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EX-31.1 - EX-31.1 - MOBILEIRON, INC.mobl-20180630ex3114d1b2a.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June  30, 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 001-36471


MobileIron, Inc.

(Exact name of Registrant as specified in its charter)


 

 

 

 

 

 

 

Delaware

 

26-0866846

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

401 East Middlefield Road

Mountain View, California

 

94043

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:

(650) 919-8100


 

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 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   ☒     No   ◻

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions 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   ☒

Nonaccelerated 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   ☒

 

At July  30, 2018, there were 102,736,379 shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.

 

 

 

 


 

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2018

 

 

 

Page

PART I FINANCIAL INFORMATION 

 

6

Item 1. Financial Statements:

 

6

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 

 

6

Condensed Consolidated Statements of Operations for the three and six months ended June  30, 2018 and 2017 

 

7

Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June  30, 2018 

 

8

Condensed Consolidated Statements of Cash Flows for the six months ended June  30, 2018 and 2017 

 

9

Notes to Condensed Consolidated Financial Statements 

 

10

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

 

32

Item 3. Quantitative and Qualitative Disclosure About Market Risk 

 

50

Item 4. Controls and Procedures 

 

50

PART II OTHER INFORMATION 

 

51

Item 1. Legal Proceedings 

 

51

Item 1A. Risk Factors 

 

51

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

 

77

Item 3. Defaults Upon Senior Securities 

 

77

Item 4. Mine Safety Disclosures 

 

77

Item 5. Other Information 

 

78

Item 6. Exhibits 

 

84

Signatures 

 

87

 

 

 

2


 

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

Investors and others should note that we announce material financial information to our investors using our investor relations website address, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our services and other matters and for complying with our disclosure obligations under Regulation FD:

 

MobileIron Company Blog (https://www.mobileiron.com/en/smartwork-blog)

 

MobileIron Facebook Page (https://www.facebook.com/mobileiron)

 

MobileIron Twitter Account (https://twitter.com/mobileiron); @mobileiron

 

MobileIron LinkedIn Page (https://www.linkedin.com/company/mobileiron)

 

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on MobileIron’s investor relations website.

3


 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “potentially,” “predict,” “plan,” “outlook,” “target,” “expect,” “future” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

 

 

 

 

beliefs and objectives for future operations and growth;

 

 

 

 

our business plan and our ability to effectively manage our expenses;

 

 

 

 

our ability to timely and effectively scale and adapt our existing technology;

 

 

 

 

our ability to innovate new products and bring them to market in a timely manner;

 

 

 

 

our ability to expand internationally;

 

 

 

 

our ability to attract new customers and further penetrate our existing customer base;

 

 

 

 

our expectations concerning renewal rates for subscriptions and services by existing customers;

 

 

 

 

our expectations concerning the mix of our sales of subscriptions and perpetual licenses;

 

 

 

 

cost of revenue, including changes in costs associated with appliances, royalties, customer support and data center operations;

 

 

 

 

operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;

 

 

 

 

our expectations concerning relationships with third parties, including channel and other partners;

 

 

 

 

economic and industry trends or trend analysis; and

 

 

 

 

the sufficiency of our existing cash and investments to meet our cash needs for at least the next 12 months.

 

 

 

 

In addition, statements such as "we believe" and similar statements reflect our beliefs and opinions on the relevant subject.  These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.  These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These risks are not exhaustive. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part

4


 

II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

5


 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

 

2018

    

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,067

 

$

85,833

 

Short-term investments

 

 

2,996

 

 

6,797

 

Accounts receivable, net of allowance for doubtful accounts of $475 at both June 30, 2018 and December 31, 2017

 

 

42,232

 

 

50,629

 

Deferred commissions - current

 

 

7,798

 

 

9,285

 

Prepaid expenses and other current assets

 

 

6,978

 

 

5,510

 

TOTAL CURRENT ASSETS

 

 

155,071

 

 

158,054

 

Property and equipment—net

 

 

7,978

 

 

8,812

 

Deferred commissions - noncurrent

 

 

9,130

 

 

9,123

 

Goodwill

 

 

5,475

 

 

5,475

 

Other assets

 

 

3,087

 

 

2,976

 

TOTAL ASSETS

 

$

180,741

 

$

184,440

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,648

 

$

1,369

 

Accrued expenses

 

 

21,393

 

 

25,070

 

Unearned revenue - current

 

 

59,790

 

 

55,105

 

Customer arrangements with termination rights

 

 

19,512

 

 

19,546

 

TOTAL CURRENT LIABILITIES

 

 

102,343

 

 

101,090

 

Long-term liabilities:

 

 

 

 

 

 

 

Unearned revenue - noncurrent

 

 

23,144

 

 

21,917

 

Other long-term liabilities

 

 

1,809

 

 

1,881

 

TOTAL LIABILITIES

 

 

127,296

 

 

124,888

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized, 102,454,185 shares and 97,203,950 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

11

 

 

10

 

Additional paid-in capital

 

 

442,794

 

 

420,525

 

Accumulated deficit

 

 

(389,360)

 

 

(360,983)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

53,445

 

 

59,552

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

180,741

 

$

184,440

 

See accompanying notes.

6


 

 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

License

 

$

13,880

 

$

14,778

 

$

26,321

 

$

29,198

 

Cloud services

 

 

11,832

 

 

9,549

 

 

22,982

 

 

18,572

 

Software support and services

 

 

20,417

 

 

18,752

 

 

40,515

 

 

37,418

 

Total revenue

 

 

46,129

 

 

43,079

 

 

89,818

 

 

85,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

License

 

 

515

 

 

534

 

 

946

 

 

981

 

Cloud services

 

 

2,722

 

 

2,248

 

 

5,293

 

 

4,194

 

Software support and services

 

 

4,672

 

 

5,249

 

 

9,647

 

 

10,126

 

Total cost of revenue

 

 

7,909

 

 

8,031

 

 

15,886

 

 

15,301

 

Gross profit

 

 

38,220

 

 

35,048

 

 

73,932

 

 

69,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,272

 

 

19,666

 

 

39,607

 

 

36,859

 

Sales and marketing

 

 

24,321

 

 

26,145

 

 

48,002

 

 

49,808

 

General and administrative

 

 

7,052

 

 

7,840

 

 

14,274

 

 

14,028

 

Litigation settlement charge

 

 

 —

 

 

 —

 

 

 —

 

 

1,143

 

Total operating expenses

 

 

49,645

 

 

53,651

 

 

101,883

 

 

101,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(11,425)

 

 

(18,603)

 

 

(27,951)

 

 

(31,951)

 

Other income (expense) - net

 

 

(205)

 

 

339

 

 

298

 

 

513

 

Loss before income taxes

 

 

(11,630)

 

 

(18,264)

 

 

(27,653)

 

 

(31,438)

 

Income tax expense

 

 

377

 

 

324

 

 

724

 

 

523

 

Net loss

 

$

(12,007)

 

$

(18,588)

 

$

(28,377)

 

$

(31,961)

 

Net loss per share, basic and diluted

 

$

(0.12)

 

$

(0.20)

 

$

(0.28)

 

$

(0.35)

 

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

101,313

 

 

92,963

 

 

100,003

 

 

91,708

 

 

See accompanying notes.

 

7


 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

 

 

 

    

 

 

 

 

Additional

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

BALANCE—December 31, 2017

 

97,203,950

 

$

10

 

$

420,525

 

$

(360,983)

 

$

59,552

 

Issuance of common stock for stock option exercises

 

664,864

 

 

 —

 

 

1,409

 

 

 —

 

 

1,409

 

Issuance of common stock pursuant to the Employee Stock Purchase Plan

 

829,182

 

 

 —

 

 

2,339

 

 

 —

 

 

2,339

 

Issuance of common stock pursuant to the Employee Stock-Settled Bonus Plans

 

1,973,386

 

 

 1

 

 

9,621

 

 

 —

 

 

9,622

 

Shares withheld for net settlement of Employee Stock-Settled Bonus Plans

 

(752,564)

 

 

 —

 

 

(3,724)

 

 

 —

 

 

(3,724)

 

Vesting of restricted stock units

 

2,535,367

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

12,624

 

 

 —

 

 

12,624

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(28,377)

 

 

(28,377)

 

BALANCE—June 30, 2018

 

102,454,185

 

$

11

 

$

442,794

 

$

(389,360)

 

$

53,445

 

 

See accompanying notes

8


 

 

 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

    

2018

    

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(28,377)

 

$

(31,961)

 

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

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

19,113

 

 

17,171

 

Depreciation

 

 

1,794

 

 

1,533

 

Amortization of intangible assets

 

 

100

 

 

308

 

Provision for doubtful accounts

 

 

 —

 

 

50

 

Accretion of premium on investment securities

 

 

(29)

 

 

(32)

 

Gain on disposal of fixed assets

 

 

41

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

7,751

 

 

2,363

 

Deferred commissions

 

 

1,481

 

 

832

 

Other current and noncurrent assets

 

 

(1,036)

 

 

(6,675)

 

Accounts payable

 

 

43

 

 

1,562

 

Unearned revenue

 

 

5,912

 

 

4,434

 

Customer arrangements with termination rights

 

 

(34)

 

 

817

 

Accrued expenses and other long-term liabilities

 

 

(524)

 

 

6,482

 

Net cash provided by (used in) operating activities

 

 

6,235

 

 

(3,116)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(765)

 

 

(922)

 

Proceeds from maturities of investment securities

 

 

9,800

 

 

32,915

 

Purchase of investment securities

 

 

(5,970)

 

 

 —

 

Net cash provided by investing activities

 

 

3,065

 

 

31,993

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

2,249

 

 

2,391

 

Taxes paid for net settlement of stock-settled bonus

 

 

(3,724)

 

 

(3,149)

 

Proceeds from exercise of stock options

 

 

1,409

 

 

3,709

 

Net cash provided by (used in) financing activities

 

 

(66)

 

 

2,951

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

9,234

 

 

31,828

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

85,833

 

 

54,043

 

CASH AND CASH EQUIVALENTS—End of period

 

$

95,067

 

$

85,871

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

685

 

$

446

 

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Value of shares issued under the Bonus Plans

 

$

5,898

 

$

5,123

 

Value of shares issued under the Employee Stock Purchase Plan

 

$

2,339

 

$

2,110

 

Unpaid property and equipment purchases

 

$

235

 

$

2,596

 

 

 

 

 

 

 

 

See accompanying notes.

9


 

 

MOBILEIRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Description of Business and Significant Accounting Policies

 

Description of Business

 

MobileIron, Inc. and its wholly owned subsidiaries, collectively, the “Company”, “we”, “us” or “our”, provides a purpose-built mobile IT platform that enables enterprises to manage and secure mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. We were incorporated in Delaware in July 2007 and are headquartered in Mountain View, California, with additional sales and support presence in North America, Europe, the Middle East, Asia and Australia and additional employees in India primarily focused on research and development.

 

Basis of Presentation and Consolidation

 

The accompanying unaudited condensed consolidated financial statements as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and include the accounts of our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

 

Certain information and footnote disclosures in this Quarterly Report on Form 10-Q normally included in annual financial statements prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of our balance sheet as of June 30, 2018, our operating results for the three and six months ended June 30, 2018 and 2017, and our cash flows for the six months ended June 30, 2018 and 2017. Our operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. The condensed consolidated balance sheet as of December 31, 2017 has been derived from the audited consolidated financial statements as of that date, but does not include all the footnotes required by U.S. GAAP for complete financial statements.

 

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with our audited financial statements and related notes for the year ended December 31, 2017, included in our Annual Report on Form 10-K filed with the SEC on March 12, 2018.

 

Foreign Currency Translation

 

Our reporting currency is the U.S. dollar. The functional currency of all our international operations is the U.S. dollar. All monetary asset and liability accounts are translated into U.S. dollars at the period-end rate, nonmonetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at the weighted-average exchange rates in effect during the period. Translation adjustments are recorded as foreign currency gains (losses) in the consolidated statements of operations. We recognized a foreign currency loss of $535,000 and a gain of $165,000 in the three months ended June 30, 2018 and 2017, respectively, and we recognized a foreign currency loss of $355,000 and a gain of $173,000 in the six months ended June 30, 2018 and 2017, respectively, in other income (expense)—net in our condensed consolidated statements of operations.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of

10


 

the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, deferred commissions and commissions expense, stock-based compensation, goodwill, and accounting for income taxes. Actual results could differ from those estimates.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, money market funds and fixed income investments. Although we deposit our cash with multiple financial institutions, our deposits, at times, exceed federally insured limits. We invest in fixed income securities that are of high-credit quality. Substantially all of our money market funds, or $12.8 million, are held in two funds that are rated “AAA.”

 

We generally do not require collateral or other security in support of accounts receivable. Allowances are provided for individual accounts receivable when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration of the customer’s operating results, or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We also consider broader factors in evaluating the sufficiency of our allowances for doubtful accounts, including the length of time receivables are past due, significant one-time events and historical experience. At June 30, 2018 and December 31, 2017, we had an allowance for doubtful accounts of $475,000.

 

One reseller accounted for 11% of total revenue (1% as an end customer) and 12% of total revenue (1% as an end customer) for the three and six months ended June 30, 2018, respectively, and for 14% of total revenue (1% as an end customer) and 15% of total revenue (1% as an end customer) for the three and six months ended June 30, 2017, respectively. The same reseller accounted for 10% and 17% of net accounts receivable as of June 30, 2018 and December 31, 2017, respectively.

 

There were no other resellers or end-user customers that accounted for 10% or more of our revenue or net accounts receivable for any period presented.

 

Segments

 

We have one reportable segment.

 

Summary of Significant Accounting Policies

 

Revenue Recognition

 

Revenue Presentation

License revenue includes sales of perpetual software licenses, software licenses sold as part of on-premises term subscriptions, and appliances.

 

Cloud services include sales of cloud-based solutions that allow customers to use hosted software over a contract period without taking possession of our software and are typically provided on a subscription or usage basis.

Software support and services revenue includes sales of software support sold as part of on-premises term subscriptions, software support for perpetual licenses, and professional services.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

11


 

Nature of Products and Services

Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase on-premises software licenses as perpetual licenses or as part of subscriptions. On-premises licenses are considered distinct performance obligations and revenue from the licenses is recognized upfront when the software is made available to the customer.

Software support and services convey rights to the upgrades released over the contract period and provide support and tools to help customers deploy and use our products more efficiently. Revenue allocated to software support and services is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that the software support and services comprise a distinct performance obligations that is satisfied over time.  

On-premises subscriptions and software support and services occasionally contain termination rights. We recognize revenue from those arrangements, including the distinct licenses contained therein, as the termination rights for the performance obligation expire. See also Unearned Revenue and Customer Arrangements with Termination Rights below.

 

Cloud services, which allow customers to use hosted software over a contract period without taking possession of our software, are provided on a subscription or usage basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period and revenue related to cloud services based on usage is generally recognized as the usage occurs.

Professional services include consulting, deployment and training services. Our professional services represent distinct performance obligations as our customers benefit from the services separately or together with other readily available resources. Professional services revenue is recognized as services are delivered.

 

Appliance revenue was less than 5% of total revenue for all periods presented and is included as a component of license revenue within the consolidated statements of operations.

Refer to Note 13 – Segment and Disaggregation of Revenue Information for further information.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time.

Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. We use a range of amounts to estimate the SSP for items that are not sold separately, including on-premises licenses sold with software support and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customer classes and circumstances. In these instances, we may use information such as the size and type of customer in determining the SSP.

 

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we either invoice customer in full at the inception of the contract or annually at the beginning of each annual period. We record an unbilled receivable related to revenue recognized for multi-year on-premises licenses invoiced annually when we have an unconditional right to invoice and receive payment in the future for those licenses or

12


 

when we have the right to invoice future monthly periods under committed monthly recurring charge (“MRC”) agreements. The majority of our MRC agreements are for a month to month term (“non-committed”) or usage-based.

Payment terms and conditions vary by contract type, although terms generally include a requirement to pay within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. This include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period or multi-year on-premises licenses that are invoiced annually with revenue recognized upfront.

As of June 30, 2018 and December 31, 2017, the balance of accounts receivable, net of the allowance for doubtful accounts, included $1.8 million and $2.5 million, respectively, of unbilled receivables from upfront recognition of revenue for certain multi-period on-premises software subscriptions that include both distinct software licenses and software support and services.

As of June 30, 2018 and December 31, 2017, unbilled receivables included in other long-term assets on our consolidated balance sheets were $706,000 and $977,000, respectively.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

 

Unearned Revenue and Customer Arrangements with Termination Rights

 

We generally invoice our customers upfront for subscriptions and software support and services associated with perpetual licenses. Unearned revenue from those upfront billings is comprised of unearned revenue from cloud-based subscriptions, software support and services for on-premises subscriptions, software support and services associated with perpetual licenses and professional services to be performed in the future.

 

Because some of our arrangements with customers contain termination rights, the arrangements do not meet the definition of a contract under Accounting Standard Codification, or ASC, Topic 606, Revenue Recognition from Contracts with Customers, or ASC 606, and are not recorded as unearned revenue and instead are recorded as “customer arrangements with termination rights” on our consolidated balance sheets. 

Refer to Note 12 – Unearned Revenue for further information on unearned revenue, changes in unearned revenue during the period, and customer arrangements with termination rights.

Deferred Commissions

We recognize an asset for the incremental costs of obtaining a contract with a customer. We have determined that certain sales incentive programs meet the requirements to be capitalized and we include those costs in current and non-current deferred commissions on our consolidated balance sheets.

 

Deferred commissions are amortized over the period commensurate with revenue recognition.

 

13


 

Changes in deferred commissions were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017

    

2018

    

2017

Balance, beginning of the peiod

 

$

17,434

 

$

18,377

 

$

18,408

 

$

18,738

Deferral of commissions earned

 

 

3,696

 

 

3,694

 

 

6,794

 

 

7,405

Recognition of commission expense

 

 

(4,202)

 

 

(4,120)

 

 

(8,274)

 

 

(8,136)

Impairment of deferred commissions

 

 

                 -

 

 

(46)

 

 

                 -

 

 

(102)

Balance, end of the period

 

$

16,928

 

$

17,905

 

$

16,928

 

$

17,905

 

 

Cash Equivalents

 

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of June 30, 2018 and December 31, 2017,  cash and cash equivalents consist of cash deposited with banks, money market funds and investments that mature within three months of their purchase.

 

Held-To-Maturity Investments

 

We determine the appropriate classification of our fixed income investments at the time of purchase and reevaluate their classifications each reporting period. Investments are classified as held-to-maturity since the Company has positive intent and the ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

 

Comprehensive Loss

 

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. For the three and six months ended June 30, 2018 and 2017, there were no differences between net loss and comprehensive loss. Therefore, the consolidated statements of comprehensive loss have been omitted.

 

Net Loss per Share of Common Stock

 

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, unvested restricted stock and stock options are considered to be potentially dilutive securities. Because we have reported a net loss for the three and six months ended June 30, 2018 and 2017, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

 

Software Development Costs Incurred in Connection with Software to be Sold or Marketed

 

The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.

 

14


 

Internal Use Software

 

We capitalize costs incurred during the application development stage related to our internally used software. Such costs are primarily incurred by third party vendors and consultants. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Amounts capitalized in all periods presented were not significant.

 

All software development costs incurred in connection with our cloud offering, or SaaS, are also sold or marketed to partners or end customers, therefore we start capitalizing costs when technological feasibility is achieved. No costs were capitalized in any periods presented as we believe that our current process for developing software is essentially completed concurrent with the establishment of technological feasibility.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the property and equipment, determined to be three years for computers and equipment and software, five years for furniture and fixtures, and the lesser of the remaining lease term or estimated useful life for leasehold improvements. Expenditures for repairs and software support are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected as operating expenses in the condensed consolidated statements of operations.

 

Goodwill

 

We record the excess of the acquisition purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We have a single reporting unit and consequently evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole.

Long-Lived Assets with Finite Lives

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. We evaluate the recoverability of each of our long-lived assets, including property and equipment, by comparison of its carrying amount to the future discounted cash flows we expect the asset to generate. If we consider the asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

 

Stock-Based Compensation

 

We use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718 Compensation—Stock Compensation. Fair value is determined using the Black-Scholes Model using various inputs, including our estimates of expected volatility, term and future dividends.

 

On January 1, 2017, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. We recognize compensation costs for awards with service and performance vesting conditions and for our Employee Stock Purchase Plan, or ESPP, on an accelerated method over the requisite service period of the award. For stock options or restricted stock grants with no performance condition, we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

 

Research and Development

 

Research and development, or R&D, costs are charged to expense as incurred.

 

15


 

Advertising

 

Advertising costs are expensed and included in sales and marketing expense when incurred. Advertising expense for the three and six months ended June 30, 2018 and 2017 was not significant.

 

Income Taxes

 

We account for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. The standard also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

 

Financial Instruments – Credit Losses

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. We are evaluating the impact of the adoption on our consolidated balance sheet, results of operations, cash flows and disclosures. We intend to adopt ASU No. 2016-13 effective January 1, 2020.

 

Leases

In February 2016, the FASB finalized ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize the assets and liabilities on the balance sheet for the rights and obligations created by most leases (leases with the term of 12 months or longer) and continue to recognize expenses on the income statements over the lease term. It will also require disclosure designed to give financial statement users information on the amount, timing, and uncertainly of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. As a result of this new standard, we expect to record a lease commitment liability and corresponding asset for most of our leases. We intend to adopt ASU 2016-02 effective January 1, 2019.

 

Income Tax

 

On December 22, 2017, President Trump signed into law new tax legislation, the Tax Cuts and Jobs Act (the Tax Act), which significantly reforms the Internal Revenue Code of 1986, as amended. As of June 30, 2018, and December 31, 2017, the Tax Act had no effect on our existing deferred taxes and related disclosures. Due to current year

16


 

taxable losses and our federal valuation allowance position, we did not recognize any income tax expense or benefit in the three or six months ended June 30, 2018 associated with U.S. tax reform.

 

The SEC staff has issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. However, due to taxable loss carryovers available and a full valuation position there is no income tax expense or benefit expected in relation to the application of new executive compensation limitation provisions under Internal Revenue Section 162(m) and also its treatment of potential global intangible low-taxed income (“GILTI”). During the three or six months ended June 30, 2018, we did not make any adjustments to the consolidated financial statements within the measurement period in accordance with SAB 118.

 

Revenue from Contracts with Customers

In May 2014, the FASB, jointly with the International Accounting Standards Board, issued a comprehensive new standard ASC 606. The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The guidance permitted two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). We adopted the standard using the full retrospective method to restate each prior reporting period presented.

The standard was effective for us beginning January 1, 2018. In preparation for adoption of the standard, we implemented internal controls and key system functionality to enable the preparation of financial information and reached conclusions on key accounting assessments related to the standard, including our assessment of the impact of accounting for costs incurred to obtain a contract.

The most significant impact of the standard relates to the elimination of the requirement to have vendor specific objective evidence, or VSOE, of fair value to separate and recognize revenue for products and services in a contract. The elimination of the VSOE requirement causes a significant change to the timing of revenue recognition for on-premises software term license revenue and other multiple-element arrangements with products or services that lacked VSOE of fair value. Our on-premises term license agreements include distinct software licenses and software support and services. Under ASC 606, we recognize the software license revenue at the time of delivery and recognize the software support and services revenue ratably over the term of the subscription agreements. Under Accounting Standard Codification Topic 605, Revenue Recognition, or ASC 605, we recognized all revenue from those arrangements ratably over the term of the subscription agreements. Due to the complexity of certain of our revenue contracts, the actual revenue recognition treatment required under the new standard depends on contract-specific terms and in some instances may vary from recognition at the time of delivery. The timing of revenue recognized from our cloud offerings, perpetual licenses, professional services and appliances remain substantially unchanged.

 

In addition, Accounting Standards Codification Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, or ASC 340, requires us to recognize an asset for the incremental costs of obtaining a contract with a customer if our sales incentive programs meet the requirements for capitalization. Previously we recorded these incremental costs of obtaining a contract as commission expense when we booked a sales transaction; whereas under ASC 340, we record an asset for the incremental cost to obtain a contract and recognize the cost over the period commensurate with revenue recognition.

 

In connection with our adoption of ASC 606 on January 1, 2018, there was a decrease to the Company’s deferred income tax liabilities and an offsetting increase in the valuation allowance recorded against deferred tax assets. No income tax impact was recorded to retained earnings upon adoption as a result of the full valuation allowance on United States deferred tax assets. During the three and six months ended June 30, 2018, there is no income tax expense or benefit recorded as a result of the adoption of the ASC 606.

 

17


 

 

Adoption of the standard related to revenue recognition impacted our previously reported results as follows (in thousands except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended June 30, 2017

 

 

 

 

 

 

New Revenue

 

 

 

 

 

 

 

 

 

Standard

 

 

As

Statement of Operations:

 

As Reported

 

 

Adjustment

 

 

Adjusted

Revenue

 

$

42,652

 

$

427

 

$

43,079

Total operating expenses

 

 

53,180

 

 

471

 

 

53,651

Net loss

 

 

(18,544)

 

 

(44)

 

 

(18,588)

Net loss per share, basic and diluted

 

 

(0.20)

 

 

0.00

 

 

(0.20)

 

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended June 30, 2017

 

 

 

 

 

 

New Revenue

 

 

 

 

 

 

 

 

 

Standard

 

 

As

Statement of Operations:

 

As Reported

 

 

Adjustment

 

 

Adjusted

Revenue

 

$

84,940

 

$

248

 

$

85,188

Total operating expenses

 

 

101,006

 

 

832

 

 

101,838

Net loss

 

 

(31,377)

 

 

(584)

 

 

(31,961)

Net loss per share, basic and diluted

 

 

(0.34)

 

 

(0.01)

 

 

(0.35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

New Revenue

 

 

 

 

 

 

 

 

Standard

 

As

Balance Sheets:

 

 

As Reported

 

Adjustment

 

Adjusted

Assets

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

48,171

 

$

2,458

 

$

50,629

Deferred commissions-current

 

 

 —

 

 

9,285

 

 

9,285

Deferred commissions-noncurrent

 

 

 —

 

 

9,123

 

 

9,123

Other assets

 

 

1,999

 

 

977

 

 

2,976

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

Accrued expenses

 

 

24,995

 

 

75

 

 

25,070

Unearned revenue-current

 

 

84,467

 

 

(29,362)

 

 

55,105

Unearned revenue-noncurrent

 

 

28,034

 

 

(6,117)

 

 

21,917

Customer arrangements with termination rights

 

 

 —

 

 

19,546

 

 

19,546

Total stockholders' equity

 

$

21,851

 

$

37,701

 

$

59,552

 

 

 

 

18


 

 

2.Significant Balance Sheet Components

 

Accounts Receivable, Net —Accounts receivable, net at June 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

Accounts receivable - billed

 

$

40,892

 

$

48,646

Accounts receivable - unbilled

 

 

1,815

 

 

2,458

Allowance for doubtful accounts

 

 

(475)

 

 

(475)

Accounts receivable, net

 

$

42,232

 

$

50,629

 

 

Property and Equipment —Property and equipment at June 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

 

Computers and appliances

 

$

12,952

 

$

13,178

 

Purchased software

 

 

4,393

 

 

4,063

 

Furniture and fixtures

 

 

1,737

 

 

1,734

 

Leasehold improvements

 

 

3,438

 

 

3,226

 

Total property and equipment

 

 

22,520

 

 

22,201

 

Accumulated depreciation and amortization

 

 

(14,542)

 

 

(13,389)

 

Total property and equipment—net

 

$

7,978

 

$

8,812

 

 

 

Accrued Expenses —Accrued expenses at June 30, 2018 and December 31, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

 

Accrued commissions

 

$

3,631

 

$

3,989

 

Accrued stock-settled bonus

 

 

4,571

 

 

7,705

 

Employee Stock Purchase Plan liability

 

 

1,957

 

 

2,047

 

Other accrued payroll-related expenses

 

 

3,505

 

 

4,285

 

Other accrued liabilities

 

 

7,729

 

 

7,044

 

Total accrued expenses

 

$

21,393

 

$

25,070

 

 

 

 

 

3.Fair Value Measurement

 

With the exception of our held-to-maturity fixed income investments, we report financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis in accordance with ASC 820, Fair Value Measurements. ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

 

ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:

 

 

 

 

 

19


 

 

 

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

 

 

 

 

 

 

 

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

 

 

 

 

 

 

 

 

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

 

Our financial assets that are carried at fair value include cash and money market funds. We had no financial liabilities, or nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at fair value as of June 30, 2018 or December 31, 2017.

 

Our financial instruments measured at fair value as of June 30, 2018 and December 31, 2017 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money market funds

 

$

12,840

 

$

 —

 

$

 —

 

$

12,840

 

Corporate debt securities

 

 

 —

 

 

3,944

 

 

 —

 

 

3,944

 

Commercial paper

 

 

 —

 

 

52,830

 

 

 —

 

 

52,830

 

Certificate of deposit

 

 

 —

 

 

2,500

 

 

 —

 

 

2,500

 

Total

 

$

12,840

 

$

59,274

 

$

 —

 

$

72,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of December 31, 2017

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Money market funds

 

$

10,583

 

$

 —

 

$

 —

 

$

10,583

 

Corporate debt securities

 

 

 —

 

 

7,076

 

 

 —

 

 

7,076