Notes to the Condensed Consolidated Financial Statements
(Unaudited)
(1) Business and Nature of Operations
Everbridge, Inc., a Delaware corporation (together with its wholly-owned subsidiaries, referred to as “Everbridge” or the “Company”), is a global software company that provides critical event management and enterprise safety applications that enable customers to automate and accelerate the process of keeping people safe and businesses running during critical events. The Company’s SaaS-based platform enables the Company’s customers to quickly and reliably deliver messaging to a large group of people during critical situations. The Company’s enterprise applications, such as Mass Notification, Incident Management, IT Alerting, Safety Connection, Community Engagement, CareConverge, Crisis Commander and Visual Command Center, automate numerous critical event management and enterprise safety processes. The Company generates revenue primarily from subscription fees to the Company’s enterprise applications. The Company has operations in the United States, Sweden, the United Kingdom and China.
Initial and Follow-On Public Offering
On September 21, 2016, the Company completed an initial public offering (“IPO”) in which the Company sold 6,250,000 shares of its common stock at the public offering price of $12.00 per share. The Company received net proceeds of $66.1 million, after deducting underwriting discounts and commissions and offering expenses paid and payable by the Company, from sales of its shares in the IPO.
In April 2017, the Company completed a follow-on public offering in which the Company sold 553,825 shares of its common stock, which included 26,825 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $19.85 per share. In addition, 3,162,164 shares of the Company’s common stock were sold by selling stockholders of the Company, which included 73,000 shares sold pursuant to the exercise of employee stock options by certain selling stockholders. The Company received net proceeds of $9.9 million, after deducting underwriting discounts and commissions and offering expenses paid and payable by the Company. The Company did not receive any proceeds from the sales by the selling stockholders.
As of June 30, 2017, 27,990,297 shares of the Company’s common stock were outstanding.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. 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 U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The condensed consolidated balance sheet as of December 31, 2016, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by U.S. 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 of operations to be anticipated for the full year 2017 or any future period.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
Assets and liabilitie
s which are subject to judgment and use of estimates include allowances for doubtful accounts, the fair value of assets acquired and liabilities assumed in business combinations, the recoverability of goodwill and long-lived assets, valuation allowances wi
th respect to deferred tax assets, useful lives associated with property and equipment and intangible assets, contingencies, and the valuation and assumptions underlying stock-based compensation. On an ongoing basis, the Company evaluates its estimates com
pared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engaged valuation specialists to assist with management’s determination of the valuation of it
s fair values of assets acquired and liabilities assumed in business combinations.
Concentrations of Credit and Business Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable.
The Company maintains cash balances at several banks. Accounts located in the United States are insured by the Federal Deposit Insurance Corporation, or FDIC, up to $250,000. From time to time, balances may exceed amounts insured by the FDIC. The Company has not experienced any losses in such amounts.
The Company’s accounts receivable are generally unsecured and are derived from revenue earned from customers located in the United States, Sweden and the United Kingdom and are generally denominated in U.S. dollars, Swedish kronor or British pounds. Each reporting period, the Company reevaluates each customer’s ability to satisfy credit obligations and maintains an allowance for doubtful accounts based on the evaluations. No single customer comprised more than 10% of the Company’s total revenue or accounts receivable for the three or six months ended June 30, 2017 and 2016.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. As of June 30, 2017, $29.7 million of the Company’s cash equivalents were invested in money market funds.
Short-Term Investments
Short-term investments consist of highly liquid investments, primarily commercial paper, U.S. Treasury and U.S. agency securities, with maturities over three months from the date of purchase. Debt securities, money market funds and U.S. agency bonds that the Company has the ability and positive intent to hold to maturity are carried at amortized cost, which approximates fair value. Short-term investments of $12.4 million and none at June 30, 2017 and December 31, 2016, respectively, were classified as held-to-maturity and primarily comprised of U.S. Treasury and U.S. agency securities. All held-to-maturity securities at June 30, 2017 have maturity dates within one year.
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Recently Issued Accounting Guidance, Not Yet Adopted
In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. This guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, and early adoption is permitted. This guidance must be applied on a prospective basis. The Company expects to adopt this guidance for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this guidance to have a material impact on its financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. This guidance narrows the definition of a business. This standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. This guidance must be applied prospectively to transactions occurring within the period of adoption. The Company expects to adopt this guidance effective January 1, 2018. The Company does not expect the adoption of this guidance to have a material impact on its financial position, results of operations or cash flows.
9
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. This guidance requires that a statement of cash flows explain t
he change during the period in the total of cash, cash equivalents, and restricted cash. As a result, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the stat
ement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, and the new guidance is to be applied retrospectively. The Company does not e
xpect the adoption of this guidance to have a material impact on its cash flows.
In September 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company's treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.
In February 2016, the FASB issued ASU 2016-02,
Leases
, to require lessees to recognize most leases on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. The ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. Adoption of the ASU is modified retrospective. We are still in the process of evaluating the ASU but currently plan to adopt the ASU on January 1, 2019
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606),
which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The new revenue recognition standard will be effective for the Company in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company currently anticipates adopting the new standard effective January 1, 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. The Company is still in the process of completing its analysis on the impact this guidance will have on its consolidated financial statements and related disclosures.
(3) Accounts Receivable, Net
Accounts receivable, net is as follows (in thousands):
|
|
As of
|
|
|
As of
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accounts receivable
|
|
$
|
22,602
|
|
|
$
|
18,231
|
|
Allowance for doubtful accounts and sales reserve
|
|
|
(726
|
)
|
|
|
(419
|
)
|
Net accounts receivable
|
|
$
|
21,876
|
|
|
$
|
17,812
|
|
Bad debt expense and sales credits reserve were $0.3 million and $0.4 million for the three and six months ended June 30, 2017, respectively, and none and $0.1 million for the three and six months ended June 30, 2016, respectively.
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of period
|
|
$
|
(359
|
)
|
|
$
|
(374
|
)
|
|
$
|
(374
|
)
|
|
$
|
(336
|
)
|
Additions
|
|
|
(289
|
)
|
|
|
—
|
|
|
|
(289
|
)
|
|
|
(87
|
)
|
Write-offs
|
|
|
38
|
|
|
|
—
|
|
|
|
53
|
|
|
|
49
|
|
Balance, end of period
|
|
$
|
(610
|
)
|
|
$
|
(374
|
)
|
|
$
|
(610
|
)
|
|
$
|
(374
|
)
|
10
The following table summarizes the changes in the sales reserve (in thousands):
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of period
|
|
$
|
(125
|
)
|
|
$
|
(45
|
)
|
|
$
|
(45
|
)
|
|
$
|
(45
|
)
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
—
|
|
Write-offs
|
|
|
9
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
Balance, end of period
|
|
$
|
(116
|
)
|
|
$
|
(45
|
)
|
|
$
|
(116
|
)
|
|
$
|
(45
|
)
|
(4) Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
Useful life
in years
|
|
|
As of June 30,
2017
|
|
|
As
of December 31,
2016
|
|
Furniture and equipment
|
|
|
5
|
|
|
$
|
1,653
|
|
|
$
|
928
|
|
System hardware
|
|
|
5
|
|
|
|
3,320
|
|
|
|
3,320
|
|
Office computers
|
|
|
3
|
|
|
|
2,107
|
|
|
|
1,777
|
|
Computer and system software
|
|
|
3
|
|
|
|
1,560
|
|
|
|
1,478
|
|
|
|
|
|
|
|
|
8,640
|
|
|
|
7,503
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(5,716
|
)
|
|
|
(4,580
|
)
|
Property and equipment, net
|
|
|
|
|
|
$
|
2,924
|
|
|
$
|
2,923
|
|
Depreciation and amortization expense for property and equipment was $0.4 million and $1.1 million for the three and six months ended June 30, 2017, respectively, and $0.4 million and $0.8 million for the three and six months ended June 30, 2016, respectively.
(5) Capitalized Software Development Costs
Capitalized software development costs consisted of the following (in thousands):
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
Gross
carrying
amount
|
|
|
Amortization
period
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
|
Capitalized software development costs
|
|
$
|
33,726
|
|
|
3 years
|
|
$
|
(24,436
|
)
|
|
$
|
9,290
|
|
Total capitalized software development costs
|
|
$
|
33,726
|
|
|
|
|
$
|
(24,436
|
)
|
|
$
|
9,290
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Gross
carrying
amount
|
|
|
Amortization
period
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
|
Capitalized software development costs
|
|
$
|
30,658
|
|
|
3 years
|
|
$
|
(21,866
|
)
|
|
$
|
8,792
|
|
Total capitalized software development costs
|
|
$
|
30,658
|
|
|
|
|
$
|
(21,866
|
)
|
|
$
|
8,792
|
|
The Company capitalized software development costs of $3.1 million and $5.5 million for the six months ended June 30, 2017 and the year ended December 31, 2016, respectively.
Amortization expense for capitalized software development costs was $1.1 million and $2.6 million for the three and six months ended June 30, 2017, respectively, and $1.2 million and $2.3 million for the three and six months ended June 30, 2016, respectively. Amortization of capitalized software development costs is classified within cost of revenue in the consolidated statements of operations.
11
The expected amortization of capitalized software development costs, as of June 30, 2017, for each of the following years is as follows (in
thousands):
|
|
Amounts
|
|
2017 (for the remaining six months)
|
|
$
|
2,303
|
|
2018
|
|
|
3,867
|
|
2019
|
|
|
2,610
|
|
2020
|
|
|
510
|
|
|
|
$
|
9,290
|
|
(6) Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, capital leases and accrued liabilities approximate fair value because of the short maturity of these items.
Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. For the six months ended June 30, 2017 and year ended December 31, 2016, no impairments were identified.
The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016 by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
|
|
At June 30, 2017
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash
equivalents)
|
|
$
|
29,724
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
29,724
|
|
U.S. treasury securities
|
|
|
—
|
|
|
|
11,276
|
|
|
|
—
|
|
|
$
|
11,276
|
|
U.S. government agency obligations
|
|
|
—
|
|
|
|
1,159
|
|
|
|
—
|
|
|
$
|
1,159
|
|
Total financial assets
|
|
$
|
29,724
|
|
|
$
|
12,435
|
|
|
$
|
—
|
|
|
$
|
42,159
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
$
|
5,440
|
|
|
$
|
5,440
|
|
Total financial liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,440
|
|
|
$
|
5,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash
equivalents)
|
|
$
|
57,032
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
57,032
|
|
Total financial assets
|
|
$
|
57,032
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
57,032
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
$
|
388
|
|
|
$
|
388
|
|
Total financial liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
388
|
|
|
$
|
388
|
|
12
The Company classifies and discloses fair value measurements in one of the following three categories of fair value hierarchy:
Level 1 -
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.
|
Level 2 -
|
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
Level 3 -
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company did not have any transfers into and out of Level 1 or Level 2 during the six months ended June 30, 2017. No assets or investments were classified as Level 3 as of June 30, 2017. The Company did not have any short-term investments as of December 31, 2016.
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. At June 30, 2017 the Company’s Level 2 securities were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities.
The following table summarizes the changes in Level 3 financial instruments (in thousands).
|
|
Amount
|
|
Fair Value at December 31, 2016
|
|
$
|
388
|
|
Foreign currency translation
|
|
|
32
|
|
Contingent consideration from IDV acquisition
|
|
|
5,020
|
|
Balance at June 30, 2017
|
|
$
|
5,440
|
|
At December 31, 2016, the Company recorded the contingent consideration from the Crisis Commander acquisition under long-term other liabilities.
(7) Goodwill and Intangible Assets
Goodwill was $31.1 million and $9.7 million as of June 30, 2017 and December 31, 2016, respectively. There were no impairments recorded against goodwill during the six months ended June 30, 2017 and for the year ended December 31, 2016. The following table displays the changes in the gross carrying amount of goodwill (in thousands):
|
|
Amount
|
|
Balance at December 31, 2016
|
|
$
|
9,676
|
|
Foreign currency translation
|
|
|
180
|
|
IDV acquisition
|
|
|
21,196
|
|
Balance at June 30, 2017
|
|
$
|
31,052
|
|
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
Gross
carrying
amount
|
|
|
Weighted
average life
(years)
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
$
|
4,035
|
|
|
2.79
|
|
$
|
(1,415
|
)
|
|
$
|
2,620
|
|
Trade names and patents
|
|
|
2,487
|
|
|
5.05
|
|
|
(462
|
)
|
|
|
2,025
|
|
Customer relationships
|
|
|
8,407
|
|
|
2.47
|
|
|
(2,954
|
)
|
|
|
5,453
|
|
Non-compete arrangement
|
|
|
240
|
|
|
1.58
|
|
|
(50
|
)
|
|
|
190
|
|
Total intangible assets
|
|
$
|
15,169
|
|
|
|
|
$
|
(4,881
|
)
|
|
$
|
10,288
|
|
13
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Gross
carrying
amount
|
|
|
Weighted
average life
(years)
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
$
|
1,490
|
|
|
3.60
|
|
$
|
(878
|
)
|
|
$
|
612
|
|
Trade names and patents
|
|
|
883
|
|
|
6.08
|
|
|
(254
|
)
|
|
|
629
|
|
Customer relationships
|
|
|
4,779
|
|
|
5.00
|
|
|
(2,080
|
)
|
|
|
2,699
|
|
Total intangible assets
|
|
$
|
7,152
|
|
|
|
|
$
|
(3,212
|
)
|
|
$
|
3,940
|
|
Amortization expense for intangible assets was $0.9 million and $1.5 million for the three and six months ended June 30, 2017, respectively and $0.3 million and $0.6 million for the three and six months ended June 30, 2016, respectively.
The expected amortization of the intangible assets, as of June 30, 2017, for each of the next five years and thereafter is as follows (in thousands):
|
|
Amounts
|
|
2017 (for the remaining six months)
|
|
$
|
1,721
|
|
2018
|
|
|
3,269
|
|
2019
|
|
|
2,582
|
|
2020
|
|
|
1,350
|
|
2021
|
|
|
1,234
|
|
2022 and thereafter
|
|
|
132
|
|
|
|
$
|
10,288
|
|
(8) Business Combinations
The Company accounted for the IDV Solutions LLC, or IDV and Crisis Commander acquisitions using the purchase method of accounting for business combinations under ASC 805,
Business Combinations
. The total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.
As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period (a period not to exceed 12 months). Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and the expected future cash flows and related discount rates, can materiality impact our results of operations. Significant inputs used for the model included the amount of cash flows, the expected period of the cash flows and the discount rates. The finalization of the purchase accounting assessment may result in a change in the valuation of the contingent consideration and intangible assets, which may have a material impact on our results of operations and financial position.
IDV Acquisition
On January 27, 2017, the Company acquired IDV, in exchange for current cash consideration of $21.2 million, net of cash acquired and the fair value of contingent future consideration. At the date of acquisition, $2.5 million was deposited in an escrow account for fifteen months. The escrow fund is available to provide security to the Company to compensate it for losses it may incur as a result of any inaccuracy in the representations or warranties of IDV or the sellers contained in the IDV purchase agreement, any failure to comply with any covenant contained in the IDV purchase agreement or any liabilities or obligations related to the operation of IDV’s business prior to the closing of the acquisition.
In addition, in order to earn any future contingent consideration, IDV is required to meet certain billings thresholds at June 30, 2017 and December 31, 2017. At the date of the acquisition, the Company preliminarily assessed the probabilities of IDV meeting the future sales and billing thresholds and determined them to be probable. Therefore, contingent consideration was recorded as part of the purchase price allocation and the preliminary fair value of the contingent consideration was determined to be $5.0 million. IDV is a provider of threat assessment and operational visualization software located in Lansing, Michigan.
The Company acquired IDV for its customer base and to complement some of the existing facets of its business with the Company’s existing customers.
14
The following table summarizes the allocation of the purchase consideration and the estimated fair value of the assets acquired and the liabilities assumed for the acquisition of IDV made by the Company.
The purchase price allocations for IDV i
ncluded in the table below are preliminary. The following table
also
summarizes the aggregate consideration for IDV
as of
June 30
, 2017 (in thousands):
Assets acquired
|
|
IDV
|
|
Accounts receivable
|
|
|
1,462
|
|
Other assets
|
|
|
242
|
|
Property and equipment
|
|
|
174
|
|
Trade names
|
|
|
1,590
|
|
Acquired technology
|
|
|
2,490
|
|
Customer relationships
|
|
|
3,400
|
|
Non-compete arrangement
|
|
|
240
|
|
Goodwill
|
|
|
21,196
|
|
Total assets acquired
|
|
$
|
30,794
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
347
|
|
Deferred revenue
|
|
|
4,060
|
|
Other liabilities
|
|
|
132
|
|
Net assets acquired
|
|
$
|
26,255
|
|
Consideration paid
|
|
|
|
|
Cash paid, net of cash acquired
|
|
|
21,235
|
|
Acquisition date fair value of contingent consideration
|
|
|
5,020
|
|
Total
|
|
$
|
26,255
|
|
The weighted average useful life of all identified acquired intangible assets is 4.26 years. The weighted average useful lives for acquired technologies, customer relationships, non-compete arrangements and trade names are 3.0 years 5.0 years, 2.0 years and 5.0 years, respectively. Identifiable intangible assets with definite lives are amortized over the period of estimated benefit using the straight-line method and the estimated useful lives of two to five years. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.
As a result of the acquisition, the Company recorded $21.2 million of goodwill.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the integration of IDV’s products with the Company's other solutions
. The Company believes that the factors listed above in relation to the purchase of IDV support the amount of goodwill recorded as a result of the purchase price paid for the acquisition, in relation to other acquired tangible and intangible assets. The resulting goodwill from the IDV acquisition is deductible for income tax purposes.
For the three and six months ended June 30, 2017, the Company incurred transaction costs of $0.1 million in connection with the IDV acquisition, which were expensed as incurred and included in general and administrative expenses within the accompanying consolidated statements of operations.
Unaudited Pro Forma Financial Information
The following tables reflects the unaudited pro forma combined results of operations for the three and six months ended June 30, 2016 and the six months ended June 30, 2017 as if the acquisition of IDV had taken place on January 1, 2016, as well as the results of acquired business included in our unaudited financial information for the three months ended June 30, 2017. The unaudited pro forma financial information includes the effects of certain adjustments, including the amortization of acquired intangible assets and the associated tax effect and the elimination of the Company’s and the acquiree’s non-recurring acquisition related expenses:
|
|
Revenue
|
|
|
Net income (loss)
|
|
Results of acquired business included in our three and six months ended
(in thousands):
|
|
|
|
|
|
|
|
|
From the acquisition date to June 30, 2017
|
|
$
|
3,018
|
|
|
$
|
(1,583
|
)
|
For the six months ended June 30, 2017 pro forma
|
|
$
|
3,555
|
|
|
$
|
(2,337
|
)
|
For the six months ended June 30, 2016 pro forma
|
|
$
|
5,118
|
|
|
$
|
(1,140
|
)
|
For the three months ended June 30, 2017
|
|
$
|
1,670
|
|
|
$
|
(948
|
)
|
For the three months ended June 30, 2016 pro forma
|
|
$
|
3,328
|
|
|
$
|
75
|
|
15
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted earnings per share pro
forma
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
The unaudited pro forma information presented does not purport to be indicative of the results that would have been achieved had the acquisition been consummated at January 1, 2016 nor of the results which may occur in the future. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable.
Crisis Commander Acquisition
On December 30, 2016, the Company completed the acquisition of Crisis Commander, a privately held SaaS mobile crisis management company based in Norsborg, Sweden. The acquisition was consummated pursuant to a purchase agreement for an initial preliminary purchase price of $2.7 million, subject to earn out payments contingent on meeting certain revenue thresholds, which are expected to be paid in March 2018.
The excess of purchase consideration over the fair value of net tangible liabilities assumed and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed may be subject to change as additional information is received. Thus, the provisional measurements of fair value have been recorded.
The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the integration of Crisis Commander’s platform with the Company's other solutions. The goodwill balance is not deductible for U.S. income tax purposes.
The assets and results of operations of Crisis Commander were not significant to the Company’s consolidated financial position or results of operations, and thus pro forma information is not presented.
(9) Stockholders’ Equity
Preferred Stock
As of June 30, 2017, the Company had authorized 10,000,000 shares of preferred stock, par value $0.001, of which no shares were outstanding.
Common Stock
As of June 30, 2017, the Company had authorized 100,000,000 shares of common stock, par value $0.001. Holders of common stock are entitled to one vote per share. At June 30, 2017 and December 31, 2016, there were 27,990,297 and 27,150,674 shares of common stock issued and outstanding, respectively.
(10) Stock Plans and Stock-Based Compensation
The Company’s 2016 Equity Incentive Plan (the “2016 Plan”) became effective on September 15, 2016. The 2016 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights and performance share awards to employees, directors and consultants of the Company. A total of 3,893,118 shares of the Company’s common stock were initially reserved for issuance under the 2016 Plan, which is the sum of (1) 2,000,000 shares, (2) the number of shares reserved for issuance under the Company’s 2008 Equity Incentive Plan (the “2008 Plan”) at the time the 2016 Plan became effective (up to a maximum of 42,934 shares) and (3) shares subject to stock options or other stock awards granted under the 2008 Plan that would have otherwise returned to the Company’s 2008 Plan (up to a maximum of 1,850,184 shares). The number of shares of common stock reserved for issuance under the 2016 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017, by 3% of the number of shares of the Company’s capital stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.
16
As a result of the adoption of the 2016 Plan, no further grants may be made under the 2008 Plan.
The 2008 Plan provided for the
grant of stock options to the Company’s em
ployees, directors and consultants. Stock option awards were granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant as determined by the Company’s board of directors. The option awards generally ve
sted over four years and were exercisable any time after vesting. The stock options expire ten years after the date of grant.
2016 Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“2016 ESPP”) became effective on September 15, 2016. A total of 500,000 shares of the Company’s common stock were initially reserved for issuance under the 2016 Plan. The number of shares reserved for issuance under the 2016 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2017, by the lesser of 200,000 shares of the Company’s common stock, 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors.
The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. Except for the initial offering period, the 2016 ESPP provides for separate six-month offering periods beginning each March and September of each fiscal year.
On each purchase date, eligible employees will purchase the Company’s stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Company’s common stock on the offering date or (ii) the fair market value of the Company’s common stock on the purchase date.
For the six months ended June 30, 2017, 83,790 shares of common stock were purchased under the 2016 ESPP. The 2016 ESPP is considered compensatory for purposes of stock-based compensation expense.
Stock Options
The Company recorded stock-based compensation expense of $1.1 million and $2.1 million for the three and six months ended June 30, 2017, respectively. The Company recorded stock-based compensation expense of $0.7 million and $1.4 million for the three and six months ended June 30, 2016, respectively.
The total intrinsic value of options exercised for the three and six months ended June 30, 2017 was $3.5 million and $3.5 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option. Based on the fair market value of the Company’s common stock at June 30, 2017, the total intrinsic value of all outstanding options was $24.4 million.
The fair value of stock option grants is determined using the Black-Scholes option pricing model with the following weighted average assumptions. In addition, the fair value per share on grant date is presented below:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Employee Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value per share on grant date
|
|
$24.87
|
|
|
$14.66
|
|
|
$18.05 - $24.87
|
|
|
$14.66
|
|
Expected term (in years)
|
|
|
6.00
|
|
|
5.29 - 6.10
|
|
|
6.00 - 6.11
|
|
|
5.29 - 6.10
|
|
Expected volatility
|
|
60%
|
|
|
70%
|
|
|
60%
|
|
|
70%
|
|
Risk-free interest rate
|
|
1.98%
|
|
|
1.28% - 1.40%
|
|
|
1.98% - 2.47%
|
|
|
1.28% - 1.86%
|
|
Dividend rate
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
0.50
|
|
|
|
—
|
|
|
|
0.50
|
|
|
|
—
|
|
Expected volatility
|
|
60%
|
|
|
|
—
|
|
|
60%
|
|
|
|
—
|
|
Risk-free interest rate
|
|
0.45%
|
|
|
|
—
|
|
|
0.45%
|
|
|
|
—
|
|
Dividend rate
|
|
|
0%
|
|
|
|
—
|
|
|
|
0%
|
|
|
|
—
|
|
(1)
|
The expected term represents the period that the stock-based compensation awards are expected to be outstanding. Since the Company did not have sufficient historical information to develop reasonable expectations about future exercise behavior, the Company used the simplified method to compute expected term, which reflects the average of the time-to-vesting and the contractual life;
|
(2)
|
The expected volatility of the Company’s common stock on the date of grant is based on the volatilities of publicly traded peer companies that are reasonably comparable to the Company’s own operations;
|
17
(3)
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasu
ry notes with maturities approximately equal to the expected term of the options; and
|
(4)
|
The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock.
|
Total unrecognized compensation cost related to nonvested stock options was approximately $8.0 million as of June 30, 2017, and is expected to be recognized over a weighted average period of 2.49 years.
A summary of activities under the 2008 Plan and the 2016 Plan is shown as follows for the year ended December 31, 2016 and the six months ended June 30, 2017:
|
|
Stock options
outstanding
|
|
|
Weighted
average
exercise price
|
|
Outstanding at December 31, 2015
|
|
|
1,821,722
|
|
|
$
|
8.68
|
|
Granted
|
|
|
292,204
|
|
|
|
14.75
|
|
Exercised
|
|
|
(163,968
|
)
|
|
|
4.30
|
|
Forfeited
|
|
|
(65,533
|
)
|
|
|
8.03
|
|
Outstanding at December 31, 2016
|
|
|
1,884,425
|
|
|
|
10.02
|
|
Granted
|
|
|
284,470
|
|
|
|
19.73
|
|
Exercised
|
|
|
(202,008
|
)
|
|
|
5.55
|
|
Forfeited
|
|
|
(10,810
|
)
|
|
|
12.34
|
|
Outstanding at June 30, 2017
|
|
|
1,956,077
|
|
|
$
|
11.88
|
|
Stock-based compensation expense is recognized over the award’s expected vesting schedule, which is reduced for forfeitures.
Stock options outstanding, and options exercisable and vested are as follows:
Outstanding as of
June 30, 2017
|
|
|
Remaining
contractual
life (years)
|
|
|
Weighted
average
exercise price
|
|
|
Exercisable
as of
June 30,
2017
|
|
|
Remaining
contractual
life (years)
|
|
|
Weighted
average
exercise price
|
|
|
1,956,077
|
|
|
|
7.90
|
|
|
$
|
11.88
|
|
|
|
835,159
|
|
|
|
7.04
|
|
|
$
|
8.41
|
|
Outstanding as of
December 31, 2016
|
|
|
Remaining
contractual
life (years)
|
|
|
Weighted
average
exercise price
|
|
|
Exercisable
as of
December 31,
2016
|
|
|
Remaining
contractual
life (years)
|
|
|
Weighted
average
exercise price
|
|
|
1,884,425
|
|
|
|
7.86
|
|
|
$
|
10.02
|
|
|
|
809,900
|
|
|
|
7.13
|
|
|
$
|
6.81
|
|
Vested and nonvested stock option activity was as follows:
|
|
Vested
|
|
|
Nonvested
|
|
|
|
Options
outstanding
|
|
|
Weighted
average
exercise
price
|
|
|
Options
outstanding
|
|
|
Weighted
average
exercise
price
|
|
Outstanding at June 30, 2017
|
|
|
835,159
|
|
|
$
|
8.41
|
|
|
|
1,120,918
|
|
|
$
|
14.47
|
|
Outstanding at December 31, 2016
|
|
|
809,900
|
|
|
$
|
6.81
|
|
|
|
1,074,525
|
|
|
$
|
12.44
|
|
18
Stock-Based Compensation Expense
The Company recorded the total stock-based compensation expense as follows (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cost of revenue
|
|
$
|
60
|
|
|
$
|
44
|
|
|
$
|
125
|
|
|
$
|
89
|
|
Sales and marketing
|
|
|
282
|
|
|
|
175
|
|
|
|
559
|
|
|
|
292
|
|
Research and development
|
|
|
176
|
|
|
|
91
|
|
|
|
322
|
|
|
|
176
|
|
General and administrative
|
|
|
583
|
|
|
|
425
|
|
|
|
1,063
|
|
|
|
849
|
|
Total
|
|
$
|
1,101
|
|
|
$
|
735
|
|
|
$
|
2,069
|
|
|
$
|
1,406
|
|
(11) Basic and Diluted Net Loss per Share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potential dilutive shares of common stock. Basic and diluted net loss per share of common stock were the same for all periods presented as the impact of all potentially dilutive securities outstanding was anti-dilutive.
The following common equivalent shares were excluded from the diluted net loss per share calculation because their inclusion would have been anti-dilutive:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
1,956,077
|
|
|
|
1,953,239
|
|
|
|
1,956,077
|
|
|
|
1,953,239
|
|
Series A-1 preferred stock warrants
|
|
|
—
|
|
|
|
130,384
|
|
|
|
—
|
|
|
|
130,384
|
|
Convertible preferred stock
|
|
|
—
|
|
|
|
8,354,963
|
|
|
|
—
|
|
|
|
8,354,963
|
|
Total
|
|
|
1,956,077
|
|
|
|
10,438,586
|
|
|
|
1,956,077
|
|
|
|
10,438,586
|
|
The Company is required to reserve and keep available from the Company’s authorized but unissued shares of common stock a number of shares equal to the number of shares subject to outstanding awards under the 2008 Plan and the number of shares reserved for issuance under each of the 2016 Plan and 2016 ESPP.
The amount of such shares of the Company’s common stock reserved for these purposes at June 30, 2017 is as follows:
|
|
Number of
Shares
|
|
Stock options issued and outstanding
|
|
|
1,956,077
|
|
Additional shares available for grant under equity plans
|
|
|
3,162,553
|
|
Total
|
|
|
5,118,630
|
|
(12) Income Taxes
The Company is subject to income tax in the United States as well as other tax 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 US deferred income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are reinvested indefinitely.
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. The Company’s quarterly tax provision, and its quarterly estimate of its annual effective tax rate, are subject to significant volatility due to several factors, including the Company’s ability to accurately predict its pre-tax income and loss in multiple jurisdictions.
19
For the three months ended June 30, 2017 and 2016, the Company recorded a tax benefit f
or income taxes of $13,000 and a provision for income taxes of $45,000, respectively, resulting in an effective tax benefit of 0.38% and effective tax rate of 1.63%, respectively. For the six months ended June 30, 2017 and 2016, the Company recorded a prov
ision for income taxes of $14,000 and a tax benefit of $0.1 million, respectively, resulting in an effective tax rate of 0.15% and benefit of 1.79%, respectively.
During the current year periods, the effective tax rate is lower than the statutory federal t
ax rate as the Company was not able to benefit from its net operating losses due to its full valuation allowance.
As of June 30, 2017, the Company had gross tax-effected unrecognized tax benefits of $0.3 million, of which $0.2 million, if recognized, would favorably impact the effective tax rate. The Company’s existing tax positions will continue to generate an increase in unrecognized tax benefits in subsequent periods. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the three and six months ended June 30, 2017 and 2016, the amounts recorded related to the accrual of interest and penalties were immaterial in each period.
(13) Segment information
The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, or CODM, who is the Company’s chief executive officer, in deciding how to allocate resources and assess the Company’s financial and operational performance. While the Company has applications that address multiple use cases, all of the Company’s applications operate on and leverage a single technology platform and are deployed and sold in an identical way. In addition, the Company’s CODM evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. As a result, the Company has determined that the Company’s business operates in a single operating segment. Since the Company operates as one operating segment, all required financial segment information can be found in the consolidated financial statements.
(14) Geographic Concentrations
Revenue by location is determined by the billing address of the customer. Approximately 90% and 90% of the Company’s revenue was from the United States for the three and six months ended June 30, 2017, respectively. Approximately 90% and 90% of the Company’s revenue was from the United States for the three and six months ended June 30, 2016, respectively. No other individual country comprised more than 10% of total revenue for the three and six months ended June 30, 2017 and 2016. Property and equipment by geographic location is based on the location of the legal entity that owns the asset. As of June 30, 2017, more than 90% of the Company’s property and equipment was located in the United States.
(15) Commitments and Contingencies
(a) Leases
The Company leases office space in Pasadena, California; San Francisco, California; Burlington, Massachusetts; Colchester, England; Windsor, England; Lansing, Michigan, Norsborg, Sweden and Beijing, China under operating leases and recognizes escalating rent expense on a straight-line basis over the expected lease term.
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, 2016 and related notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, except those disclosed below.
In December 2016, the Company entered into a new lease for its executive offices in Burlington, Massachusetts that began on June 1, 2017 and will account for $7.8 million in minimum lease payments over the next five years.
In June 2017, the Company entered into a new lease for its offices in Beijing, China that will increase its future minimum lease payments beginning in July 2017 by $0.8 million over the next two years.
In June 2017, the Company entered into a new lease for its offices in Maidenhead, United Kingdom that will increase its future minimum lease payments beginning in July 2017 by $0.2 million over the next four years.
20
As of June 30, 2017,
future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
|
|
Amounts
|
|
2017 (for the remaining 6 months)
|
|
$
|
1,428
|
|
2018
|
|
|
2,465
|
|
2019
|
|
|
1,908
|
|
2020
|
|
|
1,744
|
|
2021
|
|
|
1,717
|
|
2022 and thereafter
|
|
|
806
|
|
Total minimum lease payments
|
|
$
|
10,068
|
|
Future minimum operating lease payments have been reduced by future minimum sublease income of $0.1 million.
(b) Rent
Rent expense was $0.5 million and $1.0 million for the three and six months ended June 30, 2017, respectively and $0.4 million and $0.8 million for the three and six months ended June 30, 2016, respectively.
(c) Litigation
In the normal course of business, the Company has been subjected to various unasserted claims. The Company does not believe these will have a material adverse impact to the financial statements.
(d)
Credit Facility
The Company has a revolving line of credit agreement with Western Alliance Bank, which provides for a $15.0 million revolving secured credit facility maturing on June 30, 2018. Amounts outstanding under the line of credit bear interest at the prime rate plus 0.75% with accrued interest payable on a monthly basis and outstanding and unpaid principal due upon maturity. Western Alliance Bank maintains a security interest in substantially all of the Company’s tangible and intangible assets, excluding intellectual property, to secure any outstanding amounts under the loan agreement. The loan agreement contains customary events of default, conditions to borrowing and covenants, including restrictions on the Company’s ability to dispose of assets, make acquisitions, incur debt, incur liens and make distributions and dividends to stockholders. The loan agreement also includes a financial covenant related to the Company’s recurring revenue renewal rate. During the continuance of an event of default, Western Alliance Bank may accelerate amounts outstanding, terminate the credit facility and foreclose on the collateral.
As of June 30, 2017, no amounts had been drawn under the credit facility.
(e) Employee Contracts
The Company has entered into employment contracts with certain of the Company’s executive officers which provide for at-will employment. However, under the provisions of the contracts, the Company would incur severance obligations of up to twelve months of the executive’s annual base salary for certain events, such as involuntary terminations.
(16) Subsequent Events
In July 2017, the Company’s board of directors
granted
options
to purchase
659,700 shares
of the Company’s common
stock to employees
at a weighted-average
exercise
price
of $23.60 per share.
The stock options
vest over periods
ranging
from
two to four years based on continued service by the employee.
The estimated
total
stock-based
compensation
expense associated
with these
stock options
is $8.9 million and
is expected
to be recognized
over a weighted average
period
of 3.9 years
.
In July 2017, the Company’s board of directors
awarded 278,500
restricted stock units to employees.
The restricted stock units vest over a period of three years based on continued service by the employee.
The estimated
total
stock-based
compensation
expense associated
with these
restricted stock units
is $6.6 million and
is expected
to be recognized
over a weighted average
period
of 3.0 years
.
In July 2017, the Company’s board of directors
awarded 278,500
performance-based restricted stock units to employees.
The performance-based restricted stock units vest based on the Company achieving certain stock price thresholds which range from $35 per share to $55 per share for 30 consecutive trading days. The estimated
total
stock-based
compensation
expense associated
with these
restricted stock units
is $7.6 million and
is expected
to be recognized
over a weighted average
period
of 1.3 years
.
21