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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 September 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 November 3, 2014, the registrant had 79,943,811 shares of common stock outstanding.

 

 

 

 

 


COUPONS.COM INCORPORATED

INDEX

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

 

PART I FINANCIAL INFORMATION

 

Item 1 Financial Statements (unaudited):

  

3

 

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

  

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013

  

4

 

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

  

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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

  

19

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk

  

26

 

Item 4 Controls and Procedures

  

26

 

PART II OTHER INFORMATION

 

Item 1—Legal Proceedings

  

27

 

Item 1A—Risk Factors

  

27

 

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

  

45

 

Item 3—Defaults Upon Senior Securities

  

45

 

Item 4—Mine Safety Disclosures

  

46

 

Item 5—Other Information

  

46

 

Item 6—Exhibits

  

46

 

SIGNATURES

  

47

 

 

 

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)

 

 

September 30,

2014

 

 

December 31,

2013

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

193,197

 

 

$

38,972

 

Accounts receivable, net of allowance for doubtful accounts of $415 and $332

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

 

47,601

 

 

 

42,185

 

Prefunded coupons cash deposits

 

996

 

 

 

920

 

Prepaid expenses and other current assets

 

3,565

 

 

 

3,100

 

Total current assets

 

245,359

 

 

 

85,177

 

Property and equipment, net

 

25,101

 

 

 

29,942

 

Intangible assets, net

 

11,645

 

 

 

1,813

 

Goodwill

 

28,501

 

 

 

9,887

 

Deferred tax assets

 

843

 

 

 

195

 

Other assets

 

9,283

 

 

 

7,222

 

Total assets

$

320,732

 

 

$

134,236

 

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

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

5,894

 

 

$

5,589

 

Accrued compensation and benefits

 

12,691

 

 

 

13,721

 

Other current liabilities

 

15,341

 

 

 

13,699

 

Prefunded coupons cash obligations

 

996

 

 

 

920

 

Deferred revenues

 

7,090

 

 

 

6,751

 

Debt obligations

 

7,500

 

 

 

7,500

 

Debt obligations, related party

 

 

 

 

15,577

 

Total current liabilities

 

49,512

 

 

 

63,757

 

Other non-current liabilities

 

4,087

 

 

 

1,046

 

Deferred rent

 

880

 

 

 

1,222

 

Deferred tax liabilities

 

1,894

 

 

 

195

 

Total liabilities

 

56,373

 

 

 

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 September 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 September 30, 2014; no shares authorized, issued or outstanding at

   December 31, 2013

 

 

 

 

 

Common stock, $0.00001 par value—250,000,000 shares authorized and 84,521,239 shares

   issued and 79,676,333 outstanding at September 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

 

516,730

 

 

 

28,403

 

Treasury stock, at cost

 

(61,935

)

 

 

(61,935

)

Accumulated other comprehensive income (loss)

 

35

 

 

 

37

 

Accumulated deficit

 

(190,472

)

 

 

(168,751

)

Total stockholders’ equity (deficit)

 

264,359

 

 

 

(202,246

)

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

$

320,732

 

 

$

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

September 30,

 

 

Nine Months Ended

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenues

$

58,544

 

 

$

39,716

 

 

$

161,760

 

 

$

115,295

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

23,061

 

 

 

12,111

 

 

 

64,464

 

 

 

37,845

 

Sales and marketing

 

19,047

 

 

 

14,504

 

 

 

56,179

 

 

 

43,574

 

Research and development

 

11,351

 

 

 

9,519

 

 

 

38,599

 

 

 

30,123

 

General and administrative

 

7,400

 

 

 

5,014

 

 

 

25,307

 

 

 

15,912

 

Change in fair value of contingent consideration

 

(2,806

)

 

 

 

 

 

(2,806

)

 

 

 

Total costs and expenses

 

58,053

 

 

 

41,148

 

 

 

181,743

 

 

 

127,454

 

Income (loss) from operations

 

491

 

 

 

(1,432

)

 

 

(19,983

)

 

 

(12,159

)

Interest expense

 

(241

)

 

 

(211

)

 

 

(843

)

 

 

(646

)

Other income (expense), net

 

19

 

 

 

 

 

 

(88

)

 

 

34

 

Income (loss) before income taxes

 

269

 

 

 

(1,643

)

 

 

(20,914

)

 

 

(12,771

)

Provision for income taxes

 

1,051

 

 

 

 

 

 

807

 

 

 

 

Net loss

$

(782

)

 

$

(1,643

)

 

$

(21,721

)

 

$

(12,771

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders,

   basic and diluted

$

(0.01

)

 

$

(0.08

)

 

$

(0.34

)

 

$

(0.67

)

Weighted-average number of common shares used in

   computing net loss per share attributable to common

   stockholders, basic and diluted

 

78,065

 

 

 

20,323

 

 

 

63,542

 

 

 

19,196

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

4


COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net loss

$

(782

)

 

$

(1,643

)

 

$

(21,721

)

 

$

(12,771

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(47

)

 

 

83

 

 

 

(2

)

 

 

(34

)

Comprehensive loss

$

(829

)

 

$

(1,560

)

 

$

(21,723

)

 

$

(12,805

)

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

5


COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended

September 30,

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(21,721

)

 

$

(12,771

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

10,778

 

 

 

5,063

 

Stock-based compensation

 

27,727

 

 

 

3,554

 

Accretion of debt discount

 

173

 

 

 

171

 

Loss on disposal of property and equipment

 

9

 

 

 

1

 

Provision for doubtful accounts

 

138

 

 

 

94

 

Deferred income taxes

 

807

 

 

 

 

Change in fair value of contingent consideration

 

(2,806

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(5,390

)

 

 

(2,248

)

Prepaid expenses and other current assets

 

(4,653

)

 

 

(2,381

)

Accounts payable and other current liabilities

 

1,729

 

 

 

(2,262

)

Accrued compensation and benefits

 

(1,068

)

 

 

(1,982

)

Deferred revenues

 

358

 

 

 

40

 

Other

 

(742

)

 

 

449

 

Net cash provided by (used in) operating activities

 

5,339

 

 

 

(12,272

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(6,621

)

 

 

(12,442

)

Acquisitions, net of cash acquired

 

(11,641

)

 

 

 

Purchases of intangible assets

 

(37

)

 

 

(11

)

Net cash used in investing activities

 

(18,299

)

 

 

(12,453

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

4,083

 

 

 

1,666

 

Proceeds from initial public offering, net of offering costs

 

176,525

 

 

 

 

Exercise of warrant

 

1,610

 

 

 

498

 

Net borrowings under revolving line of credit

 

 

 

 

7,500

 

Repayment of debt obligations, related party

 

(15,000

)

 

 

 

Principal payments on capital lease obligations

 

(43

)

 

 

(28

)

Other

 

 

 

 

(58

)

Net cash provided by financing activities

 

167,175

 

 

 

9,578

 

Effect of exchange rates on cash and cash equivalents

 

10

 

 

 

1

 

Net increase (decrease) in cash and cash equivalents

 

154,225

 

 

 

(15,146

)

Cash and cash equivalents at beginning of period

 

38,972

 

 

 

58,395

 

Cash and cash equivalents at end of period

$

193,197

 

 

$

43,249

 

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 $23.1 million during the nine months ended September 30, 2014 associated with restricted stock units (“RSUs”). 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):

 

 

September 30, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

$

14,925

 

 

$

 

 

$

 

 

$

14,925

 

Total

$

14,925

 

 

$

 

 

$

 

 

$

14,925

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration (2)

$

 

 

$

 

 

$

3,983

 

 

$

3,983

 

Total

$

 

 

$

 

 

$

3,983

 

 

$

3,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Included in other non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

$

14,918

 

 

$

 

 

$

 

 

$

14,918

 

Total

$

14,918

 

 

$

 

 

$

 

 

$

14,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

The fair value of contingent consideration was estimated using a Monte Carlo simulation and was based on significant inputs not observable in the market, thus classified as a Level 3 instrument. The inputs include Company’s stock price, maximum earn-out shares, historical and projected financial results of Eckim, LLC. (“Eckim”), historical volatility of the Company's stock price and risk-free interest rate. See Note 6 (Acquisitions) for further discussion.

8


The following table represents the change in the contingent consideration (in thousands):

 

 

 

 

 

 

 

 

Level 3

 

Balance as of December 31, 2013

 

 

 

 

 

 

$

 

Acquisition date fair value measurement

 

 

 

 

 

 

 

6,789

 

Change in fair value

 

 

 

 

 

 

 

(2,806

)

Balance as of September 30, 2014

 

 

 

 

 

 

$

3,983

 

For the three and nine months ended September 30, 2014, the Company recorded a gain of $2,806,000 due to the change in fair value of the contingent consideration.  The change in fair value of this contingent consideration was primarily driven by changes in the Company's common stock price during the period.  Gains and losses as a result of the change in fair value of the contingent consideration are included as a component of operations in the accompanying condensed consolidated statements of operations.

 

4. Provision for Doubtful Accounts

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

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Balance at beginning of period

$

400

 

 

$

339

 

 

$

332

 

 

$

270

 

Bad debt expense

 

59

 

 

 

(6

)

 

 

138

 

 

 

94

 

Recoveries (write-offs), net

 

(44

)

 

 

(24

)

 

 

(55

)

 

 

(55

)

Balance at end of period

$

415

 

 

$

309

 

 

$

415

 

 

$

309

 

 

 

5. Balance Sheet Components

Property and Equipment, Net

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

 

 

September 30,

2014

 

 

December 31,

2013

Computer equipment

$

15,743

 

 

$

15,172

 

Software

 

30,437

 

 

 

5,294

 

Furniture and fixtures

 

1,653

 

 

 

1,611

 

Leasehold improvements

 

2,353

 

 

 

2,211

 

Total

 

50,186

 

 

 

24,288

 

Accumulated depreciation and amortization

 

(25,606

)

 

 

(17,491

)

Projects in process

 

521

 

 

 

23,145

 

Property and equipment, net

$

25,101

 

 

$

29,942

 

 

Depreciation and amortization expense of property and equipment was $3,379,000 and $9,585,000 for the three and nine months ended September 30, 2014, respectively, and $1,493,000 and $4,495,000 for the three and nine months ended September 30, 2013, respectively.

During the nine months ended September 30, 2014, the Company’s internally developed next generation integrated point of sale digital coupon delivery solution was ready for its intended use and, accordingly, $25,166,000 was reclassified from projects in process to software within property and equipment, net on the accompanying condensed consolidated balance sheets. The Company recognized $2,126,000 and $5,517,000 of amortization expense in cost of revenues related to the capitalized new software platform during the three and nine months ended September 30, 2014.

9


Accrued Compensation and Benefits

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

 

 

September 30,

2014

 

 

December 31,

2013

Bonus

$

5,181

 

 

$

5,949

 

Payroll and related expenses

 

2,346

 

 

 

1,131

 

Commissions

 

2,501

 

 

 

4,297

 

Vacation

 

2,663

 

 

 

2,344

 

Accrued compensation and benefits

$

12,691

 

 

$

13,721

 

 

Other Current Liabilities

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

 

 

September 30,

2014

 

 

December 31,

2013

Legal and professional fees

$

1,968

 

 

$

1,742

 

Marketing expenses

 

2,725

 

 

 

1,492

 

Distribution fees

 

6,959

 

 

 

5,628

 

Accrued property and equipment

 

5

 

 

 

1,252

 

Deferred rent

 

502

 

 

 

453

 

Other

 

3,182

 

 

 

3,132

 

Other current liabilities

$

15,341

 

 

$

13,699

 

 

6. Acquisitions  

Eckim, LLC.

 

On August 4, 2014, the Company entered into an asset purchase agreement with Eckim, a company specializing in search engine performance marketing. The total acquisition consideration of $19.3 million consisted of $12.5 million in cash and $6.8 million in contingent consideration.  The contingent consideration consists of shares of the Company’s common stock.  The contingently issuable shares are contingent on Eckim achieving certain revenue and profit milestones by December 31, 2015. The contingent consideration shares are issuable on or before April 30, 2016 and are also subject to earlier issuance under certain event. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation.

 

The acquisition of Eckim provides the Company with customer relationships and developed technologies that apply across our platform. 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 identifiable intangible assets acquired was recorded as goodwill, which is deductible for tax purposes, subject to final settlement of the contingent consideration. The goodwill is attributable to expected synergies from combined operations and the acquired company’s knowhow.  Acquisition related costs of $288,000 were expensed as general and administrative expense in the accompanying condensed consolidated statements of operations.

 

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

 

 

Amount

 

Intangible assets

$

8,636

 

Goodwill

 

10,653

 

Total assets acquired

$

19,289

 

 

10


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 Eckim acquisition (in thousands):

 

 

Amount

 

 

Estimated

Useful Life

(in Years)

 

Customer relationships

$

4,752

 

 

 

5

 

Developed technologies

 

2,233

 

 

 

5

 

Domain names

 

1,651

 

 

 

5

 

Total identifiable intangible assets

$

8,636

 

 

 

 

 

 

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.  Acquisition related costs of $376,000 were expensed as general and administrative expense in the accompanying condensed consolidated statements of operations.

 

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

 

 

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

 

 

 

 

 

 

The financial results of Eckim and Yub are included in the Company’s condensed consolidated statements of operations from their respective acquisition dates and were insignificant to the Company’s operating results. The pro forma impact of these acquisitions on consolidated revenues, income (loss) from operations and net loss was not material.

11


 

 

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

 

Acquisitions of Yub and Eckim

 

18,624

 

Foreign currency translation

 

(10

)

Balance as of September 30, 2014

$

28,501

 

 

Intangible assets consist of the following (in thousands):

 

 

September 30,

2014

Gross

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

September 30,

2014

Net

 

 

Weighted

Average

Amortization

Period

(Years)

Domain names

$

4,852

 

 

$

(2,672

)

 

$

 

 

$

2,180

 

 

5

Patents

 

975

 

 

 

(545

)

 

 

 

 

 

430

 

 

6

Customer relationships

 

6,980

 

 

 

(1,647

)

 

 

44

 

 

 

5,377

 

 

5

Vendor relationships

 

890

 

 

 

(167

)

 

 

 

 

 

723

 

 

3

Developed technologies

 

3,521

 

 

 

(644

)

 

 

 

 

 

2,877

 

 

5

Trade names

 

167

 

 

 

(114

)

 

 

5

 

 

 

58

 

 

2

 

$

17,385

 

 

$

(5,789

)

 

$

49

 

 

$

11,645

 

 

5

 

 

 

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 $577,000 and $1,193,000 for the three and nine months ended September 30, 2014, respectively, and $182,000 and $568,000 for the three and nine months ended September 30, 2013. Estimated future amortization expense of intangible assets as of September 30, 2014 is as follows (in thousands):

 

 

 

Total

 

2014, remaining three months

$

734

 

2015

 

2,793

 

2016

 

2,615

 

2017

 

2,288

 

2018

 

2,050

 

2019 and beyond

 

1,165

 

Total estimated amortization expense

$

11,645

 

 

12


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% per annum and the financial reporting intervals from monthly to quarterly reporting.  Interest was 2.25% at September 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 September 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 September 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 was repaid in August 2014.  The note was subordinated to other senior debt. The note had a stated interest rate of 4.00% per annum, and the principal and accrued interest were due in a lump-sum payment on October 5, 2014.  Accrued interest related to the related party debt obligation was 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:

 

 

 

 

Nine Months Ended

September 30,

 

 

 

 

 

 

2014

 

 

2013

 

Expected life (in years)

 

 

 

 

 

6.08

 

 

 

6.08

 

Risk-free interest rate

 

 

 

 

 

2.33%

 

 

1.09%  to 1.69%

 

Volatility

 

 

 

 

 

55%

 

 

 

51%

 

Dividend yield

 

 

 

 

 

 

 

 

The weighted-average grant-date fair value of options granted was $8.60 per share during the nine months ended September 30, 2014. The weighted-average grant-date fair value of options granted was $2.71 and $2.19 per share during the three and nine months ended September 30, 2013, respectively.  No options were granted during the three months ended September 30, 2014.

13


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

 

 

 

 

(1,887,558

)

 

 

2.16

 

 

 

 

 

 

 

17,992

 

 

 

 

 

 

 

 

 

Options canceled or expired

 

38,403

 

 

 

(38,403

)

 

 

6.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs granted

 

(3,237,513

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,237,513

 

 

 

18.06

 

RSUs released

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,643,927

)

 

 

5.81

 

RSUs canceled or expired

 

482,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(482,456

)

 

 

10.00

 

Balance as of September 30, 2014

 

3,271,753

 

 

 

10,756,621

 

 

 

6.56

 

 

 

6.66

 

 

 

71,267

 

 

 

5,632,321

 

 

 

12.30

 

Vested and expected to vest as of

   September 30, 2014

 

 

 

 

 

10,147,942

 

 

 

6.25

 

 

 

6.55