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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 March 31, 2015

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 May 11, 2015, the registrant had 82,853,768 shares of common stock outstanding.

 

 

 

 


COUPONS.COM INCORPORATED

INDEX

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

 

PART I FINANCIAL INFORMATION

 

Item 1 Financial Statements (unaudited):

  

3

 

Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014

  

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014

  

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2015 and 2014

  

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014

  

6

 

Notes to Condensed Consolidated Financial Statements

  

7

 

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

  

17

 

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

  

48

 

Item 3—Defaults Upon Senior Securities

  

48

 

Item 4—Mine Safety Disclosures

  

48

 

Item 5—Other Information

  

48

 

Item 6—Exhibits

  

48

 

SIGNATURES

  

49

 

 

 

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)

 

 

March 31,

2015

 

 

December 31,

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

202,414

 

 

$

201,075

 

Accounts receivable, net of allowance for doubtful accounts of $407 and $408

  at March 31, 2015 and December 31, 2014, respectively

 

47,926

 

 

 

51,061

 

Prefunded coupons cash deposits

 

589

 

 

 

740

 

Deferred tax assets

 

438

 

 

 

457

 

Prepaid expenses and other current assets

 

4,562

 

 

 

2,972

 

Total current assets

 

255,929

 

 

 

256,305

 

Property and equipment, net

 

23,638

 

 

 

25,399

 

Intangible assets, net

 

11,033

 

 

 

11,818

 

Goodwill

 

29,249

 

 

 

29,277

 

Other assets

 

8,689

 

 

 

9,008

 

Total assets

$

328,538

 

 

$

331,807

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

6,393

 

 

$

6,358

 

Accrued compensation and benefits

 

7,969

 

 

 

14,861

 

Other current liabilities

 

14,845

 

 

 

15,790

 

Prefunded coupons cash obligations

 

589

 

 

 

740

 

Deferred revenues

 

6,517

 

 

 

6,219

 

Debt obligation

 

7,500

 

 

 

7,500

 

Total current liabilities

 

43,813

 

 

 

51,468

 

Other non-current liabilities

 

74

 

 

 

89

 

Deferred rent

 

926

 

 

 

738

 

Deferred tax liabilities

 

2,769

 

 

 

2,624

 

Total liabilities

 

47,582

 

 

 

54,919

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

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

   outstanding at March 31, 2015 and December 31, 2014

 

 

 

 

 

Common stock, $0.00001 par value—250,000,000 shares authorized; 87,747,793 shares

  issued and 82,693,587 outstanding at March 31, 2015; 86,224,920  shares issued

  and 81,380,014 outstanding at December 31, 2014

 

1

 

 

 

1

 

Additional paid-in capital

 

541,204

 

 

 

531,018

 

Treasury stock, at cost

 

(63,987

)

 

 

(61,935

)

Accumulated other comprehensive income (loss)

 

(66

)

 

 

(1

)

Accumulated deficit

 

(196,196

)

 

 

(192,195

)

Total stockholders’ equity

 

280,956

 

 

 

276,888

 

Total liabilities and stockholders’ equity

$

328,538

 

 

$

331,807

 

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

March 31,

 

 

2015

 

 

2014

 

Revenues

$

55,562

 

 

$

51,501

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenues

 

21,867

 

 

 

20,519

 

Sales and marketing

 

21,084

 

 

 

19,511

 

Research and development

 

12,942

 

 

 

16,267

 

General and administrative

 

8,491

 

 

 

9,050

 

Change in fair value of contingent consideration

 

(354

)

 

 

 

Total costs and expenses

 

64,030

 

 

 

65,347

 

Loss from operations

 

(8,468

)

 

 

(13,846

)

Interest expense

 

(80

)

 

 

(302

)

Gain on sale of a right to use a web domain name

 

4,800

 

 

 

 

Other income (expense), net

 

(61

)

 

 

(138

)

Loss before income taxes

 

(3,809

)

 

 

(14,286

)

Provision for (benefit from) income taxes

 

192

 

 

 

(244

)

Net loss

$

(4,001

)

 

$

(14,042

)

 

 

 

 

 

 

 

 

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

$

(0.05

)

 

$

(0.41

)

Weighted-average number of common shares used in computing net loss per

   share attributable to common stockholders, basic and diluted

 

82,166

 

 

 

34,535

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

4


COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

Net loss

$

(4,001

)

 

$

(14,042

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(65

)

 

 

12

 

Comprehensive loss

$

(4,066

)

 

$

(14,030

)

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

5


COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(4,001

)

 

$

(14,042

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

3,908

 

 

 

3,172

 

Stock-based compensation

 

8,932

 

 

 

14,592

 

Accretion of debt discount

 

 

 

 

56

 

Amortization of debt issuance costs

 

19

 

 

 

 

Gain on sale of a right to use a web domain name

 

(4,800

)

 

 

 

Allowance for doubtful accounts

 

9

 

 

 

14

 

Deferred income taxes

 

164

 

 

 

(244

)

Change in fair value of contingent consideration

 

(354

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

3,101

 

 

 

2,779

 

Prepaid expenses and other current assets

 

(1,516

)

 

 

(1,456

)

Accounts payable and other current liabilities

 

233

 

 

 

2,317

 

Accrued compensation and benefits

 

(6,883

)

 

 

(6,345

)

Deferred revenues

 

333

 

 

 

(145

)

Other

 

3

 

 

 

155

 

Net cash provided by (used in) operating activities

 

(852

)

 

 

853

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(1,805

)

 

 

(2,914

)

Acquisitions, net of acquired cash

 

 

 

 

859

 

Proceeds from sale of a right to use a web domain name

 

4,800

 

 

 

 

Net cash provided by (used in) investing activities

 

2,995

 

 

 

(2,055

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

1,254

 

 

 

2,922

 

Repurchases of common stock

 

(2,052

)

 

 

 

Proceeds from initial public offering, net of offering costs

 

 

 

 

178,539

 

Exercise of warrant

 

 

 

 

1,610

 

Principal payments on capital lease obligations

 

(15

)

 

 

(14

)

Net cash provided by (used in) financing activities

 

(813

)

 

 

183,057

 

Effect of exchange rates on cash and cash equivalents

 

9

 

 

 

(2

)

Net increase in cash and cash equivalents

 

1,339

 

 

 

181,853

 

Cash and cash equivalents at beginning of period

 

201,075

 

 

 

38,972

 

Cash and cash equivalents at end of period

$

202,414

 

 

$

220,825

 

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”) connects great brands and retailers with consumers by delivering digital promotions and media to consumers. Many brands from leading consumer packaged goods companies (“CPGs”) and many of the leading grocery, drug, dollar channel and mass merchandise retailers use the Company’s digital 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 coupon codes, and media through its platform.  The Company’s platform includes web, mobile and social channels, as well as those of the Company’s CPGs, retailers and its extensive network of publishers that display the Company’s coupon and media offerings on their websites and mobile applications. Consumers select coupons by either printing them for physical redemption at retailers or saving them to retailer loyalty accounts for automatic digital redemption.

 

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 U.S. 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 Annual Report on Form 10-K for the year ended December 31, 2014.

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, 2015 or for any other period.

There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

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.

Recently Issued Accounting Pronouncements

In April 2015, the FASB issued new guidance to simplify the presentation of debt issuance costs. This update requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the required presentation for debt discounts. This update is effective for interim and annual periods beginning after December 15, 2015. The adoption of this standard will change the Company’s current practice of presenting debt issuance costs as an asset and will result in the reduction of total assets and total liabilities in an amount equal to the balance of unamortized debt issuance costs at each balance sheet date.  The adoption of this standard is not expected to have a material impact on the Company's financial statements.

In August 2014, the FASB issued new guidance related to the disclosures around going concern. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's financial statements.

7


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.  In April 2015, the FASB proposed to defer the effective date of this standard for one year to January 1, 2018, with early adoption permitted as of January 1, 2017.  The Company is currently evaluating the impact of these amendments.

 

3. Fair Value Measurements

 

The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  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.

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

 

 

March 31, 2015

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

$

14,931

 

 

$

 

 

$

 

 

$

14,931

 

Total

$

14,931

 

 

$

 

 

$

 

 

$

14,931

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration (2)

$

 

 

$

 

 

$

694

 

 

$

694

 

Total

$

 

 

$

 

 

$

694

 

 

$

694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

$

14,928

 

 

$

 

 

$

 

 

$

14,928

 

Total

$

14,928

 

 

$

 

 

$

 

 

$

14,928

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration (2)

$

 

 

$

 

 

$

1,048

 

 

$

1,048

 

Total

$

 

 

$

 

 

$

1,048

 

 

$

1,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Included in cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Included in other current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The valuation technique used to measure the fair value of money market funds included using 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 the 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.

8


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

 

 

 

 

 

 

 

 

Level 3

 

Balance as of December 31, 2014

 

 

 

 

 

 

$

1,048

 

Change in fair value

 

 

 

 

 

 

 

(354

)

Balance as of March 31, 2015

 

 

 

 

 

 

$

694

 

 

For the three months ended March 31, 2015, the Company recorded a gain of $354,000 due to the change in fair value of the contingent consideration.  No gain or loss from change in fair value of the contingent consideration was recognized during the three months ended March 31, 2014.  The change in fair value of the contingent consideration during the period was primarily driven by the decrease in the Company’s common stock price.  Gains and losses as a result of the changes in the fair value of the contingent consideration are included as a component of operations in the accompanying condensed consolidated statements of operations.

 

4. Allowance for Doubtful Accounts

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

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

Balance at beginning of period

$

408

 

 

$

332

 

Bad debt expense

 

9

 

 

 

14

 

Recoveries (write-offs), net

 

(10

)

 

 

1

 

Balance at end of period

$

407

 

 

$

347

 

 

 

5. Balance Sheet Components

Property and Equipment, Net

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

 

 

March 31,

2015

 

 

December 31,

2014

 

Computer equipment

$

17,984

 

 

$

17,325

 

Software

 

31,663

 

 

 

30,791

 

Furniture and fixtures

 

1,669

 

 

 

1,645

 

Leasehold improvements

 

2,655

 

 

 

2,393

 

Total

 

53,971

 

 

 

52,154

 

Accumulated depreciation and amortization

 

(31,623

)

 

 

(28,783

)

Projects in process

 

1,290

 

 

 

2,028

 

Property and equipment, net

$

23,638

 

 

$

25,399

 

Depreciation and amortization expense of property and equipment was $3,144,000 and $2,867,000 for the three months ended March 31, 2015 and 2014, respectively.

During the three months ended March 31, 2015 and 2014, the Company capitalized $326,000 and $1,369,000, respectively, of development and enhancement costs related to Retailer iQ. The Company recognized $2,257,000 and $1,431,000 of amortization expense in cost of revenues during the three months ended March 31, 2015 and 2014, respectively.  The unamortized capitalized development and enhancement costs related to the new platform was $17,069,000 and $19,000,000 as of March 31, 2015 and December 31, 2014, respectively.

9


Accrued Compensation and Benefits

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

 

 

March 31,

2015

 

 

December 31,

2014

 

Bonus

$

2,007

 

 

$

6,909

 

Payroll and related expenses

 

1,677

 

 

 

2,067

 

Commissions

 

1,865

 

 

 

3,458

 

Vacation

 

2,420

 

 

 

2,427

 

Accrued compensation and benefits

$

7,969

 

 

$

14,861

 

 

Other Current Liabilities

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

 

 

March 31,

2015

 

 

December 31,

2014

 

Legal and professional fees

$

1,849

 

 

$

1,699

 

Marketing expenses

 

2,959

 

 

 

3,415

 

Distribution fees

 

5,722

 

 

 

5,805

 

Accrued property and equipment

 

344

 

 

 

687

 

Deferred rent

 

227

 

 

 

536

 

Contingent consideration

 

694

 

 

 

1,048

 

Other

 

3,050

 

 

 

2,600

 

Other current liabilities

$

14,845

 

 

$

15,790

 

 

6. 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 change in the carrying value of goodwill is as follows (in thousands):

 

 

Goodwill

 

Balance as of December 31, 2014

$

29,277

 

Foreign currency translation

 

(28

)

Balance as of March 31, 2015

$

29,249

 

 

 

Intangible assets consist of the following (in thousands):

 

 

March 31,

2015

Gross

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

March 31,

2015

Net

 

 

Weighted

Average

Amortization

Period

(Years)

Domain names

$

4,968

 

 

$

(2,996

)

 

$

 

 

$

1,972

 

 

4

Patents

 

1,050

 

 

 

(599

)

 

 

 

 

 

451

 

 

6

Customer relationships

 

7,164

 

 

 

(2,302

)

 

 

3

 

 

 

4,865

 

 

4

Vendor relationships

 

890

 

 

 

(278

)

 

 

 

 

 

612

 

 

3

Developed Technologies

 

4,117

 

 

 

(1,023

)

 

 

 

 

 

3,094

 

 

4

Trade names

 

167

 

 

 

(128

)

 

 

 

 

 

39

 

 

1

 

$

18,356

 

 

$

(7,326

)

 

$

3

 

 

$

11,033

 

 

4

 

10


 

December 31,

2014

Gross

 

 

Accumulated

Amortization

 

 

Foreign

Currency

Translation

 

 

December 31,

2014

Net

 

 

Weighted

Average

Amortization

Period

(Years)

Domain names

$

4,968

 

 

$

(2,836

)

 

$

 

 

$

2,132

 

 

4

Patents

 

1,050

 

 

 

(570

)

 

 

 

 

 

480

 

 

6

Customer relationships

 

7,164

 

 

 

(1,978

)

 

 

21

 

 

 

5,207

 

 

4

Vendor relationships

 

890

 

 

 

(223

)

 

 

 

 

 

667

 

 

3

Developed technologies

 

4,117

 

 

 

(834

)

 

 

 

 

 

3,283

 

 

5

Trade names

 

167

 

 

 

(121

)

 

 

3

 

 

 

49

 

 

2

 

$

18,356

 

 

$

(6,562

)

 

$

24

 

 

$

11,818

 

 

4

 

Amortization expense related to intangible assets subject to amortization was $764,000 and $305,000 for the three months ended March 31, 2015 and 2014, respectively. Estimated future amortization expense of intangible assets as of March 31, 2015 is as follows (in thousands):

 

 

Total

 

2015, remaining nine months

$

2,199

 

2016

 

2,789

 

2017

 

2,482

 

2018

 

2,244

 

2019

 

1,213

 

2020 and beyond

 

106

 

Total estimated amortization expense

$

11,033

 

 

 

7. Debt Obligation

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 % 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 2.375% at March 31, 2015. 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 March 31, 2015 and December 31, 2014, $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 March 31, 2015, the Company was in compliance with the financial and non-financial covenants under the credit and security agreement.

 

8. 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”).  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.

11


Stock Options

The fair value of each option was estimated on the date of grant for the period presented using the following assumptions:

 

 

Three Months Ended

 

 

March 31, 2014

 

Expected life (in years)

 

6.08

 

Risk-free interest rate

 

2.33%

 

Volatility

 

55%

 

Dividend yield

 

 

The weighted-average grant-date fair value of options granted was and $8.60 per share during the three months ended March 31, 2014.  There were no option grants during the three months ended March 31, 2015.

Restricted Stock Units

The fair value of RSUs equals the market value of the Company’s common stock on the date of the grant. The RSUs are excluded from issued and outstanding shares until they are vested.

 

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, 2014

 

1,825,112

 

 

 

9,494,763

 

 

$

7.00

 

 

 

6.57

 

 

$

107,913

 

 

 

6,809,415

 

 

$

12.66

 

Increase in shares authorized

 

3,255,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

(378,436

)

 

 

3.31

 

 

 

 

 

 

 

4,198

 

 

 

 

 

 

 

 

 

Options canceled or expired

 

10,285

 

 

 

(10,285

)

 

 

8.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs granted

 

(2,272,800

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,272,800

 

 

 

14.49

 

RSUs released

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,144,437

)

 

 

12.16

 

RSUs canceled or expired

 

411,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(411,703

)

 

 

12.79

 

Balance as of March 31, 2015

 

3,229,500

 

 

 

9,106,042

 

 

 

7.15

 

 

 

6.36

 

 

 

55,336

 

 

 

7,526,075

 

 

 

13.28

 

Vested and expected to vest as of

   March 31, 2015

 

 

 

 

 

8,672,053

 

 

 

6.87

 

 

 

6.27

 

 

 

54,109

 

 

 

 

 

 

 

 

 

Vested and exercisable as of

   March 31, 2015

 

 

 

 

 

6,772,801

 

 

 

5.15

 

 

 

5.70

 

 

 

49,119

 

 

 

 

 

 

 

 

 

 

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

The aggregate total fair value of shares which vested during the three months ended March 31, 2015 and 2014 was $1,211,000 and $1,005,000, respectively.

Employee Stock Purchase Plan

Eligible employees can enroll and elect to contribute up to 15% of their base compensation through payroll withholdings in each offering period, subject to certain limitations. Each offering period is six months in duration, with the exception of the initial offering period which commenced in March 2014 and ended in November 2014. The purchase price of the stock is the lower of 85% of the fair market value on (a) the first day of the offering period or (b) the purchase date.

12


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

 

 

Three Months Ended

 

 

March 31, 2014

 

Expected life (in years)

 

0.62

 

Risk-free interest rate

 

0.08%

 

Volatility

 

55%

 

Dividend yield

 

 

172,277 shares of common stock was issued under the 2014 Employee Stock Purchase Plan (“ESPP”) in November 2014.  As of March 31, 2015, 1,427,723 shares are available for issuance under the ESPP.

Stock-based Compensation Expense

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

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

Cost of revenues

$

449

 

 

$

1,577

 

Sales and marketing

 

2,941

 

 

 

4,117

 

Research and development

 

2,784

 

 

 

5,510

 

General and administrative

 

2,758

 

 

 

3,388

 

Total stock-based compensation expense

$

8,932

 

 

$

14,592

 

 

As of March 31, 2015, there was $77,452,000 of unrecognized stock-based compensation expense (net of estimated forfeitures), of which $6,104,000 is related to stock options and ESPP shares and $71,348,000 is related to RSUs. The total unrecognized stock-based compensation expense related to stock options and ESPP as of March 31, 2015 will be amortized over a weighted-average period of 2.4 years. The total unrecognized stock-based compensation expense related to RSUs as of March 31, 2015 will be amortized over a weighted-average period of 3.3 years.

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

 

9. Stockholders’ Equity

Reverse Stock Split

All share and per share information for all periods presented has been adjusted to reflect the effect of 2.5-for-1 reverse stock split in February 2014.

Initial Public Offering

In March 2014, the Company issued 12,075,000 shares of common stock and received net proceeds of $174,305,000 after deducting underwriting discounts, commissions and offering expenses.  In addition, all of the Company’s outstanding redeemable convertible preferred stock automatically converted into 41,580,507 shares of common stock.

Common Stock Repurchases

In February 2015, the Company’s Board of Directors authorized the repurchase of up to $50,000,000 of the Company’s common stock through February 2016, subject to certain limitations.  209,300 shares were repurchased at an aggregate cost of $2,052,000 during the three months ended March 31, 2015.  During the three months ended March 31, 2014, no shares of our common stock were repurchased.

 

13


10. Income Taxes

The Company recorded an income tax expense (benefit) of $192,000, and $(244,000) during the three months ended March 31, 2015 and 2014, respectively. The income tax expense during the first quarter of 2015 is primarily attributable to the increase in the deferred tax liabilities due to the change in fair value of contingent consideration and tax deductible goodwill from prior acquisitions.  The benefit from income taxes during the first quarter of 2014 was primarily attributable to the release of a portion of the valuation allowance due to the net acquired deferred tax liabilities from the Yub, Inc. (“Yub”) acquisition.

 

11. Net Loss per Share

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

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

Net loss

$

(4,001

)

 

$

(14,042

)

 

 

 

 

 

 

 

 

Weighted-average number of common shares used in computing

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

 

82,166

 

 

 

34,535

 

 

 

 

 

 

 

 

 

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

$

(0.05

)

 

$

(0.41

)

 

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

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

Stock options and ESPP

 

9,200

 

 

 

11,424

 

Restricted stock units

 

7,526

 

 

 

4,492

 

 

 

16,726

 

 

 

15,916

 

 

 

12. Commitments and Contingencies

Leases

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

14


Aggregate Future Contractual Obligations and Lease Commitments

As of March 31, 2015, the Company’s minimum payments under its noncancelable operating and capital leases are as follows (in thousands):

 

 

Operating Leases

 

 

Capital Leases

 

2015, remaining nine months

$

2,651

 

 

$

51

 

2016

 

3,577

 

 

 

52

 

2017

 

1,524

 

 

 

22

 

2018

 

1,478

 

 

 

18

 

2019

 

1,460

 

 

 

1

 

2020 and thereafter

 

1,352

 

 

 

 

Total minimum payments

$

12,042

 

 

$

144

 

 

 

 

 

 

 

 

 

Less: Amount representing interest

 

 

 

 

 

9

 

Present value of capital lease obligations

 

 

 

 

 

135

 

Less: Current portion

 

 

 

 

 

60

 

Capital lease obligation, net of current portion

 

 

 

 

$

75

 

 

Other Future Commitments

The Company has other long-term commitments for the years 2015 to 2034 in the amount of $7,170,000 for marketing arrangements.

During 2013, the Company entered into service agreements under which the Company is obligated to prepay non-refundable payments up to $19,250,000 over three years or earlier upon achievement of certain milestones. As of March 31, 2015, the Company made payments of $8,850,000.  The prepayments will be recognized as cost of revenues over the related service period. The unamortized balance is included in other assets on the accompanying condensed consolidated balance sheets.

Indemnification

In the normal course of business, to facilitate transactions related to the Company’s operations, the Company indemnifies certain parties, including CPGs, advertising agencies and other third parties. The Company has agreed to hold certain parties harmless against losses arising from claims of intellectual property infringement or other liabilities relating to or arising from our products, services or other contractual infringement. The term of these indemnity provisions generally survive termination or expiration of the applicable agreement. To date, the Company has not recorded any liabilities related to these agreements.

Litigation

On March 11, 2015, a putative stockholder class action lawsuit was filed against us, the members of our board of directors, certain of our executive officers and the underwriters of our initial public offering (“IPO”): Nguyen v. Coupons.com Incorporated, Case No. CGC-15-544654 (California Superior Court, San Francisco County). The complaint asserts claims under the Securities Act and seeks unspecified damages and other relief on behalf of a putative class of persons and entities who purchased stock pursuant or traceable to the registration statement and prospectus for our IPO. Plaintiff Nguyen requested and obtained a dismissal without prejudice of his San Francisco action and filed another complaint with substantially the same allegations in the Santa Clara County Superior Court, Nguyen v. Coupons.com Incorporated, Case No. 1-15-CV-278777 (California Superior Court, Santa Clara County) (Mar. 30, 2015). Three other complaints with substantially the same allegations have also been filed: O’Donnell v. Coupons.com Incorporated, Case No. 1-15-CV-278399 (California Superior Court, Santa Clara County) (Mar. 20, 2015); So v. Coupons.com Incorporated, Case No. 1-15-CV-278774 (California Superior Court, Santa Clara County) (Mar. 30, 2015); and Silverberg v. Coupons.com Incorporated, Case No. 1-15-CV-278891 (California Superior Court, Santa Clara County) (Apr. 2, 2015). On May 7, 2015, the Santa Clara court consolidated the Nguyen, So and Silverberg actions with the O’Donnell action. We intend to defend this litigation vigorously. Based on information currently available, we believe that the potential for liability for the above claims is remote.

In addition, in the ordinary course of business, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual property, commercial, employment, and other matters. The Company records a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range

15


of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results, or financial condition.

The Company believes that liabilities associated with any claims are remote, therefore the Company has not recorded any accrual for claims as of March 31, 2015 and December 31, 2014.

 

13. Information About Geographic Areas

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

 

 

 

16


Item 2.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K filed on March 19, 2015 with the SEC. In addition to historical financial information, the following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  The forward looking statements reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences are described in “Risk Factors” set forth in our Annual Report on Form 10-K and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We connect great brands and retailers with consumers by delivering digital promotions and media to consumers. Over 2,000 brands from approximately 700 consumer packaged goods companies (“CPGs”) and many of the leading grocery, drug, dollar channel and mass merchandise retailers use our digital platform to engage consumers at the critical moments when they are choosing which products they will buy and where they will shop. We deliver digital coupons, including coupon codes, and media and advertising through our platform.  Our platform includes our web, mobile and social channels, as well as those of our CPGs and retailers, and our extensive network of approximately 30,000 publishers that display our coupon and media offerings on their websites and mobile applications.

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

We generate promotion revenues from digital transactions on our network. Each time a consumer activates a digital coupon on our platform by either printing it for physical redemption at a retailer or saving it to a retailer loyalty account for automatic digital redemption, we are generally paid a fee that is not dependent on the digital coupon being redeemed. For coupon codes, we are generally paid a fee when a consumer makes a purchase using a coupon code from our platform.  We generally pay a distribution fee to retailers or publishers when a consumer activates a digital promotion on their website or mobile app.  These distribution fees are included in our cost of revenues. We also generate media revenue through the placement of online advertisements from CPGs and retailers that are displayed on our websites and mobile apps, as well as those of our publishers, retailers and other third parties.

Our CPG customers include many of the leading food, beverage, drug, personal and household product manufacturers. We primarily generate revenue from CPGs through coupons and media offered through our platform and our publisher network. Retailers on our platform include leading grocery, drug, dollar channel and mass market retailers.  We also service a broad range of specialty stores, including clothing, electronics, home improvement and many others through which we generate revenue primarily from offering coupon codes through our platform.

Our operating expenses may increase in the future as we continue to invest in research and development to enhance our platform and in sales and marketing to acquire new CPG and retailer customers and increase revenues from our existing customers.