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EXCEL - IDEA: XBRL DOCUMENT - MOBILEIRON, INC.Financial_Report.xls
EX-32.1 - EX-32.1 - MOBILEIRON, INC.mobl-ex321_201406308.htm
EX-31.1 - EX-31.1 - MOBILEIRON, INC.mobl-ex311_201406306.htm
EX-31.2 - EX-31.2 - MOBILEIRON, INC.mobl-ex312_201406307.htm
EX-10.8 - EX-10.8 - MOBILEIRON, INC.mobl-ex108_20140630497.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 001-36471

 

MobileIron, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

26-0866846

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

415 East Middlefield Road
Mountain View, California

 

94043

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code:

(650) 919-8100

 

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 ¨     No   x

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

 

 

 

 

 

 

Large accelerated filer  o

Accelerated filer  o

Non-accelerated filer  x

(Do not check if a smaller reporting company)

Smaller reporting company  o

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

At July 31, 2014, there were 75,867,717 shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.

 

 

 

 

 


INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2014

 

 

Page

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements:

 

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

1

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and
June 30, 2013

2

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) as of June 30, 2014 and December  31, 2013

3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and June 30, 2013

4

Notes to Condensed Consolidated Financial Statements

5

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

20

Item 3. Quantitative and Qualitative Disclosure About Market Risk

36

Item 4. Controls and Procedures

36

PART II OTHER INFORMATION

38

Item 1. Legal Proceedings

38

Item 1A. Risk Factors

38

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

57

Item 3. Defaults Upon Senior Securities

57

Item 4. Mine Safety Disclosures

57

Item 5. Other Information

57

Item 6. Exhibits

57

Signatures

60

 

 

 

 


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “project,” “plan,” “outlook,” “target,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

beliefs and objectives for future operations;

our business plan and our ability to effectively manage our growth and associated investments;

our ability to timely and effectively scale and adapt our existing technology;

our ability to innovate new products and bring them to market in a timely manner;

our ability to expand internationally;

our ability to further penetrate our existing customer base;

our expectations concerning renewal rates for subscriptions and services by existing customers;

cost of revenue, including changes in costs associated with production, manufacturing and customer support;

operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;

our expectations concerning relationships with third parties, including channel partners and logistics providers;

economic and industry trends or trend analysis;

the effects of seasonal trends on our results of operations;

future acquisitions of or investments in complementary companies, products, subscriptions or technologies; and

the sufficiency of our existing cash and investments to meet our cash needs for at least the next 12 months

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

 

 

 

i


PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

MOBILEIRON, INC.

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

$

155,313

 

 

$

73,573

 

Accounts receivable, net of allowance for doubtful accounts of $492 at

   June 30, 2014 and $492 at December 31, 2013

 

28,312

 

 

 

24,125

 

Prepaid expenses and other current assets

 

4,411

 

 

 

3,712

 

Total current assets

 

188,036

 

 

 

101,410

 

Property and equipment—net

 

3,405

 

 

 

3,095

 

Intangible assets—net

 

2,257

 

 

 

1,311

 

Goodwill

 

5,475

 

 

 

4,799

 

Other assets

 

761

 

 

 

644

 

TOTAL ASSETS

$

199,934

 

 

$

111,259

 

 

 

 

 

 

 

 

 

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,020

 

 

$

836

 

Accrued expenses

 

15,071

 

 

 

14,798

 

Short-term borrowings

 

 

 

 

4,300

 

Deferred revenue-current

 

36,628

 

 

 

32,422

 

TOTAL CURRENT LIABILITIES

 

54,719

 

 

 

52,356

 

Long-term liabilities:

 

 

 

 

 

 

 

Deferred revenue-noncurrent

 

9,682

 

 

 

8,329

 

Other long-term liabilities

 

203

 

 

 

140

 

TOTAL LIABILITIES

 

64,604

 

 

 

60,825

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

Convertible preferred stock:

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value, 10,000,000 shares authorized,

   no shares issued or outstanding at June 30, 2014; 69,505,831 shares authorized and

   49,446,072 shares issued and outstanding at December 31, 2013

 

 

 

 

160,259

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 and 111,390,000 shares

   authorized, 75,770,406 shares and 11,008,283 shares issued and

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

 

8

 

 

 

2

 

Additional paid-in capital

 

295,229

 

 

 

19,007

 

Accumulated deficit

 

(159,907

)

 

 

(128,834

)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

 

135,330

 

 

 

(109,825

)

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)

$

199,934

 

 

$

111,259

 

  

See accompanying notes.

 

 

 

1


MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

$

15,933

 

 

$

17,243

 

 

$

30,608

 

 

$

36,437

 

Subscription

 

7,104

 

 

 

3,236

 

 

 

13,070

 

 

 

5,973

 

Software support and services

 

8,430

 

 

 

4,676

 

 

 

16,002

 

 

 

8,566

 

Total revenue

 

31,467

 

 

 

25,155

 

 

 

59,680

 

 

 

50,976

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

1,013

 

 

 

816

 

 

 

2,124

 

 

 

1,581

 

Subscription

 

1,466

 

 

 

884

 

 

 

2,706

 

 

 

1,745

 

Software support and services

 

3,429

 

 

 

2,187

 

 

 

6,315

 

 

 

4,276

 

Total cost of revenue

 

5,908

 

 

 

3,887

 

 

 

11,145

 

 

 

7,602

 

Gross profit

 

25,559

 

 

 

21,268

 

 

 

48,535

 

 

 

43,374

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

11,919

 

 

 

8,565

 

 

 

22,218

 

 

 

17,415

 

Sales and marketing

 

25,063

 

 

 

15,442

 

 

 

46,827

 

 

 

29,202

 

General and administrative

 

5,117

 

 

 

3,287

 

 

 

9,725

 

 

 

5,737

 

Amortization of intangible assets

 

365

 

 

 

52

 

 

 

417

 

 

 

104

 

Total operating expenses

 

42,464

 

 

 

27,346

 

 

 

79,187

 

 

 

52,458

 

Operating loss

 

(16,905

)

 

 

(6,078

)

 

 

(30,652

)

 

 

(9,084

)

Other expense - net

 

95

 

 

 

83

 

 

 

192

 

 

 

168

 

Loss before income taxes

 

(17,000

)

 

 

(6,161

)

 

 

(30,844

)

 

 

(9,252

)

Income tax expense

 

111

 

 

 

39

 

 

 

229

 

 

 

90

 

Net loss

$

(17,111

)

 

$

(6,200

)

 

$

(31,073

)

 

$

(9,342

)

Net loss per share, basic and diluted

$

(0.66

)

 

$

(0.64

)

 

$

(1.67

)

 

$

(0.99

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

26,028

 

 

 

9,692

 

 

 

18,590

 

 

 

9,444

 

 

See accompanying notes.

 

 

 

 

2


MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Stockholders'

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

BALANCE—December 31, 2013

 

49,446,072

 

 

$

160,259

 

 

 

11,008,283

 

 

$

2

 

 

$

19,007

 

 

$

(128,834

)

 

$

(109,825

)

Issuance of common stock for stock option

   exercises

 

 

 

 

 

 

 

864,256

 

 

 

 

 

 

1,952

 

 

 

 

 

 

1,952

 

Vesting of early exercised stock options

   and restricted stock

 

 

 

 

 

 

 

1,196,652

 

 

 

 

 

 

304

 

 

 

 

 

 

304

 

Issuance of Series F preferred stock at

   $9.9550 per share in January—net of

   issuance costs of $6

 

200,903

 

 

 

1,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,932

 

 

 

 

 

 

6,932

 

Conversion of preferred stock for initial

   public offering

 

(49,646,975

)

 

 

(162,253

)

 

 

49,646,975

 

 

 

5

 

 

 

162,248

 

 

 

 

 

 

162,253

 

Issuance of common stock for initial

public offering, net of issuance costs of $4,145

 

 

 

 

 

 

 

12,777,777

 

 

 

1

 

 

 

102,804

 

 

 

 

 

 

102,805

 

Purchase of Averail Corporation

 

 

 

 

 

 

 

276,463

 

 

 

 

 

 

1,982

 

 

 

 

 

 

1,982

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,073

)

 

 

(31,073

)

BALANCE—June 30, 2014

 

 

 

$

 

 

 

75,770,406

 

 

$

8

 

 

$

295,229

 

 

$

(159,907

)

 

$

135,330

 

See accompanying notes.

 

 

 

 

3


MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2014

 

 

2013

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(31,073

)

 

$

(9,342

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Stock-based compensation expense

 

6,932

 

 

 

4,449

 

Depreciation

 

1,085

 

 

 

698

 

Amortization of intangible assets

 

655

 

 

 

243

 

Loss on disposal of equipment

 

21

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(4,187

)

 

 

2,363

 

Other current and noncurrent assets

 

(817

)

 

 

(1,370

)

Accounts payable

 

1,167

 

 

 

1,089

 

Accrued expenses and other long-term liabilities

 

562

 

 

 

738

 

Deferred revenue

 

5,559

 

 

 

(8,145

)

Net cash used in operating activities

 

(20,096

)

 

 

(9,277

)

CASH FLOWS FROM INVESTING ACTIVITES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

(1,415

)

 

 

(963

)

Purchase of intellectual property

 

 

 

 

(30

)

Net cash used in investing activities

 

(1,415

)

 

 

(993

)

CASH FLOWS FROM FINANCING ACTIVITES:

 

 

 

 

 

 

 

Amount drawn from revolving line of credit

 

3,300

 

 

 

 

Repayments of revolving line of credit

 

(7,600

)

 

 

 

Proceeds from the issuance of convertible preferred stock-net of cash issuance

costs of $6 in the six months ended June 30, 2014

 

1,994

 

 

 

 

Proceeds from initial public offering

 

106,950

 

 

 

 

Payment of offering costs related to initial public offering

 

(3,440

)

 

 

 

Proceeds from exercise of stock options

 

2,047

 

 

 

174

 

Net cash provided by financing activities

 

103,251

 

 

 

174

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

81,740

 

 

 

(10,096

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

73,573

 

 

 

38,692

 

CASH AND CASH EQUIVALENTS—End of period

$

155,313

 

 

$

28,596

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid for income taxes

 

99

 

 

 

65

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES TO ACQUIRE AVERAIL IN 2014:

 

 

 

 

 

 

 

Fair value of assets acquired

 

2,276

 

 

 

 

Liabilities assumed

 

(294

)

 

 

 

Issuance of common stock

 

(1,982

)

 

 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Offering costs recorded in accrued liabilities

 

705

 

 

 

 

See accompanying notes.

 

 

 

4


MOBILEIRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Description of Business and Significant Accounting Policies

Description of Business

MobileIron, Inc., and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us” or “our”), provides a purpose-built mobile IT platform that enables enterprises to manage and secure mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. We were incorporated in Delaware in July 2007 and are headquartered in Mountain View, California, with additional sales and support presence in North America, Europe, the Middle East, Asia and Australia.

Initial Public Offering

In June 2014, we completed our initial public offering (“IPO”) in which we issued and sold 12,777,777 shares of common stock, including 1,666,666 million shares of common stock sold pursuant to the full exercise of the underwriters’ over-allotment option, at a price of $9.00 per share. We received aggregate proceeds of $107.0 million from the sale of shares of common stock, net of underwriters’ discounts and commissions, but before deducting offering expenses of approximately $4.1 million. Upon the closing of the initial public offering, all shares of our outstanding convertible preferred stock automatically were converted into 49,646,975 shares of common stock.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements as of June 30, 2014 and for the three and six months ended June 30, 2014 and June 30, 2013 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and include the accounts of our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures in this Form 10-Q normally included in annual financial statements prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of our balance sheet as of June 30, 2014, our operating results for the three and six months ended June 30, 2014 and June 30, 2013, and our cash flows for the six months ended June 30, 2014 and June 30, 2013. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014. The condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements as of that date but does not include all the footnotes required by U.S. GAAP for complete financial statements.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with our audited financial statements and related notes thereto for the year ended December 31, 2013, included in our prospectus filed with the SEC on June 12, 2014 pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”).

On May 27, 2014, we amended and restated our amended and restated certificate of incorporation to effect a seven-for-five reverse stock split of our common stock and convertible preferred stock. On the effective date of the reverse stock split, (i) each seven shares of outstanding convertible preferred stock and common stock was reduced to five shares of convertible preferred stock and common stock, respectively; (ii) the number of shares of common stock issuable under each outstanding option to purchase common stock was proportionately reduced on a seven-to-five basis; (iii) the exercise price of each outstanding option to purchase common stock was proportionately increased on a seven-to-five basis; and (iv) corresponding adjustments in the per share conversion prices, dividend rates and liquidation preferences of the convertible preferred stock were made. All of the share and per share information referenced throughout these condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.

Segments

We have one reportable segment.

5


Summary of Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared to those described in our Prospectus filed with the SEC on June 12, 2014 pursuant to Rule 424(b) under the Securities Act.

Foreign Currency Translation

Our reporting currency is the U.S. dollar. The functional currency of all our international operations is the U.S. dollar. All monetary asset and liability accounts are translated into U.S. dollars at the period-end rate, nonmonetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at the weighted-average exchange rates in effect during the period. Translation adjustments arising are recorded as foreign currency gains (losses) in the consolidated statements of operations. We recognized a foreign currency loss of approximately $93,000 and $86,000 for the three months ended June 30, 2014 and 2013, respectively, and approximately $169,000 and $172,000 for the six months ended June 30, 2014 and 2013, respectively, in other expense—net in our condensed consolidated statements of operations.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, stock-based compensation, goodwill, intangible assets and accounting for income taxes. Actual results could differ from those estimates.

Revenue Recognition

We derive revenue principally from software-related arrangements consisting of perpetual software licenses, post-contract customer support for such licenses (“PCS” or “software support”) including when and if available updates, and professional services such as consulting and training services. We also offer our software as term-based licenses and cloud-based arrangements. In addition, we install our software on servers that we ship to customers.

We begin to recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) the sales price is fixed and determinable, and (iv) collection of the related receivable is probable. If collection is not considered probable, revenue is recognized only upon collection.

Signed agreements, including by electronic acceptance, are used as evidence of an arrangement. Delivery is considered to occur when we provide the customer a license key to download the software. Delivery of a hardware appliance (an “appliance”) is considered to occur when title and risk of loss has transferred to the customer, which typically occurs when appliances are delivered to a common carrier. Delivery of services occurs when performed.

Prior to January 1, 2013, we had not established vendor specific objective evidence (“VSOE”) of fair value for any of the elements in our multiple-element arrangements. As of January 1, 2013, we determined that we had sufficient history to establish VSOE of fair value for PCS and professional services. Prior to January 1, 2013, we did not have VSOE of fair value for our software-related undelivered elements due to limited history of stand-alone sales transactions and inconsistency in pricing. We established VSOE of fair value when we had a substantial majority of stand-alone sales transactions of software support and services pricing within a narrow pricing band. In our VSOE analysis, we generally include stand-alone sales transactions completed during a rolling 12 month period unless a shorter period is appropriate due to changes in our pricing structure.

We typically enter into multiple-element arrangements with our customers in which a customer may purchase a combination of software on a perpetual or subscription license, PCS, and professional services. The professional services are not considered essential to the functionality of the software. All of these elements are considered separate units of accounting. Our standard agreements do not include rights for customers to cancel or terminate arrangements or to return software to obtain refunds.

We use the residual method to recognize revenue when a perpetual license arrangement includes one or more elements to be delivered at a future date provided the following criteria are met: (i) VSOE of fair value does not exist for one or more of the delivered items but exists for all undelivered elements, (ii) all other applicable revenue recognition criteria are met and (iii) the fair value of all of the undelivered elements is less than the arrangement fee. VSOE of fair value is based on the normal pricing practices for those products and services when sold separately by us and contractual customer renewal rates for post-contract customer support services. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue and if evidence of the fair value of one or more undelivered elements does not exist, the revenue is deferred and recognized when delivery of those elements occurs, when fair value can be established, or ratably over the PCS period if the only undelivered element is PCS—we refer to these deferred revenue elements as the “Deferred Portion.”

6


Revenue from subscriptions to our on-premise term licenses, arrangements where perpetual and subscriptions to our on-premise term licenses are sold together, and subscriptions to our cloud service are recognized ratably over the contractual term for all periods presented and are included as a component of subscription revenue within our consolidated statement of operations. We refer to arrangements where perpetual and subscriptions to our on-premise term licenses are sold together as “Bundled Arrangements.”

Occasionally, we enter into multiple-element arrangements with our customers in which a customer may purchase a combination of software on a perpetual or term basis, PCS, professional services, and appliances. We generally provide the appliances and software upon the commencement of the arrangement and provide software-related elements throughout the support period. We account for appliance-bundled arrangements under the revised accounting standard related to multiple-element arrangements, Accounting Standard Update (“ASU”) No. 2009-13, Multiple Element Arrangements, and determine the revenue to be recognized based on the standard’s fair value hierarchy and then determine the value of each element in the arrangement based on the relative selling price of the arrangement. Amounts related to appliances are generally recognized upon delivery with the remaining consideration allocated to software and software-related elements, which are recognized as described elsewhere in this policy.

Revenue from PCS is recognized ratably over the support term and is included as a component of software support and service revenue within the consolidated statement of operations.

Revenue related to professional services is recognized upon delivery and is included as a component of software support and services revenue within the consolidated statement of operations.

Prior to establishing VSOE of fair value for PCS and professional services on January 1, 2013, we recognized revenue for multiple element software and software-related arrangements ratably from the date of service commencement over the contractual term of the related PCS arrangement. After January 1, 2013, the deferred revenue related to these arrangements continues to be recognized ratably over the remaining contractual term of the PCS arrangement. Approximately $1.4 million and $5.9 million of perpetual license revenue in three months ended June 30, 2014 and 2013, respectively, and approximately $2.9 million and $13.4 million of perpetual license revenue in the six months ended June 30, 2014 and 2013, respectively, related to sales made prior to January 1, 2013. Approximately $4.4 million and $7.3 million deferred revenue as of June 30, 2014 and December 31, 2013, related to sales made prior to January 1, 2013.

We allocated the revenue from all multiple-element arrangements entered into prior to the establishment of VSOE of fair value for its PCS and professional services to each respective revenue caption using its best estimate of value of each element based on the facts and circumstances of the arrangements, our go-to-market strategy, price list and discounts from price list as applicable. We believe that the allocation between the revenue captions allows for greater transparency and comparability of revenue from period to period even though VSOE of fair value may not have existed at that time.

Appliance revenue was less than 10% of total revenue for all periods presented and is included as a component of perpetual license revenue within the consolidated statement of operations.

Sales made through resellers are recognized as revenue upon sell-through to end customers.

Shipping charges and sales tax billed to partners are excluded from revenue.

Sales commissions and other incremental costs to acquire contracts are also expensed as incurred and are recorded in sales and marketing expense.

For all arrangements, any revenue that has been deferred and is expected to be recognized beyond one year is classified as long-term deferred revenue in the consolidated balance sheets.

Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of June 30, 2014 and December 31, 2013 cash and cash equivalents consist of cash deposited with banks and money market funds for which their cost approximates their fair value.

Comprehensive Loss

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. For the three and six months ended June 30, 2014 and 2013, there were no differences between net loss and comprehensive loss.

7


Net Loss per Share of Common Stock

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, convertible preferred stock, unvested restricted stock, and stock options are considered to be potentially dilutive securities. Because we have reported a net loss for the three and six months ended June 30, 2014 and 2013, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

Concentrations of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash and money market funds. Substantially all of our cash is held by one financial institution that management believes is of high-credit quality. Such deposits exceed federally insured limits. Substantially all of our money market funds are held in a single fund that is rated “AAA.”

We generally do not require collateral or other security in support of accounts receivable. Allowances are provided for individual accounts receivable when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration in the customer’s operating results, or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We also consider broader factors in evaluating the sufficiency of our allowances for doubtful accounts, including the length of time receivables are past due, significant one-time events and historical experience. As of June 30, 2014 and December 31, 2013 we have an allowance for doubtful accounts of $492,000.

One reseller accounted for 26% of total revenue (2% as an end customer) and 18% of total revenue (0% as an end customer) for the three months ended June 30, 2014 and 2013, respectively, and for 25% of total revenue (1% as an end customer) and 18% of total revenue (0% as an end customer) for the six months ended June 30, 2014 and 2013, respectively. The same reseller accounted for 26% and 11% of net accounts receivable as of June 30, 2014 and December 31, 2013, respectively.

A separate reseller accounted for 13% of our net accounts receivable as of December 31, 2013.

There were no other resellers or end-user customers that accounted for 10% or more as a percentage of our revenue or net accounts receivable for any period presented.

Inventory

We have appliances (industry standard hardware servers available from multiple vendors) that are available for customers to purchase, on which we will preinstall our software prior to shipment. Inventory is stated at the lower of cost or net realizable value. We value our inventory using the first-in, first-out method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value—such adjustments were not material for any period presented. The entire inventory is comprised of finished goods. As of June 30, 2014 and as of December 31, 2013, we had inventory of $657,000 and $665,000, respectively, which is included in prepaid expenses and other current assets in the consolidated balance sheets.

Software Development Costs

The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.

Internal Use Software

We capitalize costs incurred during the application development stage related to our SaaS offering to the extent it will not be sold, leased, or otherwise marketed as a separate product. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. We did not capitalize any costs during the three and six months ended June 30, 2014 and 2013, as all software developed for our cloud offering will be sold as part of our perpetual or term licenses.

8


Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives, determined to be three years for computers and equipment and software, five years for furniture and fixtures, and the lesser of the remaining lease term or estimated useful life for leasehold improvements. Expenditures for repairs and software support are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected as operating expenses in the consolidated statements of operations.

Goodwill and Intangible Assets

We record the excess of the acquisition purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We have a single reporting unit and consequently evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole. We record purchased intangible assets at their respective estimated fair values at the date of acquisition. Purchased intangible assets are being amortized using the straight-line method over their remaining estimated useful lives, which range from three to five years. We evaluate the remaining useful lives of intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining estimated amortization period. We observed no impairment indicators during the three and six months ended June 30, 2014 and 2013.

We also review our indefinite lived intangible assets for impairment. We have determined that our intangible assets have not been impaired during the three and six months ended June 30, 2014 or the corresponding periods in 2013.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. We evaluate the recoverability of each of our long-lived assets, including purchased intangible assets and property and equipment, by comparison of its carrying amount to the future undiscounted cash flows we expect the asset to generate. If we consider the asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

Stock-Based Compensation

We use the estimated grant-date fair value method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 718 Compensation—Stock Compensation. Fair value is determined using the Black-Scholes Model using various inputs, including our estimates of expected volatility, term and future dividends. We estimated the forfeiture rate for the three and six months ended June 30, 2014 and the corresponding periods in 2013 based on its historical experience for annual grant years where the majority of the vesting terms have been satisfied. We recognize compensation costs for awards with a service and performance condition based on the graded vesting method. We recognize compensation costs, net of forfeitures, for stock options or other awards with only service conditions on a straight-line basis over the requisite service period of the award, which is generally the vesting term.

Research and Development

Research and development, or R&D, costs are charged to expense as incurred.

Advertising

Advertising costs are expensed and included in sales and marketing expense when incurred. Advertising expense for the three months ended June 30, 2014 and 2013 was $59,000 and $138,000, respectively. Advertising expense for the six months ended June 30, 2014 and 2013 was $206,000 and $221,000, respectively.

Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being

9


realized upon ultimate settlement with a taxing authority. The standard also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

In May 2014, the FASB, jointly with the International Accounting Standards Board, issued a comprehensive new standard on revenue recognition from contracts with customers. The standard’s core principle is that a reporting entity will recognize revenue when it transfers 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. In applying this new guidance to contracts within its scope, an entity will: (1) identify the contract(s) with a customer, (2) identify the performance obligation in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, this new guidance would require significantly expanded disclosures about revenue recognition. Provisions of this new standard are effective for annual reporting periods (including interim reporting periods within those annual periods) beginning after December 15, 2016. Early application is not permitted. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. We are currently evaluating the potential effect on our consolidated financial statements from adoption of this standard.

 

2. Fair value measurement

We report all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis in accordance with ASC 820 (formerly FASB Statement No. 157, Fair Value Measurements). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

Our financial assets that are carried at fair value include cash and money market funds. We had no financial liabilities, or nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at fair value as of June 30, 2014 or December 31, 2013.

Our financial instruments measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 were as follows (in thousands):

 

 

As of June 30, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

Money market funds

$

137,401

 

 

$

 

 

$

 

 

$

137,401

 

Total

$

137,401

 

 

$

 

 

$

 

 

$

137,401

 

  

10


 

As of December 31, 2013

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

$

52,901

 

 

$

 

 

$

 

 

$

52,901

 

Total

$

52,901

 

 

$

 

 

$

 

 

$

52,901

 

 

As of June 30, 2014 and December 31, 2013, all money market funds had an original maturity of less than three months and were included in cash and cash equivalents in the condensed consolidated balance sheets.

 

3. Acquisition

On April 2014, we completed the acquisition of certain assets of Averail Corporation (“Averail”), a privately-held content security-oriented software company, for 276,466 shares of common stock and the assumption of certain liabilities. The assets acquired will provide additional features in our Docs@Work product. We obtained control of the specific assets acquired and liabilities assumed of Averail through the issuance of 276,466 shares of our common stock to the pre-existing Averail shareholders. Included in the total, 43,612 shares are subject to a holdback provision for standard representations and warranties and will be held in escrow for 18 month from the date of acquisition. The aggregate purchase price of the transaction was approximately $2.0 million, net of liabilities assumed. In connection with this acquisition, 206,463 of these shares were distributed to two Averail investors that are also MobileIron investors. In addition, one of our board members served as a director of Averail. The aggregate value of the securities issued to our investors was approximately $1.5 million.

The total consideration for this transaction was approximately $2.0 million and consisted of the following (in thousands except share data):

 

Common stock issued (232,854 shares)

 

$

1,670

 

Holdback common stock (43,612 shares)

 

 

312

 

Total consideration

 

$

1,982

 

 

 

 

Transaction costs associated with the acquisition were $167,000, all of which we expensed in the six months ended June 30, 2014, and are included in general and administrative expense in the accompanying consolidated statement of operations.

We accounted for the Averail acquisition as a business combination. The assets acquired and liabilities assumed were recorded at fair market value. The excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill generated from the business combination was primarily related to value placed on the employee workforce and expected synergies.

The purchase price was allocated as follows (in thousands):

 

Technology – intangible asset

 

$

1,600

 

Goodwill

 

 

676

 

Liabilities assumed

 

 

(294

)

Net assets acquired

 

$

1,982

 

 

 

The technology intangible asset is being amortized over a period of four years and is reported, net of accumulated amortization, in the accompanying condensed consolidated balance sheet as of June 30, 2014. Amortization expense related to the intangible asset was $100,000 for the three months ended June 30, 2014, all of which was included in cost of revenue.

 

The amount of revenue and earnings of Averail since the acquisition date are included in the condensed consolidated statement of operations and pro forma results of operations for the acquisition have not been presented because the effect of the acquisition was not significant to our financial results.

 

11


 

4. Goodwill and intangibles

Our intangible assets are subject to amortization on a straight-line basis over their estimated useful lives as follows:

 

 

Estimated Life

 

Weighted Average Remaining Life as of June 30, 2014

 

 

(In Years)

 

Noncompete covenants

2

 

 

0.2

 

Technology

3-5

 

 

1.3

 

 

In conjunction with the termination of the employees subject to the noncompete agreements, we reduced the remaining life of the noncompete covenants intangible asset.

The following table reflects intangible assets subject to amortization as of June 30, 2014 and as of December 31, 2013 (in thousands):

 

 

June 30, 2014

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

 

 

 

 

Net Book

 

 

Amount

 

 

Amortization

 

 

Impairment

 

 

Value

 

In-process research and development

$

3,925

 

 

$

 

 

$

(3,925

)

 

$

 

Noncompete covenants

 

1,042

 

 

 

(677

)

 

 

 

 

 

365

 

Technology

 

2,429

 

 

 

(537

)

 

 

 

 

 

1,892

 

Total

$

7,396

 

 

$

(1,214

)

 

$

(3,925

)

 

$

2,257

 

 

 

December 31, 2013

 

 

Gross Carrying

 

 

Accumulated

 

 

 

 

 

 

Net Book

 

 

Amount

 

 

Amortization

 

 

Impairment

 

 

Value

 

In-process research and development

$

3,925

 

 

$

 

 

$

(3,925

)

 

$

 

Noncompete covenants

 

1,042

 

 

 

(260

)

 

 

 

 

 

782

 

Technology

 

829

 

 

 

(300

)

 

 

 

 

 

529

 

Total

$

5,796

 

 

$

(560

)

 

$

(3,925

)

 

$

1,311

 

 

Amortization of the technology intangible assets was recorded in cost of revenue.

During three months ended September 30, 2013 we recorded an impairment loss of $3.9 million against the entire recorded in-process R&D balance associated with the Push acquisition.

Estimated remaining intangible assets amortization expense for the next five fiscal years and thereafter is as follows (in thousands):

  

Year

 

 

 

 

2014 (remaining)

 

$

703

 

2015

 

 

654

 

2016

 

 

400

 

2017

 

 

400

 

2018

 

 

100

 

Total

 

$

2,257

 

 

 

12


At June 30, 2014 and December 31, 2013, the carrying value of goodwill was as follows (in thousands):

 

Balance , December 31, 2013

$

4,799

 

Additions

 

676

 

Balance, June 30, 2014

$

5,475

 

 

 

5. Significant balance sheet components

Property and Equipment—Property and equipment at June 30, 2014 and December 31, 2013 consisted of the following (in thousands):

 

 

June 30, 2014

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Computers and appliances

$

5,199

 

 

$

4,265

 

Purchased software

 

1,235

 

 

 

856

 

Furniture and fixtures

 

177

 

 

 

176

 

Leasehold improvements

 

696

 

 

 

689

 

Total property and equipment

 

7,307

 

 

 

5,986

 

Accumulated depreciation and amortization

 

(3,902

)

 

 

(2,891

)

Total property and equipment—net

$

3,405

 

 

$

3,095

 

 

Accrued Expenses—Accrued expenses at June 30, 2014 and December 31, 2013 consisted of the following (in thousands):

 

 

June 30, 2014

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Accrued commissions

$

5,094

 

 

$

6,703

 

Accrued payroll and related expenses

 

3,579

 

 

 

3,852

 

Accrued vacation

 

3,312

 

 

 

2,088

 

Liability for early exercised stock options (Note 9)

 

727

 

 

 

938

 

Other accrued liabilities

 

2,359

 

 

 

1,217

 

Total accrued expenses

$

15,071

 

 

$

14,798

 

 

 


13


Deferred Revenue—Current and non-current deferred revenue at June 30, 2014 and December 31, 2013 consisted of the following (in thousands):

 

 

June 30, 2014

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Perpetual license

$

6,230

 

 

$

8,589

 

Subscription

 

14,682

 

 

 

10,600

 

Software support

 

23,544

 

 

 

19,868

 

Professional services

 

1,854

 

 

 

1,694

 

Total current and noncurrent deferred revenue

$

46,310

 

 

$

40,751

 

 

Included in deferred perpetual license revenue was $4.4 million and $7.3 million at June 30, 2014 and at December 31, 2013, respectively, of revenue deferred for multiple element software license arrangements billed prior to January 1, 2013 for which we did not recognize revenue immediately due to lack of VSOE of fair value for software support and services. See Note 1 to these condensed consolidated financial statements.

 

6. Line of credit

In August 2012, we entered into a $10.0 million revolving line of credit with a financial institution. The revolving line of credit can be used to (a) borrow for working capital and general business requirements, (b) issue letters of credit, and (c) enter into foreign exchange contracts. Revolving loans may be borrowed, repaid and re-borrowed until August 2014. Amounts borrowed accrue interest at a floating-per-annum rate equal to the greater of (1) the prime rate plus 1% or (2) 4.25%. A default interest rate shall apply during an event of default at a rate per annum equal to 5% above the otherwise applicable interest rate. The line of credit is collateralized by substantially all of our assets, except intellectual property, and requires us to comply with working capital, net worth and other nonfinancial covenants, including limitations on indebtedness and restrictions on dividend distributions, among others, and the borrowing capacity is limited to eligible accounts receivable.

In December 2013, we amended the revolving line of credit with the same financial institution to increase the potential borrowing capacity to $20.0 million and extend the maturity date to August 2015. All other material terms and conditions remained the same with the exception of the added requirement that we maintain an adjusted quick ratio (defined as the ratio of current assets to current liabilities minus deferred revenue) of at least 1.15.

There were no outstanding amounts under the line of credit at June 30, 2014 and $4.3 million outstanding at December 31, 2013. As of June 30, 2014 and December 31, 2013, we were in compliance with all financial covenants.

 

7. Preferred Stock

 

Upon completion of our IPO in June 2014, all shares of our issued and outstanding convertible preferred stock were automatically converted into 49,646,975 shares of common stock.

We amended and restated our certificate of incorporation in June 2014 to authorize the future issuance of up to 10,000,000 shares of convertible preferred stock. No shares of convertible preferred stock were issued and outstanding as of June 30, 2014.

Immediately prior to the IPO, we were authorized to issue up to 18,604,666 shares of Series A preferred stock (“Series A”), 16,225,758 shares of Series B preferred stock (“Series B”), 13,281,250 shares of Series C preferred stock (“Series C”), 6,550,505 shares of Series D preferred stock (“Series D”), 6,429,159 shares of Series E preferred stock (“Series E”), and 8,414,493 shares of Series F preferred stock (“Series F”).

In January 2014, we issued 200,903 shares of Series F for net cash proceeds of $2.0 million. We did not issue any preferred stock in the three months ended June 30, 2014.

14


The following table summarizes information regarding our convertible preferred stock by class immediately prior to the IPO:

 

 

Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Authorized

 

 

Outstanding

 

 

Per share

liquidation

preference

 

 

Aggregate

liquidation

preference

 

 

Carrying

value

 

Series A

 

18,604,666

 

 

 

13,289,037

 

 

$

0.70

 

 

$

9,302

 

 

$

9,222

 

Series B

 

16,225,758

 

 

 

11,589,825

 

 

 

0.95

 

 

 

10,977

 

 

 

10,929

 

Series C

 

13,281,250

 

 

 

9,486,602

 

 

 

1.79

 

 

 

17,000

 

 

 

16,860

 

Series D

 

6,550,505

 

 

 

4,678,927

 

 

 

4.27

 

 

 

20,000

 

 

 

19,945

 

Series E

 

6,429,159

 

 

 

4,592,244

 

 

 

9.96

 

 

 

45,716

 

 

 

45,596

 

Series F

 

8,414,493

 

 

 

6,010,340

 

 

 

9.96

 

 

 

59,833

 

 

 

59,701

 

Total

 

69,505,831

 

 

 

49,646,975

 

 

 

 

 

 

$

162,828

 

 

$

162,253

 

 

 

8. Common Stock

We were authorized to issue 300,000,000 and 111,390,000 shares of common stock with a par value of $0.0001 per share as of June 30, 2014 and December 31, 2013, respectively. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends out of funds legally available therefore, when and if declared by the board of directors, subject to the approval and priority rights of holders of all classes of preferred stock outstanding.

As of June 30, 2014 and December 31, 2013, we reserved shares of common stock for issuance as follows:

 

 

As of

June 30,

2014

 

 

As of

December 31,

2013

 

Conversion of preferred stock

 

 

 

 

49,446,072

 

Options outstanding

 

16,289,915

 

 

 

13,330,882

 

Unvested restricted stock outstanding

 

153,916

 

 

 

1,918,620

 

Options available for future grant under stock option plan

 

8,165,979

 

 

 

2,085,338

 

Available for grant under employee stock purchase plan

 

2,071,428

 

 

 

 

Total

 

26,681,238

 

 

 

66,780,912

 

 

 

9. Share Based Awards

We have authorized the issuance of stock options and restricted stock for officers, employees and consultants of the Company.

2008 Plan

In 2008, our board of directors approved the adoption of the 2008 Plan (the “2008 Plan”). As of December 31, 2013, a total of 2,085,338 shares were available for issuance under the 2008 Plan.

The 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory stock options to employees, nonemployee directors, and consultants of the Company. Options granted under the 2008 Plan generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant. When options are subject to the Company’s repurchase right, we may buy back any unvested shares at their original exercise price in the event of an employee’s termination prior to full vesting.

Our 2008 Plan was terminated following the date our 2014 Equity incentive Plan (“2014 Plan”) became effective. Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable award agreements.

15


2014 Equity Incentive Plan

Our board of directors adopted our 2014 Plan on April 17, 2014, and our stockholders subsequently approved the 2014 Plan on May 27, 2014. The 2014 Plan became effective on the date that our registration statement was declared effective by the SEC. The 2014 Plan is the successor to and continuation of our 2008 Plan. Upon the effective date of the 2014 Plan, no further grants can be made under our 2008 Plan.

Our 2014 Plan provides for the grant of incentive stock options (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code (the “Code”), to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.

The number of shares of our common stock that may be issued under our 2014 Plan is 8,142,857, which number of shares will be increased by any shares subject to stock options or other stock awards granted under the 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting), not to exceed 16,312,202. Additionally, the number of shares of our common stock reserved for issuance under our 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. The maximum number of shares that may be issued upon the exercise of ISOs under our 2014 Plan is 42,857,142.

Shares issued under our 2014 Plan will be authorized but unissued or reacquired shares of our common stock. Shares subject to stock awards granted under our 2014 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our 2014 Plan. Additionally, shares issued pursuant to stock awards under our 2014 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award, will become available for future grant under our 2014 Plan.

2014 Employee Stock Purchase Plan

Our board of directors adopted our 2014 Employee Stock Purchase Plan, (“ESPP”) on April 17, 2014, and our stockholders subsequently approved the ESPP on May 27, 2014. The ESPP became effective immediately upon the execution and delivery of the underwriting agreement related to our IPO. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code.

The aggregate number of shares of our common stock that may be issued under our ESPP is 2,071,428 shares. Additionally, the number of shares of our common stock reserved for issuance under our ESPP will increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 2,142,857 shares of common stock; or (iii) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP.

We recorded approximately $411,000 of stock-based compensation for the three months ended June 30, 2014 related to our ESPP plan. We did not record any stock-based compensation expense related to our ESPP plan in any prior period presented.


16


Stock-based compensation expense

Restricted Stock

Restricted stock activity for the six months ended June 30, 2014 was as follows:

 

 

Restricted Stock

 

 

Time-based

shares

 

 

Time-and-performance based

shares

 

 

Total

shares

 

Unvested, December 31, 2013

 

886,718

 

 

 

1,031,902

 

 

 

1,918,620

 

Granted

 

16,294

 

 

 

 

 

 

16,294

 

Vested

 

(457,828

)

 

 

(559,578

)

 

 

(1,017,406

)

Cancelled/Forfeited

 

(350,440

)

 

 

(413,152

)

 

 

(763,592

)

Unvested, June 30, 2014

 

94,744

 

 

 

59,172

 

 

 

153,916

 

 

For stock-based compensation expense, we measure the value of the restricted stock based on the fair value of our common stock on the date of grant.

For shares subject to service and performance conditions, we evaluate the probability of meeting the vesting conditions at the end of each reporting period to determine how much compensation expense to record. We amortize the fair value, net of estimated forfeitures, as stock-based compensation expense using the graded vesting method over the vesting periods of the awards. To the extent that actual results or updated estimates differ from our current estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period those estimates are revised. In May 2014, in conjunction with the termination of certain employees, we accelerated the vesting of and repurchased or cancelled shares of restricted stock. The stock-based compensation expense recorded in the six months ended June 30, 2014 includes the remaining compensation expense associated with those shares as well as expense of $451,000 associated with the modification of the awards. As of June 30, 2014, performance conditions associated with the remaining unvested time and performance awards have been met.

Stock Options

Stock option activity under the 2008 Plan and 2014 Plans for the six months ended June 30, 2014 was as follows:

 

 

 

 

 

 

Options Outstanding

 

 

Number of

Shares

Available for

Issuance

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value

(In thousands)

 

Balance—December 31, 2013

 

2,085,338

 

 

 

13,330,882

 

 

$

2.90

 

 

 

8.38

 

 

$

38,339

 

Authorized

 

9,904,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

(4,397,027

)

 

 

4,397,027

 

 

 

6.39

 

 

 

 

 

 

 

 

 

Exercised(1)

 

 

 

 

(907,028

)

 

 

2.36

 

 

 

 

 

 

 

 

 

Canceled

 

530,966

 

 

 

(530,966

)

 

 

3.94

 

 

 

 

 

 

 

 

 

Repurchased

 

41,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—June 30, 2014

 

8,165,979

 

 

 

16,289,915

 

 

$

3.84

 

 

 

8.38

 

 

$

92,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable—December 31, 2013

 

 

 

 

 

4,864,864

 

 

 

 

 

 

 

 

 

 

$

19,378

 

Vested and expected to vest(2)—

   December 31, 2013

 

 

 

 

 

12,244,397

 

 

 

 

 

 

 

 

 

 

$

35,615

 

Vested and exercisable—June 30, 2014

 

 

 

 

 

5,589,016

 

 

 

 

 

 

 

 

 

 

$

41,755

 

Vested and expected to vest(2)—June 30,

   2014

 

 

 

 

 

14,955,442

 

 

 

 

 

 

 

 

 

 

$

85,849

 

 

(1)

Includes early exercises of 42,772 for six months ended June 30, 2014.

(2)

Options expected to vest reflect an estimated forfeiture rate.

 

17


Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):

 

 

Three Months Ended,

 

 

Six Months Ended,

 

 

June 30,

 

 

June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Contra-revenue

$

98

 

 

$

13

 

 

$

123

 

 

$

36

 

Cost of revenue

 

328

 

 

 

70

 

 

 

429

 

 

 

151

 

Research and development

 

1,687

 

 

 

1,383

 

 

 

2,935

 

 

 

2,975

 

Sales and marketing

 

1,498

 

 

 

466

 

 

 

2,114

 

 

 

892

 

General and administrative

 

895

 

 

 

218

 

 

 

1,331

 

 

 

395

 

Total

$

4,506

 

 

$

2,150

 

 

$

6,932

 

 

$

4,449

 

 

During the three months ended June 30, 2014, we recorded $1.3 million in stock-based compensation expense related to employee stock options with vesting commencing on our IPO date. We accounted for these options using the graded vesting method.

 

We used Black-Scholes Model to estimate fair value of our stock options granted with the following weighted-average assumptions:

 

 

Three Months Ended,

 

Six Months Ended,

 

June 30,

 

June 30,

 

2014

 

2013

 

2014

 

2013

Expected dividend yield

 

 

 

Risk-free interest rate

1.8% - 2.6%

 

1.5% - 2.4%

 

1.7% - 2.7%

 

1.0% - 2.4%

Expected volatility

54% - 55%

 

52% - 53%

 

54% - 56%

 

52% - 53%

Expected life (in years)

5.8 - 10.0

 

5.9 - 10.0

 

5.6 - 10.0

 

5.9 - 10.0

 

        

We used Black-Sholes model to estimate fair value of our employee stock purchase plan awards with the following weighted-average assumptions:

 

 

Three Months Ended,

 

 

June 30,

 

 

2014

 

2013

 

Expected dividend yield