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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: 001-34875

 

SCIQUEST, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

56-2127592

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

3020 Carrington Mill Blvd., Suite 100

Morrisville, North Carolina 27560

(Address of Principal Executive Offices, Including Zip Code)

(919) 659-2100

(Registrant’s Telephone Number, Including Area Code)

 

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

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

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

(Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of October 31, 2014, 27,522,264 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

 

 

 

 

 


SCIQUEST, INC.

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2014

TABLE OF CONTENTS

 

 

 

 

Pages

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1.

 

CONSOLIDATED FINANCIAL STATEMENTS

2

 

 

 

Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013

2

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2014 and 2013 (unaudited)

3

 

 

 

Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2014 (unaudited)

4

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)

5

 

 

 

Notes to Consolidated Financial Statements (unaudited)

6

 

ITEM 2.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

23

 

ITEM 3.

 

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

29

 

ITEM 4.

 

 

CONTROLS AND PROCEDURES

29

 

 

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

 

 

LEGAL PROCEEDINGS

31

 

ITEM 1A.

 

 

RISK FACTORS

31

 

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

31

 

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

31

 

ITEM 4.

 

MINE SAFETY DISCLOSURES

31

 

ITEM 5.

 

OTHER INFORMATION

31

 

ITEM 6.

 

EXHIBITS

31

 

 

 

SIGNATURES

32

 

 

 

1


PART I. FINANCIAL INFORMATION

 

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

SciQuest, Inc.

Consolidated Balance Sheets

(in thousands, except per share amounts)

 

 

 

As of

 

 

As of

 

 

 

September 30,

 

 

December 31,

 

 

 

2014

 

 

2013

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,850

 

 

$

19,117

 

Short-term investments

 

 

77,360

 

 

 

15,105

 

Accounts receivable, net

 

 

8,652

 

 

 

12,987

 

Prepaid expenses and other current assets

 

 

2,880

 

 

 

3,268

 

Deferred tax asset

 

 

324

 

 

 

290

 

Total current assets

 

 

136,066

 

 

 

50,767

 

Property and equipment, net

 

 

13,054

 

 

 

10,028

 

Goodwill

 

 

64,290

 

 

 

65,280

 

Intangible assets, net

 

 

25,283

 

 

 

29,490

 

Deferred commissions

 

 

5,980

 

 

 

6,701

 

Deferred tax asset, less current portion

 

 

11,592

 

 

 

10,885

 

Other

 

 

263

 

 

 

294

 

Total assets

 

$

256,528

 

 

$

173,445

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

158

 

 

$

741

 

Accrued liabilities

 

 

10,256

 

 

 

13,765

 

Deferred revenues

 

 

55,709

 

 

 

57,417

 

Total current liabilities

 

 

66,123

 

 

 

71,923

 

Deferred revenues, less current portion

 

 

10,610

 

 

 

13,343

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 50,000 shares authorized; 27,520 and 23,811 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively

 

 

28

 

 

 

24

 

Additional paid-in capital

 

 

201,886

 

 

 

108,864

 

Accumulated other comprehensive loss

 

 

(2,374

)

 

 

(1,401

)

Accumulated deficit

 

 

(19,745

)

 

 

(19,308

)

Total stockholders' equity

 

 

179,795

 

 

 

88,179

 

Total liabilities and stockholders' equity

 

$

256,528

 

 

$

173,445

 

 

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

 

 

 

2


SciQuest, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

(unaudited)

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

25,670

 

 

$

22,513

 

 

$

76,364

 

 

$

64,383

 

Cost of revenues

 

7,854

 

 

 

6,759

 

 

 

23,400

 

 

 

19,942

 

Gross profit

 

17,816

 

 

 

15,754

 

 

 

52,964

 

 

 

44,441

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

7,146

 

 

 

7,132

 

 

 

21,261

 

 

 

20,525

 

Sales and marketing

 

6,208

 

 

 

6,334

 

 

 

19,409

 

 

 

17,064

 

General and administrative

 

4,348

 

 

 

3,462

 

 

 

10,791

 

 

 

9,446

 

Amortization of intangible assets

 

795

 

 

 

602

 

 

 

2,395

 

 

 

1,545

 

Total operating expenses

 

18,497

 

 

 

17,530

 

 

 

53,856

 

 

 

48,580

 

Loss from operations

 

(681

)

 

 

(1,776

)

 

 

(892

)

 

 

(4,139

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

124

 

 

 

10

 

 

 

182

 

 

 

50

 

Other (expense) income, net

 

(37

)

 

 

(13

)

 

 

(48

)

 

 

(58

)

Total other income (expense), net

 

87

 

 

 

(3

)

 

 

134

 

 

 

(8

)

Loss before income taxes

 

(594

)

 

 

(1,779

)

 

 

(758

)

 

 

(4,147

)

Income tax benefit (expense)

 

164

 

 

 

(603

)

 

 

321

 

 

 

633

 

Net loss

$

(430

)

 

$

(2,382

)

 

$

(437

)

 

$

(3,514

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(898

)

 

 

426

 

 

 

(973

)

 

 

(606

)

Comprehensive loss

$

(1,328

)

 

$

(1,956

)

 

$

(1,410

)

 

$

(4,120

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.02

)

 

$

(0.10

)

 

$

(0.02

)

 

$

(0.15

)

Diluted

$

(0.02

)

 

$

(0.10

)

 

$

(0.02

)

 

$

(0.15

)

Weighted average shares outstanding used in

   computing per share amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

27,514

 

 

 

23,068

 

 

 

26,295

 

 

 

22,803

 

Diluted

 

27,514

 

 

 

23,068

 

 

 

26,295

 

 

 

22,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

3


SciQuest, Inc.

Consolidated Statement of Stockholders’ Equity

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2013

 

 

23,811

 

 

$

24

 

 

$

108,864

 

 

$

(1,401

)

 

$

(19,308

)

 

$

88,179

 

Proceeds from public offering, net of underwriting discounts and offering costs

 

 

3,450

 

 

 

4

 

 

 

87,429

 

 

 

-

 

 

 

-

 

 

 

87,433

 

Issuance of stock in connection with stock option exercises

 

 

92

 

 

 

-

 

 

 

452

 

 

 

-

 

 

 

-

 

 

 

452

 

Issuance of stock in connection with employee stock purchase plan

 

 

33

 

 

 

-

 

 

 

469

 

 

 

-

 

 

 

-

 

 

 

469

 

Issuance of stock pursuant to vesting of restricted stock units

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of stock in connection with business acquisitions

 

 

132

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

4,672

 

 

 

-

 

 

 

-

 

 

 

4,672

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(973

)

 

 

-

 

 

 

(973

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(437

)

 

 

(437

)

Balance at September 30, 2014

 

 

27,520

 

 

$

28

 

 

$

201,886

 

 

$

(2,374

)

 

$

(19,745

)

 

$

179,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

4


SciQuest, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

Nine Months Ended

 

 

September 30,

 

 

2014

 

 

2013

 

 

(unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(437

)

 

$

(3,514

)

Adjustments to reconcile net loss to net cash provided by operating

   activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

7,954

 

 

 

5,460

 

Loss on disposal of fixed assets

 

430

 

 

 

-

 

Stock-based compensation expense

 

4,672

 

 

 

5,102

 

Deferred taxes

 

(457

)

 

 

(676

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

4,293

 

 

 

2,709

 

Prepaid expenses and other current assets

 

379

 

 

 

(469

)

Deferred commissions and other assets

 

753

 

 

 

785

 

Accounts payable

 

(582

)

 

 

(1,631

)

Accrued liabilities

 

(3,769

)

 

 

1,093

 

Deferred revenues

 

(4,328

)

 

 

470

 

Net cash provided by operating activities

 

8,908

 

 

 

9,329

 

Cash flows from investing activities

 

 

 

 

 

 

 

Business acquisitions, net of cash acquired

 

-

 

 

 

(25,533

)

Addition of capitalized software development costs

 

(4,231

)

 

 

(2,942

)

Purchase of property and equipment

 

(3,304

)

 

 

(1,841

)

Purchase of available-for-sale short-term investments

 

(92,735

)

 

 

(23,525

)

Maturities of available-for-sale short-term investments

 

30,480

 

 

 

38,035

 

Net cash used in investing activities

 

(69,790

)

 

 

(15,806

)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from public offering, net of underwriting discount

 

87,673

 

 

 

-

 

Public offering costs

 

(240

)

 

 

-

 

Proceeds from exercise of common stock options

 

452

 

 

 

1,608

 

Proceeds from employee stock purchase plan activity

 

766

 

 

 

760

 

Net cash provided by financing activities

 

88,651

 

 

 

2,368

 

Effect of exchange rate changes on cash and cash equivalents

 

(36

)

 

 

(39

)

Net increase (decrease) in cash and cash equivalents

 

27,733

 

 

 

(4,148

)

Cash and cash equivalents at beginning of period

 

19,117

 

 

 

15,606

 

Cash and cash equivalents at end of period

$

46,850

 

 

$

11,458

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

Issuance of common stock in connection with acquisition

$

-

 

 

$

17,055

 

 

 

 

 

 

 

 

 

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

 

 

 

5


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

 

1. Description of Business

SciQuest, Inc. (the Company) provides leading cloud-based business automation solutions for spend management. The Company’s solutions include procurement solutions that automate the source-to-settle process, spend analysis solutions that cleanse and classify spend data to drive and measure cost savings, supplier management solutions that facilitate our customers’ interactions with their suppliers, contract lifecycle management solutions that automate the complete contract lifecycle from contract creation through maintenance and accounts payable solutions that automate the invoice processing and vendor payment processes. The Company’s solutions are designed to meet customer needs to reduce costs, simplify and improve visibility into key business processes, further strategic initiatives, enhance control over spending decisions and improve compliance and risk management. By simplifying and streamlining cumbersome, and often manual, processes and creating a comprehensive view of spending and compliance across the organization, organizations can identify and capitalize on opportunities to reduce costs by gaining control over suppliers, contracts, purchases and payments. The Company is headquartered in Morrisville, North Carolina.

 

Public Offering

On April 1, 2014, the Company completed a public offering of 3,000 shares of common stock at an offering price of $26.75 per share. An additional 450 shares of common stock were sold at an offering price of $26.75 per share pursuant to the underwriters’ over-allotment option. The Company received aggregate net proceeds of approximately $87,433, after payment of underwriting discounts and commissions and estimated legal, accounting, and other fees incurred in connection with the offering and the over-allotment option.

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the fiscal year or any future period. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013, which was filed with the Securities and Exchange Commission on February 21, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Revenue Recognition

The Company primarily derives its revenues from subscription fees and related services, permitting customers to access and utilize the Company’s cloud-based business automation solutions for spend management. Customers may also purchase a perpetual license for certain software products. Revenue is recognized when there is persuasive evidence of an arrangement, the service has been provided or delivered to the customer, the collection of the fee is probable and the amount of the fee to be paid by the customer is fixed or determinable. The Company’s arrangements do not contain general rights of return.

6


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

Because customers do not have the right to take possession of the Software-as-a-Service (“SaaS”) based software, these arrangements are considered service contracts and are not within the scope of Industry Topic 985, Software. The Company’s contractual agreements generally contain multiple service elements and deliverables, for which we follow the guidance provided in Accounting Standards Codification (“ASC”) 605-25, Revenue Recognition for Multiple-Element Arrangements. These elements include access to the hosted software, implementation or data classification services and, on a limited basis, perpetual licenses for certain software products and related maintenance and support. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company’s control.

For arrangements in which elements do have stand-alone value, the Company allocates revenue to each element in the arrangement based on a selling price hierarchy. The selling price for a deliverable is based on vendor-specific objective evidence of selling price (“VSOE”), if available, third-party evidence of selling price (“TPE”), if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. Because the Company has neither VSOE nor TPE for its deliverables, the allocation of revenue is based on ESP.

The Company’s process for determining ESP for its deliverables considers multiple factors that may vary depending upon the facts and circumstances related to each deliverable. Key factors considered in developing ESP related to deliverables include established pricing and approval policies, type and size of customer, number of products purchased, and historical transactions. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.

The Company evaluates its SaaS subscription agreements and considers whether the associated services have standalone value to its customers. For arrangements when implementation services do not have standalone value to the customer, licenses and related implementation services are considered a single unit of accounting. Accordingly, the consideration allocated to licenses and services is recognized ratably over the term of the subscription agreement, beginning with the later of the start date specified in the subscription agreement, or the date access to the software is provided to the customer, provided all other revenue recognition criteria have been met. Fees for professional services that are contingent upon future performance are recognized ratably over the remaining subscription term once the performance milestones have been met. Alternatively, when services have standalone value to the customer, licenses and related services are considered separate units of accounting. For separate units of accounting, services are recognized as the services are performed and delivered to the customer and licenses are recognized over the term of the subscription arrangement, beginning with the later of the start date specified in the subscription agreement, or the date access to the software is provided to the customer, provided all other revenue recognition criteria have been met.

Revenue from sales of certain of the Company’s perpetual software products and related implementation services and maintenance is recognized as a single unit of accounting since VSOE of fair value does not exist for the contractual elements. Accordingly, revenue for all elements in these arrangements is recognized over the contractual maintenance term, which is typically one year.

The Company recognizes revenue from any professional services that are sold separately as the services are performed.

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Company’s software and services described above. For multi-year subscription agreements, the Company generally invoices its customers in annual installments. Accordingly, the deferred revenue balance does not represent the total contract value of these multi-year subscription agreements. The Company’s services, such as implementation, are generally sold in conjunction with subscription agreements. These services are recognized ratably over the remaining term of the subscription agreement once any contingent performance milestones have been satisfied. The portion of deferred revenue that the Company anticipates will be recognized after the succeeding 12-month period is recorded as non-current deferred revenue and the remaining portion is recorded as current deferred revenue.

Cost of Revenues

Cost of revenues primarily consists of costs related to hosting the Company’s subscription software services, compensation and related expenses for implementation services, supplier enablement services, customer support staff and client partners, amortization of capitalized software development costs and allocated fixed asset depreciation and facilities costs. Cost of revenues is expensed as incurred.

7


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

Deferred Commissions

The Company capitalizes sales commission costs that are directly related to the execution of its subscription agreements. The commissions are deferred and amortized over the contractual term of the related non-cancelable subscription agreement. The Company believes this is the appropriate method of accounting, as the commission costs are so closely related to the revenues from the subscription agreements that they should be recorded as an asset and charged to expense over the same period that the subscription revenues are recognized. Amortization of deferred commissions is included in sales and marketing expense in the accompanying consolidated statements of operations and comprehensive loss. The deferred commissions are reflected in the accompanying consolidated balance sheets.

Cash and Cash Equivalents

The Company considers all highly liquid debt investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains cash balances at financial institutions that may at times exceed federally insured limits. The Company maintains this cash at reputable financial institutions and, as a result, believes credit risk related to its cash is minimal.

Short-Term Investments

Management determines the appropriate classification of investments at the time of purchase and evaluates such determination as of each balance sheet date. The Company’s investments were classified as available-for-sale securities and are stated at fair value at September 30, 2014 and December 31, 2013. Realized gains and losses are included in other income (expense) based on the specific identification method. There were no realized gains or losses for the three or nine months ended September 30, 2014 or 2013. Net unrealized gains and losses on available-for-sale securities are reported as a component of other comprehensive loss, net of tax. As of September 30, 2014 and December 31, 2013, there were no unrealized gains or losses on available-for-sale securities. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. Management believes no such declines in value existed at September 30, 2014 or December 31, 2013.

Accounts Receivable

The Company assesses the need for an allowance for doubtful accounts based on estimates of probable credit losses. This assessment is based on several factors including aging of customer accounts, known customer specific risks, historical experience and existing economic conditions. The Company generally does not require collateral for receivable balances. Accounts would be charged against the allowance after all means of collection were exhausted and recovery was considered remote. Based on management’s analysis of its outstanding accounts receivable, the Company recorded an allowance of $1,100 and $556 at September 30, 2014 and December 31, 2013, respectively.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which are usually seven years for furniture and three to five years for computer software and equipment. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remainder of the lease term. Costs for repairs and maintenance are expensed as incurred. Upon retirement or sale, the cost of the disposed assets and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to operations.

Software Development Costs

The Company incurs certain costs associated with the development of its cloud-based solution, which are accounted for as internal-use software. Certain qualifying costs incurred during the application development phase are capitalized and amortized to expense over the estimated useful life of the related applications, which is generally three years.

Although the Company’s development efforts are primarily focused on its hosted, cloud-based solution, the Company also incurs costs in connection with the development of certain of its software products licensed to customers on a perpetual basis, which are accounted for as costs of software to be sold, leased or otherwise marketed. Under this guidance, capitalization of software development costs begins upon the establishment of technological feasibility (based on a working model approach), subject to net realizable value considerations. To date, the dates between achieving technological feasibility and the general availability of such software have substantially coincided; therefore, software development costs for these products that would qualify for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs related to these software products and has charged all such costs to research and development expense.

8


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

Goodwill

Goodwill represents the excess of the cost of an acquired entity over the net fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but rather is assessed for impairment at least annually. Additionally, the Company would also review the carrying value of goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company has concluded that it has one reporting unit for purposes of its annual goodwill impairment testing. To assess goodwill impairment, the first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. The results of our most recent annual assessment did not indicate any impairment of goodwill, and as such, the second step of the impairment test was not required. Additionally, we do not believe there have been any triggering events that would result in potential impairment of goodwill as of September 30, 2014.

Stock-Based Compensation

Stock-based payments to employees, including grants of employee stock options, are recognized in the consolidated statement of operations and comprehensive loss based on their fair values. Stock-based compensation costs are measured at the grant date based on the fair value of the award and are recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model on the date of grant for stock options. Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates and expected term. The Company uses the historical volatility of its stock price to calculate the expected volatility. Prior to the second half of 2013, the expected volatility rates were estimated based on the actual volatility of comparable public companies over the expected term, as the Company did not have enough trailing history in its own shares. The expected term for the nine months ended September 30, 2014 and 2013, represents the average time that options that vest are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards.

Foreign Currency and Operations

The reporting currency for all periods presented is the U.S. dollar. The functional currency for the Company’s foreign subsidiaries is generally their local currency. The translation of each subsidiary’s financial statements into U.S. dollars is performed for assets and liabilities using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. The resulting translation adjustments are recognized in accumulated other comprehensive loss, a separate component of stockholders’ equity. Also included in accumulated other comprehensive loss is the foreign translation loss adjustment of $3,137 and $1,729 at September 30, 2014 and December 31, 2013, respectively, related to the intercompany balance with the Company’s Canadian subsidiary not expected to be settled in the foreseeable future. Realized foreign currency transaction gains and losses are included in other income (expense) in the consolidated statements of operations and comprehensive loss.

Segment Data

The Company manages its operations on a consolidated basis for purposes of assessing performance and making operating decisions. Accordingly, the Company has determined that it has a single reportable segment.

Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Outstanding unvested restricted stock purchased by employees is subject to repurchase by the Company and therefore is not included in the calculation of the weighted-average shares outstanding until vested. Diluted net income per share is computed giving effect to all potentially dilutive common stock, including options and restricted stock. The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.

9


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(430

)

 

$

(2,382

)

 

$

(437

)

 

$

(3,514

)

Weighted average common shares, basic

 

27,514

 

 

 

23,068

 

 

 

26,295

 

 

 

22,803

 

Basic net loss per share

$

(0.02

)

 

$

(0.10

)

 

$

(0.02

)

 

$

(0.15

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(430

)

 

$

(2,382

)

 

$

(437

)

 

$

(3,514

)

Weighted average common shares, basic

 

27,514

 

 

 

23,068

 

 

 

26,295

 

 

 

22,803

 

Dilutive effect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options to purchase common stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Nonvested shares of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Weighted average common shares, diluted

 

27,514

 

 

 

23,068

 

 

 

26,295

 

 

 

22,803

 

Diluted net loss per share

$

(0.02

)

 

$

(0.10

)

 

$

(0.02

)

 

$

(0.15

)

 

For the three and nine months ended September 30, 2014 and 2013, the Company incurred net losses and, therefore, the effect of the Company’s outstanding stock options, nonvested restricted stock and common stock issuable pursuant to the employee stock purchase plan was not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. For the three and nine months ended September 30, 2014, diluted net loss per share excluded the impact of 257 and 400 outstanding stock options, 7 and 13 nonvested shares of restricted stock, and approximately 1 and 23 shares of common stock issuable pursuant to the employee stock purchase plan. For the three and nine months ended September 30, 2013, diluted net loss per share excluded the impact of 425 and 400 outstanding stock options, 23 and 30 nonvested shares of restricted stock, and approximately 0 and 15 shares of common stock issuable pursuant to the employee stock purchase plan.

Income Taxes

Deferred income taxes are provided using tax rates enacted for periods of expected reversal on all temporary differences. Temporary differences relate to differences between the book and tax basis of assets and liabilities, principally intangible assets, property and equipment, deferred subscription revenues, accruals and stock-based compensation. Valuation allowances are established to reduce deferred tax assets to the amount that will more likely than not be realized. To the extent that a determination is made to establish or adjust a valuation allowance, the expense or benefit is recorded in the period in which the determination is made.

Judgment is required in determining the provision for income taxes. Additionally, the income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities and to changes in tax law and rates in many jurisdictions. The Company would adjust its income tax provision in the period in which it becomes probable that actual results differ from management estimates.

The Company accounts for uncertain tax positions by recognizing and measuring tax benefits taken or expected to be taken on a tax return. A tax benefit from an uncertain position may be recognized only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. If the recognition threshold is met, only the portion of the tax benefit that is more likely than not to be realized upon settlement with a taxing authority is recorded. The tax benefit that is not recorded is considered an unrecognized tax benefit. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

Recent Accounting Pronouncements

In August 2014, the FASB issued new accounting guidance which addresses management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. This guidance is effective for the fiscal year ending after December 15, 2016, and for fiscal years and interim

10


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

periods thereafter. Early adoption is permitted. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its financial statements.

In May 2014, the FASB issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is not permitted. The Company will adopt this standard in the first quarter of 2017. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.

In July 2013, the FASB issued a revised accounting standard, which clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This standard is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The Company adopted this guidance on January 1, 2014. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

3. Business Combinations

CombineNet

On August 30, 2013, the Company acquired all of the outstanding capital stock of CombineNet, Inc. (“CombineNet”), a leading provider of advanced sourcing software. The acquisition of CombineNet expands the Company’s strategic sourcing footprint with an advanced, cloud-based tool that improves procurement decisions for spend categories that are typically beyond the capabilities of traditional eSourcing software.

The purchase price consisted of approximately $26,575 in cash and 820 shares of the Company’s common stock at a fair value of $17,055. The purchase price was subject to an adjustment based on the closing amount of working capital of CombineNet and accordingly as a result of this adjustment, the Company paid an additional $59 in cash and issued approximately 1 shares of common stock at a fair value of $38. The purchase price included $2,465 in cash and 76 shares of common stock that were deposited in escrow to satisfy potential indemnification claims. The Company incurred acquisition costs of approximately $431 during the three and nine months ended September 30, 2013, which are included in general and administrative expense in the consolidated statements of operations and comprehensive loss. The acquisition was accounted for under the purchase method of accounting. The operating results of CombineNet are included in the accompanying consolidated financial statements from the date of acquisition.

 

The purchase consideration consisted of the following:

 

Cash

$

26,634

 

Fair value of common stock

 

17,093

 

Total purchase consideration

 

43,727

 

Cash acquired

 

1,042

 

Net purchase consideration

$

42,685

 

  

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquired technology, trademarks and the covenant not to compete are amortized on a straight-line basis over their respective estimated useful lives. Acquired customer relationships are amortized over a fifteen-year estimated life in a pattern consistent with which the economic benefit is expected to be realized. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes. This asset is attributed to a trained workforce and buyer-specific value resulting from synergies that are not included in the fair values of assets.

11


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

The allocation of the purchase price as of the acquisition date was as follows:

 

 

Estimated

 

Estimated

 

 

Useful Life

 

Fair Value

 

Accounts receivable

 

 

$

2,679

 

Prepaid expenses and other current assets

 

 

 

334

 

Property and equipment

 

 

 

464

 

Deferred project costs

 

 

 

121

 

Deferred tax assets

 

 

 

4,606

 

Other assets

 

 

 

30

 

Covenant not to compete

2 years

 

 

100

 

Trademarks

3 years

 

 

300

 

Acquired technology

7 years

 

 

4,100

 

Customer relationships

15 years

 

 

13,000

 

Goodwill

 

 

 

28,624

 

Accounts payable

 

 

 

(98

)

Accrued expenses

 

 

 

(786

)

Deferred tax liability

 

 

 

(6,349

)

Deferred revenues

 

 

 

(4,440

)

Total purchase consideration

 

 

$

42,685

 

 

The measurement period for the acquisition purchase accounting was closed December 31, 2013.

The following unaudited pro forma consolidated results of operations for the three and nine months ended September 30, 2013 assume that the CombineNet acquisition occurred at the beginning of 2012. The unaudited pro forma information combines the historical results for the Company with the historical results for CombineNet for the same period. The unaudited pro forma financial information includes amortization of acquired intangible assets of $554 and $1,691 for the three and nine months ended September 30, 2013, respectively, and includes the fair value adjustment for deferred revenue of $3 and $2,364 for the three and nine months ended September 30, 2013, respectively.

The following unaudited pro forma information is not intended to be indicative of future operating results.

 

 

Three Months

 

 

Nine Months

 

 

Ended

 

 

Ended

 

 

September 30,

 

 

September 30,

 

 

2013

 

 

2013

 

Pro forma revenue

$

25,417

 

 

$

74,177

 

Pro forma net loss

$

(1,066

)

 

$

(2,798

)

Pro forma net loss per share, basic

$

(0.05

)

 

$

(0.12

)

Pro forma net loss per share, diluted

$

(0.05

)

 

$

(0.12

)

 

Spend Radar

On October 1, 2012, the Company completed the acquisition of substantially all of the assets of Spend Radar LLC (“Spend Radar”), a leading provider of spend analysis solutions. The acquisition of Spend Radar added cloud-based software for cleansing and classifying spend data to drive and measure cost savings to the Company’s existing business automation solutions for spend management.

The purchase price consisted of $8,000 in cash and 113 shares of the Company’s common stock at a fair value of $2,087. The purchase agreement also contained an earnout provision for up to $6,000 in cash and 85 shares of the Company’s common stock based on the successful achievement of certain performance targets and continued employment with the Company from the closing date to December 31, 2013. The performance conditions for Q4 2012 and Q1 2013 were met and the Company paid $2,400 and issued 34 shares of common stock on April 29, 2013. Additionally, the performance conditions for Q2, Q3 and Q4 2013 were met and the Company paid $3,600 on January 31, 2014 and issued 51 shares of common stock on February 3, 2014. The cash earn-out was recognized as compensation expense in the consolidated statement of operations and comprehensive loss in the period in which it was

12


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

earned. The fair value of the shares under the stock earn-out was recognized as stock-based compensation expense in the consolidated statement of operations and comprehensive loss over the requisite service period of the award. During the three and nine months ended September 30, 2013, the Company recognized compensation expense of $1,200 and $3,600, respectively, and recognized stock-based compensation expense of $313 and $939, respectively, related to this earn-out arrangement.

The acquisition was accounted for under the purchase method of accounting. The operating results of Spend Radar are included in the accompanying consolidated financial statements from the date of acquisition.

The purchase consideration consisted of the following:

 

Cash

$

8,000

 

Fair value of common stock

 

2,087

 

Total purchase consideration

 

10,087

 

Cash acquired

 

259

 

Net purchase consideration

$

9,828

 

  

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquired technology, trademarks and the covenant not to compete are amortized on a straight-line basis over their respective estimated useful lives. Acquired customer relationships are amortized over a five-year estimated life in a pattern consistent with which the economic benefit is expected to be realized. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill, which is deductible for tax purposes. This asset is attributed to a trained workforce and buyer-specific value resulting from synergies that are not included in the fair values of assets.

The allocation of the purchase price as of the acquisition date was as follows:

 

 

Estimated

 

Estimated

 

 

Useful Life

 

Fair Value

 

Accounts receivable

 

 

$

634

 

Prepaid expenses and other current assets

 

 

 

100

 

Property and equipment

 

 

 

147

 

Covenant not to compete

5 years

 

 

203

 

Trademarks

5 years

 

 

566

 

Acquired technology

7 years

 

 

2,693

 

Customer relationships

5 years

 

 

1,338

 

Goodwill

 

 

 

5,682

 

Accrued expenses

 

 

 

(305

)

Deferred revenues

 

 

 

(1,230

)

Total purchase consideration

 

 

$

9,828

 

 

The measurement period for the acquisition purchase accounting was closed December 31, 2012.

Upside Software

On August 1, 2012, the Company completed the acquisition of substantially all of the assets of Upside Software, Inc. (“Upside”), a privately-owned Canadian corporation that provides contract lifecycle management solutions. The acquisition of Upside added a contract lifecycle management solution, which includes collaborative contract creation and maintenance technology, to the Company’s existing business automation solutions for spend management.

The purchase price consisted of $22,447 in cash. The acquisition was accounted for under the purchase method of accounting. The operating results of Upside are included in the accompanying consolidated financial statements from the date of acquisition.

13


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Acquired technology, trademarks and the covenant not to compete are amortized on a straight-line basis over their respective estimated useful lives. Acquired customer relationships are amortized over a ten-year estimated life in a pattern consistent with which the economic benefit is expected to be realized. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill which is deductible for tax purposes. This asset is attributed to a trained workforce and buyer-specific value resulting from synergies that are not included in the fair values of assets.

The allocation of the purchase price as of the acquisition date was as follows:

 

 

Estimated

 

Estimated

 

 

Useful Life

 

Fair Value

 

Accounts receivable

 

 

$

2,096

 

Prepaid expenses and other current assets

 

 

 

230

 

Property and equipment

 

 

 

478

 

Covenant not to compete

5 years

 

 

30

 

Trademarks

5 years

 

 

263

 

Acquired technology

7 years

 

 

4,064

 

Customer relationships

10 years

 

 

3,594

 

Goodwill

 

 

 

15,927

 

Accrued expenses

 

 

 

(530

)

Deferred revenues

 

 

 

(3,705

)

Total purchase consideration

 

 

$

22,447

 

 

The measurement period for the acquisition purchase accounting was closed December 31, 2012.

AECsoft

On December 21, 2010, the Company entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of capital stock of AECsoft USA, Inc., a Texas corporation, and AEC Global (Shanghai) Co., Ltd., a Chinese corporation (collectively, “AECsoft”), which together are a leading provider of supplier management and sourcing technology.

The Company completed the acquisition of AECsoft, USA, Inc. on January 1, 2011 and the acquisition of AEC Global (Shanghai) Co., Ltd. on March 31, 2011. The acquisition of AECsoft added comprehensive supplier management, sourcing and compliance reporting to the Company’s existing business automation solutions for spend management.

The total purchase price of $13,795 consisted of $9,256 in cash and 351 shares of the Company’s common stock at a fair value of $4,539. The issuance of 25 of these shares, with an estimated fair value of $300, was subject to successful completion of certain performance targets under an earn-out arrangement with a former shareholder of AECsoft. Additionally, 300 shares of the Company’s common stock were issuable under an earn-out arrangement with the other former shareholders of AECsoft, upon the successful achievement of performance conditions over three fiscal years, including continued employment with the Company. The performance conditions for 2012 and 2011 were met in full, and the Company issued 122 shares of common stock on March 20, 2013 and April 14, 2012, respectively. The performance conditions for 2013 were met in full, and the Company issued 81 shares of common stock on February 5, 2014. The fair value of these shares was recognized as stock-based compensation expense in the consolidated statement of operations and comprehensive loss over the requisite service period of the award. During the three and nine months ended September 30, 2013, the Company recognized stock-based compensation expense of $244 and $732, respectively, related to this earn-out arrangement.

 

14


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

4. Cash Equivalents and Short-Term Investments

The components of cash equivalents and short-term investments at September 30, 2014 and December 31, 2013 are as follows:

 

 

September 30, 2014

 

 

December 31, 2013

 

 

 

 

 

 

Fair Market

 

 

 

 

 

 

Fair Market

 

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

$

1,195

 

 

$

1,195

 

 

$

5,349

 

 

$

5,349

 

Commercial paper

 

41,342

 

 

 

41,342

 

 

 

-

 

 

 

-

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable rate demand notes

 

14,725

 

 

 

14,725

 

 

 

15,105

 

 

 

15,105

 

Commercial paper

 

62,635

 

 

 

62,635

 

 

 

-

 

 

 

-

 

Total

$

119,897

 

 

$

119,897

 

 

$

20,454

 

 

$

20,454

 

 

There were no unrealized gains or losses as of September 30, 2014 or December 31, 2013.

 

5. Fair Value Measurements

Under GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant input and significant value drivers are observable in active markets.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The financial assets for which the Company performs recurring fair value remeasurements are cash equivalents and short-term investments.

As of September 30, 2014 and December 31, 2013, the Company had cash equivalents of $42,537 and $5,349, respectively, which consist of money market accounts and commercial paper. As of September 30, 2014 and December 31, 2013, the Company had short-term investments of $77,360 and $15,105, respectively, which consist of commercial paper and variable rate demand notes that are invested in corporate and municipal bonds. The variable rate demand notes have final maturities between 2017 and 2042, but are puttable by the Company at any time with seven days notice. These cash equivalents and short-term investments are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices. As of September 30, 2014 and December 31, 2013, the Company did not have any financial assets or liabilities with observable inputs not quoted on active markets (Level 2), or without observable market values that would require a high level of judgment to determine fair value (Level 3).

The fair value measurements of the Company’s financial assets at September 30, 2014 are as follows:

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents

$

42,537

 

 

$

42,537

 

 

$

-

 

 

$

-

 

Short-term investments

 

77,360

 

 

 

77,360

 

 

 

-

 

 

 

-

 

Total

$

119,897

 

 

$

119,897

 

 

$

-

 

 

$

-

 

 

15


SciQuest, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(in thousands, except per share amounts)

 

The fair value measurements of the Company’s financial assets at December 31, 2013 are as follows:

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents

$

5,349

 

 

$

5,349

 

 

$

-

 

 

$

-

 

Short-term investments

 

15,105

 

 

 

15,105

 

 

 

-

 

 

 

-

 

Total

$

20,454

 

 

$

20,454

 

 

$