NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
1. Description of Business
Cvent, Inc. (the “Company”) provides a cloud-based enterprise event management platform with solutions for both sides of the events and meetings value ecosystem: (i) event and meeting planners, through its Event Cloud and (ii) hoteliers and venues, through its Hospitality Cloud. The Company’s integrated Event Cloud solution addresses the entire event lifecycle by allowing event and meeting planners to automate and streamline the process. The Company’s Hospitality Cloud provides hotels and venues with a full solution suite to create, manage and measure demand for their group meetings. The combination of these cloud-based solutions creates an integrated platform that allows the Company to generate revenue from both sides of the events and meetings ecosystem.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The financial information presented in the accompanying unaudited consolidated financial statements as of
March 31, 2016
, and for the
three
months ended
March 31, 2016
and
2015
has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of the financial position as of
March 31, 2016
, the results of operations for the
three
months ended
March 31, 2016
and
2015
, and cash flows for the
three months ended
March 31, 2016
and
2015
. These unaudited consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto.
(b) Reclassification
Certain items in the prior period financial statements have been reclassified for comparative purposes to conform to the current period presentation.
(c) Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions made by management include estimated useful lives of property and equipment and capitalized software development costs, goodwill and intangibles, determination of estimated selling prices, allowances for doubtful accounts, valuation of deferred tax assets, valuation assumptions in purchase accounting, certain assumptions related to stock-based compensation, income taxes and legal and other contingencies. Actual results could differ from those estimates and assumptions.
(d) Cash and Cash Equivalents
Highly liquid financial instruments purchased with original maturities of
90 days
or less at the date of purchase are reported as cash equivalents. Cash equivalents are recorded at cost, which approximates fair value.
Included in cash and cash equivalents are funds representing amounts reserved for registrations sold on behalf of customers. While these funds are not restricted as to their use, a liability for amounts due to customers under these arrangements has been recorded in accounts payable in the accompanying consolidated balance sheets. The Company had amounts due to customers of
$4.5 million
and
$1.8 million
included within cash and cash equivalents as of
March 31, 2016
and
December 31, 2015
, respectively.
(e) Short-term Investments
The Company’s short-term investments consist of highly liquid financial instruments with original maturities greater than
90 days
but less than
one year
. These short-term investments are comprised of certificates-of-deposit.
(f) Revenue Recognition
The Company derives revenue from
two
primary sources: Event Cloud subscription-based solutions and Hospitality Cloud marketing solutions. These services are generally provided under annual and multi-year contracts that are generally only cancellable for cause. Revenue is generally recognized on a straight-line basis over the term of the contract. The Company recognizes revenue when all of the following conditions are met:
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(i)
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persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which the solutions or services will be provided;
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(ii)
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delivery to customers has occurred or services have been rendered;
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(iii)
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the fee is fixed or determinable; and
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(iv)
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collection of the fees is reasonably assured.
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The Company considers a signed agreement or other similar documentation to be persuasive evidence of an arrangement. Collectability is assessed based on a number of factors, including transaction history and the creditworthiness of a customer. If it is determined that collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash.
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) ASU 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements
(formerly EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables) with respect to its multiple-element arrangements entered into or significantly modified on or after January 1, 2011.
Event Cloud Revenue
Event Management
The Company generates the majority of its revenue through Software-as-a-Service (“SaaS”) subscriptions to the event and conference management platform, pricing for which is subject to the features and functionality selected by the customer. No features or functionality within the subscription-based services have stand-alone value apart from one another and, therefore, the entire subscription fee is recognized on a straight-line basis over the term of the subscription arrangement.
SaaS subscriptions may include functionality that enables customers to manage the registration of participants attending the customer’s event or events. In some cases, the negotiated fee for the subscription is based on a maximum number of event registrations permitted over the subscription term. At any time during the subscription term, customers may elect to purchase blocks of additional registrations, which are referred to as subscription up-sells. The fees associated with the up-sells are added to the original subscription fee, and the revenue is recognized over the remaining subscription period. No portion of the subscription fee is refundable regardless of the actual number of registrations that occur, or the extent to which other features and functionality are used.
Mobile Apps
Subscription-based solutions also include the sale of mobile event apps. The revenue for mobile event apps solutions is generally recognized on a straight-line basis over the life of the contract. A customer may use a singular mobile event app for any number of events. At any time during the subscription term, customers may elect to purchase additional mobile event apps, which are referred to as mobile up-sells. The fees associated with the up-sells are added to the original subscription fee, and the revenue is recognized over the remaining subscription period. No portion of the subscription fee is refundable.
Onsite Event Solutions
Event specific onsite solutions include the rental of equipment and consultants needed to successfully manage and execute a complex event. When these services are sold on a stand-alone basis revenue is recognized based on the contractual stated value after the delivery of the services has been fully completed. When these services are bundled with other subscription-based services, revenue is recognized ratably over the contract term.
Hospitality Cloud Revenue
Marketing Solutions Revenue
Towards the end of 2014, the Hospitality Cloud was branded to provide a full spectrum of cloud-based solutions across the hotel group sales lifecycle. Prior to this, the Company primarily concentrated on servicing the hospitality sector with marketing solutions through the Cvent Supplier Network (“CSN”), which provided substantially all of the revenue for this product line in 2015 and before. Marketing solutions revenue is generated through the delivery of various forms of advertising sold through annual or multi-year contracts to marketers, principally hotels and venues. Such solutions include prominent display of a customer’s venue within the Cvent Supplier Network, the Cvent Destination Guide, the Elite Meetings magazine or in various electronic newsletters. Pricing for the advertisements is based on the term of the advertisement, targeted geography, number of advertisements and prominence of the ad placement.
The Company enters into arrangements with multiple deliverables that generally include various marketing solutions that may be sold individually or bundled together and delivered over various periods of time. In such situations, the Company applies the provisions of FASB, Accounting Standards Codification (“ASC”), No. 605-25,
Revenue Recognition – Multiple Element Arrangements
to account for the various elements within the marketing solution agreements delivered over the platform. Under such guidance, in order to treat deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized ratably over the contractual period that the related advertising deliverable is provided. Annual marketing solutions on the Cvent Supplier Network are often sold separately, and, as such, all have standalone value.
Certain one-time marketing solutions, which can run for a month, several months, or a year, are primarily sold in a package. In determining whether the marketing solutions sold in packages have standalone value, the Company considers the availability of the services from other vendors, the nature of the solutions, and the contractual dependence of the solutions to the rest of the package.
Revenue arrangements with multiple deliverables are divided into separate units of accounting and the arrangement consideration is allocated to all deliverables based on the relative selling price method. In such circumstances, the Company uses the selling price hierarchy of: (i) vendor-specific objective evidence, or VSOE, if available, (ii) third-party evidence of selling price, or TPE, and (iii) best estimate of selling price. VSOE is limited to the price charged when the same element is sold separately by the Company. Due to the unique nature of some multiple deliverable revenue arrangements, the Company may not be able to establish selling prices based on historical stand-alone sales using VSOE or TPE; therefore the Company may use its best estimate to establish selling prices for these arrangements. The Company establishes the best estimates within a range of selling prices considering multiple factors including, but not limited to, factors such as size of transaction, customer demand and price lists.
(g) Deferred Revenue
Deferred revenue consists of contractual billings or payments received in advance of revenue recognition from Event Cloud services or Hospitality Cloud solutions that are subsequently recognized when the revenue recognition criteria are met. The Company generally invoices customers in advance in annual or quarterly installments.
(h) Business Combinations
The Company is required to allocate the purchase price of acquired companies to the identifiable tangible and intangible assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values.
Goodwill as of the acquisition date represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilities assumed. This allocation and valuation require management to make significant estimates and assumptions, specifically with respect to the value of long-lived and intangible assets.
Critical estimates in valuing intangible assets include but are not limited to estimates about: future expected cash flows from customer contracts, customer lists, distribution agreements, proprietary technology and non-competition agreements; the acquired company’s brand awareness and market position, assumptions about the period of time the brand will continue to be used in the Company’s product portfolio; as well as expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and discount rates. The Company’s
estimates of fair value are based upon assumptions the Company believes to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company continues to evaluate these items quarterly and record any adjustments to the preliminary estimates to goodwill provided that the Company is within the measurement period. Subsequent to the measurement period, changes to these uncertain tax positions and tax related valuation allowances will affect the Company’s provision for income taxes in the consolidated statement of operations in the current period.
Other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Costs incurred related to acquisitions are expensed as incurred.
(i) Goodwill
Goodwill represents the excess of: (i) the aggregate of the fair value of consideration transferred in a business combination, over (ii) the fair value of assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to annual impairment tests. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value, including goodwill. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is estimated using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two is not performed.
In September 2011, the FASB issued ASU 2011-8,
Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment
. This ASU permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test.
The Company performs its annual impairment review of goodwill on November 30 and when a triggering event occurs between annual impairment tests. There was one subsequent triggering event that occurred on April 17, 2016 when the Company entered into a merger agreement with Vista Funds (see note 9). This triggering event confirmed that the Company's Goodwill balance was not impaired.
(j) Capitalized Software Development Costs
Costs to develop software directly used in the delivery of revenue generating activities are capitalized and recorded as capitalized software in accordance with the provisions of FASB ASC Subtopic 350-40,
Intangibles-Goodwill and Other Subtopic 40 Internal-Use Software
on the balance sheet. These costs are amortized on a project-by-project basis using the straight-line method over the estimated economic life of the application, which is generally
three years
, beginning when the asset is substantially ready for use. Costs incurred during the preliminary development stage, as well as maintenance, minor enhancements and training costs are expensed as incurred.
(k) Deferred Tax Assets and Liabilities
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that it is not considered to be more likely than not that a deferred tax asset will be realized, a valuation allowance is established. The Company applies the provisions of ASC Subtopic 740-10,
Income Taxes—Overall
, which provides guidance related to the accounting for uncertain tax positions. In accordance with ASC 740, the Company only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination.
(l) Stock-Based Compensation
The Company accounts for its employee stock-based compensation awards in accordance with FASB ASC Topic 718,
Compensation—Stock Compensation
. ASC Topic 718 requires that all employee stock-based compensation is recognized as a cost in the financial statements and that for equity-classified awards, such cost is measured at the grant date fair value of the award. The Company estimates grant date fair value for stock options using the Black-Scholes option-pricing model. The Company estimates grant date fair value for restricted stock units based on the closing price of the underlying shares on grant date.
Determining the fair value of stock options under the Black-Scholes model requires judgment, including estimated volatility, risk free rate, expected term and estimated dividend yield. The assumptions used in calculating the fair value of stock-based compensation awards represent the Company’s best estimates, based on management judgment. The estimate of the value per share of the Company’s common stock used in the option-pricing model prior to the Company’s IPO was based on the contemporaneous valuations performed with the assistance of an unrelated third-party valuation specialist and management’s analysis of market transactions in proximity to the valuation dates. The estimated dividend yield is
zero
since the Company has not issued dividends to date and does not anticipate issuing dividends. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury
zero
coupon issues with an equivalent remaining term. Due to its limited trading history, the Company estimates volatility for option grants by evaluating the average historical volatility of a peer group of similar public companies. The expected term of the Company’s stock options represent the period that its stock-based awards are expected to be outstanding. For purposes of determining the expected term, the Company applies the simplified approach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award. Awards generally vest over a service period of
four years
, with a maximum contractual term of
ten years
.
Pursuant to FASB ASC Subtopic 718-10-35,
Stock Compensation
, the initial determination of compensation cost is based on the fair value of the number of stock options granted, amortized over the vesting period. With the adoption of ASU 2016-09 (see Note 3), the Company no longer estimates its forfeiture rate in order to record stock compensation expense. Under, ASU 2016-09, the Company now records the impact of forfeitures on stock compensation expense in the period the forfeitures occur. Expense related to stock options is recognized using the straight-line attribution method. Compensation cost for restricted stock units is measured at the fair value of the underlying shares on grant date and recognized on a straight-line basis over the vesting period.
(m) Foreign Currency
The Company’s foreign subsidiary in India designates the U.S. dollar as the functional currency. For the subsidiary, assets and liabilities denominated in foreign currency are remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities and historical exchange rates for nonmonetary assets and liabilities. Foreign currency gains and losses associated with remeasurement are included in operating loss in the consolidated statements of operations.
Foreign currency gains associated with transactions and remeasurement were
$0.2 million
for the
three months ended March 31, 2016
and
2015
.
(n) Non-Monetary Transactions
The Company occasionally participates in non-monetary transactions with its customers in exchange for marketing and other services. In accordance with FASB ASC Topic 845 –
Nonmonetary transactions
, non-monetary transactions with commercial substance are recorded at the estimated fair value of the services received from or provided to the counterparty, whichever is more clearly evident. In certain periods there are timing differences between the revenue and the related expense, due to the timing of delivery and receipt of services. Non-monetary transaction revenue totaled
$0.5 million
for the
three
months ended
March 31, 2016
, and
$0.7 million
for the
three
months ended
March 31, 2015
. Non-monetary transaction expense totaled
$0.4 million
for the
three
months ended
March 31, 2016
, and
$0.7 million
for the
three
months ended
March 31, 2015
.
3. New Accounting Pronouncements
In March 2016, the FASB issued an amendment to ASC Topic 718, Compensation-Stock Compensation. ASU 2016-09,
Compensation-Stock Compensation (Topic 718)
, simplifies several aspects of the accounting for stock-based compensation, including accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. Primarily, this ASU eliminates the Additional Paid-In Capital pool ("APIC pool") concept and reduces the complexity in accounting for excess tax benefits and tax deficiencies. Under the new guidance, a company recognizes all
excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. In addition, under the new guidance, a company may make a policy election to either estimate the number of stock awards that are expected to vest or account for forfeitures as they occur. This amendment would have become effective for the Company in the first quarter of 2017. However, the Company early adopted this standard on a prospective basis in the first quarter of 2016 and elected to account for forfeitures as they occur. The adoption of this standard required the Company to record a cumulative-effect adjustment to address historical forfeiture rate estimates for stock-based awards that were unvested as of December 31, 2015. The cumulative-effect adjustment resulted in an offsetting entry to Additional Paid-in Capital and Retained Earnings of
$1.4 million
, resulting in no net impact on Total Stockholders' Equity.
In February 2016, the FASB issued an amendment to ASC Topic 840: Leases. ASU 2016-02,
Leases (Topic 842)
, which conforms the treatment for all leases by requiring the lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about leases. Under current US GAAP, leases designated as operating leases rather than capital leases are not reflected on the balance sheet. This amendment will become effective for the Company in the first quarter of 2019, although earlier adoption is permitted for financial statements that have not been issued. Management is currently assessing the effect the adoption of this standard will have on its consolidated financial statements.
In November 2015, the FASB issued an amendment to ASC Topic 740:
Income Taxes
. ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. This amendment may be applied either prospectively or retrospectively to all periods presented.
We adopted the provisions of ASU 2015-17 prospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. The adoption of this ASU simplifies the presentation of deferred income taxes and reduces complexity without decreasing the usefulness of information provided to users of financial statements. The adoption of ASU 2015-17 did not have a significant impact on our financial position, results of operations, and cash flows.
In September 2015, the FASB issued an amendment to ASC Topic 805:
Business Combinations
. ASU 2015-16,
Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments
, simplifies the accounting for measurement period adjustments by requiring companies to recognize adjustments identified during the measurement period in the reporting period in which the adjustment amounts are determined. Under current U.S. GAAP, these measurement period adjustments are required to be recorded as retrospective adjustments to the provisional amounts recognized at the acquisition date with a corresponding adjustment to Goodwill. This amendment became effective for the Company in the first quarter of 2016. The adoption of ASU 2015-16 did not have a significant impact on our financial position, results of operations, and cash flows.
In May 2014, the FASB and the International Accounting Standards Board issued joint guidance to improve and converge the financial reporting requirements for revenue from contracts with customers. ASU 2014-09,
Revenue from Contracts with Customers
, prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance under U.S. GAAP. The new standard supersedes nearly all existing revenue recognition guidance under U.S. GAAP, and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers: Deferral of the Effective Date
, which defers the effective date of ASU 2014-09 for the Company to be the first quarter of 2018. Early adoption is permitted for the Company, but only as of the first quarter of 2017. Management is currently evaluating which adoption method it will use and assessing the effect the adoption of this standard will have on its consolidated financial statements.
4. Net Loss Per Share
The Company calculates basic net (loss) income per share of common stock by dividing net (loss) income for the period by the weighted-average number of shares of common stock outstanding during the period. The Company calculates diluted net income per share by dividing net income (loss) attributable to the Company for the period by the weighted-average number of shares of common stock outstanding during the period, plus any dilutive effect of share-based equity awards during the period, using the treasury stock method.
The computation of basic and diluted net income per share is as follows (in thousands, except share and per share amounts):
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Three Months Ended March 31,
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2016
|
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2015
|
|
Net loss
|
$
|
(1,198
|
)
|
|
$
|
(2,352
|
)
|
|
Weighted average number of shares outstanding:
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|
Weighted average common shares outstanding for basic and diluted earnings per share
|
42,061,527
|
|
|
41,236,164
|
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Net loss per share:
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Basic
|
$
|
(0.03
|
)
|
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$
|
(0.06
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)
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Diluted
|
$
|
(0.03
|
)
|
|
$
|
(0.06
|
)
|
The weighted average number of shares outstanding used in the computation of diluted loss per share for the
three months ended
March 31, 2016
and
2015
, respectively, does not include the effect of
1,367,318
and
2,012,102
, stock options and restricted stock units, as the effect would have been anti-dilutive.
5. Income Taxes
The Company generally estimates its annual effective tax rate for the full fiscal year and applies that rate to its income from continuing operations before income taxes in determining its provision for income taxes for the respective periods. The Company generally records discrete items in each respective period as appropriate. However, if a company is unable to reliably estimate its annual effective tax rate, then the actual effective tax rate for the year-to-date period may be the best estimate for the annual effective tax rate. For the
three
months ended
March 31, 2016
, the Company determined that the annual rate method would not provide for a reliable estimate due to volatility in the forecasting process. As a result, the Company has recorded the provision for income taxes for the
three
months ended
March 31, 2016
using the actual effective rate for the
three
months ended
March 31, 2016
(the “cut-off” method). The effective tax rate for the
three
months ended
March 31, 2016
and March 31, 2015 was calculated based on an actual effective tax rate plus discrete items.
The Company’s consolidated effective tax rate for the
three
months ended
March 31, 2016
was
(159.3)%
. The Company’s consolidated effective tax rate for the
three
months ended
March 31, 2015
was
44.4%
.
The Company’s estimated effective tax rate is subject to fluctuation based upon the level and mix of earnings and losses by tax jurisdiction, and the relative impact of permanent book to tax differences (e.g., non-deductible expenses). As a result of these factors, and due to potential changes in the Company’s period to period results, fluctuations in the Company’s effective tax rate and respective tax provisions or benefits may occur. The Company is subject to U.S. federal income tax, various state income taxes and various foreign income taxes.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Management believes the Company will achieve profitable operations in future years that will enable the Company to recover the benefit of its U.S. net deferred tax assets. However, the Company does not have sufficient objective evidence to support the future use of U.S. deferred tax assets and certain deferred tax assets related to foreign tax credits, and accordingly, established a valuation allowance against these deferred tax assets as required by generally accepted accounting principles. Recording this valuation allowance does not impact the Company’s ability to realize the benefit of this asset.
The Company permanently reinvests cumulative undistributed earnings of its non-U.S. subsidiaries in non-U.S. operations. U.S. federal income taxes have not been provided for in relation to undistributed earnings to the extent that they are permanently reinvested in the Company’s non-U.S. operations. As of
March 31, 2016
, the undistributed earnings of the Company’s foreign affiliates was
$13.0 million
.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense when assessed.
6. Stock-Based Compensation
Stock Options
Stock options are granted with an exercise price equal to the stock’s fair value at the date of grant. The awards vest at various times from the date of grant, with most options vesting in tranches generally over
four years
. All options expire
ten years
after the date of grant. At
March 31, 2016
, there were
8,355,166
shares available for the Company to grant under the 2013 Equity Incentive Plan.
The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions for
2016
and
2015
grants are provided in the table below. Because the Company’s shares were not publicly traded prior to August 9, 2013 and its shares were rarely traded privately, and due to the limited trading history since August 9, 2013, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. Similarly, due to the Company's limited trading history, the expected term is calculated using the simplified method, which is an average of the respective options' remaining contractual term and their expected vesting dates. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant. Expense is recognized using the straight-line attribution method.
The following is a summary of the weighted average assumptions used in the valuation of stock-based awards under the Black-Scholes model:
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Three Months Ended March 31, 2016
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Three Months Ended March 31, 2015
|
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Dividend yield
|
0.00
|
%
|
|
0.00
|
%
|
|
Volatility
|
41.52
|
%
|
|
45.80
|
%
|
|
Expected term (years)
|
6.58
|
|
|
6.31
|
|
|
Risk-free interest rate
|
1.66
|
%
|
|
1.52
|
%
|
Stock option activity during the periods indicated is as follows:
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Number of
shares subject to
options
|
|
Weighted
average
exercise
price per share
|
|
Weighted
average
remaining
contractual
term (years)
|
|
Aggregate
intrinsic
value
|
|
Balance at December 31, 2015
|
4,127,395
|
|
|
$
|
18.60
|
|
|
7.57
|
|
$
|
67,323
|
|
|
Granted
|
51,667
|
|
|
22.88
|
|
|
|
|
|
|
Exercised
|
(51,339
|
)
|
|
9.38
|
|
|
|
|
|
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Forfeited
|
(75,921
|
)
|
|
24.56
|
|
|
|
|
|
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Expired
|
(282
|
)
|
|
8.00
|
|
|
|
|
|
|
Balance at March 31, 2016
|
4,051,520
|
|
|
$
|
18.66
|
|
|
7.39
|
|
$
|
11,104
|
|
|
Exercisable at March 31, 2016
|
1,475,597
|
|
|
$
|
7.84
|
|
|
5.55
|
|
$
|
20,006
|
|
The weighted average grant date fair value of options granted during the
three months ended March 31, 2016
was
$10.03
. The total intrinsic value of options exercised during the
three months ended March 31, 2016
was
$0.7 million
.
The Company recorded stock-based compensation expense related to options of
$2.0 million
and
$1.8 million
during the
three months ended March 31, 2016
and
2015
, respectively. At
March 31, 2016
, there was
$22.4 million
of total unrecognized compensation cost related to unvested stock options granted under the Plan, which is expected to be recognized over a weighted average period of
2.51 years
.
Restricted Stock Units
During the
three months ended March 31, 2016
, the Company issued restricted stock units (RSUs) to employees.
RSU activity during the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
subject to
restriction
|
|
Weighted
average
share
value
|
|
Weighted
average
remaining
contractual
term
(years)
|
|
Aggregate
intrinsic
value
|
|
Balance at December 31, 2015
|
902,876
|
|
|
$
|
28.49
|
|
|
1.77
|
|
$
|
31,519
|
|
|
Granted
|
22,787
|
|
|
22.83
|
|
|
|
|
|
|
Vested
|
(131,431
|
)
|
|
28.47
|
|
|
|
|
|
|
Forfeited
|
(16,796
|
)
|
|
27.48
|
|
|
|
|
|
|
Balance at March 31, 2016
|
777,436
|
|
|
$
|
28.35
|
|
|
1.83
|
|
$
|
16,637
|
|
The related compensation expense for restricted stock units recognized during the
three months ended March 31, 2016
and
2015
was
$1.6 million
and
$1.0 million
, respectively. At
March 31, 2016
, there was
$18.6 million
of total unrecognized compensation cost related to unvested RSUs granted under the Plan. That cost is expected to be recognized over a weighted average period of
2.82 years
.
7. Stockholders’ Equity
Changes in Stockholders’ Equity
Changes in stockholders’ equity for the
three months ended March 31, 2016
were as follows (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Shares
|
|
Common
Stock
Amount
|
|
Treasury
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Total
Stockholders’
Equity
|
|
Balance as of December 31, 2015
|
42,523,229
|
|
|
$
|
43
|
|
|
$
|
(3,966
|
)
|
|
$
|
218,493
|
|
|
$
|
(40,015
|
)
|
|
$
|
(274
|
)
|
|
$
|
174,281
|
|
|
Cumulative-effect adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
1,421
|
|
|
(1,421
|
)
|
|
—
|
|
|
—
|
|
|
Balance as of December 31, 2015, as adjusted
|
42,523,229
|
|
|
43
|
|
|
(3,966
|
)
|
|
219,914
|
|
|
(41,436
|
)
|
|
(274
|
)
|
|
174,281
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,198
|
)
|
|
—
|
|
|
(1,198
|
)
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
3,623
|
|
|
—
|
|
|
—
|
|
|
3,623
|
|
|
Excess tax benefits from stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options
|
51,339
|
|
|
—
|
|
|
—
|
|
|
471
|
|
|
—
|
|
|
—
|
|
|
471
|
|
|
Vesting of restricted stock awards
|
131,431
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(107
|
)
|
|
(107
|
)
|
|
Balance as of March 31, 2016
|
42,705,999
|
|
|
$
|
43
|
|
|
$
|
(3,966
|
)
|
|
$
|
224,008
|
|
|
$
|
(42,634
|
)
|
|
$
|
(381
|
)
|
|
$
|
177,070
|
|
8. Commitments and Contingencies
a) Legal Proceedings, Regulatory Matters and Other Contingencies
From time to time, the Company may become involved in legal proceedings, regulatory matters or other contingencies in the ordinary course of its business. The Company is not presently involved in any legal proceeding, regulatory matter or other contingency that, if determined adversely to it, would individually or in the aggregate have a material adverse effect on its business, operating results, financial condition or cash flows.
b) Acquisition Payouts
A summary of the changes in the recorded amount of accrued compensation and deferred consideration from acquisitions from
December 31, 2015
to
March 31, 2016
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
Deferred
Consideration
|
|
Total
|
|
Liability as of December 31, 2015
|
$
|
375
|
|
|
$
|
2,490
|
|
|
$
|
2,865
|
|
|
Payments
|
—
|
|
|
—
|
|
|
—
|
|
|
Additional accruals
|
476
|
|
|
—
|
|
|
476
|
|
|
Liability as of March 31, 2016
|
$
|
851
|
|
|
$
|
2,490
|
|
|
$
|
3,341
|
|
The accrued compensation and consideration related to acquisition payouts is recorded within accrued and other current liabilities on the accompanying consolidated balance sheets.
9. Subsequent Events
The Company has evaluated subsequent events through May 5, 2016, the date the financial statements were available to be issued.
On April 17, 2016, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Papay Holdco, LLC (“Parent”) and Papay Merger Sub, Inc., a wholly owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub were formed by affiliates of Vista Equity Partners Fund VI, L.P. (“Fund VI”) and Vista Holdings Group, L.P. (“Holdings”, and together with Fund VI, the “Vista Funds”).
At the effective time of the merger, each share of common stock, par value $0.001 per share, of the Company issued and outstanding as of immediately prior to the effective time will be cancelled and extinguished and automatically converted into the right to receive cash in an amount equal to
$36.00
per share, without interest thereon.
Consummation of the Merger is subject to customary closing conditions, including the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval under the antitrust and competition laws of Austria, the effectiveness of certain filings with the SEC, and approvals by the Company's stockholders. The parties have made customary representations, warranties and covenants in the Merger Agreement, including covenants regarding the conduct of their respective businesses and the use of reasonable best efforts to cause the conditions of the Merger to be satisfied.
The Company and Vista Funds currently anticipate the closing of the transaction to occur in the third calendar quarter of 2016.
The Company has recorded no transaction costs related to this transaction in the three months ended March 31, 2016.
