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EX-32.2 - EX-32.2 - EXA CORPexa-ex322_8.htm
EX-32.1 - EX-32.1 - EXA CORPexa-ex321_9.htm
EX-31.2 - EX-31.2 - EXA CORPexa-ex312_10.htm
EX-31.1 - EX-31.1 - EXA CORPexa-ex311_11.htm

 

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 July 31, 2016

OR

o

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

Commission File Number: 001-35584

 

EXA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

04-3139906

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

55 Network Drive

Burlington, MA 01803

(Address of Principal Executive Offices, Including Zip Code)

(781) 564-0200

(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  o

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  o

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

o

Accelerated filer

x

Non-accelerated filer

o  (Do not check if a smaller reporting company)

Smaller reporting company

o

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

As of August 26, 2016, 14,820,856 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

 

 

 

 


 

EXA CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED July 31, 2016

TABLE OF CONTENTS

 

 

Pages

 

 

PART I. FINANCIAL INFORMATION

 

 

 

ITEM 1. FINANCIAL STATEMENTS

3

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of July 31, 2016 and January 31, 2016

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the three and six months ended July 31, 2016 and 2015

4

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended July 31, 2016 and 2015

5

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

14

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

27

 

 

ITEM 4. CONTROLS AND PROCEDURES

28

 

 

PART II. OTHER INFORMATION

 

 

 

ITEM 1. LEGAL PROCEEDINGS

29

 

 

ITEM 1A. RISK FACTORS

29

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

29

 

 

ITEM 6. EXHIBITS

30

 

 

SIGNATURES

31

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

EXA CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

 

July 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,187

 

 

$

27,649

 

Accounts receivable

 

 

11,655

 

 

 

32,072

 

Prepaid expenses and other current assets

 

 

2,689

 

 

 

3,707

 

Total current assets

 

 

47,531

 

 

 

63,428

 

Property and equipment, net

 

 

10,832

 

 

 

12,032

 

Intangible assets, net

 

 

1,869

 

 

 

2,044

 

Deferred tax assets

 

 

441

 

 

 

428

 

Restricted cash

 

 

352

 

 

 

352

 

Other assets

 

 

775

 

 

 

737

 

Total assets

 

$

61,800

 

 

$

79,021

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,151

 

 

$

3,462

 

Accrued expenses

 

 

7,458

 

 

 

12,199

 

Current portion of deferred revenue

 

 

26,014

 

 

 

32,849

 

Current portion of capital lease obligations

 

 

2,321

 

 

 

2,823

 

Total current liabilities

 

 

37,944

 

 

 

51,333

 

Deferred revenue

 

 

1,736

 

 

 

4,484

 

Capital lease obligations

 

 

1,657

 

 

 

2,549

 

Deferred rent

 

 

2,527

 

 

 

2,490

 

Other long-term liabilities

 

 

726

 

 

 

678

 

Total liabilities

 

 

44,590

 

 

 

61,534

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity :

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued

   and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 30,000,000 shares authorized; 14,853,358 and

   14,663,621 shares issued, respectively; 14,820,856 and 14,631,119 shares

   outstanding, respectively

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

92,928

 

 

 

91,626

 

Accumulated deficit

 

 

(75,306

)

 

 

(73,685

)

Treasury stock (32,502 common shares, at cost)

 

0

 

 

 

0

 

Accumulated other comprehensive loss

 

 

(427

)

 

 

(469

)

Total stockholders’ equity

 

 

17,210

 

 

 

17,487

 

Total liabilities and stockholders’ equity

 

$

61,800

 

 

$

79,021

 

 

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

 

3


 

EXA CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended July 31,

 

 

Six Months Ended July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License revenue

 

$

14,810

 

 

$

12,977

 

 

$

28,869

 

 

$

25,219

 

Project revenue

 

 

2,302

 

 

 

2,478

 

 

 

5,028

 

 

 

5,004

 

Total revenue

 

 

17,112

 

 

 

15,455

 

 

 

33,897

 

 

 

30,223

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

4,632

 

 

 

4,755

 

 

 

9,436

 

 

 

9,398

 

Sales and marketing

 

 

3,392

 

 

 

2,440

 

 

 

6,723

 

 

 

4,928

 

Research and development

 

 

6,023

 

 

 

5,952

 

 

 

12,234

 

 

 

12,122

 

General and administrative

 

 

3,457

 

 

 

3,126

 

 

 

6,906

 

 

 

6,393

 

Total operating expenses

 

 

17,504

 

 

 

16,273

 

 

 

35,299

 

 

 

32,841

 

Loss from operations

 

 

(392

)

 

 

(818

)

 

 

(1,402

)

 

 

(2,618

)

Other (expense) income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange (loss) gain

 

 

(22

)

 

 

(171

)

 

 

193

 

 

 

(223

)

Interest expense

 

 

(39

)

 

 

(54

)

 

 

(86

)

 

 

(119

)

Interest income

 

 

11

 

 

 

2

 

 

 

21

 

 

 

5

 

Other income, net

 

 

3

 

 

 

 

 

 

12

 

 

 

 

Total other (expense) income, net

 

 

(47

)

 

 

(223

)

 

 

140

 

 

 

(337

)

Loss before income taxes

 

 

(439

)

 

 

(1,041

)

 

 

(1,262

)

 

 

(2,955

)

Provision for income taxes

 

 

(239

)

 

 

(154

)

 

 

(359

)

 

 

(128

)

Net loss

 

$

(678

)

 

$

(1,195

)

 

$

(1,621

)

 

$

(3,083

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.05

)

 

$

(0.08

)

 

$

(0.11

)

 

$

(0.21

)

Diluted

 

$

(0.05

)

 

$

(0.08

)

 

$

(0.11

)

 

$

(0.21

)

Weighted average shares outstanding used in computing net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,784,795

 

 

 

14,535,539

 

 

 

14,711,429

 

 

 

14,420,562

 

Diluted

 

 

14,784,795

 

 

 

14,535,539

 

 

 

14,711,429

 

 

 

14,420,562

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(678

)

 

$

(1,195

)

 

$

(1,621

)

 

$

(3,083

)

Foreign currency translation adjustment

 

 

(75

)

 

 

(12

)

 

 

42

 

 

 

28

 

Comprehensive loss

 

$

(753

)

 

$

(1,207

)

 

$

(1,579

)

 

$

(3,055

)

 

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

 

 

4


 

EXA CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Six Months Ended July 31,

 

 

 

2016

 

 

2015

 

Cash flows provided by operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,621

)

 

$

(3,083

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,991

 

 

 

1,528

 

Stock-based compensation expense

 

 

926

 

 

 

1,105

 

Deferred rent expense

 

 

230

 

 

 

(179

)

Deferred income taxes

 

 

(13

)

 

 

 

Net change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

20,004

 

 

 

21,302

 

Prepaid expenses and other current assets

 

 

997

 

 

 

(276

)

Other assets

 

 

(39

)

 

 

68

 

Accounts payable

 

 

(910

)

 

 

112

 

Accrued expenses

 

 

(5,102

)

 

 

(3,635

)

Other liabilities

 

 

47

 

 

 

(93

)

Deferred revenue

 

 

(9,777

)

 

 

(7,251

)

Net cash provided by operating activities

 

 

6,733

 

 

 

9,598

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(836

)

 

 

(626

)

Net cash used in investing activities

 

 

(836

)

 

 

(626

)

Cash flows used in financing activities:

 

 

 

 

 

 

 

 

Proceeds from stock option and warrant exercises

 

 

356

 

 

 

1,130

 

Payments of capital lease obligations

 

 

(1,456

)

 

 

(1,301

)

Net cash used in financing activities

 

 

(1,100

)

 

 

(171

)

Effect of exchange rate changes on cash

 

 

741

 

 

 

(180

)

Net increase in cash and cash equivalents

 

 

5,538

 

 

 

8,621

 

Cash and cash equivalents, beginning of period

 

 

27,649

 

 

 

21,785

 

Cash and cash equivalents, end of period

 

$

33,187

 

 

$

30,406

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

86

 

 

$

119

 

Cash paid for income taxes

 

$

1,117

 

 

$

1,043

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Decrease in unpaid purchases of property and equipment

 

$

(337

)

 

$

 

 

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

 

 

 

5


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands except per share amounts)

 

1. Description of Business

Exa Corporation (the “Company” or “Exa”), a Delaware corporation, develops, sells and supports simulation software and services used primarily by vehicle manufacturers to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. The Company’s solutions enable engineers and designers to augment or replace conventional methods of evaluating designs that rely on expensive and inefficient physical prototypes and test facilities with accurate digital simulations that are more useful, cost effective and timely. The Company’s simulation solutions enable customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes, which results in cost savings and fundamental improvements in the development process. The Company is primarily focused on the ground transportation market, but is also exploring the application of its capabilities in the aerospace, oil and gas production, chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

Exa has offices and sells directly in the United States and through subsidiaries in France, Germany, Italy, Japan, Korea, China, and the United Kingdom. The Company also conducts business in Sweden, India, Brazil, Russia, Canada, Finland, Spain and Australia.

 

 

2. Summary of Significant Accounting Policies

Applicable Accounting Guidance

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative United States generally accepted accounting principles (“GAAP”) as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Basis of Presentation

The interim financial data as of July 31, 2016 and for the three and six months ended July 31, 2016 and 2015 are unaudited; however, in the opinion of the Company’s management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The condensed consolidated balance sheet presented as of January 31, 2016 has been derived from the audited consolidated financial statements as of that date. The unaudited condensed consolidated financial statements presented herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Exa annual report on Form 10-K for the year ended January 31, 2016 filed with the Securities and Exchange Commission on March 21, 2016.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from management’s estimates if future events differ substantially from past experience, or other assumptions, which reasonable when made, do not turn out to be substantially accurate.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle, as a result of which more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2018, and interim periods therein. The two permitted transition methods under the new standard are: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently

6


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard when it becomes effective.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new guidance, management will be required to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The provisions of this ASU are effective for annual periods beginning after December 15, 2016, and for interim periods therein. This ASU is not expected to have an impact on the Company’s financial statements or disclosures.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The guidance clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. The standard will be effective for annual reporting periods beginning after December 15, 2016, and for interim periods therein. Early adoption is permitted. This ASU is not expected to have an impact on the Company’s financial statements or disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires the recognition of lease assets and liabilities for all leases, with certain exceptions, on the balance sheet. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for annual periods beginning after December 15, 2018, and for interim periods therein. The Company is currently evaluating the requirements of this ASU and has not yet determined its impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718)—Improvements to Employee Share-Based Payment Accounting. This standard simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The provisions of this ASU are effective for annual periods beginning after December 15, 2016, and for interim periods therein. Early adoption is permitted. The Company is currently evaluating the requirements of this ASU and has not yet determined its impact on the Company’s consolidated financial statements.

 

 

3. Computation of Net Loss Per Share

Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding (using the treasury stock method) if securities convertible into or exercisable for potentially dilutive shares of common stock (stock options, restricted stock units and warrants) had been converted into or exercisable for such shares of common stock, and if such assumed conversion or exercise would have been dilutive. Exercises or conversions that would have been anti-dilutive are excluded from the calculation of diluted EPS.

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

 

 

 

Three Months Ended July 31,

 

 

Six Months Ended July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(678

)

 

$

(1,195

)

 

$

(1,621

)

 

$

(3,083

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares, basic and diluted

 

 

14,784,795

 

 

 

14,535,539

 

 

 

14,711,429

 

 

 

14,420,562

 

Basic and diluted net loss per share

 

$

(0.05

)

 

$

(0.08

)

 

$

(0.11

)

 

$

(0.21

)

 

7


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

The table below represents outstanding options, restricted stock unit awards and warrants that were excluded from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect. All of the Company’s outstanding stock options, unvested restricted stock units and warrants were anti-dilutive as of July 31, 2016 and 2015 due to the net loss position of the Company.

 

 

 

As of July 31,

 

 

 

2016

 

 

2015

 

Options, restricted stock unit awards and warrants to

   purchase common and preferred stock

 

 

1,985,605

 

 

 

2,471,058

 

 

 

4. Property and Equipment, net

Property and equipment, net consists of the following:

 

 

 

July 31,

2016

 

 

January 31,

2016

 

Computer software and equipment

 

$

18,316

 

 

$

17,964

 

Office equipment and furniture

 

 

1,556

 

 

 

1,349

 

Leasehold improvements

 

 

1,632

 

 

 

1,562

 

Construction-in-process

 

 

270

 

 

 

169

 

Total property and equipment

 

 

21,774

 

 

 

21,044

 

Less accumulated depreciation

 

 

(10,942

)

 

 

(9,012

)

Property and equipment, net

 

$

10,832

 

 

$

12,032

 

 

For the three and six months ended July 31, 2016, depreciation expense was $892 and $1,816, respectively. For the three and six months ended July 31, 2015, depreciation expense was $690 and $1,353, respectively. Included in computer software and equipment and office equipment and furniture is equipment held pursuant to capital leases with costs of $14,901 and $14,809 and accumulated depreciation of $8,105 and $6,808 as of July 31, 2016 and January 31, 2016, respectively.

 

 

5. Accrued Expenses

Accrued expenses consist of the following:

 

 

 

July 31,

2016

 

 

January 31,

2016

 

Accrued payroll

 

$

2,357

 

 

$

1,828

 

Sales and value added taxes

 

 

1,444

 

 

 

4,075

 

Accrued commissions and bonuses

 

 

1,272

 

 

 

3,900

 

Accrued income taxes payable

 

 

652

 

 

 

541

 

Deferred rent, current portion

 

 

380

 

 

 

186

 

Legal and professional

 

 

553

 

 

 

805

 

Other

 

 

800

 

 

 

864

 

Total accrued expenses

 

$

7,458

 

 

$

12,199

 

 

 

6. Deferred Rent

Payment escalations, rent holidays and lease incentives specified in the Company’s non-cancelable operating lease and hosting agreements are recognized on a straight-line basis over the terms of the agreements. For purposes of recognizing incentives and minimum rental expenses on a straight-line basis, the Company uses the date it obtains the legal right to use and control the leased space to begin amortization. The differences arising from straight-line expense recognition and cash payments are recorded as deferred rent in the accompanying consolidated balance sheets. Tenant leasehold improvement allowances received from landlords are recorded as deferred rent and are amortized as operating expense over the applicable lease terms.

8


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

Deferred rent consists of the following:

 

 

 

July 31,

2016

 

 

January 31,

2016

 

Leasehold improvement incentive

 

$

1,711

 

 

$

1,839

 

Non-cash rent expense

 

 

1,196

 

 

 

837

 

Total deferred rent

 

 

2,907

 

 

 

2,676

 

Less current portion included in accrued expenses

 

 

(380

)

 

 

(186

)

Deferred rent, net of current portion

 

$

2,527

 

 

$

2,490

 

 

 

7. Fair Value Measurements

Financial instruments consist primarily of cash and cash equivalents, accounts receivable and capital lease obligations. As of July 31, 2016 and January 31, 2016, the carrying amounts of these instruments approximate their fair values. The estimated fair values have been determined from information obtained from market sources and management estimates.

In determining the fair value of its financial assets and liabilities, the Company uses various valuation approaches. ASC 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement and that are based on management’s best estimate of inputs market participants would use for pricing the asset or liability at the measurement date, including assumptions about risk.

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of July 31, 2016:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,036

 

 

$

15,036

 

 

$

 

 

$

 

 

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of January 31, 2016:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

11,019

 

 

$

11,019

 

 

$

 

 

$

 

 

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

 

 

9


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

8. Acquired Intangible Assets

Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives.

The following table reflects the carrying value of intangible assets as of July 31, 2016: 

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Intellectual property

 

$

3,505

 

 

$

(1,636

)

 

$

1,869

 

Access to facilities contract

 

 

38

 

 

 

(38

)

 

 

 

Total

 

$

3,543

 

 

$

(1,674

)

 

$

1,869

 

 

The following table reflects the carrying value of intangible assets as of January 31, 2016:

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Intellectual property

 

$

3,505

 

 

$

(1,461

)

 

$

2,044

 

Access to facilities contract

 

 

38

 

 

 

(38

)

 

 

 

Total

 

$

3,543

 

 

$

(1,499

)

 

$

2,044

 

 

For the three and six months ended July 31, 2016, amortization expense of intangible assets was $88 and $175, respectively. For the three and six months ended July 31, 2015, amortization expense of intangible assets was $87 and $175, respectively.

 

 

9. Commitments and Contingencies

Legal Contingencies

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. There is no litigation pending that could, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification provisions is generally perpetual after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is unlimited.

Based on historical experience and information known as of July 31, 2016 and January 31, 2016, the Company has not recorded any liabilities for these indemnities.

 

Operating Leases

Effective July 1, 2016, the Company entered into an agreement to lease space and high performance computing capacity at a data center located in Virginia. The three-year agreement will provide access to up to 300 KW hours of computing capacity, which the Company believes will be suitable and adequate to meet the growing demands of its customers.

 

10


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

As of July 31, 2016, after taking into consideration the above agreement, total future minimum lease payments under non-cancelable lease arrangements are as follows:

 

 

Year ended January 31,

 

 

 

 

2017 (Remainder as of July 31, 2016)

 

$

2,557

 

2018

 

 

5,865

 

2019

 

 

5,479

 

2020

 

 

3,889

 

2021

 

 

2,033

 

Thereafter

 

 

4,806

 

 

 

$

24,629

 

 

 

 

 

10. Stock-Based Compensation

The fair value of common stock service-based options for employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: 

 

 

 

Six Months Ended

July 31,

 

 

 

2016

 

 

2015

 

Expected life (years)

 

 

6.25

 

 

 

6.25

 

Risk-free interest rate

 

 

1.7%

 

 

 

2.0%

 

Expected volatility

 

 

35.1%

 

 

 

38.1%

 

Expected dividend yield

 

 

0.0%

 

 

 

0.0%

 

 

The weighted-average grant date fair value per share for service-based stock options granted in the three and six months ended July 31, 2016 was $4.66 and $4.29, respectively. The weighted-average grant date fair value per share for service-based stock options granted in the three and six months ended July 31, 2015 was $4.53 and $4.44, respectively.

For standard service-based stock options and restricted stock units, the Company records stock-based compensation expense over the estimated service/vesting period. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that is ultimately expected to vest.

Performance-based stock options are recognized as expense over the requisite service period when it becomes probable that performance measures triggering vesting will be met. Certain grants vested during the first quarter of fiscal year 2017 based on achieved performance metrics. As of July 31, 2016, the Company has concluded that it is not probable that the required metrics for vesting of the remaining unvested options will be achieved. As such, the Company has not recognized any additional share-based compensation expense associated with the unvested portion of these performance-based options.

During the first quarter of fiscal year 2017, the Company granted performance-based restricted stock units (“PSUs”). PSUs are recognized as expense when it becomes probable that performance measures triggering vesting will be achieved. As of July 31, 2016, the Company has concluded that it is not probable that any of the required metrics for vesting of the PSUs will be achieved. As a result, the Company has not recognized any share-based compensation expense associated with these awards.

Total stock-based compensation expense related to stock options and restricted stock units issued by the Company is as follows: 

 

 

 

Three Months Ended

July 31,

 

 

Six Months Ended

July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Cost of revenues

 

$

39

 

 

$

53

 

 

$

83

 

 

$

122

 

Sales and marketing

 

 

58

 

 

 

85

 

 

 

148

 

 

 

200

 

Research and development

 

 

162

 

 

 

185

 

 

 

345

 

 

 

426

 

General and administrative

 

 

178

 

 

 

168

 

 

 

350

 

 

 

357

 

Total

 

$

437

 

 

$

491

 

 

$

926

 

 

$

1,105

 

 

11


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

The total unrecognized compensation cost related to outstanding stock options and service-based restricted stock units is $2,537 at July 31, 2016. This amount is expected to be recognized over a weighted-average period of 1.69 years.

 

 

11. Income Taxes

For the three and six months ended July 31, 2016, the Company’s income tax provision was $239 and $359, respectively. For the three and six months ended July 31, 2015, the income tax provision was $154 and $128, respectively. The provision for all periods primarily consists of the tax effects of foreign operating results and foreign withholding taxes.

In determining the realizability of the net United States federal and state deferred tax assets, the Company considers numerous factors including historical profitability, estimated future taxable income, prudent and feasible tax planning strategies and the industry in which it operates. Management reassesses the realization of the deferred tax assets each reporting period, which resulted in a valuation allowance against the full amount of the Company’s United States deferred tax assets in the first quarter of fiscal year 2015. To the extent that the financial results of the United States operations improve in the future and the deferred tax assets become realizable, the Company will reduce the valuation allowance through earnings.

The Company and one or more of its subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, the Company is no longer subject to federal, state, local or foreign examinations for years ending prior to January 31, 2011. However, carryforward attributes that were generated in tax years ending prior to January 31, 2012 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset its taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. During the first quarter of fiscal year 2015, management determined that the Company had experienced an ownership change for purposes of Section 382. This ownership change resulted in annual limitations to the amount of net operating loss carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The Company’s management has determined that, as of July 31, 2016, it had not experienced another ownership change for purposes of Section 382. However, future transactions in the Company’s common stock could trigger an ownership change for purposes of Section 382, which could further limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income, if any. Any such limitation, whether as the result of sales of common stock by the Company’s existing stockholders or sales of common stock by the Company, could have a material adverse effect on the Company’s results of operations in future years.

 

 

12. Geographic Information

Revenue by geographic area, attributed to individual countries based upon location of the external customer, is as follows:

 

 

 

Three Months Ended

July 31,

 

 

Six Months Ended

July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

United States

 

$

4,414

 

 

$

4,298

 

 

$

8,721

 

 

$

8,141

 

Germany

 

 

2,743

 

 

 

2,461

 

 

 

5,292

 

 

 

4,650

 

Japan

 

 

2,896

 

 

 

2,138

 

 

 

6,322

 

 

 

4,479

 

France

 

 

2,025

 

 

 

1,841

 

 

 

3,912

 

 

 

3,620

 

Korea

 

 

1,455

 

 

 

1,412

 

 

 

2,792

 

 

 

2,705

 

United Kingdom

 

 

1,738

 

 

 

1,842

 

 

 

3,382

 

 

 

3,703

 

Sweden

 

 

429

 

 

 

482

 

 

 

847

 

 

 

957

 

Other

 

 

1,412

 

 

 

981

 

 

 

2,629

 

 

 

1,968

 

 

 

$

17,112

 

 

$

15,455

 

 

$

33,897

 

 

$

30,223

 

 

12


EXA CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

(Dollars in thousands except per share amounts)

 

Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid. Net long-lived assets by principal geographic areas were as follows:

 

 

 

July 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

United States

 

$

10,210

 

 

$

11,346

 

France

 

 

303

 

 

 

388

 

Germany

 

 

118

 

 

 

110

 

Japan

 

 

114

 

 

 

116

 

Other

 

 

87

 

 

 

72

 

 

 

$

10,832

 

 

$

12,032

 

 

 

 

13


 

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 our financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Result of Operations appearing in our Annual Report on Form 10-K, filed with the SEC on March 21, 2016. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” or the “Company” refer to Exa Corporation.

Overview

We develop, sell and support simulation software and services that manufacturers use to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. Our solutions enable engineers and designers to augment or replace conventional methods of evaluating design alternatives that rely on expensive and inefficient physical prototypes and test facilities, such as wind tunnels used in vehicle design, with accurate digital simulations that are more useful and timely. Our simulation solutions enable our customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes. As a result, our customers realize significant cost savings and fundamental improvements in their vehicle development process.

We currently focus primarily on the ground transportation market, including manufacturers in the passenger vehicle, highway truck, off-highway vehicle and train markets, as well as their suppliers. Over 150 manufacturers currently utilize our products and services, including 14 of the global top 15 passenger vehicle manufacturer groups such as BMW, Ford, Hyundai, Jaguar Land Rover, Nissan, Porsche, Renault, Toyota and Volkswagen; truck and off-highway vehicle manufacturers such as Hyundai, Kenworth, Kobelco, MAN, Peterbilt, Scania and Volvo Truck; and suppliers to these manufacturers, such as Cummins, Denso and Delphi. We are also exploring other markets in which we believe the capabilities of PowerFLOW have broad application, such as the aerospace, oil and gas production, chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

One of the most critical challenges for our customers in their vehicle development processes is measuring or predicting how a vehicle feature or a mechanical system will interact with air, water or other fluids. For example, developing vehicles with reduced aerodynamic drag is critical to achieving the improvements in fuel efficiency that are increasingly desired by customers and mandated by government regulations. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. PowerFLOW relies upon proprietary technology that enables it to predict complex fluid flows with a level of reliability comparable to or better than physical testing. The combination of PowerFLOW’s accuracy and timeliness provides results that are superior to those of alternative computational fluid dynamics, or CFD, methods.

We derive our revenue primarily from the sale of our simulation software, using an annual capacity-based licensing model. Our customers usually purchase PowerFLOW simulation capacity under one-year term licenses, with a minority utilizing multi-year arrangements or a “pay as you go” model. Simulation capacity may be purchased as software-only, to be run on the customer’s own computer hardware, or provided in the form of software-as-a-service, via our hosted PowerFLOW ExaCLOUD offering. To introduce new customers to our simulation solutions, we typically perform fixed-price projects that include simulation services, along with engineering and consulting services. ExaCLOUD continues to play an increasingly important role in our new customer acquisition go-to-market model, as virtually all of our projects are now being delivered using that facility, thereby familiarizing our customers with its capabilities. Customers typically license our products for one application, such as aerodynamics, and over time expand to other applications such as thermal management or aeroacoustics.

14


 

During the six months ended July 31, 2016, revenue growth was driven by continued deployment of our simulation solutions in the installed base as well as by the addition of new customers. Investments made in field resources in prior fiscal years are yielding growth in both project and license revenue. The weakening U.S. dollar, particularly against the Euro and yen, had a material positive impact on revenue performance as compared to the same period last year. The geographic mix of revenue outside of the Americas is consistent with historical trends and reflects the impact of the stronger Euro and yen. During the six months ended July 31, 2016 and 2015, 75% and 72% of our revenue, respectively, came from outside of the Americas. Revenue for the six months ended July 31, 2016 was $33.9 million, with growth of 12.2% over the same period a year ago and 10.3% when measured on a constant currency basis. See “— Non-GAAP Measures” below for information about how we calculate and use revenue on a constant currency basis.

As a percent of revenue, our total operating expenses for the six months ended July 31, 2016 decreased approximately 4.6% when compared to the same period last year. This decrease is a result of our prior investments in resources to drive top line growth, including sales, marketing and research and development. While the majority of our expense base is in the United States, we have field resources based in our international offices, which provide some natural foreign exchange hedge. As a result, the weakening dollar had the effect of increasing total operating expenses when compared to the same period last year. For the six months ended July 31, 2016, total operating expenses were $35.3 million, with growth of 7.5% over the same period a year ago and 7.1% when measured on a constant currency basis. See “— Non-GAAP Measures” below for information about how we calculate and use operating expenses on a constant currency basis.

As a percent of revenue, our loss from operations for the six months ended July 31, 2016 was 4.6% lower than the same period last year, primarily as a result of the foreign currency impacts described above. Adjusted EBITDA for the six months ended July 31, 2016, as described in “Non-GAAP Measures” below, was improved at $1.5 million when compared to less than $0.1 million in the same period last year.

We ended the quarter with cash and cash equivalents of $33.2 million compared to $27.6 million as of January 31, 2016. This reflects strong accounts receivable collections activity and normal seasonal cash flows. Capital expenditures increased during the six months ended July 31, 2016 over the same period last year, primarily due to investments related to renovations to our headquarters office in Burlington, Massachusetts.

Results of operations for the three months ended July 31, 2016 and 2015

The following table sets forth, for the periods presented, data from our consolidated statements of operations:

 

 

 

Three Months Ended July 31,

 

(in thousands)

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

License revenue

 

$

14,810

 

 

$

12,977

 

Project revenue

 

 

2,302

 

 

 

2,478

 

Total revenues

 

 

17,112

 

 

 

15,455

 

Operating expenses: (1)

 

 

 

 

 

 

 

 

Cost of revenues

 

 

4,632

 

 

 

4,755

 

Sales and marketing

 

 

3,392

 

 

 

2,440

 

Research and development

 

 

6,023

 

 

 

5,952

 

General and administrative (2)

 

 

3,457

 

 

 

3,126

 

Total operating expenses

 

 

17,504

 

 

 

16,273

 

Loss from operations

 

 

(392

)

 

 

(818

)

Other expense, net

 

 

 

 

 

 

 

 

Foreign exchange loss

 

 

(22

)

 

 

(171

)

Interest expense