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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-Q
_____________________________________
þ      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
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 001-36360
ARLOGOA11.JPG
AMBER ROAD, INC.
(Exact name of registrant as specified in its charter)
Delaware
22-2590301
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
One Meadowlands Plaza, East Rutherford, NJ 07073
(Address and zip code of principal executive offices)
(201) 935-8588
(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 þ   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
 
Accelerated filer
þ

Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨

 
 
 
 
Emerging growth company
þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  þ
On October 31, 2017 , the registrant had outstanding 27,212,572 shares of common stock, $0.001 par value per share.




 



AMBER ROAD, INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2017
TABLE OF CONTENTS
 
 
Page
PART I. FINANCIAL INFORMATION
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

Amber Road, the Amber Road logo, Global Knowledge, Enterprise Technology Framework and other trademarks of Amber Road appearing in this report on Form 10-Q are the property of Amber Road. All other trademarks, service marks and trade names in this report on Form 10-Q are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this report on Form 10-Q.


2


CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, including those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2016 , and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. As used in this report, the terms "Amber Road", "we", "us", and "our" mean Amber Road, Inc. and its subsidiaries unless the context indicates otherwise.


3


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
AMBER ROAD, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 30, 
 2017
 
December 31, 
 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8,282,234

 
$
15,408,133

Accounts receivable, net
15,465,557

 
19,661,156

Unbilled receivables
992,875

 
314,328

Deferred commissions
4,396,974

 
4,420,632

Prepaid expenses and other current assets
1,926,004

 
1,719,612

Total current assets
31,063,644

 
41,523,861

Property and equipment, net
9,894,886

 
9,978,255

Goodwill
43,777,158

 
43,907,017

Other intangibles, net
5,263,149

 
6,148,820

Deferred commissions
7,013,656

 
8,046,664

Deposits and other assets
1,154,004

 
884,471

Total assets
$
98,166,497

 
$
110,489,088

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,860,562

 
$
2,724,591

Accrued expenses
9,365,484

 
14,127,304

Current portion of capital lease obligations
1,270,056

 
1,155,964

Deferred revenue
35,199,938

 
34,464,264

Current portion of term loan, net of discount
714,391

 
593,336

Total current liabilities
48,410,431

 
53,065,459

Capital lease obligations, less current portion
1,564,396

 
1,276,700

Deferred revenue, less current portion
1,887,526

 
2,135,620

Term loan, net of discount, less current portion
13,017,989

 
13,614,514

Revolving credit facility
6,100,000

 
6,000,000

Other noncurrent liabilities
1,560,533

 
1,825,317

Total liabilities
72,540,875

 
77,917,610

Commitments and contingencies (Note 11)


 


Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 100,000,000 shares authorized; issued and outstanding 27,209,232 and 26,926,268 shares at September 30, 2017 and December 31, 2016, respectively
27,209

 
26,926

Additional paid-in capital
193,265,714

 
188,811,896

Accumulated other comprehensive loss
(1,568,375
)
 
(1,336,792
)
Accumulated deficit
(166,098,926
)
 
(154,930,552
)
Total stockholders’ equity
25,625,622

 
32,571,478

Total liabilities and stockholders’ equity
$
98,166,497

 
$
110,489,088


See accompanying notes to condensed consolidated financial statements.

4


AMBER ROAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Subscription
$
14,944,160

 
$
14,079,394

 
$
43,532,217

 
$
39,358,586

Professional services
5,269,090

 
4,771,407

 
14,910,883

 
14,595,827

Total revenue
20,213,250

 
18,850,801

 
58,443,100

 
53,954,413

Cost of revenue (1):
 
 
 
 
 
 
 
Cost of subscription revenue
4,903,483

 
4,964,971

 
16,066,645

 
14,988,695

Cost of professional services revenue
4,247,519

 
3,845,548

 
12,396,228

 
11,872,116

Total cost of revenue
9,151,002

 
8,810,519

 
28,462,873

 
26,860,811

Gross profit
11,062,248

 
10,040,282

 
29,980,227

 
27,093,602

Operating expenses (1):
 
 
 
 
 
 
 
Sales and marketing
5,551,239

 
5,488,309

 
17,043,562

 
16,968,999

Research and development
3,830,431

 
4,231,492

 
11,201,577

 
12,119,137

General and administrative
3,517,187

 
3,782,591

 
11,247,825

 
11,329,134

Total operating expenses
12,898,857

 
13,502,392

 
39,492,964

 
40,417,270

Loss from operations
(1,836,609
)
 
(3,462,110
)
 
(9,512,737
)
 
(13,323,668
)
Interest income
1,238

 
4,810

 
2,564

 
55,858

Interest expense
(272,293
)
 
(221,370
)
 
(751,644
)
 
(643,543
)
Loss before income taxes
(2,107,664
)
 
(3,678,670
)
 
(10,261,817
)
 
(13,911,353
)
Income tax expense
130,039

 
112,580

 
906,557

 
306,465

Net loss
$
(2,237,703
)
 
$
(3,791,250
)
 
$
(11,168,374
)
 
$
(14,217,818
)
 
 
 
 
 
 
 
 
Net loss per common share (Note 10):
 
 
 
 
 
 
 
Basic and diluted
$
(0.08
)
 
$
(0.14
)
 
$
(0.41
)
 
$
(0.53
)
Weighted-average common shares outstanding (Note 10):
 
 
 
 
 
 
 
Basic and diluted
27,471,248

 
26,809,137

 
27,377,058

 
26,609,322




 


(1) Includes stock-based compensation as follows:
 
 
 
 
 
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Cost of subscription revenue
$
214,033

 
$
219,120

 
$
591,965

 
$
638,069

Cost of professional services revenue
153,357

 
128,254

 
405,129

 
377,467

Sales and marketing
321,226

 
238,324

 
780,626

 
675,057

Research and development
401,567

 
304,501

 
987,427

 
847,057

General and administrative
734,564

 
564,626

 
1,513,898

 
1,669,410

 
$
1,824,747

 
$
1,454,825

 
$
4,279,045

 
$
4,207,060



See accompanying notes to condensed consolidated financial statements.

5


AMBER ROAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(2,237,703
)
 
$
(3,791,250
)
 
$
(11,168,374
)
 
$
(14,217,818
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation
43,085

 
57,265

 
(231,583
)
 
(435,826
)
Total other comprehensive income (loss)
43,085

 
57,265

 
(231,583
)
 
(435,826
)
Comprehensive loss
$
(2,194,618
)
 
$
(3,733,985
)
 
$
(11,399,957
)
 
$
(14,653,644
)
























See accompanying notes to condensed consolidated financial statements.

6


AMBER ROAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended 
 September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net loss
$
(11,168,374
)
 
$
(14,217,818
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
4,015,240

 
5,063,509

Bad debt expense
305,612

 
523,403

Stock-based compensation
4,279,045

 
4,207,060

Acquisition related deferred compensation

 
851,931

Changes in fair value of contingent consideration liability
18,525

 
10,469

Accretion of debt discount
28,981

 
47,186

Changes in operating assets and liabilities:
 
 
 
Accounts receivable and unbilled receivables
3,239,595

 
5,352,339

Prepaid expenses and other assets
823,889

 
(2,074,943
)
Accounts payable
(967,975
)
 
(418,732
)
Accrued expenses
(1,172,824
)
 
2,669,696

Settlement of contingent accrued compensation related to former ecVision founder
(2,366,469
)
 

Other liabilities
(264,429
)
 
(2,025,820
)
Deferred revenue
477,278

 
(27,134
)
Net cash used in operating activities
(2,751,906
)
 
(38,854
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(169,739
)
 
(220,718
)
Addition of capitalized software development costs
(1,217,126
)
 
(1,859,969
)
Addition of intangible assets

 
(275,000
)
Cash paid for deposits
(205,264
)
 
(143,836
)
Decrease (increase) in restricted cash
(259
)
 
113,094

Net cash used in investing activities
(1,592,388
)
 
(2,386,429
)
Cash flows from financing activities:
 
 
 
Proceeds from revolving line of credit
18,350,000

 
14,250,000

Payments on revolving line of credit
(18,250,000
)
 
(13,750,000
)
Payments on term loan
(468,750
)
 
(281,250
)
Debt financing costs
(35,701
)
 

Repayments on capital lease obligations
(1,237,031
)
 
(1,052,029
)
Proceeds from the exercise of stock options
175,056

 
1,467,749

Contingent consideration related to ecVision acquisition
(1,308,525
)
 

Net cash provided by (used in) financing activities
(2,774,951
)
 
634,470

Effect of exchange rate on cash and cash equivalents
(6,654
)
 
(423,250
)
Net decrease in cash and cash equivalents
(7,125,899
)
 
(2,214,063
)
Cash and cash equivalents at beginning of period
15,408,133

 
17,854,523

Cash and cash equivalents at end of period
$
8,282,234

 
$
15,640,460

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
717,057

 
$
564,401

Non-cash property and equipment acquired under capital lease
1,638,819

 
246,286

Non-cash property and equipment purchases in accounts payable
46,545

 





See accompanying notes to condensed consolidated financial statements.

7


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1)
Background
Amber Road, Inc. (we, our or us) is a leading provider of a cloud-based global trade management solution, including modules for logistics contract and rate management, supply chain visibility and event management, international trade compliance, Global Knowledge trade content database, supply chain collaboration with overseas factories and vendors, and duty management solutions to importers and exporters, nonvessel owning common carriers (resellers), and ocean carriers. Our solution is primarily delivered using an on-demand, cloud-based, delivery model. We are incorporated in the state of Delaware and our corporate headquarters are located in East Rutherford, New Jersey. We also have offices in McLean, Virginia; Raleigh, North Carolina; Munich, Germany; Bangalore, India; Shenzhen and Shanghai, China; and Hong Kong.
(2)
Summary of Significant Accounting Policies and Practices
(a) Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (GAAP) in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement have been included. The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries primarily located in India, China and Europe. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for other interim periods or future years. The consolidated balance sheet as of December 31, 2016 is derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Form 10-K for the year ended December 31, 2016 .
(b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the carrying amount of intangibles and goodwill; valuation allowance for receivables and deferred income tax assets; revenue; capitalization of software costs; and valuation of share-based payments. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents at September 30, 2017 and December 31, 2016 consists of the following:
 
September 30, 
 2017
 
December 31, 
 2016
Cash
$
8,239,419

 
$
15,382,773

Money market accounts
42,815

 
25,360

 
$
8,282,234

 
$
15,408,133


(d) Fair Value of Financial Instruments and Fair Value Measurements
Our financial instruments consist of cash equivalents, accounts receivable, accounts payable, and accrued expenses. Management believes that the carrying values of these instruments are representative of their fair value due to the relatively short-term nature of those instruments.
We follow Financial Accounting Standards Board (FASB) accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Accounting Standards Codification (ASC) 820, Fair Value Measurements, among other things, defines fair value, establishes a framework for measuring fair value, and requires disclosure about such fair value measurements. Assets and liabilities measured at fair value are based on one or more of three valuation techniques provided for in the standards.
The three value techniques are as follows:
Market Approach
—    Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities;

8


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Income Approach
—     Techniques to convert future amounts to a single present amount based on market expectations     (including present value techniques and option pricing models); and
Cost Approach
—     Amount that currently would be required to replace the service capacity of an asset (often referred to as replacement cost).
The standards clarify that fair value is an exit price, representing the amount that would be received to sell an asset, based on the highest and best use of the asset, or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for evaluating such assumptions, the standards establish a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; or
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions about what market participants would use in pricing the asset or liability.
The following tables provide the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2017 and December 31, 2016 :
 
Fair Value Measurements at Reporting Date Using
September 30, 2017
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash equivalents - money market accounts
$
42,815

 
$
42,815

 
$

 
$

Restricted cash - money market accounts
56,400

 
56,400

 

 

Total assets measured at fair value on a recurring basis
$
99,215

 
$
99,215

 
$

 
$

December 31, 2016
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents - money market accounts
$
25,360

 
$
25,360

 
$

 
$

Restricted cash - money market accounts
56,141

 
56,141

 

 

Total assets measured at fair value on a recurring basis
$
81,501

 
$
81,501

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Acquisition contingent consideration liability
$
1,290,000

 
$

 
$

 
$
1,290,000

Total liabilities measured at fair value on a recurring basis
$
1,290,000

 
$

 
$

 
$
1,290,000

Acquisition contingent consideration liability is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. In June 2017, as required by the ecVision (International) Inc. (ecVision) acquisition agreement (see Note 3), the acquisition contingent consideration liability was paid in full. The reconciliation of the acquisition contingent consideration liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:
Balance at December 31, 2016
$
1,290,000

Mark to estimated fair value recorded as general and administrative expense
18,525

Acquisition contingent consideration liability paid
(1,308,525
)
Balance at September 30, 2017
$


(e) Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical write-off experience, the industry, and the economy. We review our allowance for doubtful accounts monthly. Past-due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers. Typically, we record unbilled receivables for contracts on which revenue has been recognized, but for which the customer has not yet been billed.

9


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)



(f) Major Customers and Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Our customer base is principally comprised of enterprise and mid-market companies within industries including Chemical/Pharmaceutical, High Technology/Electronics, Industrial/Manufacturing, Logistics, Oil & Gas, and Retail/Apparel. We do not require collateral from our customers. For the three and nine months ended September 30, 2017 , one customer accounted for 12.0% and 11.0% , respectively, of our total revenue. For the three and nine months ended September 30, 2016 , no single customer accounted for more than 10% of our total revenue. As of September 30, 2017 , one customer accounted for 19% of our total accounts receivable (subsequently collected) and as of December 31, 2016 , no single customer accounted for more than 10% of our total accounts receivable.
(g) Revenue
We primarily generate revenue from the sale of subscriptions and subscription-related professional services. In instances involving subscriptions, revenue is generated under customer contracts with multiple elements, which are comprised of (1) subscription fees that provide the customers with access to our on-demand application and content, unspecified solution and content upgrades, and customer support, (2) professional services associated with consulting services (primarily implementation services), and (3) transaction-related fees (including publishing services). Our initial customer contracts have contract terms from, typically, 3 years to 5 years years in length. Typically, the customer does not take possession of the software nor does the customer have the right to take possession of the software supporting the on-demand application service. However, in certain instances, we have customers that take possession of the software whereby the application is installed on the customer’s premises. Our subscription service arrangements typically may only be terminated for cause and do not contain refund provisions.
We provide our software as a service and follow the provisions of ASC Topic 605, Revenue Recognition (ASC 605) and ASC Topic 985, Software (ASC 985). We commence revenue recognition when all of the following conditions are met:
There is persuasive evidence of an arrangement;
The service has been or is being provided to the customer;
The collection of the fees is probable; and
The amount of fees to be paid by the customer is fixed or determinable.
The subscription fees typically begin the first month following contract execution, whether or not we have completed the solution’s implementation. In addition, typically, any services performed by us for our customers are not essential to the functionality of our products.
Subscription Revenue
Subscription revenue is recognized ratably over contract terms beginning on the commencement date of each contract, which is the date our service is made available to customers. Typically, amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Transaction-related revenue is recognized as the transactions occur.
Professional Services Revenue
The majority of professional services contracts are on a time and material basis. When these services are not combined with subscription revenue as a single unit of accounting, as discussed below, this revenue is recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts.
Multiple-Deliverable Arrangements
We enter into arrangements with multiple deliverables that generally include subscription, professional services (primarily implementation) as well as transaction-related fees.
We allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE), if available, third party evidence (TPE), if VSOE is not available, or estimated selling prices (ESP), if neither VSOE nor TPE is available. As we have been unable to establish VSOE or TPE for the elements of our arrangements, we establish the ESP for each element primarily by considering the weighted average of actual sales prices of professional services sold on a standalone basis and subscription including various

10


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


add-on modules if and when sold together without professional services, and other factors such as gross margin objectives, pricing practice and growth strategy. We have established processes to determine ESP and allocate revenue in multiple-deliverable arrangements using ESP.
For those contracts in which the customer accesses our software via an on-demand application, we account for these contracts in accordance with ASC 605-25, Revenue Recognition—Multiple-Element Arrangements. The majority of these agreements represent multiple-element arrangements, and we evaluate each element to determine whether it represents a separate unit of accounting. The consideration allocated to subscription is recognized as revenue ratably over the contract period. The consideration allocated to professional services is recognized as the services are performed, which is typically over the first 3 months to 6 months of an arrangement.
For those contracts in which the customer takes possession of the software, we account for such transactions in accordance with ASC 985, Software. We account for these contracts as subscriptions and recognize the entire arrangement fee (subscription and services) ratably over the term of the agreement. In addition, as we do not have VSOE for services, any add-on services entered into during the term of the subscription are recognized over the remaining term of the agreement.
Other Revenue Items
Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and, therefore, is not included in revenue and cost of revenue in the condensed consolidated statements of operations. We classify customer reimbursements received for direct costs paid to third parties and related expenses as revenue, in accordance with ASC 605. The amounts of such customer reimbursements included in professional services revenue and cost of professional services revenue is as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Customer reimbursements
$
114,201

 
$
123,206

 
$
404,092

 
$
425,237


(h) Cost of Revenue
Cost of subscription revenue . Cost of subscription revenue consists primarily of personnel and related costs of our hosting, support, and content teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as software license fees, hosting costs, Internet connectivity, and depreciation expenses directly related to delivering our solutions, as well as amortization of capitalized software development costs. Our cost of subscription revenue is generally expensed as the costs are incurred.
Cost of professional services revenue . Cost of professional services revenue consists primarily of personnel and related costs, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, the costs of contracted third-party vendors, reimbursable expenses and allocated overhead. As our personnel are employed on a full-time basis, our cost of professional services is largely fixed in the short term, while our professional services revenue may fluctuate, leading to fluctuations in professional services gross profit. Cost of professional services revenue is generally expensed as costs are incurred.
(i) Deferred Commissions
We defer commission costs that are incremental and directly related to the acquisition of customer contracts. Commission costs are accrued and deferred upon execution of the sales contract by the customer. Payments to sales personnel are made shortly after the receipt of the related customer payment. Deferred commissions are amortized over the term of the related noncancelable customer contract and are recoverable through the related future revenue streams. Our commission costs deferred and amortized in the period are as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Commission costs deferred
$
1,126,236

 
$
3,096,999

 
$
2,805,883

 
$
5,259,754

Commission costs amortized
1,377,788

 
1,159,173

 
3,862,549

 
3,423,951



11


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


(j) Stock-Based Compensation
We recognize stock-based compensation as an expense in the condensed consolidated financial statements and measure that cost based on the estimated grant-date fair value using the Black-Scholes option pricing model.
(k) Geographic Information
Revenue by geographic location based on the billing address of our customers is as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Country
2017
 
2016
 
2017
 
2016
United States
$
15,239,856

 
$
14,900,697

 
$
44,184,884

 
$
42,459,132

International
4,973,394

 
3,950,104

 
14,258,216

 
11,495,281

Total revenue
$
20,213,250

 
$
18,850,801

 
$
58,443,100

 
$
53,954,413


Long-lived assets by geographic location is as follows:
Country
September 30, 
 2017
 
December 31, 
 2016
United States
$
8,950,159

 
$
8,881,844

International
944,727

 
1,096,411

Total long-lived assets
$
9,894,886

 
$
9,978,255


(l) Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The adoption of this standard is not expected to have a material effect on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, "Restricted Cash", which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of 2018, with early adoption permitted, and will be adopted using a retrospective transition approach. The adoption of this standard is not expected to have a material effect on our condensed consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments", which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of 2018, with early adoption permitted. The adoption of this standard is not expected to have a material effect on our condensed consolidated financial statements.
In March, 2016, the FASB issued ASU 2016-09, "Compensation-Improvements to Employee Share-Based Payment Accounting", which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This standard became effective for us in the first quarter of 2017 and its adoption did not have a material effect on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases", requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. This standard is effective for us beginning in the first quarter of fiscal 2019. We are currently evaluating the effect that the updated standard will have on our condensed consolidated financial statements but believe the

12


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on our balance sheet for real estate operating leases.
In August 2014, FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU 2014-15 provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The adoption of this guidance did not have a material effect on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The FASB has also issued several updates to ASU 2014-09. The new standard supersedes U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgments than the present standards. It also requires additional disclosures regarding the nature, amount, timing and uncertainty of cash flows arising from contracts with customers. We will adopt the new revenue guidance effective January 1, 2018, by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings.
While we are still evaluating the impact that this guidance will have on our condensed consolidated financial statements, our preliminary assessment is that there could be an impact to the timing of revenue recognition as it relates to sales when a customer takes possession of the software whereby it is installed on the customer's premises.
(3)
Acquisition
In March 2015, we acquired ecVision, a cloud-based provider of global sourcing and collaborative supply chain solutions for brand-focused companies. As required per the acquisition agreement, we paid contingent consideration of $3,675,000 to ecVision’s former equityholders in June 2017.
(4)
Consolidated Balance Sheet Components
Components of property and equipment, accrued expenses and deferred revenue is as follows:
(a) Property and Equipment
 
September 30, 
 2017
 
December 31, 
 2016
Computer software and equipment
$
16,916,586

 
$
15,053,746

Software development costs
16,155,114

 
14,938,090

Furniture and fixtures
1,952,615

 
1,959,854

Leasehold improvements
2,803,114

 
2,930,390

Total property and equipment
37,827,429

 
34,882,080

Less: accumulated depreciation and amortization
(27,932,543
)
 
(24,903,825
)
Total property and equipment, net
$
9,894,886

 
$
9,978,255


 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Depreciation and amortization expense
$
747,012

 
$
1,349,046

 
$
3,162,631

 
$
3,922,355


Certain development costs of our software solution are capitalized in accordance with ASC Topic 350-40, Internal Use Software, which outlines the stages of computer software development and specifies when capitalization of costs is required. Projects that are determined to be in the development stage are capitalized and amortized over their useful lives of five years . Projects that are determined to be within the preliminary stage are expensed as incurred.

13


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Information related to capitalized software costs is as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Software costs capitalized
$
377,717

 
$
456,049

 
$
1,217,126

 
$
1,859,969

Software costs amortized (1)
553,480

 
$
525,381

 
1,639,622

 
1,450,377

(1)  Included in cost of subscription revenue on the accompanying condensed consolidated statements of operations.
 
 
 
 
 
September 30, 
 2017
 
December 31, 
 2016
Capitalized software costs not yet subject to amortization
$
973,462

 
$
984,568


(b) Accrued Expenses
 
September 30, 
 2017
 
December 31, 
 2016
Accrued bonus
$
2,005,075

 
$
2,717,625

Accrued commissions
3,173,208

 
4,188,006

Deferred rent
347,273

 
263,404

Accrued professional fees
993,820

 
917,144

Accrued taxes
807,376

 
549,740

Accrued contingent consideration and acquisition compensation

 
3,647,475

Other accrued expenses
2,038,732

 
1,843,910

Total
$
9,365,484

 
$
14,127,304


(c) Deferred Revenue
 
September 30, 
 2017
 
December 31, 
 2016
Current:
 
 
 
Subscription revenue
$
32,741,179

 
$
32,833,795

Professional services revenue
2,458,759

 
1,630,469

Total current
35,199,938

 
34,464,264

Noncurrent:
 
 
 
Subscription revenue
163,753

 
386,206

Professional services revenue
1,723,773

 
1,749,414

Total noncurrent
1,887,526

 
2,135,620

Total deferred revenue
$
37,087,464

 
$
36,599,884


Deferred revenue from subscriptions represents amounts collected from (or invoiced to) customers in advance of earning subscription revenue. Typically, we bill our annual subscription fees in advance of providing the service. Deferred revenue from professional services represents revenue that is being deferred and amortized over the remaining term of the subscription contract related to customers who have taken possession of the software. See Note 2 (g) .
(5)
Leases
We have several noncancelable operating leases that expire through 2024. These leases generally contain renewal options for periods ranging from 3 years to 5 years and require us to pay all executory costs such as maintenance and insurance. Rental expense is allocated to various line items in the condensed consolidated statements of operations.
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Rental expense from operating leases
$
957,000

 
$
888,000

 
$
2,816,000

 
$
2,793,000



14


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Information related to the carrying value of assets recorded under capital leases and related accumulated amortization is as follows:
 
September 30, 
 2017
 
December 31, 
 2016
Carry value of capital leases
$
2,727,428

 
$
2,159,850

Accumulated amortization included in carry value
6,530,227

 
5,524,216


Amortization of assets held under capital leases is allocated to various line items in the condensed consolidated statements of operations.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of September 30, 2017 are as follows:
 
Capital
Leases
 
Operating
Leases
Remainder of 2017
$
375,116

 
$
1,117,980

2018
1,414,625

 
4,319,273

2019
951,309

 
4,137,249

2020
329,626

 
2,788,823

2021
63,912

 
1,794,278

2022 and thereafter
17,483

 
1,799,227

Total minimum lease payments
3,152,071

 
$
15,956,830

Less amount representing interest
(317,619
)
 
 
Present value of net minimum capital lease payments
2,834,452

 
 
Less current installments of obligations under capital leases
(1,270,056
)
 
 
Obligations under capital leases excluding current installments
$
1,564,396

 
 

(6)
Debt
In connection with the ecVision acquisition (Note 3), in March 2015 we entered into a credit agreement (the Credit Agreement) providing for financing comprised of (i) a senior secured term loan facility (the Term Loan) of $20,000,000 , and (ii) a senior secured revolving credit facility (the Revolver) that was amended in November 2015 to allow for a borrowing limit of $10,000,000 , and includes a $2,000,000 sublimit for the issuance of letters of credit. The Credit Agreement contains customary affirmative and negative covenants for financings of its type that are subject to customary exceptions. As of September 30, 2017 , we were in compliance with all the reporting and financial covenants.
On February 15, 2017, we entered into Amendment No. 2 (the Amendment) to the Credit Agreement. The Amendment revised language in the Credit Agreement to include changes to the applicable margins with respect to Eurodollar and Base Rate loans, increased the available borrowing under the Revolver from $10,000,000 to $15,000,000 , and extended the maturity date for both the Term Loan and the Revolver to December 31, 2019.
The outstanding balance for the Term Loan as of September 30, 2017 was $13,732,380 , net of unaccreted discount and deferred financing costs of $80,120 and the outstanding balance under the Revolver was $6,100,000 . For the nine months ended September 30, 2017 , the weighted average interest rate used was 4.44% for the Term Loan and 5.49% for the Revolver.
The following table reflects the schedule of principal payments for the Term Loan as of September 30, 2017 :
 
Principal
Payments
Remainder of 2017
$
187,500

2018
750,000

2019
12,875,000

 
$
13,812,500






15


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


(7)
Stockholders' Equity
Common Stock
The following table presents our activity for common stock during the nine months ended September 30, 2017 :
 
Shares
 
Par Value
Balance at December 31, 2016
26,926,268

 
$
26,926

Exercise of common stock options
53,973

 
54

Common stock issued for contingent consideration
17,275

 
17

Issuance of common stock for vested restricted stock units
211,716

 
212

Balance at September 30, 2017
27,209,232

 
$
27,209


(8)
Stock-based Compensation
We grant stock-based incentive awards to attract, motivate and retain qualified employees (including officers), non-employee directors and consultants, and those of our affiliates. Awards granted under our 2012 Omnibus Incentive Compensation Plan (the 2012 Plan) include common stock options, restricted stock units (RSUs), including performance-based restricted stock units (PSUs), and restricted stock awards. The 2002 Plan expired in 2012 and we are no longer making grants under it. Information related to the 2012 Plan and the 2002 Plan as of September 30, 2017 is as follows:
 
2012 Plan
 
2002 Plan
Shares of common stock authorized for issuance
9,646,696

 
4,939,270

Stock options outstanding
4,387,130

 
313,715

RSUs outstanding
643,462

 

PSUs outstanding
466,499

 

Shares available for future grant
2,949,101

 


Inclusive in the above "shares of common stock authorized for issuance" are the additional 4,500,000 shares approved by our stockholders in May 2017.
Stock Options
The fair value of option grants is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Risk-free interest rate
1.99%
 
*
 
1.92%
 
1.29%
Expected volatility
32.65%
 
*
 
32.66%
 
33.62%
Expected dividend yield
 
*
 
 
Expected life in years
6.25
 
*
 
6.25
 
6.25
Weighted average fair value of options granted
$3.27
 
*
 
$2.82
 
$1.32
* There were no options granted during the three months ended September 30, 2016.
 
 
 
 

The computation of expected volatility for each period is based on historical volatility of comparable public companies. The volatility percentage represents the mean volatility of these companies. The computation of expected life for each period was determined based on the simplified method. The risk-free interest rate is based on U.S. Treasury yields for zero-coupon bonds with a term consistent with the expected life of the options.

16


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Information for the 2002 Plan and 2012 Plan is as follows:
 
Options
Outstanding
 
Weighted Average
Exercise Price
Balance at December 31, 2016
3,856,831

 
$9.99
Granted
1,050,654

 
7.86

Exercised
(53,973
)
 
3.24

Canceled
(44,703
)
 
10.84

Expired
(107,964
)
 
11.11

Balance at September 30, 2017
4,700,845

 
9.70

 
September 30,
 
2017
 
2016
Total intrinsic value of options exercised
$
164,786

 
$
3,093,061

Weighted average exercise price of fully vested options
$
10.21

 
$
9.60

Weighted average remaining term of fully vested options
6.5 years

 
6.9 years

Total unrecognized compensation cost related to non-vested stock options
$
6,255,749

 
$
8,010,642

Weighted average period to recognize compensation cost related to non-vested stock options
2.2 years

 
2.0 years


Options outstanding and exercisable under the 2002 Plan and the 2012 Plan at September 30, 2017 were as follows:
 
 
 
 
Options Outstanding
 
Options Exercisable
Exercise Price
Per Share
 
Options
Outstanding
 
Weighted
Average
Remaining
Contractual
Life
 
Intrinsic
Value
 
Options
Exercisable
 
Weighted
Average Remaining
Contractual
Life
 
Intrinsic
Value
$
2.31

-
$
3.74

.
557,261

 
5.6 years
 
$
2,670,005

 
413,956

 
4.7 years
 
$
2,105,384

4.13

-
7.20

.
787,677

 
8.6 years
 
737,760

 
212,433

 
5.9 years
 
396,022

8.07

-
12.62

.
1,321,149

 
8.2 years
 

 
534,904

 
7.2 years
 

13.00

-
15.90

.
2,034,758

 
6.8 years
 

 
1,526,065

 
6.8 years
 

 
 
 
 
4,700,845

 
 
 
$
3,407,765

 
2,687,358

 
 
 
$
2,501,406


Restricted Stock and Performance Stock Units
The following table is a summary of our RSU and PSU activity for the nine months ended September 30, 2017 :
 
Number
of RSU's
Outstanding
 
Number
of PSU's
Outstanding
 
Total
 
Weighted
Average
Grant Date
Fair Value
Balance at December 31, 2016
599,966

 
280,247

 
880,213

 
$5.20
Granted
378,580

 
198,440

 
577,020

 
8.38

Vested
(316,946
)
 

 
(316,946
)
 
3.83

Canceled
(18,138
)
 
(12,188
)
 
(30,326
)
 
5.48

Balance at September 30, 2017
643,462

 
466,499

 
1,109,961

 
7.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 
 2017
Weighted-average grant date fair value of unvested combined RSU/PSU
$7.24
Total unrecognized compensation cost related to non-vested combined RSU/PSU
$5,350,647
Weighted average period to recognize compensation cost related to non-vested combined RSU/PSU
2.6 years


During the nine months ended September 30, 2017 , we awarded 198,440 PSUs that entitle recipients to shares of our common stock if certain multi-year financial metrics are met for the fiscal year ending December 31, 2018. The PSUs entitle the recipients to an amount of shares of common stock that could range from 0% up to 500% of the number of units granted at the date of vesting depending on the level of achievement of the specified conditions.

17


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


(9)
Income Taxes
Our income tax provision for the three and nine months ended September 30, 2017 and 2016 reflects our estimate of the effective tax rates expected to be applicable for the full fiscal years, adjusted for any discrete events that are recorded in the period in which they occur. The estimates are re-evaluated each quarter based on our estimated tax expense for the full fiscal year. The tax provision for the three and nine months ended September 30, 2017 is primarily related to current foreign income taxes.
We have historically incurred operating losses and, given our cumulative losses and no history of profits, we have recorded a full valuation allowance against our deferred tax assets at September 30, 2017 and December 31, 2016 .
We have a federal net operating loss (NOL) carryforward of $82,141,000 and $73,533,000 as of December 31, 2016 and 2015 , respectively. We expect to be in a taxable loss position for 2017 . The federal NOL carryforward will begin to expire in 2019. I f not used, these NOLs may be subject to limitation under Internal Revenue Code (IRC) Section 382 should there be a greater than 50% ownership change as determined under the regulations.
Under IRC Section 382, substantial changes in ownership may limit the amount of NOL carryforwards that may be utilized annually in the future to offset taxable income. We completed an IRC Section 382 study through June 30, 2016, which concluded that we have experienced several ownership changes, causing limitations on the annual use of NOL carryforwards. Provided there is sufficient taxable income, $2,131,290 of NOL carryforwards are expected to expire without utilization between 2019 and 2022. Additionally, our ability to use our NOL carryforwards to reduce future taxable income may be further limited as a result of any future equity transactions, including, but not limited to, an issuance of shares of stock or sales of common stock by our existing stockholders.
For state income tax purposes, we have net operating loss carryforwards in a number of jurisdictions in varying amounts and with varying expiration dates from 2017 through 2037.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on an income tax return. We have no liability for uncertain positions. Interest and penalties, if any, related to unrecognized tax benefits, would be recognized as income tax expense.
We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Tax years 2014 and forward remain open for examination for federal tax purposes and tax years 2013 and forward remain open for examination for our more significant state tax jurisdictions. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2016 will remain subject to examination until the respective tax year is closed. In July 2014, we were notified by the Internal Revenue Service (IRS) that we had been selected at random for a compliance research examination related to the year ended December 31, 2012. In May 2016, the IRS concluded its examination and the result of such examination was the downward adjustment of federal net operating loss carryforwards aggregating approximately $1,200,000 .
(10)
Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net loss
$
(2,237,703
)
 
$
(3,791,250
)
 
$
(11,168,374
)
 
$
(14,217,818
)
Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding
27,471,248

 
26,809,137

 
27,377,058

 
26,609,322

Basic and diluted net loss per share
$
(0.08
)
 
$
(0.14
)
 
$
(0.41
)
 
$
(0.53
)


18


AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Diluted net loss per share does not include the effect of the following antidilutive common equivalent shares:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Stock options outstanding
4,700,845

 
4,028,432

 
4,700,845

 
4,028,432

Restricted stock and performance stock units
1,109,961

 
975,163

 
1,109,961

 
975,163

 
5,810,806

 
5,003,595

 
5,810,806

 
5,003,595


(11)
Commitments and Contingencies
(a) Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations, or liquidity.
(b) Indemnifications
In the ordinary course of business and under the indemnification clause of our standard customer agreement, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our licensed materials. At present, we do not expect to incur any infringement liability as a result of the customer indemnification clauses.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our senior officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences so long as such officer or director may be subject to any possible claim. The maximum potential amount of future payments we could be required to make under these indemnification agreements is undetermined; however, we have director and officer insurance coverage that reduces our exposure and may enable us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

19


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations and cash flows should be read in conjunction with (i) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (ii) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2016 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). As discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below and in Item 1A in our Annual Report on Form 10-K.
Overview
As a leading provider of cloud based global trade management (GTM) solutions, our mission is to dramatically transform the way companies conduct global trade. We help companies all over the world create value through their global supply chain by improving margins, achieving greater agility and lowering risk. We do this by creating a comprehensive digital model of the global supply chain, which enables collaboration among buyers, sellers and logistics companies. We replace manual and outdated processes with full automation of import and export activities, and we also provide rich data analytics to uncover areas for optimization, and a platform that is responsive and flexible to adapt to the ever-changing nature of global trade.
We deliver our GTM solution using a Software-as-a-Service (SaaS) model and leverage a highly flexible technology framework to quickly and efficiently meet our customers’ unique requirements around the world. It can be delivered in individual modules or as a suite, depending on our customers’ needs.
We sell our GTM solution to many of the largest enterprises in the world, representing diversified industry verticals including Chemical/Pharmaceutical, High Technology/Electronics, Industrial/Manufacturing, Logistics, Oil & Gas, and Retail/Apparel. Our customers pay us subscription fees and implementation service fees for the use of our solutions under agreements that typically have an initial term of three to five years.
We face a variety of challenges and risks, which we will need to address and manage as we pursue our growth strategy. In particular, the growth of our business and our future success are dependent upon many factors, including our ability to innovate in the face of a rapidly changing technology landscape and changing regulatory environment, manage our future growth effectively and in a cost effective manner, grow and retain our customer base, including our base of large enterprise customers, expand deployment of our solution within existing customers and focus on customer satisfaction. Our management team continuously focuses on these and other challenges. However, we cannot assure you that we will be successful in addressing and managing these and the many challenges and risks that we face.
Key Metrics
We regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
Annualized Recurring Revenue Retention . We believe our annualized recurring revenue retention rate is an important metric to measure the long-term value of customer agreements with regard to revenue and billings visibility. We calculate our annualized recurring revenue retention rate by comparing, for a given quarter, subscription revenue for all customers in the corresponding quarter of the prior year to the subscription revenue from those same customers in the given quarter and calculating the average of the four quarters for the stated year. The annualized recurring revenue retention rate for the quarters ended September 30, 2017 and 2016 was 102% and 102% , respectively.
Adjusted EBITDA . EBITDA consists of net income (loss) plus depreciation and amortization, interest expense (income) and income tax expense (benefit). Adjusted EBITDA consists of EBITDA plus our non-cash stock-based compensation expense, the change in fair value of contingent consideration liability, acquisition compensation costs, purchase accounting adjustment to deferred revenue and acquisition related costs. We use adjusted EBITDA as a measure of operating performance because it assists us in comparing performance on a consistent basis across reporting periods, as it removes from our operating results the impact of our capital structure. We believe adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of performance exclusive of our capital structure and the method by which assets were acquired.

20


Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles, or GAAP. We have provided below a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
Some of these limitations are:
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not reflect interest or tax payments that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these and other limitations, you should consider adjusted EBITDA together with other GAAP-based financial performance measures, including various cash flow metrics, net loss and our other GAAP results.
The following table provides a reconciliation of net loss to adjusted EBITDA:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(2,237,703
)
 
$
(3,791,250
)
 
$
(11,168,374
)
 
$
(14,217,818
)
Depreciation and amortization
1,007,083

 
1,729,448

 
4,015,240

 
5,063,509

Interest expense
272,293

 
221,370

 
751,644

 
643,543

Interest income
(1,238
)
 
(4,810
)
 
(2,564
)
 
(55,858
)
Income tax expense
130,039

 
112,580

 
906,557

 
306,465

EBITDA
(829,526
)
 
(1,732,662
)
 
(5,497,497
)
 
(8,260,159
)
Stock-based compensation
1,824,747

 
1,454,825

 
4,279,045

 
4,207,060

Change in fair value of contingent consideration liability

 
10,000

 
18,525

 
10,469

Purchase accounting deferred revenue adjustment

 

 

 
69,095

Acquisition compensation costs

 
283,977

 

 
851,931

Acquisition related costs

 

 

 
5,420

Adjusted EBITDA
$
995,221

 
$
16,140

 
$
(1,199,927
)
 
$
(3,116,184
)
Components of Operating Results
Revenue
Revenue . We primarily generate revenue from the sale of subscriptions and subscription-related professional services. Our subscriptions are multi-year arrangements for software and content, and in certain instances include a transactional component. We derive professional services revenue from implementation, integration and other elements associated with solution and content subscriptions.
We typically invoice subscription customers in advance on an annual basis, with payment due upon receipt of the invoice. We reflect invoiced amounts on our balance sheet as accounts receivable or as cash when collected, and as deferred revenue until earned and recognized as revenue ratably over the performance period. Accordingly, deferred revenue represents the amount billed to customers that has not yet been earned or recognized as revenue, pursuant to agreements executed during current and prior periods, and does not reflect that portion of a contract to be invoiced to customers on a periodic basis for which payment is not yet due.
Subscription Revenue . We derive our subscription revenue from fees paid to us by our customers for access to our solution. Typically, we recognize the revenue associated with subscription agreements ratably on a straight-line basis over the term of the agreement, provided all criteria required for revenue recognition have been met.

21


Professional Services Revenue . Professional services revenue consists primarily of fees charged for implementation, integration, training and other services associated with the subscription agreements entered into with our customers. Generally, we charge for professional services to implement our solution on a time and materials basis.
Cost of Revenue
Cost of Subscription Revenue . Cost of subscription revenue consists primarily of personnel and related costs of our hosting, support, and content teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, software license fees, hosting costs, Internet connectivity, depreciation expenses directly related to delivering our solution, as well as amortization of capitalized software development costs. We generally expense our cost of subscription revenue as we incur the costs. Full year cost of subscription revenue for 2017 is expected to increase compared to 2016 expenses as we continue to scale the business.
Cost of Professional Services Revenue . Cost of professional services revenue consists primarily of personnel and related costs of our professional services team, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, the costs of contracted third-party vendors, reimbursable expenses and depreciation, amortization and other allocated costs. As our personnel are employed on a full-time basis, our cost of professional services is largely fixed in the short-term, while our professional services revenue may fluctuate, leading to fluctuations in professional services gross profit. We expense our cost of professional services revenue as we incur the costs. Full year cost of professional services revenue for 2017 is expected to increase compared to 2016 expenses as we continue to scale the business.
Operating Expenses
Our operating expenses are classified into three categories: sales and marketing, research and development, and general and administrative.
Sales and Marketing . Sales and marketing expenses primarily consist of personnel and related costs for our sales and marketing staff, including salaries, benefits, commissions, bonuses, payroll taxes and stock-based compensation. It also includes the costs of promotional events, corporate communications, online marketing, solution marketing and other brand-building activities, in addition to depreciation, amortization and other allocated costs. When the initial customer contract is signed and upon any renewal, we capitalize and amortize commission costs as an expense ratably over the term of the related customer contract in proportion to the recognition of the subscription revenue. If a subscription agreement is terminated, we recognize the unamortized portion of any deferred commission cost as an expense immediately upon such termination. We believe that sales and marketing expenses for the full year 2017 as a percentage of revenue will be consistent with 2016 expenses.
Research and Development . Research and development expenses primarily consist of personnel and related costs of our research and development staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and costs of certain third-party contractors, as well as depreciation, amortization and other allocated costs. We capitalize development costs related to the development of our solution modules and amortize them over their useful life. We have devoted our solution modules development efforts primarily to enhancing the functionality and expanding the capabilities of our solution. We believe that our research and development expenses for the full year 2017 as a percentage of revenue will be slightly lower than 2016 expenses as the number of personnel remains steady and revenues increase.
General and Administrative . General and administrative expenses primarily consist of personnel and related costs for our executive, administrative, finance, information technology, legal, accounting and human resource staffs, including salaries, benefits, bonuses, payroll taxes and stock-based compensation, professional fees, other corporate expenses and depreciation, amortization and other allocated costs. We believe that our general and administrative expenses for the full year 2017 as a percentage of revenue will be consistent with 2016 expenses.
Interest and Other Income (Expense)
Interest and other income (expense) consists primarily of interest income on our cash balances, and interest expense on outstanding debt and capital lease obligations.
Income Tax Expense
Because we have generated net losses in all periods to date and recorded a full valuation allowance against our deferred tax assets, we have historically not recorded a provision for federal or state income taxes. The tax provision for the year ended September 30, 2017 is exclusively related to actual foreign income taxes and is a result of the cost-plus transfer pricing agreements we have in place with our foreign subsidiaries, primarily in India, Germany and the United Kingdom. Realization of any of our deferred tax assets depends upon future earnings, the timing and amount of which are uncertain. Utilization of our net operating losses may be subject to annual limitations due to the ownership change rules under the Internal Revenue

22


Code of 1986, as amended, and similar state provisions. We completed an Internal Revenue Code Section 382 study through June 2016, which concluded that we have experienced several ownership changes, causing limitations on the annual use of the net operating loss carryforwards. In the event we have future changes in ownership, the availability of net operating losses could be further limited. Additionally, in May 2016, we concluded an examination by the U.S. Internal Revenue Service, in connection with the 2012 tax year. The result of such examination was the downward adjustment of federal net operating loss carryforwards aggregating approximately $1,200,000 .
Critical Accounting Policies
We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the estimates and judgments used for revenue recognition, deferred revenue, stock-based compensation, goodwill, capitalized software costs, and income taxes have the greatest potential impact on our condensed consolidated financial statements, and consider these to be our critical accounting policies and estimates.
During the nine months ended September 30, 2017 , there were no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our condensed consolidated financial statements, see Note 2, "Summary of Significant Accounting Policies" in the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of this Report on Form 10-Q.


23


Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenue. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Subscription
$
14,944,160

 
$
14,079,394

 
$
43,532,217

 
$
39,358,586

Professional services
5,269,090

 
4,771,407

 
14,910,883

 
14,595,827

Total revenue
20,213,250

 
18,850,801

 
58,443,100

 
53,954,413

Cost of revenue:
 
 
 
 
 
 
 
Cost of subscription revenue
4,903,483

 
4,964,971

 
16,066,645

 
14,988,695

Cost of professional services revenue
4,247,519

 
3,845,548

 
12,396,228

 
11,872,116

Total cost of revenue
9,151,002

 
8,810,519

 
28,462,873

 
26,860,811

Gross profit
11,062,248

 
10,040,282

 
29,980,227

 
27,093,602

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
5,551,239

 
5,488,309

 
17,043,562

 
16,968,999

Research and development
3,830,431

 
4,231,492

 
11,201,577

 
12,119,137

General and administrative
3,517,187

 
3,782,591

 
11,247,825

 
11,329,134

Total operating expenses
12,898,857

 
13,502,392

 
39,492,964

 
40,417,270

Loss from operations
(1,836,609
)
 
(3,462,110
)
 
(9,512,737
)
 
(13,323,668
)
Interest income
1,238

 
4,810

 
2,564

 
55,858

Interest expense
(272,293
)
 
(221,370
)
 
(751,644
)
 
(643,543
)
Loss before income taxes
(2,107,664
)
 
(3,678,670
)
 
(10,261,817
)
 
(13,911,353
)
Income tax expense
130,039

 
112,580

 
906,557

 
306,465

Net loss
$
(2,237,703
)
 
$
(3,791,250
)
 
$
(11,168,374
)
 
$
(14,217,818
)


 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Subscription
74
 %
 
75
 %
 
74
 %
 
73
 %
Professional services
26

 
25

 
26

 
27

Total revenue
100

 
100

 
100

 
100

Cost of revenue:
 
 
 
 
 
 
 
Cost of subscription revenue (1)
33

 
35

 
37

 
38

Cost of professional services revenue (1)
81

 
81

 
83

 
81

Total cost of revenue
45

 
47

 
49

 
50

Gross profit
55

 
53

 
51

 
50

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
27

 
29

 
29

 
31

Research and development
19

 
22

 
19

 
22

General and administrative
17

 
20

 
19

 
21

Total operating expenses
63

 
71

 
67

 
74

Loss from operations
(8
)
 
(18
)
 
(16
)
 
(24
)
Interest income
0

 
0

 
0

 
0

Interest expense
(1
)
 
(1
)
 
(1
)
 
(1
)
Loss before income taxes
(9
)
 
(19
)
 
(17
)
 
(25
)
Income tax expense
1

 
1

 
2

 
1

Net loss
(10
)%
 
(20
)%
 
(19
)%
 
(26
)%
(1) The table shows cost of revenue as a percentage of each component of revenue.
 
 
 
 



24


Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016
Revenue:
Three Months Ended September 30,
 
Change
 
2017
 
2016
 
$
 
%
Subscription
$
14,944,160

 
$
14,079,394

 
$
864,766

 
6.1
%
Professional services
5,269,090

 
4,771,407

 
497,683

 
10.4
%
Total revenue
$
20,213,250

 
$
18,850,801

 
$
1,362,449

 
7.2
%
Subscription Revenue . The increase was primarily related to an increase in both enterprise and mid-market customers for the three months ended September 30, 2017 compared to 2016 . We have increased our customer count through our sales and marketing efforts.
Professional Services Revenue . The increase in professional services revenue was primarily due to the timing of projects, which resulted in higher demand for our professional services during the three months ended September 30, 2017 compared to 2016 .
Total Revenue. Revenue from international customers accounted for 25% and 21% of total revenue for the three months ended September 30, 2017 and 2016 , respectively. For the three months ended September 30, 2017 , one customer accounted for 12% of our total revenue and for the three months ended September 30, 2016 , no customer accounted for more than 10% of total revenue.
Cost of Revenue:
Three Months Ended September 30,
 
Change
 
2017
 
2016
 
$
 
%
Cost of subscription revenue
$
4,903,483

 
$
4,964,971

 
$
(61,488
)
 
(1.2
)%
Cost of professional services revenue
4,247,519

 
3,845,548

 
401,971

 
10.5
 %
Total cost of revenue
$
9,151,002

 
$
8,810,519

 
$
340,483

 
3.9
 %
Cost of Subscription Revenue . The decrease was primarily the result of lower depreciation, amortization and other allocated costs of $0.5 million. This was offset by higher compensation costs of $0.3 million related to higher average headcount and an increase of $0.1 million for outside services.
Cost of Professional Services Revenue . The increase was primarily the result of higher compensation costs of $0.3 million and $0.1 million for lower employee-related costs transferred to our research and development team when compared to 2016 as our professional services organization temporarily assisted our engineering team.
Operating Expenses:
Three Months Ended September 30,
 
Change
 
2017
 
2016
 
$
 
%
Sales and marketing
$
5,551,239

 
$
5,488,309

 
$
62,930

 
1.1
 %
Research and development
3,830,431

 
4,231,492

 
(401,061
)
 
(9.5
)%
General and administrative
3,517,187

 
3,782,591

 
(265,404
)
 
(7.0
)%
Total operating expenses
$
12,898,857

 
$
13,502,392

 
$
(603,535
)
 
(4.5
)%
Sales and Marketing Expenses . The increase was primarily due to an increase in commission costs of $0.2 million, which was offset by lower compensation costs of $0.1 million. Global marketing event costs for the three months ended September 30, 2017 were consistent with 2016 costs.
Research and Development Expenses . The decrease was primarily due to lower employee-related compensation costs of $0.2 million due to lower average headcount and a decrease of $0.3 million due to lower acquisition compensation costs compared to 2016 . Also, there was a decrease of $0.1 million for lower employee-related costs transferred from our professional services organization when compared to 2016 as our professional services organization temporarily assisted our engineering team. This was offset by an increase of $0.1 million for fewer software development costs capitalized compared to 2016 and an increase of $0.1 million for travel costs.
General and Administrative Expenses . The decrease was primarily due to a reduction in bad debt expense of $0.5 million offset by an increase in professional fees of $0.1 million and employee-related compensation costs of $0.2 million.

25


Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Revenue:
Nine Months Ended September 30,
 
Change
 
2017
 
2016
 
$
 
%
Subscription
$
43,532,217

 
$
39,358,586

 
$
4,173,631

 
10.6
%
Professional services
14,910,883

 
14,595,827

 
315,056

 
2.2
%
Total revenue
$
58,443,100

 
$
53,954,413

 
$
4,488,687

 
8.3
%
Subscription Revenue . The increase was primarily related to increases in both enterprise and mid-market customers for the nine months ended September 30, 2017 when compared to the nine months ended September 30, 2016 . We have increased our customer count through our increased sales and marketing efforts.
Professional Services Revenue . The increase in professional services revenue was primarily due to the timing of projects, which resulted in higher demand for our professional services during the nine months ended September 30, 2017 compared to 2016 .
Total Revenue. Revenue from international customers accounted for 24% and 21% of total revenue for the nine months ended September 30, 2017 and 2016 , respectively. For the nine months ended September 30, 2017 , one customer accounted for 11% of our total revenue and for the nine months ended September 30, 2016 , no customer accounted for more than 10% of total revenue.
Cost of Revenue:
Nine Months Ended September 30,
 
Change
 
2017
 
2016
 
$
 
%
Cost of subscription revenue
$
16,066,645

 
$
14,988,695

 
$
1,077,950

 
7.2
%
Cost of professional services revenue
12,396,228

 
11,872,116

 
524,112

 
4.4
%
Total cost of revenue
$
28,462,873

 
$
26,860,811

 
$
1,602,062

 
6.0
%
Cost of Subscription Revenue . The increase was primarily the result of higher compensation costs of $1.2 million related to higher average headcount. Also, there was an increase of $0.2 million for outside services and an increase of $0.3 million for software maintenance costs. This was offset by lower depreciation, amortization and other allocated costs of $0.6 million.
Cost of Professional Services Revenue . The increase was primarily the result of higher employee-related compensation costs of $0.6 million offset by a $0.2 million decrease for higher employee-related costs transferred to research and development as our professional services organization temporarily assisted our engineering team.
Operating Expenses:
Nine Months Ended September 30,
 
Change
 
2017
 
2016
 
$
 
%
Sales and marketing
$
17,043,562

 
$
16,968,999

 
$
74,563

 
0.4
 %
Research and development
11,201,577

 
12,119,137

 
(917,560
)
 
(7.6
)%
General and administrative
11,247,825

 
11,329,134

 
(81,309
)
 
(0.7
)%
Total operating expenses
$
39,492,964

 
$
40,417,270

 
$
(924,306
)
 
(2.3
)%
Sales and Marketing Expenses . The increase was primarily due to higher commission costs of $0.4 million, higher travel costs of $0.2 million, higher software maintenance costs of $0.1 million and higher recruiting costs of $0.1 million. This was offset by lower employee-related costs of $0.2 million and lower North America and Asia marketing events of $0.4 million.
Research and Development Expenses . The decrease was primarily the result of lower employee-related compensation costs of $0.9 million due to lower average headcount and a decrease of $0.9 million due to lower acquisition compensation costs compared to 2016 . This was offset by an increase of $0.2 million for higher employee-related costs transferred from our professional services organization when compared to 2016 as our professional services organization temporarily assisted our engineering team. Also, there was an increase of $0.6 million for fewer software development costs capitalized compared to 2016 .
General and Administrative Expenses . The decrease was primarily due to lower employee-related compensation costs of $0.3 million, a decrease in bad debt expense of $0.2 million and a decrease in miscellaneous costs of $0.2 million. This was offset by an increase in professional fees of $0.3 million and miscellaneous taxes of $0.3 million.




26


Liquidity and Capital Resources
 
Nine Months Ended 
 September 30,
 
2017
 
2016
Cash provided by (used in):
 
 
 
Operating activities
$
(2,751,906
)
 
$
(38,854
)
Investing activities
(1,592,388
)
 
(2,386,429
)
Financing activities
(2,774,951
)
 
634,470

 
September 30, 
 2017
 
December 31, 
 2016
Cash and cash equivalents
$
8,282,234

 
$
15,408,133

Accounts receivable, net
15,465,557

 
19,661,156

Historically, we have financed our operations through the sale of stock and borrowing from credit facilities. In March 2014, we closed our initial public offering (IPO) and received net proceeds of $53.1 million. Our principal sources of liquidity are our cash and cash equivalents, our accounts receivable, cash from operations and borrowings from our credit facility. We bill our customers in advance for annual subscriptions, while professional services are typically billed on a monthly basis as services are performed. As a result, the amount of our accounts receivable at the end of a period is driven significantly by our annual subscription and professional services billings for the last month of the period, and our cash flows from operations are affected by our collection of amounts due from customers for subscription and professional services billings that resulted in the recognition of revenue in a prior period.
Net Cash Flows from Operating Activities
For the nine months ended September 30, 2017 , net cash used in operating activities was $2.8 million , which reflects our net loss of $11.2 million , adjusted for non-cash charges of $8.6 million consisting primarily of $4.3 million for stock-based compensation and $4.0 million for depreciation and amortization. Additionally, we had a $0.2 million decrease in our working capital accounts consisting primarily of a $1.0 million for a decrease in accounts payable, a $1.2 million decrease in accrued expenses and a $2.4 million decrease for acquisition contingent consideration paid related to the ecVision acquisition. This was offset by a decrease of $3.2 million in accounts receivable and unbilled receivable.
For the nine months ended September 30, 2016, net cash used in operating activities was $38,854, which reflects our net loss of $14.2 million, adjusted for non-cash charges of $10.7 million consisting primarily of $4.2 million for stock-based compensation and $5.1 million for depreciation and amortization. Additionally, we had a $3.5 million increase in our working capital accounts consisting primarily of a decrease of $5.4 million in accounts receivable and an increase of $2.7 million in accrued expenses offset by a $2.1 million increase in prepaid expenses and other assets and a $2.0 million decrease in other liabilities.
Our deferred revenue was $37.1 million at September 30, 2017 and $36.6 million at December 31, 2016 . Deferred revenue reflects the timing of invoicing to new and existing customers offset by amortization of previously billed subscription agreements. Customers are invoiced annually in advance for their annual subscription fee and the invoices are recorded in accounts receivable and deferred revenue, which is then recognized ratably over the term of the subscription agreement. With respect to professional services fees, customers are invoiced as the services are performed, and the invoices are recorded in accounts receivable. Where appropriate based on revenue recognition criteria, professional services invoices are initially recorded in deferred revenue, which are then recognized ratably over the remaining term of the subscription agreement.
Net Cash Flows from Investing Activities
For the nine months ended September 30, 2017 , net cash used in investing activities was $1.6 million and primarily consisted of $1.2 million for capitalization of software development costs. In general, our capital expenditures are for our network infrastructure to support our increasing customer base and growth in new business and for internal use, such as equipment for our employees.
For the nine months ended September 30, 2016, net cash used in investing activities was $2.4 million and primarily consisted of $1.9 million for capitalization of software development costs.

27


Net Cash Flows from Financing Activities
For the nine months ended September 30, 2017 , net cash used in financing activities was $2.8 million and consists of $1.3 million paid for acquisition contingent consideration related to the ecVision acquisition, capital lease repayments of $1.2 million and term loan repayments of $0.5 million .
For the nine months ended September 30, 2016, net cash provided by financing activities was $0.6 million and consists of capital lease repayments of $1.1 million and term loan repayments of $0.3 million offset by net borrowings from our revolving credit facility of $0.5 million and proceeds from the exercise of stock options of $1.5 million.
Credit Agreement
In connection with the ecVision acquisition (Note 3), in March 2015 we entered into a credit agreement (the Credit Agreement) providing for financing comprised of (i) a senior secured term loan facility (the Term Loan) of $20.0 million , and (ii) a senior secured revolving credit facility (the Revolver) that was amended in November 2015 to allow for a borrowing limit of $10.0 million , and includes a $2.0 million sublimit for the issuance of letters of credit. The Credit Agreement contains customary affirmative and negative covenants for financings of its type that are subject to customary exceptions. As of September 30, 2017 , we were in compliance with all the reporting and financial covenants.
On February 15, 2017, we entered into Amendment No. 2 (the Amendment) to the Credit Agreement. The Amendment revised language in the Credit Agreement to include changes to the applicable margins with respect to Eurodollar and Base Rate loans, increased the available borrowing under the Revolver from $10.0 million to $15.0 million , and extended the maturity date for both the Term Loan and the Revolver to December 31, 2019.
The outstanding balance for the Term Loan as of September 30, 2017 was $13.7 million , net of unaccreted discount and deferred financing costs of $0.1 million and the outstanding balance under the Revolver was $6.1 million . For the nine months ended September 30, 2017 , the weighted average interest rate used was 4.44% for the Term Loan and 5.49% for the Revolver.
Off-Balance Sheet Arrangements
As of September 30, 2017 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space, we do not engage in off-balance sheet financing arrangements. Our operating lease arrangements do not and are not reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital resources and capital expenditures. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Capital Resources
Historically, we have incurred net losses and negative cash flows from operations and have an accumulated deficit of $166.1 million as of September 30, 2017 . Our primary sources of liquidity have been proceeds from our IPO, cash and cash equivalents, accounts receivable, cash from operations and borrowings from our credit facility.
Additional financing may be required for us to successfully implement our growth strategy. There can be no assurance that additional financing, if needed, can be obtained on terms acceptable to us. Our ability to maintain successful operations will depend on, among other things, new business, the retention of customers, and the effectiveness of sales and marketing initiatives. If anticipated revenue growth is not achieved, we may be required to curtail spending to reduce cash outflows.
Based upon our existing cash balance, borrowings from our credit facility and our projected operating results, management believes that we have adequate resources to satisfy our liquidity requirements through at least the next twelve months from issuance of this quarterly report.

28


Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk . We bill our customers predominately in U.S. dollars and receive payment predominately in U.S. dollars. However, because most of our international sales are denominated in the currency of the country where the purchaser is located, as we continue to expand our direct sales presence in international regions, the portion of our accounts receivable denominated in foreign currencies may continue to increase. Historically, our greatest accounts receivable foreign currency exposure has been related to revenue denominated in Euros. In addition, we incur significant costs related to our operations in India in Rupees and since our acquisition of EasyCargo in 2013 and ecVision in 2015, we also have foreign currency risk related to those operations in China in Renminbi and in Hong Kong dollars. As a result of these factors, our results of operations and cash flows are and will increasingly be subject to fluctuations due to changes in foreign currency exchange rates.
Interest Rate Sensitivity . Interest income is sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our investments, which are primarily cash and cash equivalents, we believe there is no material risk of exposure. Although interest expense related to our credit agreement is sensitive to changes in the Prime rate and the LIBOR rate, we believe that we have no material risk of exposure.
Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, an evaluation as of September 30, 2017 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2017 , were effective for the purposes stated above.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

29


PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position, results of operations, or liquidity.
Item 1A.    Risk Factors
There have been no material changes to the Risk Factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 .
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None.
Item 6.    Exhibits
See exhibits listed under the Exhibit Index below.

30


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
AMBER ROAD, INC.
 
 
 
Date: November 9, 2017
By:
/s/ THOMAS E. CONWAY
 
 
Thomas E. Conway
 
 
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)



























31


EXHIBIT INDEX

Exhibit
Number
 
Description
31.1*
 
31.2*
 
32.1**
 
32.2**
 
101.INS*
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
 
XBRL Taxonomy Extension Schema Linkbase Document
101.CAL*
 
XBRL Taxonomy Calculation Linkbase Document
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
 
XBRL Taxonomy Label Linkbase Document
101.PRE*
 
XBRL Taxonomy Presentation Linkbase Document
 
 
 
* Filed herewith
** Furnished herewith
















32
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