

406,686

 

 

$

23.84

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(1,243,939

)

 

$

3.64

 

 

 

 

 

 

 

 

 

Options forfeited

 

 

(382,451

)

 

$

6.82

 

 

 

 

 

 

 

 

 

Balance, April 30, 2017

 

 

11,796,698

 

 

$

6.40

 

 

 

7.69

 

 

$

251,857

 

Exercisable at April 30, 2017

 

 

6,141,208

 

 

$

3.94

 

 

 

6.82

 

 

$

146,200

 

 

The options exercisable as of April 30, 2017 include options that are exercisable prior to vesting. The aggregate intrinsic value of options vested and expected to vest and exercisable as of April 30, 2017 is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of April 30, 2017. The aggregate intrinsic value of exercised options was $27.7 million and $1.6 million for the three months ended April 30, 2017 and April 30, 2016, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date.

The weighted-average grant date fair value of options granted was $11.04 and $3.68 per share, for the three months ended April 30, 2017 and April 30, 2016, respectively.

During the three months ended April 30, 2017 and April 30, 2016, nil and 52,250 options were granted to non-employees, respectively.

9


 

Early Exercises of Stock Options

Certain option grants under the 2006 Stock Plan are allowed to be exercised prior to vesting. The unvested shares of common stock exercised are subject to the Company’s right to repurchase at the lower of the original exercise price or the fair market value of the share at the time the repurchase right is exercised. Early exercises of options are not deemed to be substantive exercises for accounting purposes and accordingly, amounts received for early exercises are initially recorded in accrued expenses and other current liabilities and reclassified to additional paid-in capital as the underlying shares vest. At April 30, 2017, the Company had $2.4 million recorded in accrued expenses and other current liabilities related to early exercises of stock options, and the related number of unvested shares subject to repurchase was 231,502.

Restricted Stock Units (“RSUs”)

The following table summarizes the activity related to the Company’s RSUs:

 

 

 

Number of

RSUs

Outstanding

 

 

Weighted-Average

Grant Date

Fair Value

 

Awarded and unvested at January 31, 2017

 

 

77,883

 

 

$

18.38

 

Awards granted

 

 

1,548,574

 

 

$

24.00

 

Awards vested

 

 

(3,516

)

 

$

5.36

 

Awards forfeited

 

 

(33,321

)

 

$

11.70

 

Awarded and unvested at April 30, 2017

 

 

1,589,620

 

 

$

24.02

 

 

2016 Employee Stock Purchase Plan

The Board of Directors adopted the 2016 Employee Stock Purchase Plan (the “ESPP”) in September 2016 and it has been approved by our stockholders. The ESPP allows eligible employees to purchase shares of common stock through payroll deductions and is intended to qualify under Section 423 of the Internal Revenue Code.

The Company has reserved 1,123,484 shares of its common stock for issuance under the ESPP. The number of shares reserved for issuance under the ESPP will automatically increase on the first day of each fiscal year during the term of the ESPP by a number of shares equal to the least of (i) 1% of its outstanding shares of common stock on the last day of the prior fiscal year, (ii) 1,250,000 shares or (iii) a lesser number of shares determined by the Board of Directors. The number and class of shares reserved under the ESPP will be adjusted in the event of a stock split, stock dividend or other changes in its capitalization.

Each offering period will last a number of months determined by the administrator, up to a maximum of 27 months. The initial offering period began on the effective date of the Company’s initial public offering, October 5, 2016, and ends on September 15, 2018, and new 24 month offering periods will begin on each March 16 and September 16 thereafter. Currently each offering period consists of four consecutive purchase periods, of approximately six months duration, at the end of which payroll contributions are used to purchase shares of the Company’s common stock. Participants may purchase the Company’s common stock through payroll deductions, up to a maximum of 15% of their eligible compensation. Participants may withdraw from the ESPP and receive a refund of their accumulated payroll contributions at any time prior to a purchase date. Unless changed by the administrator, the purchase price for each share of common stock purchased under the ESPP will be the lower of (i) 85% of the fair market value per share on the first day of the applicable offering period (or, in the case of the initial offering period, the price at which one share of common stock is offered to the public in its initial public offering) or (ii) 85% of the fair market value per share on the applicable purchase date.

As of April 30, 2017, 197,781 shares of common stock were purchased under the 2016 ESPP. The Company selected the Black-Scholes option-pricing model as the method for determining the estimated fair value for the Company’s 2016 ESPP. As of April 30, 2017, total unrecognized compensation cost related to the 2016 ESPP was $8.1 million which will be amortized over a weighted-average period of 1.41 years.

 

Market-based Options

 

In September 2016, the Board of Directors granted 544,127 stock options to the Chief Executive Officer (the “2016 CEO Grant”) under the 2006 Equity Plan with an exercise price of $13.04 per share. The 2016 CEO Grant is eligible to vest based on the achievement of stock price appreciation targets after the consummation of the initial public offering, as well as continuous service over a four-year period following the grant date.  The fair value of the 2016 CEO Grant was determined using a Monte Carlo simulation approach. The Company amortizes the fair value of the option award using the graded-vesting method. For the three

10


 

months ended April 30, 2017, the total stock-based compensation expense recognized was approximately $322,000. As of April 30, 2017, one of the three performance-based milestones was achieved, resulting in 31,740 shares being vested and exercisable.

 

Stock-based Compensation

The Company’s total stock-based compensation expense as of the dates indicated was as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

Cost of revenue:

 

 

 

 

 

 

 

 

Subscription services

 

$

355

 

 

$

125

 

Professional services and other

 

 

563

 

 

 

135

 

Research and development

 

 

1,152

 

 

 

322

 

Sales and marketing

 

 

1,600

 

 

 

471

 

General and administrative

 

 

1,607

 

 

 

653

 

Total

 

$

5,277

 

 

$

1,706

 

 

Stock-based compensation capitalized in capitalized software development costs was approximately $232,000 at April 30, 2017.

 

Of the total stock-based compensation expense, costs recognized for options granted to non-employees were immaterial for all periods presented.

As of April 30, 2017 there was approximately $27.7 million of total unrecognized compensation cost related to unvested stock options granted to employees and non-employee service providers under the 2006 Stock Plan and 2016 Equity Incentive Plan. This unrecognized compensation cost is expected to be recognized over an estimated weighted-average amortization period of approximately 2.57 years.

As of April 30, 2017 there was approximately $37.0 million of total unrecognized compensation cost related to unvested restricted stock units granted to employees under the 2016 Equity Incentive Plan. This unrecognized compensation cost is expected to be recognized over an estimated weighted-average amortization period of approximately 3.88 years.

The fair values of the Company’s stock options granted during the three months ended April 30, 2017 and April 30, 2016 were estimated using the following assumptions:

 

 

 

Three Months Ended

 

 

April 30,

 

 

2017

 

2016

Employee Stock Options:

 

 

 

 

Expected term (years)

 

6

 

6

Volatility

 

46%

 

48%

Risk-free interest rate

 

2.0% - 2.2%

 

1.4% - 1.5%

Dividend yield

 

0%

 

0%

Employee Stock Purchase Plan:

 

 

 

 

Expected term (years)

 

0.5 - 2.0

 

-

Volatility

 

39.25% - 42.61%

 

-

Risk-free interest rate

 

0.89% - 1.35%

 

-

Dividend yield

 

0%

 

-

 

These assumptions and estimates are as follows:

 

Fair Value of Common Stock. Prior to the initial public offering, the fair value of the shares of common stock underlying stock options was established by the Board of Directors, which was responsible for these estimates, and was based in part upon a valuation provided by a third-party valuation firm. Because there had been no public market for the Company’s common stock prior to the initial public offering, the Board of Directors considered this independent valuation and other factors, including, but not limited to, revenue growth, the current status of the technical and commercial success of its operations, its financial condition, the stage of development and competition to establish the fair value of the Company’s

11


 

 

common stock at the time of grant of the option. After the initial public offering, the Company used the publicly quoted price as reported on the Nasdaq Global Select Market as the fair value of its common stock.

 

Expected Term. The expected term represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, the Company generally applies the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as the Company does not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.

 

Risk-Free Interest Rate. The Company bases the risk-free interest rate on the yields of U.S. Treasury securities with maturities approximately equal to the term of employee stock option awards.

 

Expected Volatility. As the Company does not have an extensive trading history for its common stock, the expected volatility for its common stock has been estimated by taking the historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in its industry.

 

 

Note 7. Commitments and Contingencies

Commitments

The Company leases office space under non-cancelable operating leases with various expiration dates through September 2024. Rent expense, which is being recognized on a straight-line basis over the lease term, was approximately $1 million during each of the three month periods ended April 30, 2017 and April 30, 2016. The difference between the lease payments made and the lease expense recognized to date using the straight-line method is recorded as a liability and included within accrued expenses and other current liabilities in the accompanying consolidated balance sheet.

Future minimum lease payments required under these agreements as of April 30, 2017 are as follows (in thousands):

 

Year Ending January 31,

 

 

 

 

2018 (remaining 9 months)

 

$

3,173

 

2019

 

 

5,132

 

2020

 

 

5,336

 

2021

 

 

5,276

 

2022

 

 

5,291

 

Thereafter

 

 

10,826

 

Total

 

$

35,034

 

 

Contingencies

From time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on the Company’s business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Warranties and Indemnifications

The Company’s cloud-based software platform and applications are typically warranted against material decreases in functionality and to perform in a manner consistent with general industry standards and in accordance with the Company’s on-line documentation under normal use and circumstances.

The Company includes service level commitments to its customers, typically regarding certain levels of uptime reliability and performance.  If the Company fails to meet those levels, customers can receive credits and in some cases, terminate their relationship with the Company. To date, the Company has not incurred any material costs as a result of such commitments.

The Company generally agrees to defend and indemnify its customers against legal claims that the Company’s platform infringes certain patents, copyrights or other intellectual property rights of third parties. To date, the Company has not been required to make any payment resulting from such infringement claims and has not recorded any related liabilities.

 

 

12


 

Note 8. Income Taxes

The Company is subject to federal and various state income taxes in the United States as well as other foreign jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are reinvested indefinitely.

The Company recorded a tax provision of approximately $84,000 and $126,000 for the three months ended April 30, 2017 and April 30, 2016, respectively, representing effective tax rates of (1.84)% and (1.21)% respectively. The decrease in the provision for income taxes during the three months ended April 30, 2017 compared to the three months ended April 30, 2016 was primarily due to tax benefits from excess stock based compensation deductions, partially offset by an increase in the provision for foreign taxes.        

The difference between the U.S. federal statutory tax rate of 34% and the Company’s effective tax rate in all periods presented is primarily due to a full valuation allowance related to the Company’s U.S. and Canada deferred tax assets offset by foreign tax expense on the Company’s profitable foreign operations.

The Company's material income tax jurisdictions are the United States (federal) and California.  As a result of net operating loss carryforwards, the Company is subject to audits for tax years 2006 and forward for federal purposes and 2009 and forward for California purposes.  There are tax years which remain subject to examination in various other jurisdictions that are not material to the Company's financial statements.

 

 

Note 9. Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities as they do not share in losses. During periods when the Company is in a net loss position, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders as the effects of potentially dilutive securities are antidilutive given the net loss of the Company.

The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders during the three months ended April 30, 2017 and April 30, 2016 (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(10,038

)

 

$

(11,867

)

Denominator:

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

50,577

 

 

 

5,612

 

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.20

)

 

$

(2.11

)

 

Since the Company was in a loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

 

 

As of April 30,

 

 

 

2017

 

 

2016

 

Convertible preferred stock as converted

 

 

-

 

 

 

34,610,979

 

Options to purchase common stock

 

 

11,796,698

 

 

 

12,156,548

 

RSUs

 

 

1,589,620

 

 

 

62,500

 

Unvested common shares subject to repurchase

 

 

293,731

 

 

 

236,069

 

Shares committed under 2016 ESPP

 

 

66,266

 

 

 

-

 

Convertible preferred stock warrants

 

 

-

 

 

 

36,971

 

Total

 

 

13,746,315

 

 

 

47,103,067

 

 

 

13


 

Note 10. Business Segment Information

The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”). The 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 reporting segment: cloud platform.

 

 

Note 11. Significant Customers and Geographic Information

No customer balance comprised 10% or more of total accounts receivable at April 30, 2017 or January 31, 2017.

During the three months ended April 30, 2017 and April 30, 2016, revenues by geographic area, based on billing addresses of the customers, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

United States

 

$

27,311

 

 

$

20,667

 

Foreign countries

 

 

13,826

 

 

 

8,516

 

Total revenues

 

$

41,137

 

 

$

29,183

 

 

No single foreign country represented more than 10% of the Company’s revenues in any period.  Additionally, no single customer represented more than 10% of the Company’s revenues in any period.

 

Note 12. Related Parties

One of the Company’s customers, T. Rowe Associates, Inc., is an investment adviser of certain of the Company’s stockholders. For the three months ended April 30, 2017 and April 30, 2016, the Company recognized subscription revenue of $130,000 and $120,000 from this customer, respectively. The Company has $27,000 in outstanding receivables from this customer as of April 30, 2017 and no outstanding receivables as of January 31, 2017.

 

 

Note 13. Subsequent Event

On May 3, 2017, the Company acquired substantially all of the issued and outstanding capital stock held by shareholders of Trade Extensions TradeExt AB (“Trade Extensions”), a Swedish corporation that specializes in strategic sourcing.

 

In this acquisition, the Company paid aggregate consideration of approximately $45.0 million (which remains subject to customary upward or downward adjustments for Trade Extensions working capital and other matters for up to 45 business days following the date of the closing).  Approximately $40.9 million of the aggregate consideration was paid in cash and the remaining approximately $4.1 million was paid in the form of 148,476 shares of the Company’s common stock issued to certain holders of Trade Extensions who are continuing employment with the Company.

 

The acquisition of Trade Extensions will be accounted for in accordance with the acquisition method of accounting for business combinations with the Company as the acquirer. Due to the timing of the acquisition, the Company is still in the process of preparing the initial accounting of the transaction and will establish a preliminary purchase price allocation with respect to this transaction by the end of the second quarter of fiscal 2018.                              

   

 

14


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.  As discussed in the section titled “Note About Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.  Factors that could cause or contribute to these differences include, but are not limited to, those identified below, those discussed in “Note About Forward-Looking Statements” and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.

Overview

We are a leading provider of spend management solutions, with a unified, cloud-based platform that connects our customers with more than 3 million suppliers globally.

Our platform provides greater visibility into and control over how companies spend money. Using our platform, businesses are able to achieve real, measurable value and savings that drive their profitability; we call this “Value as a Service.” We refer to the process companies use to purchase goods and services as spend management and to the money that they manage with this process as spend under management.  We offer a unified, cloud-based spend management platform that is tightly integrated and delivers a broad range of capabilities that would otherwise require the purchase and use of multiple disparate point applications. The core of our platform consists of procurement, invoicing and expense management modules that form our transactional engine and capture a company’s spend. In addition, our platform offers supporting modules, including sourcing, analytics, contract management, supplier management, inventory management and storefront, that help companies further manage their spend. Moreover, through our Coupa Open Business Network, suppliers of all sizes can easily interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs.

We offer access to our platform under a Software-as-a-Service (SaaS) business model. At the time of initial deployment, our customers often make a set of common functions available to the majority of their licensed employees, as well as incremental modules for select employees and procurement specialists, which we refer to as power users. Therefore, we are typically able to capture most of the expected annual recurring revenue opportunity at the inception of our customer relationships, rather than targeting specific power users at the outset of the customer relationship with the intention of expanding and getting more annual recurring revenue at later stages of the customer relationship. Customers can rapidly implement our platform, with implementation periods typically ranging from a few weeks to several months. Customers also benefit from software updates that typically require little downtime.

We market and sell our solutions to a broad range of enterprises worldwide. We have a diverse, multi-national customer base spanning various sizes and industries and no significant customer concentration. No customer accounted for more than 10% of our total revenues for the three months ended April 30, 2017 and April 30, 2016, respectively.

We market our platform primarily through a direct sales force and also benefit from leads driven by our partner ecosystem. Our initial contract terms are typically three years, although some customers commit for longer or shorter periods. Substantially all of our customers pay annually, one year in advance. We provide a scaled pricing model based on the number of users per module—as the number of users increases, the subscription price per user decreases. Our subscription fee includes access to our service, technical support and management of the hosting infrastructure. We generally recognize revenues from our subscription fees ratably over the contractual term of the arrangement. We do not charge suppliers who are on our platform to transact with our customers. We believe this approach helps attract more suppliers to our platform and increases the value of our platform to customers.

We have continued to make significant expenditures and investments for long-term growth, including investment in our platform and infrastructure to deliver new functionality and modules to meet the evolving needs of our customers and to take advantage of our market opportunity. We intend to continue to increase our investment in sales and marketing, as we further expand our sales teams, increase our marketing activities, and grow our international operations. Internationally, we currently offer our platform in Europe, the Middle East and Africa (EMEA), Latin America (LATAM) and Asia-Pacific (APAC). The combined revenues from non-U.S. regions, as determined based on the billing address of our customers, constituted 34% and 29%, respectively, of our total revenues for the three months ended April 30, 2017 and April 30, 2016, respectively. We believe there is further opportunity to increase our international revenues in absolute dollars and as a percentage of our total revenues. As a result, we are increasingly investing in our international operations and we intend to expand our footprint in international markets.

Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international

15


 

operations, our international expansion efforts may not be successful in creating additional demand for our platform outside of the United States or in effectively selling subscriptions to our platform in any or all of the international markets we enter.

In April 2017, we closed a follow-on offering (the “Offering”), in which we issued and sold 959,618 shares of common stock inclusive of the underwriters’ option to purchase additional shares, which was exercised in full.  The price per share to the public was $25.25.  The Company received aggregate proceeds of $24.0 million from the Offering, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $0.8 million and inclusive of approximately $1.0 million received from selling stockholders due to the exercise of 244,387 options at an average per share exercise price of $3.93.

In May 2017, we acquired substantially all of the issued and outstanding capital stock held by shareholders of Trade Extensions TradeExt AB, a Swedish corporation that specializes in strategic sourcing. The price for the acquisition was $45.0 million, paid in cash of $40.9 million and through the issuance of 148,476 shares of our common stock for an aggregate fair value of $4.1 million. We will account for the transaction using the acquisition method, which requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their respective estimated fair values as of the acquisition date.

Our Business Model

Our business model focuses on maximizing the lifetime value of a customer relationship, and we continue to make significant investments in order to grow our customer base. Due to our subscription model, we recognize subscription revenues ratably over the term of the subscription period. As a result, the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber on our platform. In general, the associated upfront costs with respect to new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year. We believe that, over time, as our customer base grows and a relatively higher percentage of our subscription revenues are attributable to renewals versus new customers or upsells to existing customers, associated sales and marketing expenses and other allocated upfront costs as a percentage of revenues will decrease, subject to investments we plan to make in our business. Over the lifetime of the customer relationship, we also incur sales and marketing costs to manage the account, renew or upsell the customer to more modules and more users. However, these costs are significantly less than the costs initially incurred to acquire the customer. We calculate the lifetime value of our customers and associated customer acquisition costs for a particular year by comparing (i) gross profit from net new subscription revenues for the year multiplied by the inverse of the estimated subscription renewal rate to (ii) total sales and marketing expense incurred in the preceding year. On this basis, we estimate that for each of fiscal 2017, 2016 and 2015, the calculated lifetime value of our customers has exceeded six times the associated cost of acquiring them.

Key Metrics

We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

 

 

 

As of April 30,

 

 

 

2017

 

 

2016

 

Cumulative Spend Under Management (in billions)

 

$

423.7

 

 

$

221.4

 

Deferred Revenue (in millions)

 

$

88.6

 

 

$

67.5

 

Cumulative Spend Under Management

Cumulative spend under management represents the aggregate amount of money that has been transacted through our platform for all of our customers collectively since we launched our platform. We calculate this metric by aggregating the actual transaction data, such as invoices or purchase orders, from customers on our platform. While we do not believe this metric is directly correlated to our financial results, we believe the adoption of our platform, as evidenced by growth in cumulative spend under management, drives additional value to our customers, which will enhance our ability to acquire new customers, to increase renewals and to increase upsells due to an increase in the number of authorized users and modules per customer.

 

Deferred Revenue

We generally sign multiple year subscription contracts for our platform and invoice an initial amount at contract signing followed by subsequent annual invoices. Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenues as of the end of a reporting period. The majority of our deferred revenue balance consists of subscription revenues that are recognized ratably over the contractual period.

16


 

Non‑GAAP Financial Measures

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non‑GAAP measures are useful in evaluating our operating performance. We regularly review the measures set forth below as we evaluate our business.

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Non-GAAP operating loss

 

$

(4,624

)

 

$

(10,014

)

Non-GAAP net loss

 

$

(4,450

)

 

$

(9,855

)

 

We define non‑GAAP operating loss as operating loss before stock‑based compensation, litigation related costs and amortization of acquired intangible assets. We define non‑GAAP net loss as net loss and comprehensive loss before stock‑based compensation, litigation‑related costs and amortization of acquired intangible assets and related tax effects.

 

We believe non‑GAAP operating loss and non-GAAP net loss provide investors and other users of our financial information consistency and comparability with our past financial performance and facilitate period to period comparisons of operations. We believe non‑GAAP operating loss and non-GAAP net loss are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance.

 

We use non‑GAAP operating loss and non-GAAP net loss in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non‑GAAP operating loss and non-GAAP net loss should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.

 

We compensate for these limitations by providing investors and other users of our financial information a reconciliation of non‑GAAP operating loss to loss from operations and non-GAAP net loss to net loss and comprehensive loss, the related GAAP financial measures. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non‑GAAP operating loss and non-GAAP net loss in conjunction with loss from operations and net loss and comprehensive loss. The following tables provide a reconciliation of loss from operations to non‑GAAP operating loss and from net loss and comprehensive loss to non-GAAP net loss:

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Loss from operations

 

$

(10,387

)

 

$

(12,064

)

Stock-based compensation

 

 

5,277

 

 

 

1,706

 

Litigation related costs

 

 

-

 

 

 

123

 

Amortization of acquired intangible assets

 

 

486

 

 

 

221

 

Non-GAAP operating loss

 

$

(4,624

)

 

$

(10,014

)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Net loss and comprehensive loss

 

$

(10,038

)

 

$

(11,867

)

Stock-based compensation

 

 

5,277

 

 

 

1,706

 

Litigation related costs

 

 

-

 

 

 

123

 

Amortization of acquired intangible assets

 

 

486

 

 

 

221

 

Aggregate adjustment for income taxes

 

 

(175

)

 

 

(38

)

Non-GAAP net loss

 

$

(4,450

)

 

$

(9,855

)

 

17


 

Components of Results of Operations

 

Revenues

 

We offer subscriptions to our cloud-based spend management platform, including procurement, invoicing and expense management. We derive our revenues primarily from subscription fees and professional services fees.  Subscription revenues consist primarily of fees to provide our customers access to our cloud-based platform, which includes routine customer support at no additional cost. Professional services fees include deployment services, optimization services, and training. Subscription revenues are a function of the number of customers, the number of users at each customer, the number of modules subscribed to by each customer, the price of our modules, and renewal rates.

 

Subscription revenues accounted for approximately 87% of our revenues for each of the three months ended April 30, 2017 and April 30, 2016. Subscription fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer. Our new business subscriptions typically have a term of three years, although some of our customers opt for a shorter or longer period. We generally invoice our customers in annual installments at the beginning of each year in the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Amounts that have not been invoiced are not reflected in our consolidated financial statements.

 

Professional services revenues consist primarily of fees associated with the implementation and configuration of our subscription service. Professional services are generally sold on a fixed-fee or time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. For fixed-fee and other types of arrangements entered into prior to the fourth quarter of the fiscal year ending January 31, 2017, professional services revenue was generally deferred and recognized upon the completion of the project under the completed performance method of accounting. During the fourth quarter of the fiscal year ending January 31, 2017, we developed the ability to accurately estimate professional services costs on a project basis. As such, revenue for fixed-fee and other types of arrangements entered into after the third quarter of the fiscal year ending January 31, 2017 is recognized as services are performed under the proportional performance method of accounting.

 

Our professional services engagements typically span from a few weeks to several months, which, when accounted for under the completed performance method, makes it somewhat difficult to predict the timing of revenue recognition for such services. The terms of our typical professional services arrangements provide that our customers pay us within 30 days of invoice. Fixed-fee services arrangements are generally invoiced in advance. We have made significant investments in our professional services business that are designed to ensure customer success and adoption of our platform. We are continuing to invest in expanding our professional services partner ecosystem to further support our customers. As the professional services practices of our partner firms continue to develop, we expect them to increasingly contract directly with our subscription customers and we incentivize our sales force to further this objective.

 

Cost of Revenues

 

Subscription Services

Cost of subscription services consists primarily of expenses related to hosting our service and providing customer support. Significant expenses are comprised of data center capacity costs; personnel and related costs directly associated with our cloud infrastructure and customer support, including salaries, benefits, bonuses and stock-based compensation; allocated overhead; and amortization of developed technology.

 

Professional Services and Other Cost of Revenues

Cost of professional services and other cost of revenues consist primarily of personnel and related costs directly associated with our professional services and training departments, including salaries, benefits, bonuses and stock-based compensation; the costs of contracted third-party vendors; and allocated overhead. These costs are generally expensed in the period incurred; therefore, the costs associated with our professional services revenues may not align with the period in which the corresponding professional services revenues are recognized because we use the completed performance method of accounting for professional services revenues under fixed-fee arrangements for professional services entered into prior to the fourth quarter of the fiscal year ending January 31, 2017.

 

During the fourth quarter of the fiscal year ending January 31, 2017, we developed the ability to accurately estimate professional services costs on a project basis. As such, revenue for fixed‑fee and other types of arrangements entered into after the third quarter of the fiscal year ending January 31, 2017 is recognized as services are performed under the proportional performance method of accounting. The proportional performance method of accounting has been only applied prospectively to arrangements entered since the fourth quarter of the fiscal year ending January 31, 2017.

18


 

 

Professional services associated with the implementation and configuration of our subscription platform are performed directly by our services team, as well as by contracted third-party vendors. In cases in which third party vendors invoice us for services performed for our customers, those fees are accrued over the requisite service period.

 

Operating Expenses

 

Research and Development

Research and development expenses consist primarily of personnel costs of our development team, including salaries, benefits, bonuses, stock-based compensation expense and allocated overhead costs. Our cycle of frequent updates has facilitated rapid innovation and the introduction of new modules throughout our history. We have aggressively invested, and intend to continue to invest, in developing technology to support our growth. We capitalize certain software development costs that are attributable to developing new modules and features and adding incremental functionality to our platform, and we amortize such costs as costs of subscription revenues over the estimated life of the new application or incremental functionality, which is two years.

 

Sales and Marketing

Sales and marketing expenses consist primarily of personnel and related costs directly associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. Commissions earned by our sales force that can be associated directly with a noncancellable subscription contract are deferred and amortized over the same period that revenues are to be recognized for the related noncancellable contract. Other sales and marketing costs include promotional events to promote our brand, including our INSPIRE conferences, advertising and allocated overhead.

 

General and Administrative

General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, recruiting, and employee-related information technology and administrative personnel, including salaries, benefits, bonuses and stock-based compensation expense; professional fees for external legal, accounting, recruiting and other consulting services; allocated overhead costs; and legal settlements.

Other Expense, Net

Other expense, net consists primarily of the change in the fair value of our preferred stock warrants, effect of exchange rates on our foreign currency-denominated asset and liability balances, and interest income earned on our cash and cash equivalents. All translation adjustments are recorded as foreign currency gains (losses) in the consolidated statements of operations.

 

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. and international deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized.

19


 

Results of Operations

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:

 

  

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Revenues:

 

 

 

 

 

 

 

 

Subscription services

 

$

35,664

 

 

$

25,372

 

Professional services and other

 

 

5,473

 

 

 

3,811

 

Total revenues

 

 

41,137

 

 

 

29,183

 

Cost of revenues:

 

 

 

 

 

 

 

 

Subscription services

 

 

7,996

 

 

 

6,050

 

Professional services and other

 

 

5,501

 

 

 

5,968

 

Total cost of revenues

 

 

13,497

 

 

 

12,018

 

Gross profit

 

 

27,640

 

 

 

17,165

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

9,171

 

 

 

7,840

 

Sales and marketing

 

 

20,679

 

 

 

15,836

 

General and administrative

 

 

8,177

 

 

 

5,553

 

Total operating expenses

 

 

38,027

 

 

 

29,229

 

Loss from operations

 

 

(10,387

)

 

 

(12,064

)

Other income, net

 

 

433

 

 

 

323

 

Loss before provision for income taxes

 

 

(9,954

)

 

 

(11,741

)

Provision for income taxes

 

 

84

 

 

 

126

 

Net loss and comprehensive loss

 

$

(10,038

)

 

$

(11,867

)

 

 

 

Three Months Ended

 

 

 

 

April 30,

 

 

 

 

2017

 

 

 

2016

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Subscription services

 

 

87

 

%

 

 

87

 

%

Professional services and other

 

 

13