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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 June 30, 2014

OR

¨

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

For the transition period from              to             

Commission File Number: 001-36331

 

Coupons.com Incorporated

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

77-0485123

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

400 Logue Avenue, Mountain View, California

 

94043

(Address of Principal Executive Offices)

 

(Zip Code)

(650) 605-4600

(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 checkmark 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 time 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of August 5, 2014, the registrant had 77,618,235 shares of common stock outstanding.

 

 

 

 


COUPONS.COM INCORPORATED

INDEX

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014

 

PART I FINANCIAL INFORMATION

 

Item 1 Financial Statements (unaudited):

  

3

 

Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013

  

3

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013

  

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2014 and 2013

  

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013

  

6

 

Notes to Condensed Consolidated Financial Statements

  

7

 

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

18

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk

  

24

 

Item 4 Controls and Procedures

  

25

 

PART II OTHER INFORMATION

 

Item 1—Legal Proceedings

  

26

 

Item 1A—Risk Factors

  

26

 

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

  

44

 

Item 3—Defaults Upon Senior Securities

  

44

 

Item 4—Mine Safety Disclosures

  

44

 

Item 5—Other Information

  

44

 

Item 6—Exhibits

  

45

 

SIGNATURES

  

46

 

 

 

2


PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

June 30,

2014

 

 

December 31,

2013

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

222,031

 

 

$

38,972

 

Accounts receivable, net of allowance for doubtful accounts of $400 and $332

at June 30, 2014 and December 31, 2013, respectively

 

44,060

 

 

 

42,185

 

Prefunded coupons cash deposits

 

1,497

 

 

 

920

 

Prepaid expenses and other current assets

 

4,252

 

 

 

3,100

 

Total current assets

 

271,840

 

 

 

85,177

 

Property and equipment, net

 

27,820

 

 

 

29,942

 

Intangible assets, net

 

3,597

 

 

 

1,813

 

Goodwill

 

17,880

 

 

 

9,887

 

Deferred tax assets

 

900

 

 

 

195

 

Other assets

 

3,728

 

 

 

7,222

 

Total assets

$

325,765

 

 

$

134,236

 

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

7,703

 

 

$

5,589

 

Accrued compensation and benefits

 

10,490

 

 

 

13,721

 

Other current liabilities

 

14,790

 

 

 

13,699

 

Prefunded coupons cash obligations

 

1,497

 

 

 

920

 

Deferred revenues

 

7,740

 

 

 

6,751

 

Debt obligations

 

7,500

 

 

 

7,500

 

Debt obligations, related party

 

15,999

 

 

 

15,577

 

Total current liabilities

 

65,719

 

 

 

63,757

 

Other non-current liabilities

 

569

 

 

 

1,046

 

Deferred rent

 

940

 

 

 

1,222

 

Deferred tax liabilities

 

900

 

 

 

195

 

Total liabilities

 

68,128

 

 

 

66,220

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.00001 par value—no shares authorized, issued and

   outstanding, and aggregate liquidation preference of $0 at June 30, 2014; 50,437,000 shares

   authorized and 41,529,721 shares issued and outstanding, and aggregate liquidation preference of

   $282,990 at December 31,2013

 

 

 

 

270,262

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value—10,000,000 shares authorized and no shares issued or

   outstanding at June 30, 2014; no shares authorized, issued or outstanding at December 31,

   2013

 

 

 

 

 

Common stock, $0.00001 par value—250,000,000 shares authorized and 82,419,992 shares

   issued and 77,575,086 outstanding at June 30, 2014; 96,000,000 shares authorized and

   25,934,206  shares issued and 21,089,300 outstanding at December 31, 2013

 

1

 

 

 

 

Additional paid-in capital

 

509,179

 

 

 

28,403

 

Treasury stock, at cost

 

(61,935

)

 

 

(61,935

)

Accumulated other comprehensive income (loss)

 

82

 

 

 

37

 

Accumulated deficit

 

(189,690

)

 

 

(168,751

)

Total stockholders’ equity (deficit)

 

257,637

 

 

 

(202,246

)

Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

$

325,765

 

 

$

134,236

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

3


 

COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenues

$

51,715

 

 

$

39,089

 

 

$

103,216

 

 

$

75,579

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

20,884

 

 

 

12,933

 

 

 

41,403

 

 

 

25,734

 

Sales and marketing

 

17,621

 

 

 

14,167

 

 

 

37,132

 

 

 

29,070

 

Research and development

 

10,981

 

 

 

9,651

 

 

 

27,248

 

 

 

20,604

 

General and administrative

 

8,857

 

 

 

5,002

 

 

 

17,907

 

 

 

10,898

 

Total costs and expenses

 

58,343

 

 

 

41,753

 

 

 

123,690

 

 

 

86,306

 

Loss from operations

 

(6,628

)

 

 

(2,664

)

 

 

(20,474

)

 

 

(10,727

)

Interest expense

 

(300

)

 

 

(229

)

 

 

(602

)

 

 

(435

)

Other income (expense), net

 

31

 

 

 

5

 

 

 

(107

)

 

 

34

 

Loss before benefit from income taxes

 

(6,897

)

 

 

(2,888

)

 

 

(21,183

)

 

 

(11,128

)

Benefit from income taxes

 

 

 

 

 

 

 

(244

)

 

 

 

Net loss

$

(6,897

)

 

$

(2,888

)

 

$

(20,939

)

 

$

(11,128

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders,

   basic and diluted

$

(0.09

)

 

$

(0.15

)

 

$

(0.37

)

 

$

(0.60

)

Weighted-average number of common shares used in

   computing net loss per share attributable to common

   stockholders, basic and diluted

 

77,549

 

 

 

18,903

 

 

 

56,161

 

 

 

18,623

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

4


COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net loss

$

(6,897

)

 

$

(2,888

)

 

$

(20,939

)

 

$

(11,128

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

33

 

 

 

12

 

 

 

45

 

 

 

(117

)

Comprehensive loss

$

(6,864

)

 

$

(2,876

)

 

$

(20,894

)

 

$

(11,245

)

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

5


COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(20,939

)

 

$

(11,128

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

6,822

 

 

 

3,388

 

Stock-based compensation

 

21,253

 

 

 

2,554

 

Accretion of debt discount

 

113

 

 

 

113

 

Loss on disposal of property and equipment

 

4

 

 

 

37

 

Provision for doubtful accounts

 

79

 

 

 

100

 

Benefit from deferred income taxes

 

(244

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(1,755

)

 

 

(4,166

)

Prepaid expenses and other current assets

 

262

 

 

 

(594

)

Accounts payable and other current liabilities

 

2,494

 

 

 

(1,027

)

Accrued compensation and benefits

 

(3,298

)

 

 

(2,428

)

Deferred revenues

 

957

 

 

 

732

 

Other

 

309

 

 

 

298

 

Net cash provided by (used in) operating activities

 

6,057

 

 

 

(12,121

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(4,970

)

 

 

(10,973

)

Business acquisition, net of acquired cash

 

859

 

 

 

 

Purchases of intangible assets

 

(16

)

 

 

 

Net cash used in investing activities

 

(4,127

)

 

 

(10,973

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

3,031

 

 

 

973

 

Proceeds from initial public offering, net of offering costs

 

176,525

 

 

 

 

Exercise of warrant

 

1,610

 

 

 

498

 

Principal payments on capital lease obligations

 

(28

)

 

 

(21

)

Net cash provided by financing activities

 

181,138

 

 

 

1,450

 

Effect of exchange rates on cash and cash equivalents

 

(9

)

 

 

3

 

Net increase (decrease) in cash and cash equivalents

 

183,059

 

 

 

(21,641

)

Cash and cash equivalents at beginning of period

 

38,972

 

 

 

58,395

 

Cash and cash equivalents at end of period

$

222,031

 

 

$

36,754

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

6


COUPONS.COM INCORPORATED

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Description of Business

Coupons.com Incorporated (the “Company”) operates a leading digital promotion platform that connects great brands and retailers with consumers. Many brands from leading consumer packaged goods companies (“CPGs”) and grocery, drug and mass merchandise retailers use the Company’s promotion platform to engage consumers at the critical moments when they are choosing which products they will buy and where they will shop. The Company delivers digital coupons, including coupons and coupon codes, through its platform which includes web, mobile and social channels, as well as those of the Company’s CPGs, retailers and its extensive network of publishers. Consumers select coupons by either printing them for physical redemption at retailers or saving them to retailer online accounts for automatic digital redemption. The Company also delivers integrated advertising through its platform.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on March 7, 2014 (“Prospectus”).

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.

There have been no changes to our significant accounting policies described in the Prospectus that have had a material impact on our condensed consolidated financial statements and related notes.

Initial Public Offering

In March 2014, the Company completed its initial public offering (“IPO”) in which it issued and sold 12,075,000 shares of common stock at a public offering price of $16.00 per share. The Company received net proceeds of $179.7 million after deducting underwriting discounts and commissions of $13.5 million, but before deducting offering expenses of $5.4 million. In addition, in connection with the IPO:

All of the Company’s outstanding redeemable convertible preferred stock converted into 41,580,507 shares of common stock.

The Company recognized stock-based compensation expense of $17.9 million during the six months ended June 30, 2014 associated with restricted stock units (“RSUs”). Please see Note 9 (Stock-based Compensation) for further discussion.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the Company’s estimates, and such differences may be material to the accompanying condensed consolidated financial statements.

7


 

Recently Issued Accounting Pronouncements

In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company is required to adopt the amendments in the first quarter of 2017. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of these amendments.

 

3. Fair Value Measurements

The Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis is as follows (in thousands):

 

 

June 30, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

14,923

 

 

$

 

 

$

 

 

$

14,923

 

Total

$

14,923

 

 

$

 

 

$

 

 

$

14,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

$

14,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

14,918

 

 

$

 

 

$

 

 

$

14,918

 

Total

$

14,918

 

 

$

 

 

$

 

 

$

14,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

$

14,918

 

 

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Valuation techniques used to measure the fair value of money market funds were derived from quoted prices in active markets for identical assets or liabilities.

 

8


4. Provision for Doubtful Accounts

The summary of activity in the allowance for doubtful accounts is as follows (in thousands):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Balance at beginning of period

$

347

 

 

$

291

 

 

$

332

 

 

$

270

 

Bad debt expense

 

65

 

 

 

50

 

 

 

79

 

 

 

100

 

Recoveries (write-offs), net

 

(12

)

 

 

(2

)

 

 

(11

)

 

 

(31

)

Balance at end of period

$

400

 

 

$

339

 

 

$

400

 

 

$

339

 

 

 

5. Balance Sheet Components

Property and Equipment, Net

Property and equipment consist of the following (in thousands):

 

 

June 30,

2014

 

 

December 31,

2013

Computer equipment

$

15,679

 

 

$

15,172

 

Software

 

28,384

 

 

 

5,294

 

Furniture and fixtures

 

1,583

 

 

 

1,611

 

Leasehold improvements

 

2,225

 

 

 

2,211

 

Total

 

47,871

 

 

 

24,288

 

Accumulated depreciation and amortization

 

(22,310

)

 

 

(17,491

)

Projects in process

 

2,259

 

 

 

23,145

 

Property and equipment, net

$

27,820

 

 

$

29,942

 

 

Depreciation and amortization expense of property and equipment was $3,339,000 and $6,206,000 for the three and six months ended June 30, 2014, respectively, and $1,510,000 and $3,002,000 for the three and six months ended June 30, 2013, respectively.

During the quarter ended March 31, 2014, the Company’s internally developed next generation integrated point of sale digital coupon delivery solution was ready for its intended use and, accordingly, $23,130,000 was reclassified from projects in process to software within property and equipment, net on the accompanying condensed consolidated balance sheets. The Company recognized $1,960,000 and $3,391,000 amortization expense in cost of revenues related to the capitalized new software platform during the three and six months ended June 30, 2014.

Accrued Compensation and Benefits

Accrued compensation and benefits consist of the following (in thousands):

 

 

June 30,

2014

 

 

December 31,

2013

Bonus

$

3,509

 

 

$

5,949

 

Payroll and related expenses

 

1,295

 

 

 

1,131

 

Commissions

 

2,887

 

 

 

4,297

 

Vacation

 

2,799

 

 

 

2,344

 

Accrued compensation and benefits

$

10,490

 

 

$

13,721

 

9


 

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

 

 

June 30,

2014

 

 

December 31,

2013

Legal and professional fees

$

1,422

 

 

$

1,742

 

Marketing expenses

 

2,143

 

 

 

1,492

 

Distribution fees

 

5,914

 

 

 

5,628

 

Accrued property and equipment

 

1,047

 

 

 

1,252

 

Deferred rent

 

486

 

 

 

453

 

Other

 

3,778

 

 

 

3,132

 

Other current liabilities

$

14,790

 

 

$

13,699

 

 

6. Acquisition of Yub, Inc.

On January 2, 2014, the Company acquired all the outstanding shares of Yub, Inc. (“Yub”), a company that allows consumers to link digital offers and promotions to payment cards for savings when they use the cards for in-store purchases. The total acquisition consideration of $10.1 million, which consisted of 1,000,040 shares of the Company’s common stock, was based on the fair value of the Company’s common stock of $10.05 per share. The acquisition of Yub provides the Company with developed technologies and enhanced workforce. The fair values of identifiable intangible assets were determined using discounted cash flow models. The excess of the consideration paid over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed was recorded as goodwill, which is not deductible for tax purposes. The goodwill is attributable to expected synergies from combined operations and acquired company’s knowhow.

The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

 

 

Amount

 

Cash

$

859

 

Other assets and (liabilities), net

 

(1,100

)

Intangible assets

 

2,320

 

Goodwill

 

7,971

 

Total net assets acquired

$

10,050

 

 

Acquisition related costs of $376,000 were expensed as general and administrative expense in the accompanying condensed consolidated statement of operations. The results of operations of Yub have been included in our condensed consolidated statements of operations from the acquisition date. The pro forma impact of this acquisition on consolidated revenues, loss from operations and net loss was immaterial.

The Company amortizes intangible assets on a straight-line basis over their respective estimated useful lives. The following table presents the details of the identifiable intangible assets acquired in connection with the Yub acquisition (in thousands):

 

 

Amount

 

 

Estimated

Useful Life

(in Years)

 

Customer relationships

$

176

 

 

 

5

 

Vendor relationships

 

890

 

 

 

4

 

Developed technologies

 

692

 

 

 

5

 

Domain names

 

487

 

 

 

5

 

Patents

 

75

 

 

 

5

 

Total identifiable intangible assets

$

2,320

 

 

 

 

 

 

 

10


7. Goodwill and Intangible Assets

Goodwill represents the excess of the consideration paid over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The changes in the carrying value of goodwill are as follows (in thousands):

 

 

Goodwill

 

Balance as of December 31, 2013

$

9,887

 

Acquisition of Yub

 

7,971

 

Foreign currency translation

 

22

 

Balance as of June 30, 2014

$

17,880

 

 

Intangible assets consist of the following (in thousands):

 

 

June 30,

2014

Gross

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

June 30,

2014

Net

 

 

Weighted

Average

Amortization

Period

(Years)

Domain names

$

3,180

 

 

$

(2,539

)

 

$

 

 

$

641

 

 

4

Patents

 

975

 

 

 

(520

)

 

 

 

 

 

455

 

 

7

Customer relationships

 

2,228

 

 

 

(1,412

)

 

 

73

 

 

 

889

 

 

3

Vendor relationships

 

890

 

 

 

(112

)

 

 

 

 

 

778

 

 

4

Developed technologies

 

1,288

 

 

 

(523

)

 

 

 

 

 

765

 

 

4

Trade names

 

167

 

 

 

(106

)

 

 

8

 

 

 

69

 

 

2

 

$

8,728

 

 

$

(5,212

)

 

$

81

 

 

$

3,597

 

 

4

 

 

 

December 31,

2013

Gross

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

December 31,

2013

Net

 

 

Weighted

Average

Amortization

Period

(Years)

Domain names

$

2,638

 

 

$

(2,376

)

 

$

 

 

$

262

 

 

1

Patents

 

900

 

 

 

(470

)

 

 

 

 

 

430

 

 

7

Customer relationships

 

2,052

 

 

 

(1,239

)

 

 

51

 

 

 

864

 

 

3

Developed technologies

 

596

 

 

 

(420

)

 

 

 

 

 

176

 

 

3

Trade names

 

167

 

 

 

(91

)

 

 

5

 

 

 

81

 

 

3

 

$

6,353

 

 

$

(4,596

)

 

$

56

 

 

$

1,813

 

 

4

 

Amortization expense related to intangible assets subject to amortization was $311,000 and $616,000 for the three and six months ended June 30, 2014, respectively, and $193,000 and $386,000 for the three and six months ended June 30, 2013. Estimated future amortization expense of intangible assets as of June 30, 2014 is as follows (in thousands):

 

 

Total

 

2014, remaining six months

$

592

 

2015

 

1,046

 

2016

 

932

 

2017

 

559

 

2018

 

324

 

2019 and beyond

 

144

 

Total estimated amortization expense

$

3,597

 

 

11


8. Debt Obligations

2013 Credit and Security Agreement

In September 2013, the Company entered into an agreement with a commercial bank to establish an accounts receivable based revolving line of credit. The maximum amount available for borrowing under the revolving credit facility is the lesser of $25,000,000 (which can be increased to $30,000,000 if certain conditions are met) or an amount equal to 85% of certain eligible accounts, which excludes accounts that are over 60 days outstanding from the original due date. The revolving line of credit has a maturity date of September 30, 2016 and may be repaid and redrawn at any time prior to the maturity date. Interest is charged at a floating interest rate based on the daily three month LIBOR, plus an applicable margin.  In May 2014, the Company entered into an amendment, which revised the applicable margin from 2.75% to 2.00% and the financial reporting intervals from monthly to quarterly reporting.  Interest was 2.25% at June 30, 2014. The Company is also required to pay a commitment fee on the unused portion of the revolving credit facility equal to 0.25% per annum. As of June 30, 2014 and December 31, 2013, $7,500,000 was outstanding under the revolving line of credit. The revolving credit facility is secured by substantially all of the Company’s assets, and is subject to certain financial and non-financial covenants, including financial reporting. As of June 30, 2014, the Company was in compliance with the financial and non-financial covenants under the credit and security agreement.

2012 Note Payable, Related Party

In October 2012, the Company borrowed $15,000,000 from one of its stockholders by entering into a subordinated note arrangement. The note is subordinated to other senior debt. The note has a stated interest rate of 4.00% per annum, and the principal and accrued interest are due in a lump-sum payment on October 5, 2014. Accrued interest related to the related party debt obligation is included in debt obligations, related party on the accompanying condensed consolidated balance sheets.

In connection with the note, the Company issued a warrant to purchase 400,000 shares of Company’s common stock at an exercise price of $4.03 per share. In February 2014, the warrant to purchase 400,000 shares of common stock was exercised.

9. Stock-based Compensation

2013 Equity Incentive Plan

In October 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which became effective in March 2014 and serves as the successor to the Company’s 2006 Stock Plan (the “2006 Plan”). Pursuant to the 2013 Plan, 4,000,000 shares of common stock were initially reserved for grant, plus (1) any shares that were reserved and available for issuance under the 2006 Plan at the time the 2013 Plan became effective, and (2) any shares that become available upon forfeiture or repurchase by us under the 2006 Plan and 2000 Plan. Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares and units to employees, directors and consultants.

Stock Options

The fair value of each stock option is estimated on the date of grant for the periods presented using the Black-Scholes model based on the following assumptions:

 

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

2014

 

 

2013

 

Expected life (in years)

 

 

 

 

 

6.08

 

 

 

6.08

 

Risk-free interest rate

 

 

 

 

 

2.33%

 

 

 

1.09%

 

Volatility

 

 

 

 

 

55%

 

 

 

51%

 

Dividend yield

 

 

 

 

 

 

 

 

The weighted-average grant-date fair value of options granted was $8.60 and $1.80 per share during the six months ended June 30, 2014 and 2013, respectively.  No options were granted during the three months ended June 30, 2014 and 2013.

12


Restricted Stock Units

The fair value of RSUs equals the market value of the Company’s common stock on the date of grant. RSUs granted prior to the Company’s IPO have a contractual term of seven years and vest upon the satisfaction of both a service condition and a liquidity-event condition. The service condition is satisfied as to 25% of the RSUs on each of the first four anniversaries of the vesting commencement date. The liquidity-event condition is satisfied upon the earlier of (i) six months after the effective date of the IPO or (ii) March 15 of the calendar year following the year in which the IPO was declared effective; and (iii) the time immediately prior to the consummation of a change in control. The vesting condition that will be satisfied six months following the Company’s IPO does not affect the expense attribution period for the RSUs for which the service condition has been met as of the date of the Company’s IPO. This six-month period is not a substantive service condition and, accordingly, beginning on the effectiveness of the Company’s IPO in March 2014, the Company recognized a cumulative stock-based compensation expense for the portion of the RSUs that had met the service condition as of the date of the Company’s IPO.  

RSUs granted on or after the Company’s IPO have similar terms as the RSUs granted prior to the Company’s IPO, but are not subject to a liquidity-event condition in order to vest, and the compensation expense is recognized on a straight-line basis over the applicable service period.  

A summary of the Company’s stock option and RSUs award activity under the Plan is as follows:

 

 

 

 

 

 

Options Outstanding

 

 

RSUs Outstanding

 

 

Shares

Available

for Grant

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

 

Number of

Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

Balance as of December 31, 2013

 

2,035,282

 

 

 

12,635,707

 

 

$

5.87

 

 

 

7.02

 

 

$

68,944

 

 

 

4,521,191

 

 

$

5.59

 

Increase in shares authorized

 

4,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

(46,875

)

 

 

46,875

 

 

 

16.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

(1,430,239

)

 

 

2.12

 

 

 

 

 

 

 

11,912

 

 

 

 

 

 

 

 

 

Options canceled or expired

 

29,802

 

 

 

(29,802

)

 

 

6.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs granted

 

(3,106,663

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,106,663

 

 

 

17.95

 

RSUs canceled or expired

 

282,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(282,777

)

 

 

8.84

 

Balance as of June 30, 2014

 

3,194,323

 

 

 

11,222,541

 

 

 

6.39

 

 

 

6.80

 

 

 

223,590

 

 

 

7,345,077

 

 

 

10.70

 

Vested and expected to vest as of

   June 30, 2014

 

 

 

 

 

10,546,146

 

 

 

6.10

 

 

 

6.69

 

 

 

213,241

 

 

 

 

 

 

 

 

 

Vested and exercisable as of

   June 30, 2014

 

 

 

 

 

7,163,304

 

 

 

3.25

 

 

 

5.69

 

 

 

165,160

 

 

 

 

 

 

 

 

 

 

The aggregate intrinsic value disclosed in the table above is based on the difference between the exercise price of the options and the fair value of the Company’s common stock.

The aggregate total fair value of shares which vested during the three and six months ended June 30, 2014 was $854,000 and $1,859,000, respectively, and during the three and six months ended June 30, 2013 was $1,404,000 and $2,988,000, respectively.

Employee Stock Purchase Plan

The Company’s Board of Directors adopted the 2014 Employee Stock Purchase Plan (“ESPP”), which became effective in March 2014, pursuant to which 1,200,000 shares of common stock have been reserved for future issuance. Eligible employees can enroll and elect to contribute up to 15% of their base compensation through payroll withholdings in each offering period, subject to certain limitations. Each offering period is six months in duration, with the exception of the initial offering period which commenced in March 2014 and ends in November 2014. The purchase price of the stock is the lower of 85% of the fair market value on (a) the first day of the offering period or (b) the purchase date.

13


The fair value of the option feature is estimated using the Black-Scholes model for the period presented based on the following assumptions:

 

 

Six Months Ended

June 30, 2014

 

Expected life (in years)

 

0.62

 

Risk-free interest rate

 

0.08%

 

Volatility

 

55%

 

Dividend yield

 

 

Stock-based Compensation Expense

The following table sets forth the total stock-based compensation expense resulting from RSUs, stock options and ESPP included in the Company’s condensed consolidated statements of operations (in thousands):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Cost of revenues

$

523

 

 

$

85

 

 

$

2,100

 

 

$

171

 

Sales and marketing

 

1,284

 

 

 

322

 

 

 

5,401

 

 

 

704

 

Research and development

 

1,760

 

 

 

271

 

 

 

7,270

 

 

 

571

 

General and administrative

 

3,094

 

 

 

390

 

 

 

6,482

 

 

 

1,108

 

Total stock-based compensation expense

$

6,661

 

 

$

1,068

 

 

$

21,253

 

 

$

2,554

 

 

As of June 30, 2014, there was $59,263,000 of unrecognized stock-based compensation expense (net of estimated forfeitures), of which $10,028,000 is related to stock options and ESPP shares and $49,235,000 is related to RSUs. The total unrecognized stock-based compensation expense related to stock options and ESPP as of June 30, 2014 will be amortized over a weighted-average period of 2.7 years. The total unrecognized stock-based compensation expense related to RSUs as of June 30, 2014 will be amortized over a weighted-average period of 3.5 years.

The amount of stock-based compensation cost capitalized in property and equipment, net on the accompanying condensed consolidated balance sheets was immaterial for all periods presented.

 

10. Redeemable Convertible Preferred Stock

Immediately prior to the completion of the Company’s IPO, all of the Company’s outstanding redeemable convertible preferred stock automatically converted into 41,580,507 shares of common stock.

 

11. Stockholders’ Equity (Deficit)

Reverse Stock Split

In February 2014, the Company’s board approved an amendment to the restated certificate of incorporation to effect a 2.5-for-1 reverse stock split of its capital stock. All share and per share information for all periods presented has been adjusted to reflect the effect of such reverse stock split.

Amended and Restated Certificate of Incorporation

In March 2014, the Company filed an amended and restated certificate of incorporation, which became effective immediately following the completion of the Company’s IPO. Under the restated certificate of incorporation, the authorized capital stock consists of 250,000,000 shares of common stock and 10,000,000 shares of preferred stock.

Common Stock. The rights, preferences and privileges of the holders of common stock are subject to the rights of the holders of shares of any series of preferred stock which the Company may issue in the future. Subject to the foregoing, for as long as such stock is outstanding, the holders of common stock are entitled to receive ratably any dividends as may be declared by the board of directors out of funds legally available for dividends. Holders of common stock are entitled to one vote per share on any matter to be voted upon by stockholders. The amended and restated certificate of incorporation establishes a classified board of directors that is divided into three classes with staggered three

14


year terms. Only the directors in one class will be subject to election at each annual meeting of stockholders, with the directors in other classes continuing for the remainder of their three year terms. Upon liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Preferred Stock. The board of directors is authorized to issue undesignated preferred stock in one or more series without stockholder approval and to determine for each such series of preferred stock the voting powers, designations, preferences, and special rights, qualifications, limitations, or restrictions as permitted by law, in each case without further vote of action by the stockholders. The board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by the stockholders. The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock.

Amendment. The amendment of the provisions in the restated certificate requires approval by holders of at least 66 2/3% of the Company’s outstanding capital stock entitled to vote generally in the election of directors.

 

12. Income Taxes

The Company recorded a net income tax benefit of $0 and $244,000 during the three and six months ended June 30, 2014, respectively. The benefit from income taxes was due to acquired net deferred tax liabilities as part of the Yub acquisition.  These additional deferred tax liabilities create a new source of taxable income, which requires the release of a portion of the Company’s deferred tax asset valuation allowance with a related reduction in income tax expense. The Company recorded no income tax expense during the three and six months ended June 30, 2013.

 

13. Net Loss per Share

The computation of the Company’s basic and diluted net loss per share attributable to common stockholders is as follows (in thousands, except per share data):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net loss

$

(6,897

)

 

$

(2,888

)

 

$

(20,939

)

 

$

(11,128

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares used in computing

   net loss per share attributable to common stockholders, basic and diluted

 

77,549

 

 

 

18,903

 

 

 

56,161

 

 

 

18,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

$

(0.09

)

 

$

(0.15

)

 

$

(0.37

)

 

$

(0.60

)

 

 

The outstanding common equivalent shares excluded from the computation of the diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive are as follows (in thousands):

 

 

 

 

Three and Six Months Ended

June 30,

 

 

 

 

 

 

2014

 

 

2013

 

Redeemable convertible preferred stock

 

 

 

 

 

 

 

 

41,581

 

Stock options and ESPP

 

 

 

 

 

11,349

 

 

 

11,024

 

Restricted stock units

 

 

 

 

 

7,345

 

 

 

3,602

 

Warrants

 

 

 

 

 

 

 

 

400

 

 

 

 

 

 

 

18,694

 

 

 

56,607

 

 

 

15


 

14. Commitments and Contingencies

Leases

The Company leases office space under noncancelable operating leases with lease terms ranging from one to five years. Additionally, the Company leases certain equipment under noncancelable operating leases at its facilities and its leased data center operations.

Aggregate Future Contractual Obligations and Lease Commitments

As of June 30, 2014, the Company’s minimum payments under its noncancelable operating and capital leases are as follows (in thousands):

 

 

Operating Leases

 

 

Capital Leases

 

2014, remaining six months

$

1,557

 

 

$

34

 

2015

 

3,207

 

 

 

68

 

2016

 

3,047

 

 

 

52

 

2017

 

172

 

 

 

22

 

2018

 

126

 

 

 

18

 

2019 and thereafter

 

109

 

 

 

1

 

Total minimum payments

$

8,218

 

 

$

195

 

 

 

 

 

 

 

 

 

Less: Amount representing interest

 

 

 

 

 

16

 

Present value of capital lease obligations

 

 

 

 

 

179

 

Less: Current portion

 

 

 

 

 

60

 

Capital lease obligation, net of current portion

 

 

 

 

$

119

 

 

Other Future Commitments

The Company has long-term commitments related to technology development and support for the years 2014 to 2016 in the amount of $6,083,000.

 

The Company also has other long-term commitments for the years 2014 to 2034 in the amount of $7,520,000 for marketing arrangements.

The Company entered into service agreements under which the Company is obligated to prepay non-refundable payments up to $19,250,000 over three years or earlier upon achievement of certain milestones. As of June 30, 2014, the Company made payments of $3,250,000.

Litigation

In the ordinary course of business, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results, or financial condition.

The Company believes that liabilities associated with any claims are not probable and any reasonably possible range of losses cannot be estimated at this time, therefore the Company has not recorded any accrual for claims as of June 30, 2014 and December 31, 2013.

 

16


15. Information About Geographic Areas

Revenues generated outside of the United States were insignificant for all periods presented. Additionally, as the Company’s assets are primarily located in the United States, information regarding geographical location is not presented, as such amounts are immaterial to these condensed consolidated financial statements taken as a whole.

 

16. Subsequent Event

On August 4, 2014, the Company acquired the assets of Eckim, LLC, a marketing company specializing in search engine management for e-commerce.

 

 

 

17


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 the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our prospectus filed on March 7, 2014 with the U.S. Securities and Exchange Commission (the “SEC”). In addition to historical financial information, the following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences are described in “Risk Factors” set forth in our prospectus and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We operate a leading digital promotion platform that connects great brands and retailers with consumers. Household brands from recognized consumer packaged goods companies, or CPGs, and many of the leading grocery, drug and mass merchandise retailers use our promotion platform to engage consumers. We deliver digital coupons to consumers, including coupons and coupon codes, and display advertising through our platform which includes our web, mobile and social channels, as well as those of our CPGs, retailers, and our extensive network of third-party websites, or publishers, that display our coupon and advertising offerings on their websites.

Our platform distributes digital promotions at scale across multiple channels enabling CPGs and retailers to deliver promotions and media advertisements to consumers at the point when they are most engaged and likely to make a purchasing decision. Our platform is comprised of promotional channels, including our Digital FSI Network, which is our network of owned and third-party websites that display our coupons and advertising offerings, retail point of sale solutions, mobile solutions, publishing tools, which enhance the effectiveness of the promotions we offer, and media advertising. Our secure technology gives CPGs control over the number of coupons distributed and the number of CPG-authorized activations per coupon, which enhances the security of digital coupons.

We generate revenues primarily from digital promotion transactions. Each time a consumer selects a digital coupon on our platform by either printing it for physical redemption at a retailer or saving it to a retailer online account for automatic digital redemption, we are paid a fee that is not dependent on the digital coupon being redeemed. For coupon codes, we are paid a fee when a consumer makes a purchase using a coupon code from our platform. If we deliver a digital coupon or coupon code on a retailer’s website or through its loyalty reward program, or the website of a publisher, we generally pay a distribution fee to the retailer or publisher which is included in our cost of revenues. We also generate advertising revenues through the placement of online advertisements from CPGs and retailers which are displayed with our coupon offerings on our websites and those of our publishers. We are paid a fee for the display of advertisements on a per impression or a per click basis. Advertising placements are generally sold as part of insertion orders for coupons as an integrated sale and not as a separate transaction.

Second Quarter 2014 Overview

Quarterly revenues of $51.7 million for the second quarter of 2014 increased $12.6 million or 32% from revenues of $39.1 million in the second quarter of 2013. Our net loss of $6.9 million increased $4.0 million for the second quarter of 2014 compared to the net loss of $2.9 million for the corresponding period of 2013.  The year over year increase in our quarterly revenue is primarily related to an increase in the number of transactions completed in the second quarter of 2014 of 383.7 million from 314.8 million for the second quarter of 2013.  The increase in our net loss in the second quarter of 2014 compared to the same period in 2013 was primarily driven by increased stock-based compensation expense of $4.8 million associated with RSUs and increased costs of revenues associated with amortization expense and support costs for our new point of sale solution of approximately $3.9 million.

 

 

 

18


Results of Operations

The following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenues for the periods presented.  Our operating expenses may increase in the future as we continue to invest in research and development to enhance our platform and in sales and marketing to acquire new CPG and retailer customers and increase revenues from our existing customers.

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,