10-Q 1 hubs-10q_20150630.htm 10-Q hubs-10q_20150630.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 June 30, 2015

OR

¨

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

FOR THE TRANSITION PERIOD FROM                       TO                     

COMMISSION FILE NUMBER 001-36680

 

HubSpot, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

20-2632791

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

25 First Street, 2nd Floor

Cambridge, Massachusetts, 02141

(Address of principal executive offices)

(888) 482-7768

(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 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 (§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   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. (Check one):

 

 

 

 

 

 

 

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x   (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

There were 33,754,797 shares of the registrant’s Common Stock issued and outstanding as of July 31, 2015.

 

 


HUBSPOT, INC.

Table of Contents

 

Part I — Financial Information

 

 

 

 

Item 1.

 

Unaudited Consolidated Financial Statements:

 

 

 

Unaudited Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

4

 

 

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014

5

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

 

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

15

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

 

Controls and Procedures

23

 

 

 

 

Part II — Other Information

Item 1.

 

Legal Proceedings

25

Item 1A.

 

Risk Factors

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

 

Default Upon Senior Securities

42

Item 4.

 

Mine Safety Disclosures

42

Item 5.

 

Other Information

42

Item 6.

 

Exhibits

42

Signatures

 

 

 

EX-31.1

 

CERTIFICATION OF THE CEO PURSUANT TO SECTION 302

 

EX-31.2

 

CERTIFICATION OF THE CFO PURSUANT TO SECTION 302

 

EX-32.1

 

CERTIFICATION OF THE CEO AND CFO PURSUANT TO SECTION 906

 

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

·

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross margin and operating expenses;

·

maintaining and expanding our customer base and increasing our average subscription revenue per customer;

·

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

·

our anticipated growth and expectations regarding our ability to manage our future growth;

·

our predictions about industry and market trends;

·

our ability to anticipate and address the evolution of technology and the technological needs of our customers, to roll-out upgrades to our existing software platform and to develop new and enhanced applications to meet the needs of our customers;

·

our ability to maintain our brand and inbound marketing thought leadership position;

·

the impact of our corporate culture and our ability to attract, hire and retain necessary qualified employees to expand our operations;

·

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

·

our ability to successfully acquire and integrate companies and assets; and

·

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

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors 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 and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

 

3


PART I — Financial Information

 

 

ITEM 1.

Financial Statements

HubSpot, Inc.

Unaudited Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74,235

 

 

$

123,721

 

Short-term investments

 

 

35,591

 

 

 

 

Accounts receivable — net of allowance for doubtful accounts of $233 and $218

   at June 30, 2015 and December 31, 2014, respectively

 

 

16,217

 

 

 

14,270

 

Deferred commission expense

 

 

6,009

 

 

 

5,995

 

Restricted cash

 

 

210

 

 

 

230

 

Prepaid hosting costs

 

 

1,928

 

 

 

1,777

 

Prepaid expenses and other current assets

 

 

6,570

 

 

 

3,516

 

Total current assets

 

 

140,760

 

 

 

149,509

 

Long-term investments

 

 

42,342

 

 

 

 

Property and equipment, net

 

 

11,337

 

 

 

11,381

 

Capitalized software development costs, net

 

 

4,233

 

 

 

4,433

 

Other assets

 

 

259

 

 

 

116

 

Intangible assets, net

 

 

153

 

 

 

89

 

Goodwill

 

 

9,773

 

 

 

9,330

 

Total assets

 

 

208,857

 

 

 

174,858

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

2,415

 

 

 

2,800

 

Accrued compensation costs

 

 

8,182

 

 

 

7,660

 

Other accrued expenses

 

 

12,608

 

 

 

7,953

 

Capital lease obligations

 

 

235

 

 

 

100

 

Deferred rent

 

 

562

 

 

 

110

 

Deferred revenue

 

 

49,712

 

 

 

40,805

 

Total current liabilities

 

 

73,714

 

 

 

59,428

 

Capital lease obligations, net of current portion

 

 

141

 

 

 

78

 

Deferred rent, net of current portion

 

 

4,149

 

 

 

4,153

 

Deferred revenue, net of current portion

 

 

534

 

 

 

500

 

Total liabilities

 

 

78,538

 

 

 

64,159

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock

 

 

33

 

 

 

32

 

Additional paid-in capital

 

 

307,295

 

 

 

265,113

 

Accumulated other comprehensive loss

 

 

(458

)

 

 

(145

)

Accumulated deficit

 

 

(176,551

)

 

 

(154,301

)

Total stockholders’ equity

 

 

130,319

 

 

 

110,699

 

Total liabilities and stockholders’ equity

 

$

208,857

 

 

$

174,858

 

 

The accompanying notes are an integral part of the consolidated financial statements.

4


HubSpot, Inc.

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

39,273

 

 

$

24,903

 

 

$

74,212

 

 

$

47,188

 

Professional services and other

 

 

3,668

 

 

 

2,195

 

 

 

6,895

 

 

 

4,084

 

Total revenue

 

 

42,941

 

 

 

27,098

 

 

 

81,107

 

 

 

51,272

 

Cost of Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

7,484

 

 

 

5,668

 

 

 

14,424

 

 

 

10,765

 

Professional services and other

 

 

3,789

 

 

 

2,614

 

 

 

7,314

 

 

 

5,181

 

Total cost of revenues

 

 

11,273

 

 

 

8,282

 

 

 

21,738

 

 

 

15,946

 

Gross profit

 

 

31,668

 

 

 

18,816

 

 

 

59,369

 

 

 

35,326

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,158

 

 

 

4,948

 

 

 

15,658

 

 

 

9,641

 

Sales and marketing

 

 

26,291

 

 

 

17,094

 

 

 

50,188

 

 

 

33,020

 

General and administrative

 

 

8,541

 

 

 

5,051

 

 

 

16,255

 

 

 

10,356

 

Total operating expenses

 

 

42,990

 

 

 

27,093

 

 

 

82,101

 

 

 

53,017

 

Loss from operations

 

 

(11,322

)

 

 

(8,277

)

 

 

(22,732

)

 

 

(17,691

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

101

 

 

 

1

 

 

 

108

 

 

 

3

 

Interest expense

 

 

(79

)

 

 

(70

)

 

 

(109

)

 

 

(121

)

Other (expense) income

 

 

(55

)

 

 

67

 

 

 

572

 

 

 

65

 

Total other (expense) income

 

 

(33

)

 

 

(2

)

 

 

571

 

 

 

(53

)

Loss before provision for income taxes

 

 

(11,355

)

 

 

(8,279

)

 

 

(22,161

)

 

 

(17,744

)

Provision for income taxes

 

 

(37

)

 

 

 

 

 

(89

)

 

 

 

Net loss

 

 

(11,392

)

 

 

(8,279

)

 

 

(22,250

)

 

 

(17,744

)

Preferred stock accretion

 

 

 

 

 

(13

)

 

 

 

 

 

(27

)

Net loss attributable to common stockholders

 

$

(11,392

)

 

$

(8,292

)

 

$

(22,250

)

 

$

(17,771

)

Net loss attributable to common stockholders per share, basic and

   diluted

 

$

(0.34

)

 

$

(1.44

)

 

$

(0.69

)

 

$

(3.15

)

Weighted average common shares used in computing basic and

   diluted net loss attributable to common stockholders per share:

 

 

33,208

 

 

 

5,773

 

 

 

32,432

 

 

 

5,636

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5


HubSpot, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss

 

$

(11,392

)

 

$

(8,279

)

 

$

(22,250

)

 

$

(17,744

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

55

 

 

 

(1

)

 

 

(153

)

 

 

(2

)

Changes in unrealized losses on investments

 

 

(133

)

 

 

 

 

 

(160

)

 

 

 

Comprehensive loss

 

$

(11,470

)

 

$

(8,280

)

 

$

(22,563

)

 

$

(17,746

)

 

The accompanying notes are an integral part of the consolidated financial statements.

6


HubSpot, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended

June 30,

 

 

 

2015

 

 

2014

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,250

)

 

$

(17,744

)

Adjustments to reconcile net loss to net cash and cash equivalents provided by (used

   in) operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,565

 

 

 

3,047

 

Stock-based compensation

 

 

10,783

 

 

 

2,248

 

Provision for deferred income taxes

 

 

26

 

 

 

 

Provision for doubtful accounts

 

 

454

 

 

 

258

 

Amortization of bond premium discount

 

 

192

 

 

 

 

Noncash rent expense

 

 

192

 

 

 

206

 

Unrealized currency translation

 

 

(289

)

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,572

)

 

 

(2,329

)

Prepaid expenses and other assets

 

 

(3,352

)

 

 

(203

)

Deferred commission expense

 

 

(14

)

 

 

(590

)

Accounts payable

 

 

(310

)

 

 

60

 

Accrued expenses

 

 

4,542

 

 

 

1,232

 

Restricted cash

 

 

 

 

 

157

 

Deferred rent

 

 

265

 

 

 

1,234

 

Deferred revenue

 

 

9,531

 

 

 

7,530

 

Net cash and cash equivalents provided by (used in) operating activities

 

 

763

 

 

 

(4,894

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(78,283

)

 

 

 

Purchases of property and equipment

 

 

(1,183

)

 

 

(4,924

)

Capitalization of software development costs

 

 

(1,792

)

 

 

(2,372

)

Acquisition of a business

 

 

(600

)

 

 

 

Acquisition of intangible assets

 

 

 

 

 

(80

)

Restricted cash

 

 

 

 

 

1,500

 

Net cash and cash equivalents used in investing activities

 

 

(81,858

)

 

 

(5,876

)

Financing Activities:

 

 

 

 

 

 

 

 

Secondary offering  proceeds, net of offering costs paid of $573

 

 

33,679

 

 

 

 

Proceeds from draw-down on line of credit

 

 

 

 

 

5,000

 

Employee taxes paid related to the net share settlement of stock-based awards

 

 

(7,852

)

 

 

 

Proceeds related to the issuance of common stock under stock plans

 

 

6,189

 

 

 

2,039

 

Payment of deferred initial public offering costs

 

 

 

 

 

(1,507

)

Repayments of capital lease obligations

 

 

(49

)

 

 

(75

)

Net cash and cash equivalents provided by financing activities

 

 

31,967

 

 

 

5,457

 

Effect of exchange rate changes on cash

 

 

(358

)

 

 

(28

)

Net decrease in cash and cash equivalents

 

 

(49,486

)

 

 

(5,341

)

Cash and cash equivalents, beginning of period

 

 

123,721

 

 

 

12,643

 

Cash and cash equivalents, end of period

 

$

74,235

 

 

$

7,302

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash and cash equivalents paid for interest

 

$

109

 

 

$

31

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property acquired under capital lease

 

$

246

 

 

$

 

Offering costs incurred but not yet paid

 

$

 

 

$

825

 

Capital expenditures incurred but not yet paid

 

$

60

 

 

$

414

 

Accretion of preferred stock

 

$

 

 

$

27

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

7


HubSpot, Inc.

Notes to Unaudited Consolidated Financial Statements

 

 

1. Organization and Operations

HubSpot, Inc. (the “Company”), was formed as a limited liability company in Delaware on April 4, 2005. The Company converted to a Delaware corporation on June 7, 2007. The Company provides a cloud-based inbound marketing and sales platform which features integrated applications to help businesses attract visitors to their websites, convert visitors into leads, close leads into customers and delight customers so they become promoters of those businesses. These integrated applications include social media, search engine optimization, blogging, website content management, marketing automation, email, CRM, analytics, and reporting.

The Company is headquartered in Cambridge, Massachusetts, and has wholly-owned subsidiaries in Dublin, Ireland, which commenced operations in January of 2013 and in Sydney, Australia, which commenced operations in August of 2014.

On March 24, 2015, the Company closed a common stock public offering whereby 971,891 shares of common stock were sold to the public, including the underwriters’ overallotment option of 121,891 shares of common stock, at a price of $37.00 per share. The Company received aggregate proceeds of approximately $34.3 million from the offering, net of underwriters’ discounts and commissions, but before deduction of offering expenses of approximately $573 thousand.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management the Company had prepared the accompanying unaudited financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2014, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2015. The year-end balance sheet data was derived from audited financial statements, but this Form 10-Q does not include all disclosures required under GAAP. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted under the rules and regulations of the SEC.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 5, 2015. There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes other than the addition of investments described below.

Investments

Investments consist of corporate debt securities. Securities having remaining maturities of more than three months at the date of purchase and less than one year from the date of the balance sheets are classified as short-term, and those with maturities of more than one year from the date of the balance sheet are classified as long-term in the consolidated balance sheets. The Company classifies its debt investments with readily determinable market values as available-for-sale. These investments are classified as investments on the consolidated balance sheets and are carried at fair market value, with unrealized gains and losses considered to be temporary in nature reported as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. The Company reviews all investments for reductions in fair value that are other-than-temporary. When such reductions occur, the cost of the investment is adjusted to fair value through recording a loss on investments in the consolidated statements of operations. Gains and losses on investments are calculated on the basis of specific identification.

Investments are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary. The Company periodically evaluates whether a decline in fair value below cost basis is other-than-temporary by considering available evidence regarding these investments including, among other factors: the duration of the period that, and extent to which, the fair value is less than cost basis; the financial health of, and business outlook for the issuer, including industry and sector performance and operational and financing cash flow factors; overall market conditions and trends and the Company’s intent and ability to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in market value. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded and a new cost basis in the security is established. Assessing the above factors involves inherent uncertainty. Write-downs, if recorded, could be materially different from the actual market performance of investments in the Company’s portfolio if, among other things, relevant information related to the investment was not publicly available.

8


Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued updated guidance and disclosure requirements for recognizing revenue. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard now would be effective for annual reporting periods beginning January 1, 2018. The FASB will permit companies to adopt the new standard early, but not before the original effective date of January 1,2017. The Company is evaluating the potential impact of adopting this new accounting guidance.

In June 2014, the FASB issued a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective beginning January 1, 2016, with early adoption permitted. We do not expect it to have a material impact on our consolidated financial position, results of operations or cash flows.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year’s presentation. During the three and six months ended June 30, 2015, the Company classified $673 thousand and $1.3 million, respectively, of credit card fees associated with customer payments within general and administrative expenses on the consolidated statement of operations. Accordingly, the Company reclassified $457 thousand of credit card fees associated with customer payments for the three months ended June 30, 2014 and $907 thousand for the six months ended June 30, 2014 from cost of revenues, subscription to general and administrative expenses to confirm with this presentation. The Company will also reclassify credit card fees of $500 thousand for the three months ended September 30, 2014, and $593 thousand for the three months ended December 31, 2014.

 

 

2. Net Loss per Share

Basic net loss attributable to common stockholders per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, common stock warrants, restricted stock units (“RSUs”) and redeemable convertible preferred stock are considered to be common stock equivalents. The Company applied the two-class method to calculate its basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014, as its convertible preferred stock and common stock are participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company was in a loss position for the three and six months ended June 30, 2014 and preferred stockholders did not participate in losses.

A reconciliation of the denominator used in the calculation of basic and diluted loss attributable to common stockholders per share is as follows:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss attributable to common stockholders

 

$

(11,392

)

 

$

(8,292

)

 

$

(22,250

)

 

$

(17,771

)

Weighted-average common shares outstanding — basic

 

 

33,208

 

 

 

5,773

 

 

 

32,432

 

 

 

5,636

 

Dilutive effect of share equivalents resulting from stock

   options, RSUs, common stock warrants, and redeemable

   convertible preferred shares (as converted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares, outstanding — diluted

 

 

33,208

 

 

 

5,773

 

 

 

32,432

 

 

 

5,636

 

Net loss attributable to common stockholders per share,

   basic and diluted

 

$

(0.34

)

 

$

(1.44

)

 

$

(0.69

)

 

$

(3.15

)

 

9


Additionally, since the Company incurred net losses for each of the periods presented, diluted net loss attributable to common stockholders per share is the same as basic net loss attributable to common stockholders per share. The Company’s outstanding stock options, RSUs, common stock warrants, and redeemable convertible preferred stock were not included in the calculation of diluted loss attributable to common stockholders per share as the effect would be anti-dilutive. The following table contains all potentially dilutive common stock equivalents.

 

 

 

As of  June 30,

 

 

 

2015

 

 

2014

 

 

 

(in thousands)

 

Options to purchase common shares

 

 

4,079

 

 

 

4,809

 

Common stock warrants

 

 

 

 

 

13

 

Convertible preferred stock (as converted)

 

 

 

 

 

19,530

 

RSUs

 

 

1,642

 

 

 

1,169

 

 

 

 

3. Fair Value of Financial Instruments

The Company measures certain financial assets at fair value. Fair value is determined 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, as follows:

·

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

·

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

·

Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at June 30, 2015 and December 31, 2014.

 

 

 

June 30, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Money market funds

 

$

14,605

 

 

$

 

 

$

 

 

$

14,605

 

Commercial paper

 

 

 

 

 

15,982

 

 

 

 

 

 

15,982

 

Corporate bonds

 

 

 

 

 

61,947

 

 

 

 

 

 

61,947

 

U.S. government agency obligations

 

 

 

 

 

7,004

 

 

 

 

 

 

7,004

 

Total

 

$

14,605

 

 

$

84,933

 

 

$

 

 

$

99,538

 

 

 

 

December 31, 2014

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Money market funds

 

$

100,000

 

 

$

 

 

$

 

 

$

100,000

 

Total

 

$

100,000

 

 

$

 

 

$

 

 

$

100,000

 

 

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets.

Certain holdings classified as commercial paper and corporate bonds above had original maturities to the Company of less than 90 days, and therefore have been included within cash and cash equivalents within the consolidated balance sheets.

For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

10


The following tables summarize the composition of our short- and long-term investments at June 30, 2015. The Company did not have any investments at December 31, 2014.

 

 

 

June 30, 2015

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

(Losses)

 

 

Aggregate

Fair Value

 

 

 

(in thousands)

 

Commercial paper

 

$

12,983

 

 

$

 

 

$

(1

)

 

$

12,982

 

Corporate bonds

 

 

58,100

 

 

 

 

 

 

(153

)

 

 

57,947

 

U.S. government agency obligations

 

 

7,010

 

 

 

 

 

 

(6

)

 

 

7,004

 

Total

 

$

78,093

 

 

$

 

 

$

(160

)

 

$

77,933

 

 

For all of our securities for which the amortized cost basis was greater than the fair value at June 30, 2015, the Company has concluded that there is no plan to sell the security nor is it more likely than not that the Company would be required to sell the security before its anticipated recovery. In making the determination as to whether the unrealized loss is other-than-temporary, the Company considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

Contractual Maturities

The contractual maturities of short-term and long-term investments held at June 30, 2015 are as follows:

 

 

 

June 30, 2015

 

 

 

Amortized

Cost Basis

 

 

Aggregate

Fair Value

 

 

 

( in thousands)

 

Due within one year

 

$

35,627

 

 

$

35,591

 

Due after 1 year through 2 years

 

 

42,466

 

 

 

42,342

 

Total

 

$

78,093

 

 

$

77,933

 

 

 

4. Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

 

June 30,

2015

 

 

December 31,

2014

 

 

 

(in thousands)

 

Computer equipment & purchased software

 

$

1,018

 

 

$

904

 

Furniture and fixtures

 

 

3,441

 

 

 

3,010

 

Office equipment

 

 

1,210

 

 

 

1,118

 

Leasehold improvements

 

 

10,562

 

 

 

10,153

 

Equipment under capital lease

 

 

808

 

 

 

562

 

Total property and equipment

 

 

17,039

 

 

 

15,747

 

Less accumulated depreciation

 

 

(5,702

)

 

 

(4,366

)

Property and equipment, net

 

$

11,337

 

 

$

11,381

 

 

Depreciation expense was $696 thousand for the three months ended June 30, 2015, $1.4 million for the six months ended June 30, 2015, $631 thousand for the three months ended June 30, 2014, and $1.2 million for the six months ended June 30, 2014.

 

 

5. Capitalized Software Development Costs

Capitalized software development costs consisted of the following:

 

 

 

June 30,

2015

 

 

December 31,

2014

 

 

 

(in thousands)

 

Gross capitalized software development costs

 

$

16,176

 

 

$

14,219

 

Accumulated amortization

 

 

(11,943

)

 

 

(9,786

)

Capitalized software development costs, net

 

$

4,233

 

 

$

4,433

 

 

11


The following table summarizes software development costs capitalized, stock-based compensation included in capitalized software development costs, and amortization of capitalized software development costs:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(in thousands)

 

 

(in thousands)

 

Software development costs capitalized

 

$

1,103

 

 

$

1,493

 

 

$

1,957

 

 

$

2,498

 

Stock-based compensation included in

   capitalized software development costs

 

$

82

 

 

$

75

 

 

$

165

 

 

$

126

 

Amortization of software development costs

 

$

1,096

 

 

$

923

 

 

$

2,157

 

 

$

1,751

 

 

 

6. Business Combination, Intangible Assets and Goodwill

During the six months ended June 30, 2015 the Company acquired certain assets and treated this purchase as a business combination. The Company paid cash considerations of $600 thousand for these assets and allocated $107 thousand to acquired technology, $50 thousand to certain other assets, and the remaining $443 thousand to goodwill.

Intangible assets as of June 30, 2015 and December 31, 2014 were as follows:

 

 

 

June 30,

2015

 

 

December 31,

2014

 

 

 

(in thousands)

 

Acquired technology

 

$

852

 

 

$

745

 

Acquired intellectual property

 

80

 

 

80

 

Accumulated amortization

 

 

(779

)

 

 

(736

)

Total

 

$

153

 

 

$

89

 

 

Amortization expense related to intangible assets was $26 thousand for the three months ended June 30, 2015, $44 thousand for the six months ended June 30, 2015, $50 thousand for the three months ended June 30, 2014 and $112 thousand for the six months ended June 30, 2014. Amortization expense of acquired technology is included in cost of subscription revenue in the consolidated statements of operations. Amortization expense of acquired intellectual property is included in sales and marketing expense in the consolidated statements of operations.

Remaining amortization expense for intangible assets is as follows:

 

Years ended

December 31,

 

Amortization

Expense

 

 

 

(in thousands)

 

2015

 

 

53

 

2016

 

 

84

 

2017

 

 

16

 

Total

 

 

153

 

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2015 were as follows:

 

 

 

(in thousands)

 

Balance as of December 31, 2014

 

$

9,330

 

Business Combination

 

443

 

Balance as of June 30, 2015

 

$

9,773

 

 

 

7. Commitments and Contingencies

Except as set forth below, there were no material changes in our commitments under contractual obligations, as disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2014.

In April 2015, the Company entered into a new 10 year property lease for approximately 60,000 square feet of space. The lease commences on January 1, 2016 and the Company will pay an aggregate of approximately $37 million in rent over the 10 year lease period.

12


Future minimum payments under all operating and capital lease agreements as of June 30, 2015, are as follows:

 

 

 

Operating

 

 

Capital

 

 

 

(in thousands)

 

2015

 

$

2,820

 

 

$

122

 

2016

 

 

9,269

 

 

 

217

 

2017

 

 

9,779

 

 

 

50

 

2018

 

 

9,636

 

 

 

 

2019

 

 

9,826

 

 

 

 

Thereafter

 

 

28,501

 

 

 

 

Total

 

$

69,831

 

 

 

389

 

 

 

 

 

 

 

 

 

 

Less: Portion representing interest

 

 

 

 

 

 

(13

)

Capital lease obligation

 

 

 

 

 

$

376

 

 

Additionally, in May 2015, the Company entered into a renewal agreement with a customer relationship management vendor. The Company’s contractual obligation under this agreement is approximately $30 million, payable over the sixty month term of the agreement.

Legal Contingencies

From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, and threatened claims, breach of contract claims, tax, and other matters. We currently have no material pending litigation.

 

 

8. Changes in Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, which is reported as a component of stockholders’ deficit, for the six months ended June 30, 2015.

 

 

 

Foreign

Currency Items

 

 

Unrealized loss on

investments

 

 

Total

 

 

 

(in thousands)

 

Beginning balance at December 31, 2014

 

$

(145

)

 

$

 

 

$

(145

)

Other comprehensive loss before reclassifications

 

 

(153

)

 

 

(160

)

 

 

(313

)

Amounts reclassified from accumulated other

   comprehensive income

 

 

 

 

 

 

 

 

 

Ending balance at June 30, 2015

 

$

(298

)

 

$

(160

)

 

$

(458

)

 

 

9. Stock-Based Compensation Expense

The following two tables show stock-based compensation expense by award type and where the stock-based compensation expense is recorded in the Company’s consolidated statements of operations:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(in thousands)

 

 

(in thousands)

 

Options

 

$

1,621

 

 

$

1,176

 

 

$

3,270

 

 

$

2,248

 

RSUs

 

 

3,581

 

 

 

 

 

 

6,909