Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - EXA CORPFinancial_Report.xls
EX-32.1 - EX-32.1 - EXA CORPd712561dex321.htm
EX-31.1 - EX-31.1 - EXA CORPd712561dex311.htm
EX-32.2 - EX-32.2 - EXA CORPd712561dex322.htm
EX-31.2 - EX-31.2 - EXA CORPd712561dex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended April 30, 2014

OR

 

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

Commission File Number: 001-35584

 

 

EXA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   04-3139906

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

55 Network Drive

Burlington, MA 01803

(Address of Principal Executive Offices, Including Zip Code)

(781) 564-0200

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

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

As of May 23, 2014, 13,754,808 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

 

 

 


Table of Contents

EXA CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED APRIL 30, 2014

TABLE OF CONTENTS

 

     Pages  
PART I. FINANCIAL INFORMATION   

ITEM 1. FINANCIAL STATEMENTS

  

Consolidated Balance Sheets (Unaudited) as of April 30, 2014 and January 31, 2014

     3   

Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the three months ended April  30, 2014 and 2013

     4   

Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 30, 2014 and 2013

     5   

Notes to Consolidated Financial Statements (Unaudited)

     6   

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     13   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     22   

ITEM 4. CONTROLS AND PROCEDURES

     23   
PART II. OTHER INFORMATION   

ITEM 1. LEGAL PROCEEDINGS

     24   

ITEM 1A. RISK FACTORS

     24   

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     24   

ITEM 6. EXHIBITS

     24   

SIGNATURES

     25   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXA CORPORATION

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

     April 30,
2014
    January 31,
2014
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 32,592      $ 28,753  

Accounts receivable

     13,862        27,245  

Deferred tax assets

     256        2,213  

Prepaid expenses and other current assets

     2,453        2,108  
  

 

 

   

 

 

 

Total current assets

     49,163        60,319  

Property and equipment, net

     7,043        7,356  

Intangible assets, net

     2,658        2,745  

Deferred tax assets

     41        13,306  

Other assets

     1,168        1,123  
  

 

 

   

 

 

 

Total assets

   $ 60,073      $ 84,849  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 904      $ 1,684  

Accrued expenses

     6,432        10,285  

Current portion of deferred revenue

     28,164        30,594  

Current maturities of capital lease obligations

     2,082        2,426  
  

 

 

   

 

 

 

Total current liabilities

     37,582        44,989  

Deferred revenue

     14        273  

Capital lease obligations

     2,184        2,695  

Other long-term liabilities

     540        528  

Deferred rent

     715        831  
  

 

 

   

 

 

 

Total liabilities

     41,035        49,316  
  

 

 

   

 

 

 

Commitments and contingencies (Note 9)

    

Stockholders’ equity:

    

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding

     —          —     

Common stock, $0.001 par value; 30,000,000 shares authorized; 13,778,697 and 13,388,712 shares issued, respectively; 13,746,195 and 13,356,210 shares outstanding, respectively

     14        13  

Additional paid-in capital

     85,884        85,201  

Accumulated deficit

     (66,941     (49,721 )

Treasury stock (32,502 common shares, at cost)

     —          —     

Accumulated other comprehensive income

     81        40  
  

 

 

   

 

 

 

Total stockholders’ equity

     19,038        35,533  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 60,073      $ 84,849  
  

 

 

   

 

 

 

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

 

3


Table of Contents

EXA CORPORATION

Consolidated Statements of Operations and Statements of Comprehensive Loss

(Unaudited)

(in thousands, except share and per share data)

 

     Three Months Ended April 30,  
     2014     2013  

Revenue:

    

License revenue

   $ 11,660      $ 10,692  

Project revenue

     2,110        1,796  
  

 

 

   

 

 

 

Total revenues

     13,770        12,488  
  

 

 

   

 

 

 

Operating expenses:

    

Cost of revenues

     4,596        3,671  

Sales and marketing

     2,567        2,117  

Research and development

     5,102        4,386  

General and administrative

     3,122        2,771  
  

 

 

   

 

 

 

Total operating expenses

     15,387        12,945  
  

 

 

   

 

 

 

Loss from operations

     (1,617     (457 )
  

 

 

   

 

 

 

Other expense, net:

    

Foreign exchange (loss) gain

     (44     37  

Interest expense

     (83     (381 )

Interest income

     4        4  

Other income, net

     —          2  
  

 

 

   

 

 

 

Total other expense, net

     (123     (338 )
  

 

 

   

 

 

 

Loss before income taxes

     (1,740     (795 )

(Provision) benefit for income taxes

     (15,480     254  
  

 

 

   

 

 

 

Net loss

   $ (17,220   $ (541 )
  

 

 

   

 

 

 

Net loss per share:

    

Basic

   $ (1.28   $ (0.04 )

Diluted

   $ (1.28   $ (0.04 )

Weighted average shares outstanding used in computing net loss per share:

    

Basic

     13,499,919        13,296,098  

Diluted

     13,499,919        13,296,098  

Comprehensive loss:

    

Net loss

   $ (17,220   $ (541 )

Foreign currency translation adjustments

     41        (2 )
  

 

 

   

 

 

 

Comprehensive loss

   $ (17,179   $ (543 )
  

 

 

   

 

 

 

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

 

4


Table of Contents

EXA CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

     Three Months Ended April 30,  
     2014     2013  

Cash flows provided by operating activities:

    

Net loss

   $ (17,220   $ (541

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     663        496   

Stock-based compensation expense

     370        245   

Deferred rent expense

     (114     (76

Non-cash interest

     —          122   

Deferred income taxes

     15,222        (487

Net change in operating assets and liabilities:

    

Accounts receivable

     13,352        23,706   

Prepaid expenses and other current assets

     (346     (15

Other assets

     (45     (36

Accounts payable

     (782     (973

Accrued expenses

     (3,742     (2,322

Other liabilities

     12        33   

Deferred revenue

     (2,695     (1,618
  

 

 

   

 

 

 

Net cash provided by operating activities

     4,675        18,534   
  

 

 

   

 

 

 

Cash flows used in investing activities:

    

Purchases of property and equipment

     (366     (336
  

 

 

   

 

 

 

Net cash used in investing activities

     (366     (336
  

 

 

   

 

 

 

Cash flows used in financing activities:

    

Proceeds from stock option exercises

     314        29   

Payments of long-term debt

     —          (331

Payments of capital lease obligations

     (855     (520
  

 

 

   

 

 

 

Net cash used in financing activities

     (541     (822
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     71        (154
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     3,839        17,222   

Cash and cash equivalents, beginning of period

     28,753        30,716   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 32,592      $ 47,938   
  

 

 

   

 

 

 

Supplemental cash flow disclosures:

    

Cash paid for interest

   $ 83      $ 264   

Cash paid for income taxes

   $ 171      $ 121   

Supplemental disclosure of non-cash investing and financing activities:

    

Acquisition of equipment through capital leases

   $ —        $ 43   

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

 

5


Table of Contents

EXA CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

(dollars in thousands except per share amounts)

1. Description of Business

Exa Corporation (the “Company” or “Exa”), a Delaware corporation, develops, sells and supports simulation software and services that vehicle manufacturers use to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. The Company’s solutions enable engineers and designers to augment or replace conventional methods of evaluating designs that rely on expensive and inefficient physical prototypes and test facilities with accurate digital simulations that are more useful, cost effective and timely. The Company’s simulation solutions enable customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes, which result in cost savings and fundamental improvements in the development process. The Company is primarily focused on the ground transportation market, but is also beginning to explore the application of its capabilities in the aerospace, oil and gas production, chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

Exa has offices and sells directly in the United States and through subsidiaries in France, Germany, Italy, Japan, Korea, China, and the United Kingdom. The Company also conducts business in Sweden, India, Brazil, Russia, Canada, Finland, Spain and Australia.

2. Summary of Significant Accounting Policies

Applicable Accounting Guidance

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental United States generally accepted accounting principles (“GAAP”) as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended January 31, 2014 included in the Company’s Annual Report on Form 10-K. These financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known.

The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from management’s estimates if future events differ substantially from past experience, or other assumptions, while reasonable when made, do not turn out to be substantially accurate.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance is effective for the Company in the first quarter of fiscal year 2015. The Company adopted ASU 2013-11 on February 1, 2014. This adoption did not have a material impact on the Company’s consolidated financial statements.

 

6


Table of Contents

3. Computation of Net Loss Per Share

Net loss per share has been computed using the weighted average number of shares of common stock outstanding during each period. Diluted amounts per share include the impact of the Company’s outstanding potential common shares, such as shares issuable upon exercise of in-the-money stock options or warrants, when dilutive. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net loss per common share.

The following summarizes the calculation of basic and diluted net loss per share:

 

     Three Months Ended April 30,  
     2014     2013  

Numerator:

    

Net loss

   $ (17,220   $ (541
  

 

 

   

 

 

 

Denominator:

    

Weighted average common shares, basic and diluted

     13,499,919        13,296,098   
  

 

 

   

 

 

 

Basic net loss per share

   $ (1.28   $ (0.04
  

 

 

   

 

 

 

Diluted net loss per share

   $ (1.28   $ (0.04
  

 

 

   

 

 

 

The following outstanding options, restricted stock unit awards and warrants were excluded from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

 

     Three Months Ended April 30,  
     2014      2013  

Options, restricted stock unit awards and warrants to purchase common and preferred stock

     2,203,645         2,316,328   

 

7


Table of Contents

4. Property and Equipment, net

Property and equipment, net consists of the following as of April 30, 2014 and January 31, 2014:

 

     April 30,
2014
    January 31,
2014
 

Computer software and equipment

   $ 18,898      $ 18,635   

Office equipment and furniture

     462        444   

Leasehold improvements

     2,627        2,627   
  

 

 

   

 

 

 

Total property and equipment

     21,987        21,706   

Less: accumulated depreciation

     (14,944     (14,350
  

 

 

   

 

 

 

Property and equipment, net

   $ 7,043      $ 7,356   
  

 

 

   

 

 

 

Depreciation expense was $576 and $408 for the three months ended April 30, 2014 and 2013, respectively. Included in computer software and equipment and office equipment and furniture is equipment held pursuant to capital leases with costs of $16,820 and $16,802 and accumulated amortization of $11,413 and $10,997 as of April 30, 2014 and January 31, 2014, respectively.

5. Accrued Expenses

Accrued expenses consist of the following:

 

     April 30,
2014
     January 31,
2014
 

Accrued payroll

   $ 2,049       $ 1,603   

Sales and withholding taxes

     1,091         3,158   

Accrued commissions and bonuses

     869         2,456   

Accrued income taxes payable

     654         571   

Deferred rent, current portion

     604         602   

Legal and professional

     418         489   

Other accrued expenses

     747         1,406   
  

 

 

    

 

 

 

Total accrued expenses

   $ 6,432       $ 10,285   
  

 

 

    

 

 

 

6. Deferred Rent

In connection with its corporate headquarters lease entered into in July 2008, the Company received a tenant improvement allowance of $1,958 from the landlord. This lease incentive was recorded as leasehold improvements and deferred rent and is being amortized as part of rent expense on a straight-line basis over the life of the lease. The Company’s subsidiary Euroxa S.a.r.l. entered into a new office lease in Paris, France in May 2012 with a landlord incentive totaling $148, equivalent to four months free rent, which is also being amortized as rent expense on a straight line basis over the life of the lease. In addition, the Company’s facility leases typically contain other than straight-line payment features. The difference between the straight-line rent expense of the lease and the cash payments is recorded as deferred rent. Deferred rent as of April 30, 2014 and January 31, 2014 is as follows:

 

     April 30,
2014
    January 31,
2014
 

Leasehold improvement incentive

   $ 506      $ 572   

Non-cash rent expense

     813        861   
  

 

 

   

 

 

 

Total deferred rent

     1,319        1,433   

Less: current portion included in accrued expenses

     (604     (602
  

 

 

   

 

 

 

Deferred rent, net of current portion

   $ 715      $ 831   
  

 

 

   

 

 

 

7. Fair Value Measurements

Financial instruments consist primarily of cash and cash equivalents, accounts receivable and capital lease obligations. As of April 30, 2014 and January 31, 2014, the carrying amounts of these instruments approximate their fair values. The estimated fair values have been determined from information obtained from market sources and management estimates.

 

8


Table of Contents

In determining the fair value of its financial assets and liabilities, the Company uses various valuation approaches. ASC 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement and that are based on management’s best estimate of inputs market participants would use for pricing the asset or liability at the measurement date, including assumptions about risk.

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of April 30, 2014:

 

     Total      Level 1      Level 2      Level 3  

Assets:

           

Money market funds

   $ 20,009       $ 20,009       $ —        $ —    

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of January 31, 2014:

 

     Total      Level 1      Level 2      Level 3  

Assets:

           

Money market funds

   $ 15,008       $ 15,008       $ —        $ —    

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

8. Acquired Intangible Assets

Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives.

The following table reflects the carrying value of intangible assets as of April 30, 2014:

 

     April 30, 2014  
     Cost      Accumulated
Amortization
    Net Book
Value
 

Intellectual property

   $ 3,505       $ (847   $ 2,658   

Access to facilities contract

     38         (38     —    
  

 

 

    

 

 

   

 

 

 

Total

   $ 3,543       $ (885   $ 2,658   
  

 

 

    

 

 

   

 

 

 

 

9


Table of Contents

The following table reflects the carrying value of intangible assets as of January 31, 2014:

 

     January 31, 2014  
     Cost      Accumulated
Amortization
    Net Book
Value
 

Intellectual property

   $ 3,505       $ (760   $ 2,745   

Access to facilities contract

     38         (38     —    
  

 

 

    

 

 

   

 

 

 

Total

   $ 3,543       $ (798   $ 2,745   
  

 

 

    

 

 

   

 

 

 

Amortization expense of intangible assets was $87 and $88 for the three months ended April 30, 2014 and 2013, respectively.

9. Commitments and Contingencies

Legal Contingencies

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. There is no litigation pending that could, individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

In 2011, the Company was notified by the Massachusetts Institute of Technology, or MIT, that MIT believes that Exa is utilizing the intellectual property covered by a license agreement between the Company and MIT, and therefore is in arrears in the payment of royalties under the agreement. The Company has advised MIT that it does not believe that the Company utilized the underlying technology at any time since at least 1998, or that any royalties are owed under the agreement. MIT has not commenced suit against the Company with respect to its claims, and if any such suit is commenced by MIT, the Company intends to defend it vigorously. The Company believes that if MIT were to prevail in any such litigation, the royalties due under the terms of the license agreement, after giving effect to the approximately $200 in minimum royalties that the Company has already paid, would not exceed approximately $2,600 (excluding any interest or costs of litigation). The Company is not able to determine whether a loss is probable or estimate the reasonably possible or probable amount of such loss.

Guarantees and Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification provisions is generally perpetual after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is unlimited.

Based on historical experience and information known as of April 30, 2014 and January 31, 2014, the Company has not recorded any liabilities for the above guarantees and indemnities.

10. Stock Based Compensation

The fair value of common stock options for employees and non-employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

 

     Three Months Ended April 30,  
     2014     2013  

Estimated dividend yield

     0     0

Expected stock price volatility

     49.8     50.3

Weighted-average risk-free interest rate

     2.2     1.3

Expected life of options (in years)

     6.25        6.25   

The weighted average grant date fair value per share for stock options granted in the three months ended April 30, 2014 was $7.54.

 

10


Table of Contents

Total stock-based compensation expense related to stock options and restricted stock units issued by the Company is as follows:

 

     Three Months Ended April 30,  
     2014      2013  

Cost of revenues

   $ 38       $ 31   

Sales and marketing

     75         50   

Research and development

     156         77   

General and administrative

     101         87   
  

 

 

    

 

 

 

Total

   $ 370       $ 245   
  

 

 

    

 

 

 

The total unrecognized compensation cost related to outstanding stock options is $3,840 at April 30, 2014. This amount is expected to be recognized over a weighted-average period of 2.84 years.

11. Income Taxes

For the three months ended April 30, 2014, the Company’s income tax provision was $15.5 million which includes a $14.5 million non-cash charge to record a valuation allowance against its United States net deferred tax assets and a $0.7 million non-cash write-off of state deferred tax assets (discussed further below). Through the three months ended April 30, 2014, the Company’s results reflected a three-year cumulative loss position in the United States; prior thereto, the Company’s historical results reflected a three-year cumulative profit. Reflecting management’s plans to continue investing in the business for future growth, management’s projections reflect the Company continuing in a three-year cumulative loss position through fiscal year 2015. This historical and projected cumulative loss position caused management to modify its assessment of its deferred tax assets, concluding that it no longer was more likely than not that these deferred tax assets would be realized and thus, a valuation allowance was necessary against the full amount of its United States net deferred tax assets.

Management will reassess the realization of the deferred tax assets each reporting period. To the extent that the financial results of the Company’s United States operations improve and the deferred tax asset becomes realizable, the Company will reduce the valuation allowance through earnings.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that can be utilized annually in the future to offset its United States federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. During the first quarter of fiscal year 2015, management determined that the Company had experienced an ownership change for purposes of Section 382. This ownership change resulted in annual limitations to the amount of net operating loss carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately $14.0 million for fiscal year 2015, $16.8 million for each of fiscal years 2016 through 2019, $8.1 million for fiscal year 2020 and $6.4 million for each fiscal year thereafter. The ownership change also resulted in the loss of the Company’s ability to utilize $0.7 million of its $0.8 million of state net operating loss carryforwards, credits and other state attributes, which resulted in a write-off of the $0.7 million of state deferred tax assets during the first quarter of fiscal year 2015.

The Company does not expect that its unrecognized tax benefit will change significantly within the next twelve months. The Company and one or more of its subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, the Company is no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2011. However, carryforward attributes that were generated prior to January 31, 2011 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

12. Geographic Information

Revenue is attributed to individual countries based upon location of the external customer. Revenue by geographic area is as follows:

 

     Three Months Ended April 30,  
     2014      2013  

United States

   $ 2,873       $ 2,692   

Germany

     2,691         2,215   

Japan

     2,371         2,025   

France

     1,984         2,244   

Korea

     1,236         1,086   

United Kingdom

     1,123         1,089   

Sweden

     694         648   

Other

     798         489   
  

 

 

    

 

 

 

Total

   $ 13,770       $ 12,488   
  

 

 

    

 

 

 

 

11


Table of Contents

Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid.

Net long-lived assets by principal geographic areas were as follows:

 

     April 30,
2014
     January 31,
2014
 

United States

   $ 5,754       $ 6,098   

France

     816         849   

Germany

     207         117   

Japan

     175         201   

Other

     91         91   
  

 

 

    

 

 

 

Total property and equipment, net

   $ 7,043       $ 7,356   
  

 

 

    

 

 

 

 

12


Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Result of Operations appearing in our Annual Report on Form 10-K, filed with the SEC on April 9, 2013. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” or the “Company” refer to Exa Corporation.

Overview

We develop, sell and support simulation software and services that vehicle manufacturers use to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. Our solutions enable engineers and designers to augment or replace conventional methods of evaluating design alternatives that rely on expensive and inefficient physical prototypes and test facilities, such as wind tunnels, with accurate digital simulations that are more useful and timely. Our simulation solutions enable our customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes. As a result, our customers realize significant cost savings and fundamental improvements in their vehicle development process.

Simulation-driven design has enabled product and process improvements in many industries, and as a result, the process in which products are conceptualized and developed is undergoing a radical transformation. Digital simulation not only provides feedback earlier and in a more useful form than traditional approaches, but in many areas simulation has reached a level of accuracy and robustness that is sufficient to enable a manufacturer to rely solely on its results for design decisions, without prototype testing.

Global vehicle manufacturers face increasing pressure, from government mandates as well as from consumers, to improve the efficiency of their products and to reduce particulate and greenhouse gas emissions. This requires different powertrain choices (diesel, electric, hybrid), changes in the shape of the vehicle, and reductions in vehicle weight. Consumers also demand improved quality and durability, and equally important, innovative and emotionally expressive designs. In addition, manufacturers are offering a broader array of vehicles for different niche customer segments and geographies on a faster design refresh schedule than in the past. We believe these industry forces favor the adoption of simulation-driven design.

One of the most critical challenges for our customers in their vehicle development processes is measuring or predicting how a vehicle feature or a mechanical system will interact with air, water or other fluids. For example, developing vehicles with reduced aerodynamic drag is critical to achieving the improvements in fuel efficiency that are increasingly desired by customers and mandated by government regulations. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. PowerFLOW relies upon a proprietary technology that we refer to as Digital Physics, based on algorithms known as the lattice Boltzmann method. Our proprietary technology enables PowerFLOW to predict complex fluid flows with a level of reliability comparable to or better than physical testing. The combination of PowerFLOW’s accuracy and timeliness provides results that are superior to those of alternative computational fluid dynamics, or CFD, methods.

We currently focus primarily on the ground transportation market, including manufacturers in the passenger vehicle, highway truck, off-highway vehicle and train markets, as well as their suppliers. Over 125 manufacturers currently utilize our products and services, including 14 of the global top 15 passenger vehicle manufacturer groups such as BMW, Ford, Hyundai, Jaguar Land Rover, Nissan, Porsche, Renault, Toyota and Volkswagen; truck and off-highway vehicle manufacturers such as Hyundai, Kenworth, Kobelco, MAN, Peterbilt, Scania and Volvo Truck; and suppliers to these manufacturers, such as Cummins, Denso and Magna Steyr.

During fiscal 2015, we have continued to make significant strategic investments to bring additional ground transportation applications to market as well as products for the aerospace and oil and gas production markets. As we continue to grow, we will continue to explore other markets where we believe the capabilities of PowerFLOW can be broadly applied such as the chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

 

13


Table of Contents

We derive our revenue primarily from the sale of our simulation software, using an annual capacity-based licensing model. Customers usually purchase PowerFLOW simulation capacity under one-year licenses. Simulation capacity may be purchased as software-only, to be run on the customer’s own computer hardware, or provided in the form of software-as-a-service, via our hosted PowerFLOW OnDemand offering. To introduce new customers to our simulation solutions, we typically perform fixed-price projects that include simulation services accessed via our OnDemand facilities, along with engineering and consulting services. Customers typically license our products for one application, such as aerodynamics, and over time expand to other applications such as thermal management or aeroacoustics.

We sell our products and project services primarily through our direct sales force, including sales executives and applications engineering teams deployed near our customers in the United States, United Kingdom, France, Germany, Italy, Japan, Korea and China and through a distributor in India and through a sales agent in Brazil. In our customer engagement model, our applications management teams engage with our customers in long-term relationships focused on identifying problems that we can help them solve, demonstrating the value of our solutions and ensuring that the customer achieves maximum benefit from them. In this process we interact continuously with our customers to improve our software and services and add new solutions, and at the same time deepen our knowledge of their industry.

We were founded in 1991 and had 273 employees worldwide at April 30, 2014. Our corporate headquarters, including our principal administrative, marketing, technical support, research and product development facilities, are located in Burlington, Massachusetts.

 

14


Table of Contents

Results of Operations for the Three Months Ended April 30, 2014 and 2013

The following tables set forth, for the periods presented, data from our consolidated statements of operation, as well as that data as a percentage of revenues.

 

     Three Months Ended April 30,  
(in thousands)        2014             2013      

Revenue:

    

License revenue

   $ 11,660      $ 10,692   

Project revenue

     2,110        1,796   
  

 

 

   

 

 

 

Total revenues

     13,770        12,488   
  

 

 

   

 

 

 

Operating expenses: (1)

    

Cost of revenues

     4,596        3,671   

Sales and marketing

     2,567        2,117   

Research and development

     5,102        4,386   

General and administrative (2)

     3,122        2,771   
  

 

 

   

 

 

 

Total operating expenses

     15,387        12,945   
  

 

 

   

 

 

 

Loss from operations

     (1,617     (457
  

 

 

   

 

 

 

Other expense, net:

    

Foreign exchange (loss) gain

     (44     37   

Interest expense

     (83     (381

Interest income

     4        4   

Other income, net

     —          2   
  

 

 

   

 

 

 

Total other expense, net

     (123     (338
  

 

 

   

 

 

 

Loss before income taxes

     (1,740     (795

(Provision) benefit for income taxes

     (15,480     254   
  

 

 

   

 

 

 

Net loss

   $ (17,220   $ (541
  

 

 

   

 

 

 

 

(1) Amounts include stock-based compensation expense as follows:

 

     Three Months Ended April 30,  
(in thousands)    2014      2013  

Cost of revenues

   $ 38       $ 31   

Sales and marketing

     75         50   

Research and development

     156         77   

General and administrative

     101         87   
  

 

 

    

 

 

 

Total stock-based compensation expense

   $ 370       $ 245   
  

 

 

    

 

 

 

 

(2) Includes amortization expense related to intangible assets as follows:

 

                                   

General and administrative

   $           87       $           88   

 

15


Table of Contents
     Three Months Ended April 30,  
(as a percent of total revenue)        2014             2013      

Revenue:

    

License revenue

     84.7     85.6

Project revenue

     15.3     14.4
  

 

 

   

 

 

 

Total revenues

     100.0     100.0
  

 

 

   

 

 

 

Operating expenses:

    

Cost of revenues

     33.4     29.4

Sales and marketing

     18.6     17.0

Research and development

     37.1     35.1

General and administrative

     22.7     22.2
  

 

 

   

 

 

 

Total operating expenses

     111.7     103.7
  

 

 

   

 

 

 

Loss from operations

     (11.7 )%      (3.7 )% 
  

 

 

   

 

 

 

Other expense, net:

    

Foreign exchange (loss) gain

     (0.3 )%      0.3

Interest expense

     (0.6 )%      (3.1 )% 

Interest income

     0.0     0.0

Other income, net

     0.0     0.0
  

 

 

   

 

 

 

Total other expense, net

     (0.9 )%      (2.7 )% 
  

 

 

   

 

 

 

Loss before income taxes

     (12.6 )%      (6.4 )% 

(Provision) benefit for income taxes

     (112.4 )%      2.0
  

 

 

   

 

 

 

Net loss

     (125.1 )%      (4.3 )% 
  

 

 

   

 

 

 

Due to rounding, totals may not equal the sum of line items in the table above.

Comparison of Three Months Ended April 30, 2014 and 2013

Revenue

 

     Three Months Ended April 30,                
(in thousands, except percentages)    2014      2013      Increase      % Change  

License revenue

   $ 11,660       $ 10,692       $ 968         9.1

Project revenue

     2,110         1,796         314         17.5   
  

 

 

    

 

 

    

 

 

    

Total revenues

   $ 13,770       $ 12,488       $ 1,282         10.3
  

 

 

    

 

 

    

 

 

    

License revenue increased 9.1%, from $10.7 million for the three months ended April 30, 2013 to $11.7 million for the three months ended April 30, 2014. The $1.0 million increase was driven almost entirely by increased utilization of simulation capacity by existing customers. Project revenue increased $0.3 million during the three months ended April 30, 2014 compared to the three months ended April 30, 2013 due to expanded sales and engineering efforts and greater activity with existing customers.

Foreign exchange fluctuations, particularly the strength of the Euro, positively impacted total revenue in the three months ended April 30, 2014 by $0.1 million as compared to the three months ended April 30, 2013. On a constant currency basis, our total revenues in the three months ended April 30, 2014 increased 9.8%, compared with the three months ended April 30, 2013.

Cost of revenue

 

     Three Months Ended April 30,                
(in thousands, except percentages)    2014      2013      Increase      % Change  

Cost of revenue

   $ 4,596       $ 3,671       $ 925         25.2

 

16


Table of Contents

Cost of revenue for the three months ended April 30, 2014 was $4.6 million, an increase of $0.9 million, or 25.2%, compared with $3.7 million during the three months ended April 30, 2013. As a percentage of revenues, cost of revenues increased to 33.4% for the three months ended April 30, 2014 compared to 29.4% for the three months ended April 30, 2013. Increased payroll and employee related costs, including travel, accounted for approximately $0.7 million of the increase, primarily as a result of the net addition of 18 new application engineers and merit-based compensation increases for existing personnel. In addition, royalty costs increased by $0.2 million due to increased invoicing by the Company and amendments to certain royalty agreements.

Sales and marketing

 

     Three Months Ended April 30,                
(in thousands, except percentages)    2014      2013      Increase      % Change  

Sales and marketing

   $ 2,567       $ 2,117       $ 450         21.3

Sales and marketing expenses for the three months ended April 30, 2014 were $2.6 million, an increase of $0.5 million, or 21.3% compared to $2.1 million for the three months ended April 30, 2013. As a percentage of revenues, sales and marketing expenses increased to 18.6% for the three months ended April 30, 2014 compared to 17.0% for the three months ended April 30, 2013. Increased non-commission payroll and employee related costs accounted for approximately $0.3 million of the increase, primarily due manager and executive level promotions, merit-based compensation increases for existing personnel and increased travel due to expanded sales efforts. Commission expense increased by approximately $0.2 million, primarily due to an increase in invoicing levels during the three months ended April 30, 2014 as compared to the prior fiscal year period.

Research and development

 

     Three Months Ended April 30,                
(in thousands, except percentages)    2014      2013      Increase      % Change  

Research and development

   $ 5,102       $ 4,386       $ 716         16.3

Research and development expenses for the three months ended April 30, 2014 were $5.1 million, an increase of $0.7 million, or 16.3%, compared to $4.4 million for the three months ended April 30, 2013. As a percentage of revenues, research and development expense increased to 37.1% for the three months ended April 30, 2014 compared to 35.1% for the three months ended April 30, 2013. Increased payroll and employee related costs accounted for approximately $0.5 million of the increase, primarily as a result of the net addition of 12 new scientists and software engineers and merit-based compensation increases for existing personnel. The balance of the increase is primarily attributable to capacity expansions at our New Jersey data center resulting in increased facility costs of approximately $0.2 million.

General and administrative

 

     Three Months Ended April 30,                
(in thousands, except percentages)    2014      2013      Increase      % Change  

General and administrative

   $ 3,122       $ 2,771       $ 351         12.7

General and administrative expenses for the three months ended April 30, 2014 were $3.1 million, an increase of $0.4 million, or 12.7%, compared to $2.8 million for the three months ended April 30, 2013. As a percentage of revenues, general and administrative expenses increased to 22.7% for the three months ended April 30, 2014, compared to 22.2% for the three months ended April 30, 2013. Increased payroll and employee related costs accounted for approximately $0.3 million of the increase, primarily as a result of merit-based and incentive-based compensation increases for existing personnel and increased recruiting fee expense associated with our search for a new chief financial officer. In addition, internet service charges increased by approximately $0.1 million due to a credit received in the prior year period that did not reoccur in the current period and was partially offset by a slight reduction in annual franchise tax expense.

Other expense, net

 

     Three Months Ended April 30,               
(in thousands, except percentages)    2014      2013      Decrease     % Change  

Other expense, net

   $ 123       $ 338       $ (215     (63.6 )% 

For the three months ended April 30, 2014, other expense, net was $0.1 million, as compared to other expense, net of $0.3 million for the three months ended April 30, 2013. Other expense, net for the three-months ended April 30, 2014 primarily consisted of $0.1 million in interest expense and foreign exchange losses. Other expense, net for the three months ended April 30, 2013 primarily consisted of $0.4 million in interest expense, partially offset by foreign exchange gains. Interest expense decreased as a result of our May 2013 repayment of certain outstanding debt.

 

17


Table of Contents

Provision for income taxes

 

     Three Months Ended April 30,               
(in thousands, except percentages)    2014     2013      Change     % Change  

(Provision) benefit for income taxes

   $ (15,480   $ 254       $ (15,734     (6,194.5 )% 

For the three months ended April 30, 2014, our income tax provision was $15.5 million which includes a $14.5 million non-cash charge to record a valuation allowance against our United States net deferred tax assets and a $0.7 million non-cash write-off of state deferred taxes (discussed further below). Through the three months ended April 30, 2014, our results reflected a three-year cumulative loss position in the United States; prior thereto, our historical results reflected a three-year cumulative profit. Reflecting management’s plans to continue investing in the business for future growth, management’s projections reflect our continuing in a three-year cumulative loss position through fiscal year 2015. This historical and projected cumulative loss position caused management to modify its assessment of its deferred tax assets, concluding that it no longer was more likely than not that these deferred tax assets would be realized and thus, a valuation allowance was necessary against the full amount of its United States net deferred tax assets. Note that most of our revenues are generated from ground transportation customers outside the United States but a significantly disproportionate amount of our operating expenses, including investments in future products, are incurred in the United States, causing the results of operations in the United States to reflect losses during this period of investment.

Management will reassess the realization of the deferred tax assets each reporting period. To the extent that the financial results of our United States operations improve and the deferred tax asset becomes realizable, we will reduce the valuation allowance through earnings.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss carryforwards that can be utilized annually in the future to offset its United States federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. During the first quarter of fiscal year 2015, management determined that we had experienced an ownership change for purposes of Section 382. This ownership change resulted in annual limitations to the amount of net operating loss carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately $14.0 million for fiscal year 2015, $16.8 million for each of fiscal years 2016 through 2019, $8.1 million for fiscal year 2020 and $6.4 million for each fiscal year thereafter. The ownership change also resulted in the loss of our ability to utilize $0.7 million of its $0.8 million of state net operating loss carryforwards, credits and other state attributes, which resulted in a write-off of the $0.7 million of state deferred tax assets during the first quarter of fiscal year 2015.

We do not expect that our unrecognized tax benefit will change significantly within the next twelve months. We and one or more of our subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, we are no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2011. However, carryforward attributes that were generated prior to January 31, 2011 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

Non-GAAP Measures

From time to time we provide certain non-GAAP financial measures to investors as additional information in order to supplement our consolidated financial statements, which are presented in accordance with accounting principles generally accepted in the United States, or GAAP. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for or superior to the financial information presented in accordance with GAAP and should not be considered a measure of our liquidity. There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled or used by other companies and therefore should not be used to compare our performance to that of other companies.

Revenue on a constant currency basis. Our international operations generate and incur expenses that are denominated in foreign currencies, and changes in currency exchange rates can materially affect our consolidated results of operations. Our principal exposures are to fluctuations in exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won. To provide investors with information concerning underlying trends in our business, we disclose revenue on a constant currency basis, which we define as GAAP revenue, adjusted to reverse the impact of changes in the exchange rates of the principal currencies in which our international operations generated revenue and incurred expenses. We calculate revenue on a constant currency basis by converting revenue that was generated in the currencies specified above during the three months ended April 30, 2014 to United States Dollars at assumed exchange rates equal to the exchange rates in effect for such currencies during the corresponding period of the previous fiscal year, rather than the exchange rates actually in effect during the current fiscal year.

Adjusted EBITDA. We define Adjusted EBITDA as EBITDA, excluding non-cash, stock-based compensation expense. We define EBITDA as net loss, excluding depreciation and amortization, interest expense, loss on extinguishment of debt, other income (expense), foreign exchange gain (loss) and provision for income taxes. The GAAP measure most comparable to Adjusted EBITDA is net income.

Non-GAAP operating loss. We define non-GAAP operating loss as GAAP operating loss excluding non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP operating loss is operating loss.

 

18


Table of Contents

Non-GAAP net loss. We define non-GAAP net loss as GAAP net loss excluding the after tax impact of non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP net loss is net loss.

Non-GAAP net loss per diluted share. We define non-GAAP net loss per diluted share as GAAP net loss per diluted share excluding the after tax impact of non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP net loss per diluted share is net loss per diluted share.

 

19


Table of Contents

Our management uses these non-GAAP financial measures to evaluate our operating performance and for internal planning and forecasting purposes. We believe that these measures help identify underlying trends in our business, are useful for comparing current results with prior period results, and are helpful to investors and financial analysts in assessing our operating performance. For example, our management considers Adjusted EBITDA to be an important indicator of our operational strength and the performance of our business and a good measure of our historical operating trends. However, each of these non-GAAP financial measures may have limitations as an analytical tool. In considering our Adjusted EBITDA, non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss per diluted share, investors should take into account the following reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures:

Adjusted EBITDA:

     Three Months Ended
April 30,
 
(in thousands)    2014     2013  

Net loss

   $ (17,220   $ (541 )

Add back:

    

Depreciation and amortization

     663        496  

Interest expense, net

     79        377  

Other income, net

     —          (2 )

Foreign exchange loss (gain)

     44        (37 )

Provision (benefit) for income taxes

     15,480        (254 )
  

 

 

   

 

 

 

EBITDA

     (954     39  

Stock-based compensation expense

     370        245  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ (584   $ 284  
  

 

 

   

 

 

 

Non-GAAP operating loss:

 

     Three Months Ended
April 30,
 
(in thousands)    2014     2013  

Operating loss

   $ (1,617   $ (457 )

Add back:

    

Stock-based compensation expense

     370        245  

Amortization of acquired intangible assets

     87        88  
  

 

 

   

 

 

 

Non-GAAP operating loss

   $ (1,160   $ (124 )
  

 

 

   

 

 

 

Non-GAAP net loss:

 

     Three Months Ended
April 30,
 
(in thousands)    2014     2013  

Net loss

   $ (17,220   $ (541 )

Add back:

    

Stock-based compensation expense

     370        245  

Amortization of acquired intangible assets

     87        88  

Income tax effect (1)

     (160     (116 )
  

 

 

   

 

 

 

Non-GAAP net loss

   $ (16,923   $ (324 )
  

 

 

   

 

 

 

Non-GAAP net loss, per diluted share:

 

     Three Months Ended
April 30,
 
     2014     2013  

Net loss, per diluted share (2)

   $ (1.28   $ (0.04 )

Add back:

    

Stock-based compensation expense

     0.03        0.02  

Amortization of acquired intangible assets

     0.01        0.01  

Income tax effect (1)

     (0.01     (0.01 )
  

 

 

   

 

 

 

Non-GAAP net loss, per diluted share (2)(3):

   $ (1.25   $ (0.02 )
  

 

 

   

 

 

 

 

(1) The tax effect of non-cash stock-based compensation expense and non-cash amortization of acquired intangibles is estimated using a blended rate equivalent to our annual estimated United States federal tax rate and our state tax rate, exclusive of our net federal benefit. This rate is based on our estimated annual GAAP income tax rate forecast. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
(2) Share amounts utilized on a fully diluted basis were approximately 13.5 million and 13.3 million for the three months ended April 30, 2014 and 2013, respectively.
(3) Due to rounding, totals may not equal the sum of line items in the table above.

 

20


Table of Contents

Liquidity

Overview

Our primary sources of liquidity during the three months ended April 30, 2014 were cash and cash equivalents on hand and cash flows provided by operating activities. Our primary uses of cash during the three months ended April 30, 2014 were capital expenditures and capital lease obligations. As of April 30, 2014, we had $32.6 million in cash and cash equivalents.

On December 10, 2013, we filed a shelf registration statement on Form S-3, which included a base prospectus relating to, among other things, the registration of $75 million of our common stock that may be offered and sold by us from time to time pursuant to Rule 415 promulgated under the Act, in amounts, at prices and on terms to be determined at the time of the offering.

Net Cash Flows from Operating Activities

Variations in the amount of our net cash provided or used by operating activities are primarily the result of changes in the amount of our working capital accounts, mainly accounts receivable and deferred revenue, the timing of cash payments from our customers and of our cash expenditures, principally employee salaries, accounts payable and payments of value added taxes and consumption taxes on the receivables of our foreign subsidiaries.

Cash payments from our customers fluctuate due to timing of new and renewal license sales, which typically coincide with our customers’ budget cycles. The fourth quarter of each fiscal year generally has the highest license sales, with payment of the license fee becoming due at the commencement of the license term. As a result, our cash flows from operations are typically highest in the first quarter of each fiscal year. Generally, customers are invoiced in advance for their annual subscription fee and the invoices are recorded in accounts receivable and deferred revenue, with deferred revenues being recognized ratably over the term of the subscription agreement. Increases in deferred revenue are attributable to growth in new business, offset by the related license revenues that are recognized ratably over time.

For the three months ended April 30, 2014, net cash provided by operating activities totaled $4.7 million, as compared to $18.5 million over the three months ended April 30, 2013. The overall decrease in cash provided by operating activities for the three months ended April 30, 2014 as compared to the prior year period is primarily due to fluctuations in working capital. Accounts receivable decreased $13.4 million during the current year period compared to $23.7 million in the prior year period, primarily due to the timing of collections from certain large customers. In addition, accrued expenses decreased by $3.7 million during the current year period compared to $2.3 million in the prior year period, primarily due to the timing of value-added-tax, commission and compensation payments. Lastly, deferred revenue decreased $2.7 million during the current year period compared to $1.6 million in the prior year period, due primarily to the timing of invoicing for customer license orders.

Net Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended April 30, 2014 was $0.4 million, as compared to $0.3 million for the three months ended April 30, 2013. The increase is attributable to increased expenditures for purchases of property and equipment to support the growth in our business operations.

Net Cash Flows from Financing Activities

Net cash used for financing activities for the three months ended April 30, 2014 was $0.5 million, which consisted primarily of payments on our capital lease obligations of $0.9 million, partially offset by proceeds from stock option exercises of $0.3 million. Net cash used for financing activities for the three months ended April 30, 2013 was $0.8 million, which consisted primarily of payments on our capital lease obligations of $0.5 million and payments on our long-term debt of $0.3 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of either April 30, 2014 or January 31, 2014.

 

21


Table of Contents

Capital Resources

Our future capital requirements may vary materially from those now planned and will depend on many factors, including the costs to develop and implement new solutions and applications, the sales and marketing resources needed to further penetrate our market and gain acceptance of new solutions and applications we develop, the expansion of our operations in the United States and internationally and the response of competitors to our solutions and applications. Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business. Our practice has been to reinvest the undistributed earnings of our foreign subsidiaries in their local jurisdictions, and we currently do not intend to repatriate such earnings. As of April 30, 2014 and January 31, 2014, $7.6 million and $8.0 million, respectively, of our cash is held in bank accounts outside the United States and may not be completely available to fund our domestic operations and obligations without paying taxes upon repatriation.

We expect to be able to meet the funding needs of our United States operations without repatriating undistributed earnings that have been indefinitely reinvested in our international subsidiaries.

We believe our cash on hand and cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future, including at least the next twelve months.

Seasonality

We have experienced and expect to continue to experience seasonal variations in the timing of customers’ purchases of our software products. Many customers make purchase decisions based on their budget cycles, which typically coincide with the calendar year, except in Japan, where our customer budget cycles typically begin on April 1. Because our software products are sold pursuant to annual subscription agreements and we recognize revenue from these subscriptions over the term of the agreement, downturns or upturns in invoices may not be immediately reflected in our operating results. However, these seasonal trends materially affect the timing of our cash flows, as we generally receive the annual license fee at the time the license term commences. As a result, our cash flows from operations are typically highest in the first quarter of each fiscal year.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

As we conduct business in multiple international currencies throughout the world, our international operations generate and incur expenses that are denominated in foreign currencies. These amounts could be materially affected by currency fluctuations. Our principal exposures are to fluctuations in exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. Additionally, our international operations maintain cash balances denominated in foreign currencies. To reduce the risk associated with translation of foreign cash balances into our reporting currency, we typically avoid maintaining excess cash balances in foreign currencies. To date, we have not hedged our exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated translation gains and losses.

The Euro was approximately 5.0% stronger against the United States dollar on average, for the three months ended April 30, 2014, when compared with the three months ended April 30, 2013. The resulting net overall impact to revenue was an increase of approximately $0.3 million, during the three months ended April 30, 2014. The resulting net overall impact to operating expenses was an increase of approximately $0.2 million during the three months ended April 30, 2014, respectively.

The exchange rate impact of other currencies for the three months ended April 30, 2014, primarily driven by a weaker Japanese yen, was a decrease to revenue and operating expense of approximately $0.2 million and $0.1 million, respectively.

For the three months ended April 30, 2014, a 10% change in the exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won would have resulted in a $0.8 million change in revenue.

 

22


Table of Contents

Interest Rate Sensitivity

Our outstanding long-term debt carried interest at a fixed rate. Our revolving bank line of credit bore interest at a floating rate. We had no outstanding borrowings under our revolving bank line of credit as of January 31, 2014 or at any time during fiscal year 2015. On May 23, 2013, the line of credit expired in accordance with its terms and on May 31, 2013 we repaid, with available cash on hand, all outstanding obligations under our Loan and Security Agreement with Gold Hill Capital 2008, L.P. and Massachusetts Capital Resource Company. As a result, we do not believe that we are exposed to material interest rate risk at this time. Interest income is sensitive to changes in the general level of United States and international interest rates. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Our cash and short-term investments are relatively insensitive to interest rate changes. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.

We do not believe that a 10% change in interest rates would have a material impact on our financial position or results of operations.

 

ITEM 4. CONTROLS AND PROCEDURES

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 (the “Exchange Act”), 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 Interim 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) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of April 30, 2014 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 30, 2014.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended April 30, 2014 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

23


Table of Contents

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending material legal proceedings. However, because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future.

 

ITEM 1A. RISK FACTORS

You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2014, filed with the SEC on March 26, 2014 and other documents we file with the SEC. The risks and uncertainties described are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as overall U.S. and non-U.S. economic and industry conditions including a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns, natural disasters or other disruptions of expected economic and business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business operations and liquidity.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(b) Use of Proceeds

On July 3, 2012, we completed the initial public offering of our common stock pursuant to our Registration Statement on Form S-1 (File No. 333-176019), which was declared effective by the Securities and Exchange Commission on June 27, 2012. The underwriters for the offering were Stifel Nicolaus & Company, Incorporated, Robert W. Baird & Co. Incorporated, Canaccord Genuity Inc. and Needham & Company, LLC. We did not utilize any of the net proceeds of this offering in our business during the three months ended April 30, 2014.

 

ITEM 6. EXHIBITS

 

Exhibit
Number

 

Description

    3.1  

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s

Current Report on Form 8-K, event date June 27, 2012, filed on July 3, 2012).

    3.2  

Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on

Form 8-K, event date June 27, 2012, filed on July 3, 2012).

    3.3   Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2013)
  31.1*   Rule 13a-14(a)/15d-14(a) Certification, executed by Stephen A. Remondi, President and Chief Executive Officer of Exa Corporation.
  31.2*   Rule 13a-14(a)/15d-14(a) Certification, executed by Stephen P. Sarno, Interim Chief Financial Officer and Chief Accounting Officer of Exa Corporation.
  32.1**   Section 1350 Certification, executed by Stephen A. Remondi, President and Chief Executive Officer of Exa Corporation.
  32.2**   Section 1350 Certification, executed by Stephen P. Sarno, Interim Chief Financial Officer and Chief Accounting Officer of Exa Corporation.
101***   Interactive Data Files pursuant to Rule 405 of Regulation S-T (XBRL)

 

* Filed herewith.
** Furnished herewith.
*** Pursuant to Rule 406T of SEC Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

 

24


Table of Contents

EXA CORPORATION

SIGNATURE

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

 

EXA CORPORATION

(Registrant)

By:  

/s/ Stephen P. Sarno

  Stephen P. Sarno
  Interim Chief Financial Officer and Chief Accounting Officer
  Date: May 29, 2014

 

25