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EX-32.2 - EX-32.2 - Quotient Technology Inc.quot-ex322_7.htm
EX-32.1 - EX-32.1 - Quotient Technology Inc.quot-ex321_9.htm
EX-31.2 - EX-31.2 - Quotient Technology Inc.quot-ex312_8.htm
EX-31.1 - EX-31.1 - Quotient Technology Inc.quot-ex311_10.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 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: 001-36331

 

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 July 30, 2018, the registrant had 95,109,423 shares of common stock outstanding.

 

 

 


QUOTIENT TECHNOLOGY INC.

INDEX

REPORT ON

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2018

 

PART I FINANCIAL INFORMATION

 

Item 1 Financial Statements (unaudited):

  

3

 

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

  

3

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017

  

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2018 and 2017

  

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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

  

34

 

Item 4 Controls and Procedures

  

34

 

PART II OTHER INFORMATION

 

Item 1—Legal Proceedings

  

36

 

Item 1A—Risk Factors

  

36

 

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

  

64

 

Item 3—Defaults Upon Senior Securities

  

64

 

Item 4—Mine Safety Disclosures

  

64

 

Item 5—Other Information

  

64

 

Item 6—Exhibits

  

64

 

SIGNATURES

  

66

 

 

2


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

 

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

June 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

307,836

 

 

$

334,635

 

Short-term investments

 

 

50,175

 

 

 

59,902

 

Accounts receivable, net of allowance for doubtful accounts of $768 and $786

   at June 30, 2018 and December 31, 2017, respectively

 

 

95,659

 

 

 

81,189

 

Prepaid expenses and other current assets

 

 

10,275

 

 

 

8,737

 

Total current assets

 

 

463,945

 

 

 

484,463

 

Property and equipment, net

 

 

15,205

 

 

 

16,610

 

Intangible assets, net

 

 

64,080

 

 

 

46,490

 

Goodwill

 

 

102,665

 

 

 

80,506

 

Other assets

 

 

1,612

 

 

 

1,006

 

Total assets

 

$

647,507

 

 

$

629,075

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,978

 

 

$

6,090

 

Accrued compensation and benefits

 

 

9,601

 

 

 

13,914

 

Other current liabilities

 

 

41,351

 

 

 

35,538

 

Deferred revenues

 

 

8,520

 

 

 

6,276

 

Contingent consideration related to acquisitions

 

 

24,500

 

 

 

18,500

 

Total current liabilities

 

 

87,950

 

 

 

80,318

 

Other non-current liabilities

 

 

3,404

 

 

 

3,205

 

Convertible senior notes, net

 

 

150,704

 

 

 

145,821

 

Contingent consideration related to acquisitions

 

 

14,582

 

 

 

 

Deferred tax liabilities

 

 

1,871

 

 

 

1,690

 

Total liabilities

 

 

258,511

 

 

 

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 June 30, 2018 and December 31, 2017

 

 

 

 

 

 

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

   95,020,958 and 93,199,718 shares issued and outstanding at

   June 30, 2018 and December 31, 2017, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

696,104

 

 

 

686,025

 

Accumulated other comprehensive loss

 

 

(818

)

 

 

(700

)

Accumulated deficit

 

 

(306,291

)

 

 

(287,285

)

Total stockholders’ equity

 

 

388,996

 

 

 

398,041

 

Total liabilities and stockholders’ equity

 

$

647,507

 

 

$

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

89,545

 

 

$

74,493

 

 

$

176,311

 

 

$

147,072

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

47,769

 

 

 

30,021

 

 

 

88,222

 

 

 

59,233

 

Sales and marketing

 

 

20,530

 

 

 

21,617

 

 

 

44,360

 

 

 

45,454

 

Research and development

 

 

12,122

 

 

 

12,774

 

 

 

24,748

 

 

 

25,894

 

General and administrative

 

 

11,528

 

 

 

11,803

 

 

 

22,920

 

 

 

23,696

 

Change in fair value of escrowed shares and contingent

   consideration, net

 

 

 

 

 

3,900

 

 

 

7,350

 

 

 

1,315

 

Total costs and expenses

 

 

91,949

 

 

 

80,115

 

 

 

187,600

 

 

 

155,592

 

Loss from operations

 

 

(2,404

)

 

 

(5,622

)

 

 

(11,289

)

 

 

(8,520

)

Interest expense

 

 

(3,326

)

 

 

 

 

 

(6,634

)

 

 

 

Other income (expense), net

 

 

1,270

 

 

 

134

 

 

 

2,208

 

 

 

261

 

Loss before income taxes

 

 

(4,460

)

 

 

(5,488

)

 

 

(15,715

)

 

 

(8,259

)

Provision for income taxes

 

 

200

 

 

 

270

 

 

 

302

 

 

 

173

 

Net loss

 

$

(4,660

)

 

$

(5,758

)

 

$

(16,017

)

 

$

(8,432

)

Net loss per share, basic and diluted

 

$

(0.05

)

 

$

(0.06

)

 

$

(0.17

)

 

$

(0.10

)

Weighted-average number of common shares used in

   computing net loss per share, basic and diluted

 

 

93,643

 

 

 

88,985

 

 

 

93,180

 

 

 

88,242

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

4


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(4,660

)

 

$

(5,758

)

 

$

(16,017

)

 

$

(8,432

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(96

)

 

 

7

 

 

 

(118

)

 

 

48

 

Comprehensive loss

 

$

(4,756

)

 

$

(5,751

)

 

$

(16,135

)

 

$

(8,384

)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

5


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(16,017

)

 

$

(8,432

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,507

 

 

 

8,677

 

Stock-based compensation

 

 

16,035

 

 

 

15,822

 

Amortization of debt discount and issuance cost

 

 

4,883

 

 

 

 

Loss on disposal of property and equipment

 

 

34

 

 

 

 

Allowance (Recovery) for doubtful accounts

 

 

49

 

 

 

(497

)

Deferred income taxes

 

 

302

 

 

 

173

 

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

 

 

7,350

 

 

 

1,315

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(10,741

)

 

 

2,097

 

Prepaid expenses and other current assets

 

 

(1,967

)

 

 

(2,066

)

Accounts payable and other current liabilities

 

 

(3,152

)

 

 

(471

)

Accrued compensation and benefits

 

 

(4,535

)

 

 

(2,468

)

Deferred revenues

 

 

1,109

 

 

 

1,119

 

Net cash provided by operating activities

 

 

3,857

 

 

 

15,269

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,327

)

 

 

(3,166

)

Purchase of intangible assets

 

 

(6,500

)

 

 

 

Acquisitions, net of cash acquired

 

 

(20,947

)

 

 

(21,048

)

Purchases of short-term investments

 

 

(50,175

)

 

 

(59,659

)

Proceeds from maturities of short-term investment

 

 

59,902

 

 

 

94,250

 

Net cash provided by (used in) investing activities

 

 

(20,047

)

 

 

10,377

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock under stock plans

 

 

4,515

 

 

 

3,641

 

Payments for taxes related to net share settlement of equity awards

 

 

(8,240

)

 

 

 

Repurchases of common stock

 

 

(6,734

)

 

 

 

Principal payments on promissory note and capital lease obligations

 

 

(156

)

 

 

(85

)

Net cash provided by (used in) financing activities

 

 

(10,615

)

 

 

3,556

 

Effect of exchange rates on cash and cash equivalents

 

 

6

 

 

 

18

 

Net increase (decrease) in cash and cash equivalents

 

 

(26,799

)

 

 

29,220

 

Cash and cash equivalents at beginning of period

 

 

334,635

 

 

 

106,174

 

Cash and cash equivalents at end of period

 

$

307,836

 

 

$

135,394

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

87

 

 

$

59

 

Cash paid for interest

 

 

1,901

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of shares related to Crisp acquisition

 

 

 

 

 

12,957

 

Fixed asset purchases not yet paid

 

 

708

 

 

 

277

 

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. (together with its subsidiaries, 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 the consolidated balance sheet for fiscal year ended December 31, 2017. The impact to revenues as a result of applying Topic 606 for the three and six months ended June 30, 2018 was an increase of $0.5 million and $0.7 million, respectively.  

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 the 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 six months ended June 30, 2018 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations of $10.6 million, partially offset by $8.3 million recognized revenue.

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.

9


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

June 30,

 

 

Six Months Ended

June 30,

 

 

2018

 

 

2017(1)

 

 

2018

 

 

2017(1)

 

Promotion

$

60,912

 

 

$

58,356

 

 

$

124,695

 

 

$

115,702

 

Media

 

28,633

 

 

 

16,137

 

 

 

51,616

 

 

 

31,370

 

Total Revenue

$

89,545

 

 

$

74,493

 

 

$

176,311

 

 

$

147,072

 

 

(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):

 

 

June 30,

2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

141,123

 

 

 

 

 

 

 

 

$

141,123

 

Certificate of deposit

 

 

 

 

10,144

 

 

 

 

 

 

10,144

 

Short-Term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

 

 

 

50,175

 

 

 

 

 

 

50,175

 

Total

$

141,123

 

 

$

60,319

 

 

$

 

 

$

201,442

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to Ahalogy acquisition (1)

 

 

 

 

 

 

 

14,582

 

 

 

14,582

 

Total

$

 

 

$

 

 

$

14,582

 

 

$

14,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 MLW Squared Inc., doing business as Ahalogy (“Ahalogy”) was estimated using an option pricing method and was based on significant inputs not observable in the market, thus classified as a Level 3 instrument. The inputs include expected achievement of certain financial metrics over the contingent consideration period, volatility and discount rate. Refer to Note 6 for further details related to the acquisition.

At December 31, 2017, the fair value of contingent consideration related to the acquisition of Crisp was estimated using an option pricing method and was based on significant inputs not observable in the market, 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. Refer to Note 6 for further details related to the acquisition.

11


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

 

 

Three Months Ended

June 30, 2018

 

 

Six Months Ended

June 30, 2018

 

 

Ahalogy

 

 

Crisp

 

 

Ahalogy

 

 

Crisp

 

 

Level 3

 

 

Level 3

 

 

Level 3

 

 

Level 3

 

Balance at the beginning of period

$

 

 

$

24,500

 

 

$

 

 

$

18,500

 

Addition related to acquisition

 

14,582

 

 

 

 

 

 

14,582

 

 

 

 

Change in fair value

 

 

 

 

 

 

 

 

 

 

6,000

 

Transfers out of Level 3

 

 

 

 

(24,500

)

 

 

 

 

 

(24,500

)

Balance as of June 30, 2018

$

14,582

 

 

$

 

 

$

14,582

 

 

$

 

 

The Company recorded no gains or losses due to the change in fair value of the contingent consideration during the three months ended June 30, 2018, as compared to a charge of $6.0 million during the six months ended June 30, 2018. The change in fair value of Crisp contingent consideration is due to the 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.

The fair value of contingent consideration related to the acquisition of Crisp Media, Inc. (“Crisp”) was determined by using actual achievement of financial metrics over the contingent consideration period during the contingent consideration period ending May 31, 2018 and no longer represents a liability subject to the fair value disclosure requirements of this section. Accordingly, the liability was transferred out of the Level 3 input category of fair value measurements at June 30, 2018.

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

Fair Value Measurements of Other Financial Instruments

As of June 30, 2018 and December 31, 2017, the fair value of the Company’s 1.75% convertible senior notes due 2022 was $207.0 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

June 30,

 

 

Six Months Ended

June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Balance at the beginning of period

$

814

 

 

$

1,059

 

 

$

786

 

 

$

1,338

 

Additions related to acquisitions

 

 

 

 

229

 

 

 

 

 

 

229

 

Bad debt expense (recovery)

 

(46

)

 

 

(229

)

 

 

49

 

 

 

(497

)

Write-offs

 

 

 

 

(24

)

 

 

(67

)

 

 

(35

)

Balance at the end of period

$

768

 

 

$

1,035

 

 

$

768

 

 

$

1,035

 

 

 

12


5. Balance Sheet Components

Property and Equipment, Net

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

 

 

June 30,

2018

 

 

December 31,

2017

 

Software

$

38,275

 

 

$

33,198

 

Computer equipment

 

24,138

 

 

 

24,342

 

Leasehold improvements

 

7,827

 

 

 

7,905

 

Furniture and fixtures

 

2,079

 

 

 

2,107

 

Total

 

72,319

 

 

 

67,552

 

Accumulated depreciation and amortization

 

(58,246

)

 

 

(55,752

)

Projects in process

 

1,132

 

 

 

4,810

 

Property and equipment, net

$

15,205

 

 

$

16,610

 

 

Depreciation and amortization expense related to property and equipment was $1.9 million and $1.6 million for the three months ended June 30, 2018 and 2017, respectively, and $3.5 million and $3.7 million for the six months ended June 30, 2018 and 2017, respectively.

The Company capitalized internal use software development and enhancement costs of $0.7 million and $1.6 million during the three and six months ended June 30, 2018, respectively, and $1.1 million and $2.1 million during the three and six months ended June 30, 2017, respectively. During the three and six months ended June 30, 2018, the Company had $0.4 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 revenues, as compared to zero and $0.6 million, respectively, during the comparable period of 2017. The unamortized capitalized development and enhancement costs were $5.6 million and $4.4 million as of June 30, 2018 and December 31, 2017, respectively.

Accrued Compensation and Benefits

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

 

 

June 30,

2018

 

 

December 31,

2017

 

Bonus

$

4,260

 

 

$

7,212

 

Commissions

 

3,229

 

 

 

4,199

 

Vacation

 

467

 

 

 

371

 

Payroll and related expenses

 

1,645

 

 

 

2,132

 

Accrued compensation and benefits

$

9,601

 

 

$

13,914

 

 

Other Current Liabilities  

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

 

 

June 30,

2018

 

 

December 31,

2017

 

Distribution fees

$

17,151

 

 

$

18,485

 

Marketing expenses

 

1,495

 

 

 

2,826

 

Prefunded liability

 

1,580

 

 

 

2,151

 

Traffic acquisition cost

 

3,526

 

 

 

3,040

 

Amounts owed for certain exclusive rights

 

6,500

 

 

 

 

Other

 

11,099

 

 

 

9,036

 

Other current liabilities

$

41,351

 

 

$

35,538

 

 

13


6. Acquisitions

 

Acquisition of Ahalogy

On June 1, 2018, the Company acquired all the outstanding shares of Ahalogy, an influencer marketing firm that delivers premium content across social media channels for CPG brands. The acquisition enhances the Company’s performance media solutions for CPGs and retailers, adding social media expertise and a roster of influencers.

The total preliminary acquisition consideration of $36.4 million consisted of $21.8 million in cash and contingent consideration of up to $30.0 million payable in all cash with an estimated fair value of $14.6 million as of the acquisition date. The contingent consideration payout is based on Ahalogy achieving certain financial metrics between closing through December 31, 2019, and is payable within 105 days after December 31, 2019. At the date of acquisition, the contingent consideration’s fair value of $14.6 million was determined by using an option pricing model. The fair value of the contingent consideration is remeasured every reporting period. Refer to Note 3 for the fair value of contingent consideration at June 30, 2018.

The Ahalogy acquisition provides the Company with customer relationships, vendor relationships, developed technologies and trade names. The fair value of customer relationships intangible assets was determined by using a discounted cash flow model. The fair value of vendor relationships intangible asset was determined by using a cost approach. The fair values of developed technologies and trade names intangible assets were determined by using the relief from royalty method. 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 Ahalogy’s know-how.

The Ahalogy 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.

Acquisition of Crisp

On May 31, 2017, the Company acquired all of 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 the Company’s proprietary shopper data, retail network and existing promotions and media offerings.

The total 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. The fair value of contingent consideration was remeasured every reporting period. As of May 31, 2018, the date that the contingent consideration period ended, Crisp earned the full payout of the contingent consideration by achieving certain financial metrics. Accordingly, the Company had recorded a liability of $24.5 million on the condensed consolidated balance sheet at June 30, 2018. Refer to Note 3 for the fair value of contingent consideration at June 30, 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 Crisp 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.

14


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

 

Ahalogy

$

36,432

 

 

$

2,693

 

 

$

11,580

 

 

$

22,159

 

 

Not Deductible

 

$

561

 

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 acquisitions (in thousands):

 

 

Ahalogy

 

 

Estimated Useful Life

(in Years)

 

 

Crisp

 

 

Estimated Useful Life

(in Years)

 

Developed technologies

$

3,100

 

 

 

4.0

 

 

$

5,000

 

 

 

4.0

 

Customer relationships

 

6,210

 

 

 

6.0

 

 

 

2,800

 

 

 

7.0

 

Trade names

 

650

 

 

 

4.0

 

 

 

1,600

 

 

 

4.0

 

Vendor relationships

 

1,620

 

 

 

2.0

 

 

 

 

 

 

 

Total identifiable intangible assets

$

11,580

 

 

 

 

 

 

$

9,400

 

 

 

 

 

7. Goodwill and Intangible Assets

 

Goodwill represents the excess of the consideration paid over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The change in the carrying value of goodwill is as follows (in thousands):

 

 

Goodwill

 

Balance as of December 31, 2017

$

80,506

 

Acquisition of Ahalogy

 

22,159

 

Balance as of June 30, 2018

$

102,665

 

15


 

During the second quarter of 2018, the Company entered into an agreement which provides the Company among other things with certain exclusive rights in exchange for $13.0 million cash consideration. The consideration, as well as capitalized transaction costs of $0.1 million, were recognized as an intangible asset and recorded as media service rights, which is being amortized on a straight-line basis over its estimated useful life in cost of revenues on the accompanying condensed consolidated statement of operations.

 

Intangible assets consist of the following (in thousands):  

 

 

June 30, 2018

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

 

Weighted

Average

Amortization

Period

(Years)

 

Promotion service rights

$

22,492

 

 

$

(5,738

)

 

$

16,754

 

 

 

5.6

 

Media service rights

 

19,428

 

 

 

(3,209

)

 

 

16,219

 

 

 

3.0

 

Customer relationships

 

17,871

 

 

 

(7,516

)

 

 

10,355

 

 

 

4.9

 

Developed technologies

 

15,287

 

 

 

(6,370

)

 

 

8,917

 

 

 

3.0

 

Data access rights

 

10,801

 

 

 

(3,597

)

 

 

7,204

 

 

 

3.8

 

Domain names

 

5,948

 

 

 

(4,992

)

 

 

956

 

 

 

0.9

 

Vendor relationships

 

2,510

 

 

 

(956

)

 

 

1,554

 

 

 

1.9

 

Trade names

 

2,417

 

 

 

(613

)

 

 

1,804

 

 

 

3.3

 

Patents

 

975

 

 

 

(795

)

 

 

180

 

 

 

4.0

 

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