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EX-32.2 - EX-32.2 - Quotient Technology Inc.quot-ex322_6.htm
EX-32.1 - EX-32.1 - Quotient Technology Inc.quot-ex321_7.htm
EX-31.2 - EX-31.2 - Quotient Technology Inc.quot-ex312_9.htm
EX-31.1 - EX-31.1 - Quotient Technology Inc.quot-ex311_8.htm
EX-10.3 - EX-10.3 - Quotient Technology Inc.quot-ex103_175.htm
EX-10.2 - EX-10.2 - Quotient Technology Inc.quot-ex102_59.htm
EX-10.1 - EX-10.1 - Quotient Technology Inc.quot-ex101_58.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2018

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

 

Quotient Technology Inc.

(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)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

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      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 (Do not check if a smaller reporting company)

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of April 30, 2018, the registrant had 94,319,682 shares of common stock outstanding.

 

 

 


QUOTIENT TECHNOLOGY INC.

INDEX

REPORT ON

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2018

 

PART I FINANCIAL INFORMATION

 

Item 1 Financial Statements (unaudited):

  

3

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

  

3

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017

  

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2018 and 2017

  

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017

  

6

 

Notes to Condensed Consolidated Financial Statements

  

7

 

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

  

23

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk

  

33

 

Item 4 Controls and Procedures

  

33

 

PART II OTHER INFORMATION

 

Item 1—Legal Proceedings

  

34

 

Item 1A—Risk Factors

  

34

 

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

  

61

 

Item 3—Defaults Upon Senior Securities

  

61

 

Item 4—Mine Safety Disclosures

  

61

 

Item 5—Other Information

  

61

 

Item 6—Exhibits

  

61

 

SIGNATURES

  

63

 

 

2


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

 

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

330,447

 

 

$

334,635

 

Short-term investments

 

 

50,874

 

 

 

59,902

 

Accounts receivable, net of allowance for doubtful accounts of $814 and $786

   at March 31, 2018 and December 31, 2017, respectively

 

 

85,631

 

 

 

81,189

 

Prepaid expenses and other current assets

 

 

10,092

 

 

 

8,737

 

Total current assets

 

 

477,044

 

 

 

484,463

 

Property and equipment, net

 

 

16,149

 

 

 

16,610

 

Intangible assets, net

 

 

43,652

 

 

 

46,490

 

Goodwill

 

 

80,506

 

 

 

80,506

 

Other assets

 

 

1,264

 

 

 

1,006

 

Total assets

 

$

618,615

 

 

$

629,075

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,942

 

 

$

6,090

 

Accrued compensation and benefits

 

 

8,022

 

 

 

13,914

 

Other current liabilities

 

 

31,897

 

 

 

35,538

 

Deferred revenues

 

 

6,944

 

 

 

6,276

 

Contingent consideration related to acquisitions

 

 

24,500

 

 

 

18,500

 

Total current liabilities

 

 

74,305

 

 

 

80,318

 

Other non-current liabilities

 

 

3,540

 

 

 

3,205

 

Convertible senior notes, net

 

 

148,246

 

 

 

145,821

 

Deferred tax liabilities

 

 

1,734

 

 

 

1,690

 

Total liabilities

 

 

227,825

 

 

 

231,034

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value—10,000,000 shares authorized and

   no shares issued or outstanding at March 31, 2018 and December 31, 2017

 

 

 

 

 

 

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

   94,247,342 and 93,199,718 shares issued and outstanding at

   March 31, 2018 and December 31, 2017, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

690,049

 

 

 

686,025

 

Accumulated other comprehensive loss

 

 

(722

)

 

 

(700

)

Accumulated deficit

 

 

(298,538

)

 

 

(287,285

)

Total stockholders’ equity

 

 

390,790

 

 

 

398,041

 

Total liabilities and stockholders’ equity

 

$

618,615

 

 

$

629,075

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

3


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Revenues

 

$

86,766

 

 

$

72,579

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenues

 

 

40,453

 

 

 

29,212

 

Sales and marketing

 

 

23,830

 

 

 

23,837

 

Research and development

 

 

12,626

 

 

 

13,120

 

General and administrative

 

 

11,392

 

 

 

11,893

 

Change in fair value of escrowed shares and contingent

   consideration, net

 

 

7,350

 

 

 

(2,585

)

Total costs and expenses

 

 

95,651

 

 

 

75,477

 

Loss from operations

 

 

(8,885

)

 

 

(2,898

)

Interest expense

 

 

(3,308

)

 

 

 

Other income (expense), net

 

 

938

 

 

 

127

 

Loss before income taxes

 

 

(11,255

)

 

 

(2,771

)

Provision for (benefit from) income taxes

 

 

102

 

 

 

(97

)

Net loss

 

$

(11,357

)

 

$

(2,674

)

Net loss per share, basic and diluted

 

$

(0.12

)

 

$

(0.03

)

Weighted-average number of common shares used in

   computing net loss per share, basic and diluted

 

 

92,711

 

 

 

87,490

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

4


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Net loss

 

$

(11,357

)

 

$

(2,674

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(22

)

 

 

41

 

Comprehensive loss

 

$

(11,379

)

 

$

(2,633

)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

5


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(11,357

)

 

$

(2,674

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,417

 

 

 

4,532

 

Stock-based compensation

 

 

7,796

 

 

 

7,756

 

Amortization of debt discount and issuance cost

 

 

2,425

 

 

 

 

Loss on disposal of property and equipment

 

 

2

 

 

 

 

Allowance for doubtful accounts

 

 

95

 

 

 

(268

)

Deferred income taxes

 

 

102

 

 

 

(97

)

Change in fair value of escrowed shares and contingent consideration, net

 

 

7,350

 

 

 

(2,585

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,433

)

 

 

264

 

Prepaid expenses and other current assets

 

 

(1,634

)

 

 

(1,295

)

Accounts payable and other current liabilities

 

 

(5,783

)

 

 

(1,749

)

Accrued compensation and benefits

 

 

(5,901

)

 

 

(4,843

)

Deferred revenues

 

 

668

 

 

 

726

 

Net cash used in operating activities

 

 

(6,253

)

 

 

(233

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,713

)

 

 

(1,637

)

Purchases of short-term investments

 

 

(25,721

)

 

 

(25,078

)

Proceeds from maturities of short-term investment

 

 

34,750

 

 

 

50,116

 

Net cash provided by investing activities

 

 

7,316

 

 

 

23,401

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock under stock plans

 

 

1,675

 

 

 

1,144

 

Payments for taxes related to net share settlement of equity awards

 

 

(6,857

)

 

 

 

Principal payments on promissory note and capital lease obligations

 

 

(82

)

 

 

(9

)

Net cash provided by (used in) financing activities

 

 

(5,264

)

 

 

1,135

 

Effect of exchange rates on cash and cash equivalents

 

 

13

 

 

 

9

 

Net increase (decrease) in cash and cash equivalents

 

 

(4,188

)

 

 

24,312

 

Cash and cash equivalents at beginning of period

 

 

334,635

 

 

 

106,174

 

Cash and cash equivalents at end of period

 

$

330,447

 

 

$

130,486

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

42

 

 

$

24

 

Cash paid for interest

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Fixed asset purchases not yet paid

 

 

320

 

 

 

562

 

Computer equipment acquired under promissory note

 

 

 

 

 

819

 

Property and equipment acquired under capital lease

 

 

 

 

 

31

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

6


QUOTIENT TECHNOLOGY INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Description of Business

Quotient Technology Inc. (the “Company), is a provider of an industry leading digital marketing platform that drives sales by delivering personalized and targeted coupons and ads to shoppers at the right moment on their path to purchase. The Company has built a scaled network of consumer packaged goods (“CPG”) brands, retailers and shoppers, all digitally connected through our core platform, called Retailer iQ. Using proprietary and licensed data, including online behaviors, purchase intent, and retailers’ in-store point-of-sale (“POS”) shopper data, the Company targets shoppers with the most relevant digital coupons and ads, as well as measures campaign performance, including attribution of dollars spent on digital marketing to in-store sales. Customers and partners use the Company’s digital platform as a more effective channel to influence shoppers.

 

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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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, 2018 or for any other period.

There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes, except for the Company adopting Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective basis which resulted in a cumulative effect adjustment of $0.1 million recorded to retained earnings as of January 1, 2018.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. Such management estimates include, but are not limited to, revenue recognition, collectability of accounts receivable, recoverability of non-refundable distribution fees, the valuation and useful lives of intangible assets and property and equipment, goodwill, stock-based compensation, contingent consideration and income taxes. 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

Accounting Pronouncements Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The guidance requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to today’s accounting. Lessees initially recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term. The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs. The standard is effective for public business entities for annual reporting periods beginning after December 15, 2018, and interim periods within that reporting period, which is the first quarter of 2019 for the Company. Early adoption is permitted. ASU 2016-02 is required to be adopted using a modified retrospective approach. The Company is currently evaluating the impact of adopting this new accounting guidance on the condensed consolidated financial statements.

7


Accounting Pronouncements Adopted

Topic 606: In May 2014, FASB issued Topic 606, which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Additionally, the standard requires reporting companies to also disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted Topic 606 as of January 1, 2018, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior periods are not adjusted and continue to be reported in accordance with its historic superseded accounting policy under Topic 605.  

As a result of adopting the new standard, the Company recorded a net increase to retained earnings of $0.1 million as of January 1, 2018, with the impact primarily related to unbilled receivables for performance obligations that have been satisfied but no invoice has been issued. Also, under Topic 606, the Company presents sales returns reserve as a liability versus a contra-asset within accounts receivable, net of allowance for doubtful accounts on our consolidated balance sheet for fiscal year ended December 31, 2017. The impact to revenues for the quarter ended March 31, 2018 was an increase of $0.2 million as a result of applying Topic 606.

Topic 230: In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The standard is effective for public business entities for annual reporting years beginning after December 15, 2017, and interim periods within that reporting period, which is the first quarter of 2018 for the Company. Early adoption is permitted. The Company has adopted the standard beginning on January 1, 2018, and has determined that the impact on its statements of cash flows is not material.

Revenue Recognition

The Company primarily generates revenue by providing digital promotions and media solutions to its customers and partners. Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations in the contract

 

Recognition of revenue when, or as, we satisfy a performance obligation

Promotion Revenue

The Company generates revenue from promotions, in which consumer packaged goods brands, or CPGs, pay the Company to deliver coupons to consumers through its network of publishers and retail partners. The Company generates revenues, as consumers select, activate, or redeem a coupon through its platform by either saving it to a retailer loyalty account for automatic digital redemption, or printing it for physical redemption at a retailer. Coupon pricing is generally determined on a per unit activation or per redemption basis, and are generally billed monthly. Insertion orders generally include a limit on the number of activations, or times consumers may select a coupon.

Promotion revenues also include the Company’s Specialty Retail business, in which specialty stores including clothing, electronics, home improvement and others that offer coupon codes that the Company distributes. Each time a consumer makes a purchase using a coupon code, a transaction occurs and a distribution fee is generally paid to the Company. The Company generally generates revenues when a consumer makes a purchase using a coupon code from its platform and completion of the order is reported to the Company. In the same period that it recognizes revenues for the delivery of coupon codes, it also estimates and records a reserve, based upon historical experience, to provide for end-

8


user cancelations or product returns which may not be reported until a subsequent date. The Company presents sales returns reserve as a liability effective the first quarter ended March 31, 2018 versus a contra-asset within accounts receivable, net of allowance for doubtful accounts on our consolidated balance sheet for the year ended December 31, 2017.

Media Revenue

The Company’s media services enable CPGs and retailers to distribute digital media to promote their brands and products on our websites, and mobile apps, and through a network of affiliate publishers and non-publisher third parties that display our media offerings on their websites or mobile apps. Revenue is generally recognized each time a digital media ad is displayed or each time a user clicks on the media ad displayed on the Company’s websites, mobile apps or on third party websites. Media pricing is generally determined on a per impression or per click basis and are generally billed monthly. 

Gross Versus Net Revenue Reporting

 

In the normal course of business and through its distribution network, the Company delivers digital coupons and media on retailers’ websites through retailers’ loyalty programs, and on the websites of digital publishers. In these situations, the Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). Generally, the Company reports digital promotion and media advertising revenues for campaigns placed on third party owned properties on a gross basis, that is, the amounts billed to its customers are recorded as revenues, and distribution fees paid to retailers or digital publishers are recorded as cost of revenues. The Company is the principal because it controls the digital coupon and media advertising inventory before it is transferred to its customers. The Company’s control is evidenced by its sole ability to monetize the digital coupon and media advertising inventory, being primarily responsible to its customers, having discretion in establishing pricing for the delivery of the digital coupons and media, or a combination of these.

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP), basis. We generally determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts and characteristics of targeted customers.  

Accounts Receivables, Net of Allowance for Doubtful Accounts

Trade and other receivables are included in accounts receivables and primarily comprised of trade receivables that are recorded at invoiced amounts and do not bear interest, net of an allowance for doubtful accounts. Other receivables included unbilled receivables related to digital promotions and media advertising contracts with customers. The Company generally does not require collateral and performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company maintains an allowance for doubtful accounts based upon the expected collectability of its accounts receivable. The allowance is determined based upon specific account identification and historical experience of uncollectable accounts. The expectation of collectability is based on the Company’s review of credit profiles of customers, contractual terms and conditions, current economic trends, and historical payment experience. When the Company determines that the amounts are uncollectible, the Company writes them off against the allowance for doubtful accounts.

Deferred Revenues

Deferred revenues consist of coupon activation fees and digital media fees that are expected to be recognized upon coupon activations, or delivery of media impressions or clicks, which generally occurs within the next twelve months. The Company records deferred revenues, including amounts which are refundable, when cash payments are received or become due in advance of the Company satisfying its performance obligations. The increase in the deferred revenue balance for the three months ended March 31, 2018 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations of $4.7 million, partially offset by $4.0 million of revenues recognized that were included in the deferred revenue balance at the beginning of the period.

9


The Company’s payment terms vary by the type and size of our customers. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by type of services (in thousands, unaudited). The majority of the Company’s revenue is generated from sales in the United States.

 

 

Three Months Ended

March 31,

 

 

2018

 

 

2017(1)

 

Promotion

$

63,783

 

 

$

57,319

 

Media

 

22,983

 

 

 

15,260

 

Total Revenue

 

86,766

 

 

 

72,579

 

 

 

 

 

 

 

 

 

(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.

 

 

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue for an amount where it has the right to invoice for services performed.

 

Sales Commissions

The Company generally incurs and expenses sales commissions upon recognition of revenue for related goods and services, which typically occurs within one year or less. Sales commissions earned related to revenues for initial contracts are commensurate with sales commissions related to renewal contracts. These costs are recorded within sales and marketing expenses on the condensed consolidated statements of operations.

 

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.

10


Assets and Liabilities Measured at Fair Value on a Recurring Basis

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,

2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

150,526

 

 

 

 

 

 

 

 

$

150,526

 

Certificate of deposit

 

 

 

 

9,216

 

 

 

 

 

 

9,216

 

Short-Term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

 

 

 

50,874

 

 

 

 

 

 

50,874

 

Total

$

150,526

 

 

$

60,090

 

 

$

 

 

$

210,616

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to Crisp acquisition (1)

 

 

 

 

 

 

 

24,500

 

 

 

24,500

 

Total

$

 

 

$

 

 

$

24,500

 

 

$

24,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

100,152

 

 

 

 

 

 

 

 

$

100,152

 

Short-Term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

 

 

 

59,902

 

 

 

 

 

 

59,902

 

Total

$

100,152

 

 

$

59,902

 

 

$

 

 

$

160,054

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to Crisp acquisition (1)

 

 

 

 

 

 

 

18,500

 

 

 

18,500

 

Total

$

 

 

$

 

 

$

18,500

 

 

$

18,500

 

 

(1)

Included in contingent consideration related to acquisitions

 

The valuation technique used to measure the fair value of money market funds included using quoted prices in active markets. The money market funds have a fixed net asset value (NAV) of $1. The valuation technique to measure the fair value of certificate of deposits included using quoted prices in active markets for similar assets.

The fair value of contingent consideration related to the acquisition of Crisp Media, Inc. (“Crisp”) was estimated using an option pricing method and was based on significant inputs not observable in the market at December 31, 2017, thus classified as a Level 3 instrument.  The inputs include expected achievement of certain financial metrics over the contingent consideration period, historical volatility and discount rate. The fair value of contingent consideration related to the acquisition of Crisp was estimated based on the expected achievement of meeting the financial metrics for the maximum payout as of March 31, 2018. Refer to Note 6 for further details related to the acquisition.

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

 

 

Three Months Ended

 

 

 

March 31,

2018

 

 

 

Crisp

 

 

 

Level 3

 

 

Balance as of December 31, 2017

$

18,500

 

 

Change in fair value

 

6,000

 

 

Balance as of March 31, 2018

$

24,500

 

 

11


 

For the three months ended March 31, 2018, the Company recorded a loss of $6.0 million, related to the changes in fair value of Crisp contingent consideration due to an increase in expected achievement of certain financial metrics over the contingent consideration period. 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.

As of December 31, 2017, the Company determined that Shopmium S.A. (“Shopmium”) did not meet its revenue and profit milestones for the years ending December 31, 2016 and 2017, during the contingent consideration measurement period.  Accordingly, the Company determined that there was no payout required when the contingent consideration payment period expired on March 31, 2018.

There were no transfers between fair value hierarchies during the three months ended March 31, 2018 and 2017.

Fair Value Measurements of Other Financial Instruments

As of March 31, 2018 and December 31, 2017, the fair value of the 1.75% convertible senior notes due 2022 was $207.8 million and $196.3 million, respectively. The fair value was determined based on a quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period. Accordingly, these convertible senior notes are classified within Level 2 in the fair value hierarchy. Refer to Note 8 for additional information related to the Company’s convertible debt.

 

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,

 

 

2018

 

 

2017

 

Balance at the beginning of period

$

786

 

 

$

1,338

 

Bad debt expense (recovery)

 

95

 

 

 

(268

)

Write-offs

 

(67

)

 

 

(11

)

Balance at the end of period

$

814

 

 

$

1,059

 

 

 

5. Balance Sheet Components

Property and Equipment, Net

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

 

 

March 31,

2018

 

 

December 31,

2017

 

Software

$

33,248

 

 

$

33,198

 

Computer equipment

 

24,853

 

 

 

24,342

 

Leasehold improvements

 

7,854

 

 

 

7,905

 

Furniture and fixtures

 

2,147

 

 

 

2,107

 

Total

 

68,102

 

 

 

67,552

 

Accumulated depreciation and amortization

 

(57,315

)

 

 

(55,752

)

Projects in process

 

5,362

 

 

 

4,810

 

Property and equipment, net

$

16,149

 

 

$

16,610

 

 

Depreciation and amortization expense related to property and equipment was $1.6 million and $2.1 million for the three months ended March 31, 2018 and 2017, respectively.

The Company capitalized internal use software development and enhancement costs of $0.9 million and $1.0 million during the three months ended March 31, 2018 and 2017, respectively. During the three months ended March 31, 2018 and 2017, the Company had zero and $0.6 million, respectively, in amortization expense related to internal use software, which is included in property and equipment depreciation and amortization expense above and recorded as cost of

12


revenues. The unamortized capitalized development and enhancement costs were $5.3 million and $4.4 million as of March 31, 2018 and December 31, 2017, respectively.

Accrued Compensation and Benefits

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

 

 

March 31,

2018

 

 

December 31,

2017

 

Bonus

$

2,435

 

 

$

7,212

 

Commissions

 

2,314

 

 

 

4,199

 

Vacation

 

503

 

 

 

371

 

Payroll and related expenses

 

2,770

 

 

 

2,132

 

Accrued compensation and benefits

$

8,022

 

 

$

13,914

 

 

Other Current Liabilities  

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

 

 

March 31,

2018

 

 

December 31,

2017

 

Distribution fees

$

15,394

 

 

$

18,485

 

Marketing expenses

 

2,505

 

 

 

2,826

 

Prefunded liability

 

1,723

 

 

 

2,151

 

Traffic acquisition cost

 

2,289

 

 

 

3,040

 

Other

 

9,986

 

 

 

9,036

 

Other current liabilities

$

31,897

 

 

$

35,538

 

 

6. Acquisitions

On May 31, 2017, the Company acquired all the outstanding shares of Crisp, a mobile marketing and advertising company delivering shopper marketing media campaigns for CPGs and retailers. Crisp’s mobile media expertise complements Quotient’s proprietary shopper data, retail network and existing promotions and media offerings.

The total preliminary acquisition consideration of $51.9 million consisted of $24.1 million in cash, 1,177,927 shares of the Company’s common stock with a fair value of $13.0 million, or $11.00 per share, and contingent consideration of up to $24.5 million payable in cash with a fair value of $14.8 million as of the acquisition date. The contingent consideration payout is based on Crisp achieving certain financial metrics over a period of one year after closing and is payable within 105 days after May 31, 2018. At the date of acquisition, the contingent consideration’s fair value of $14.8 million was determined by using an option pricing method. Fair value of contingent consideration is remeasured every reporting period. Refer to Note 3 for the fair value of contingent consideration at March 31, 2018.

The Crisp acquisition provides the Company with customer relationships, developed technologies and trade names. The fair value of the customer relationships intangible asset was determined by using a discounted cash flow model. The fair values of developed technologies and trade names intangible assets were determined by using the relief from royalty methods. The excess of the consideration paid over the fair value of the net tangible assets and identifiable intangible assets acquired is recorded as goodwill. The goodwill is attributable to expected synergies from combined operations and Crisp’s knowhow.

The transaction was accounted for as a business combination. Accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company expensed all transaction costs in the period in which they were incurred.

13


The following table summarizes the preliminary acquisition consideration and the related fair values of the assets acquired and liabilities assumed (in thousands):

 

 

Purchase

Consideration

 

 

Net

Tangible

Assets

Acquired/

(Liabilities

Assumed)

 

 

Identifiable

Intangible

Assets

 

 

Goodwill

 

 

Goodwill

Deductible

for Taxes

 

(1)

Acquisition

Related

Expenses

 

Crisp

$

51,904

 

 

$

5,893

 

 

$

9,400

 

 

$

36,611

 

 

Not Deductible

 

$

1,504

 

 

(1)

Expensed as general and administrative

The following sets forth each component of identifiable intangible assets acquired in connection with the Crisp acquisition (in thousands):

 

 

Crisp

 

 

Estimated Useful Life

(in Years)

 

Developed technologies

$

5,000

 

 

 

4.0

 

Customer relationships

 

2,800

 

 

 

7.0

 

Trade names

 

1,600

 

 

 

4.0

 

Total identifiable intangible assets

$

9,400

 

 

 

 

 

7. Intangible Assets

 

Intangible assets consist of the following (in thousands):  

 

 

March 31, 2018

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

 

Weighted

Average

Amortization

Period

(Years)

 

Promotion service rights

$

22,492

 

 

$

(4,991

)

 

$

17,501

 

 

 

5.8

 

Developed technologies

 

12,187

 

 

 

(5,656

)

 

 

6,531

 

 

 

2.8

 

Customer relationships

 

11,660

 

 

 

(6,979

)

 

 

4,681

 

 

 

4.1

 

Data access rights

 

10,801

 

 

 

(3,129

)

 

 

7,672

 

 

 

4.1

 

Media service rights

 

6,383

 

 

 

(1,849

)

 

 

4,534

 

 

 

4.1

 

Domain names

 

5,949

 

 

 

(4,839

)

 

 

1,110

 

 

 

1.1

 

Trade names

 

1,767

 

 

 

(500

)

 

 

1,267

 

 

 

3.2

 

Patents

 

975

 

 

 

(782

)

 

 

193

 

 

 

4.2

 

Vendor relationships

 

890

 

 

 

(890

)

 

 

 

 

 

 

Registered users

 

420

 

 

 

(257

)

 

 

163

 

 

 

1.9

 

 

$

73,524

 

 

$

(29,872

)

 

$

43,652

 

 

 

4.5

 

 

14


As of March 31, 2018, and December 31, 2017, the Company has a domain name with a gross value of $0.4 million with an indefinite useful life that is not subject to amortization.

 

 

December 31, 2017

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

 

Weighted

Average

Amortization

Period

(Years)

 

Promotion service rights

$

22,492

 

 

$

(4,252

)

 

$

18,240

 

 

 

6.1

 

Developed technologies

 

12,187

 

 

 

(5,013

)

 

 

7,174

 

 

 

3.0

 

Customer relationships

 

11,660

 

 

 

(6,547

)

 

 

5,113

 

 

 

4.3

 

Data access rights

 

10,801

 

 

 

(2,666

)

 

 

8,135

 

 

 

4.3

 

Media service rights

 

6,383

 

 

 

(1,575

)

 

 

4,808

 

 

 

4.3

 

Domain names

 

5,949

 

 

 

(4,689

)

 

 

1,260

 

 

 

1.3

 

Trade names

 

1,767

 

 

 

(401

)

 

 

1,366

 

 

 

3.4

 

Patents

 

975

 

 

 

(769

)

 

 

206

 

 

 

4.5

 

Vendor relationships

 

890

 

 

 

(890

)

 

 

 

 

 

 

Registered users

 

420

 

 

 

(232

)

 

 

188

 

 

 

2.2

 

 

$

73,524

 

 

$

(27,034

)

 

$

46,490

 

 

 

4.7

 

 

Amortization expense related to intangible assets subject to amortization was $2.8 million and $2.4 million during the three months ended March 31, 2018 and 2017, respectively. Estimated future amortization expense related to intangible assets as of March 31, 2018 is as follows (in thousands):    

 

 

Total

 

2018, remaining nine months

$

8,629

 

2019

 

10,379

 

2020

 

8,962

 

2021

 

7,104

 

2022

 

4,408

 

2023 and beyond

 

3,817

 

Total estimated amortization expense

$

43,299

 

 

8. Debt Obligations

2017 Convertible Senior Notes

In November 2017, the Company issued $200.0 million aggregate principal amount of 1.75% convertible senior notes due 2022 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, (the “notes”). The notes are unsecured obligations of the Company and bear interest at a fixed rate of 1.75% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2018. The total net proceeds from the debt offering, after deducting transaction costs, were approximately $193.8 million.  

The conversion rate for the notes will initially be 57.6037 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $17.36 per share of common stock, subject to adjustment upon the occurrence of specified events.

Holders of the notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the notes on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the

15


scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after September 1, 2022, holders may convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The Company intends to settle the principal amount of the notes with cash.

The Company may not redeem the notes prior to December 5, 2020. It may redeem for cash all or any portion of the notes, at its option, on or after December 5, 2020 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than three trading days preceding the date on which it provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.

If the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the notes, the Company separated the notes into liability and equity components. The carrying amount of the liability component of $149.3 million was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component of $50.7 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the notes at an effective interest rate of 5.8%.

The Company allocated the total debt issuance costs incurred of $6.2 million to the liability and equity components of the notes in proportion to the respective values. Issuance costs attributable to the liability component of $4.6 million are being amortized to interest expense using the effective interest method over the contractual terms of the notes. Issuance costs attributable to the equity component of $1.6 million were netted with the equity component in additional paid-in capital.

The net carrying amount of the liability component of the notes recorded in convertible senior notes, net on the condensed consolidated balance sheets was as follows (in thousands):

 

 

March 31,

 

 

2018

 

Principal

$

200,000

 

Unamortized debt discount

 

(47,435

)

Unamortized debt issuance costs

 

(4,319

)

     Net carrying amount of the liability component

$

148,246

 

 

The net carrying amount of the equity component of the notes recorded in additional paid-in capital on the consolidated balance sheets was $49.1 million, net of debt issuance costs of $1.6 million as of March 31, 2018 and December 31, 2017.

The following table sets forth the interest expense related to the notes recognized in interest expense on the consolidated statements of operations (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

Contractual interest expense

$

875

 

Amortization of debt discount

 

2,197

 

Amortization of debt issuance costs

 

229

 

     Total interest expense related to the Notes

$

3,301

 

16


 

9. Stock-based Compensation

2013 Equity Incentive Plan

In October 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which became effective in March 2014 and serves as the successor to the Company’s 2006 Stock Plan (the “2006 Plan”). Pursuant to the 2013 Plan, 4,000,000 shares of common stock were initially reserved for grant, plus (1) any shares that were reserved and available for issuance under the 2006 Plan at the time the 2013 Plan became effective, (2) any shares that become available upon forfeiture or repurchase by the Company under the 2006 Plan and (3) any shares added to the 2013 Plan pursuant to the next paragraph.

Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units (“RSUs”), performance shares and units to employees, directors and consultants. The shares available will be increased at the beginning of each year by the lesser of (i) 4% of outstanding common stock on the last day of the immediately preceding year, or (ii) such number determined by the Board of Directors and subject to additional restrictions relating to the maximum number of shares issuable pursuant to incentive stock options. Under the 2013 Plan, both the ISOs and NSOs are granted at a price per share not less than 100% of the fair market value on the effective date of the grant. The Board of Directors determines the vesting period for each option award on the grant date, and the options generally expire 10 years from the grant date or such shorter term as may be determined by the Board of Directors.

Stock Options

The fair value of each option was estimated using the Black-Scholes model on the date of grant for the periods presented using the following assumptions:

 

 

Three Months Ended

March 31,

 

 

2018

 

 

2017

 

Expected life (in years)

 

6.02

 

 

6.08 - 6.25

 

Risk-free interest rate

2.66%

 

 

2.05% - 2.14%

 

Volatility

50%

 

 

50%

 

Dividend yield

 

 

 

 

The weighted-average grant-date fair value of options granted was $6.59 and $6.44 per share during the three months ended March 31, 2018 and 2017, respectively.

 

Restricted Stock Units and Performance-Based 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.

17


A summary of the Company’s stock option and RSU award activity under the 2013 Plan is as follows:

 

 

 

 

 

 

RSUs Outstanding

 

 

Options Outstanding

 

 

Shares

Available

for Grant

 

 

Number of

Shares

 

 

Weighted

Average

Grant

Date Fair

Value

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Balance as of December 31, 2017

 

4,425,155

 

 

 

5,194,292

 

 

$

12.26

 

 

 

7,412,228

 

 

$

10.36

 

 

 

6.09

 

 

$

25,415

 

Increase in shares authorized

 

3,727,989

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

(801,000

)

 

 

 

 

 

 

801,000

 

 

$

13.10

 

 

 

 

 

Options exercised