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EX-32.2 - EX-32.2 - Quotient Technology Inc.quot-ex322_9.htm
EX-32.1 - EX-32.1 - Quotient Technology Inc.quot-ex321_8.htm
EX-31.2 - EX-31.2 - Quotient Technology Inc.quot-ex312_6.htm
EX-31.1 - EX-31.1 - Quotient Technology Inc.quot-ex311_7.htm
EX-10.1 - EX-10.1 - Quotient Technology Inc.quot-ex101_182.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 September 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

 

 

  

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 November 2, 2018, the registrant had 95,189,382 shares of common stock outstanding.

 

 

 


QUOTIENT TECHNOLOGY INC.

INDEX

REPORT ON

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

 

PART I FINANCIAL INFORMATION

 

Item 1 Financial Statements (unaudited):

  

3

 

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

  

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017

  

4

 

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

  

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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

  

25

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk

  

37

 

Item 4 Controls and Procedures

  

37

 

PART II OTHER INFORMATION

 

Item 1—Legal Proceedings

  

38

 

Item 1A—Risk Factors

  

38

 

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

  

66

 

Item 3—Defaults Upon Senior Securities

  

66

 

Item 4—Mine Safety Disclosures

  

66

 

Item 5—Other Information

  

66

 

Item 6—Exhibits

  

66

 

SIGNATURES

  

68

 

 

2


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

 

QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

288,475

 

 

$

334,635

 

Short-term investments

 

 

40,160

 

 

 

59,902

 

Accounts receivable, net of allowance for doubtful accounts of $973 and $786

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

 

 

106,217

 

 

 

81,189

 

Prepaid expenses and other current assets

 

 

11,973

 

 

 

8,737

 

Total current assets

 

 

446,825

 

 

 

484,463

 

Property and equipment, net

 

 

14,349

 

 

 

16,610

 

Intangible assets, net

 

 

61,852

 

 

 

46,490

 

Goodwill

 

 

109,196

 

 

 

80,506

 

Other assets

 

 

1,226

 

 

 

1,006

 

Total assets

 

$

633,448

 

 

$

629,075

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,755

 

 

$

6,090

 

Accrued compensation and benefits

 

 

11,551

 

 

 

13,914

 

Other current liabilities

 

 

42,333

 

 

 

35,538

 

Deferred revenues

 

 

7,634

 

 

 

6,276

 

Contingent consideration related to acquisitions

 

 

 

 

 

18,500

 

Total current liabilities

 

 

71,273

 

 

 

80,318

 

Other non-current liabilities

 

 

3,336

 

 

 

3,205

 

Contingent consideration related to acquisitions

 

 

16,874

 

 

 

 

Convertible senior notes, net

 

 

153,195

 

 

 

145,821

 

Deferred tax liabilities

 

 

1,999

 

 

 

1,690

 

Total liabilities

 

 

246,677

 

 

 

231,034

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   no shares issued or outstanding at September 30, 2018 and December 31, 2017

 

 

 

 

 

 

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

   95,128,082 and 93,199,718 shares issued and outstanding at

   September 30, 2018 and December 31, 2017, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

703,794

 

 

 

686,025

 

Accumulated other comprehensive loss

 

 

(939

)

 

 

(700

)

Accumulated deficit

 

 

(316,085

)

 

 

(287,285

)

Total stockholders’ equity

 

 

386,771

 

 

 

398,041

 

Total liabilities and stockholders’ equity

 

$

633,448

 

 

$

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

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

103,591

 

 

$

81,950

 

 

$

279,902

 

 

$

229,022

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

57,073

 

 

 

37,501

 

 

 

145,295

 

 

 

96,734

 

Sales and marketing

 

 

22,782

 

 

 

22,002

 

 

 

67,142

 

 

 

67,456

 

Research and development

 

 

11,974

 

 

 

12,255

 

 

 

36,722

 

 

 

38,149

 

General and administrative

 

 

12,574

 

 

 

11,702

 

 

 

35,494

 

 

 

35,398

 

Change in fair value of escrowed shares and contingent

   consideration, net

 

 

4,692

 

 

 

9,700

 

 

 

12,042

 

 

 

11,015

 

Total costs and expenses

 

 

109,095

 

 

 

93,160

 

 

 

296,695

 

 

 

248,752

 

Loss from operations

 

 

(5,504

)

 

 

(11,210

)

 

 

(16,793

)

 

 

(19,730

)

Interest expense

 

 

(3,373

)

 

 

 

 

 

(10,007

)

 

 

 

Other income (expense), net

 

 

1,267

 

 

 

276

 

 

 

3,475

 

 

 

537

 

Loss before income taxes

 

 

(7,610

)

 

 

(10,934

)

 

 

(23,325

)

 

 

(19,193

)

Provision for (benefit from) income taxes

 

 

195

 

 

 

(107

)

 

 

497

 

 

 

66

 

Net loss

 

$

(7,805

)

 

$

(10,827

)

 

$

(23,822

)

 

$

(19,259

)

Net loss per share, basic and diluted

 

$

(0.08

)

 

$

(0.12

)

 

$

(0.25

)

 

$

(0.22

)

Weighted-average number of common shares used in

   computing net loss per share, basic and diluted

 

 

94,066

 

 

 

90,492

 

 

 

93,478

 

 

 

89,000

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

4


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(7,805

)

 

$

(10,827

)

 

$

(23,822

)

 

$

(19,259

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(121

)

 

 

(21

)

 

 

(239

)

 

 

27

 

Comprehensive loss

 

$

(7,926

)

 

$

(10,848

)

 

$

(24,061

)

 

$

(19,232

)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

5


QUOTIENT TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(23,822

)

 

$

(19,259

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17,226

 

 

 

13,280

 

Stock-based compensation

 

 

24,455

 

 

 

24,302

 

Amortization of debt discount and issuance cost

 

 

7,374

 

 

 

 

Loss on disposal of property and equipment

 

 

130

 

 

 

 

Allowance (recovery) for doubtful accounts

 

 

271

 

 

 

(548

)

Deferred income taxes

 

 

497

 

 

 

66

 

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

 

 

12,042

 

 

 

11,015

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(20,185

)

 

 

(1,776

)

Prepaid expenses and other current assets

 

 

(2,520

)

 

 

(2,231

)

Accounts payable and other current liabilities

 

 

6,320

 

 

 

5,882

 

Payments for contingent consideration

 

 

(9,700

)

 

 

 

Accrued compensation and benefits

 

 

(2,857

)

 

 

(1,454

)

Deferred revenues

 

 

(1,026

)

 

 

718

 

Net cash provided by operating activities

 

 

8,205

 

 

 

29,995

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,814

)

 

 

(4,383

)

Purchase of intangible assets

 

 

(13,046

)

 

 

 

Acquisitions, net of cash acquired

 

 

(26,628

)

 

 

(21,048

)

Purchases of short-term investments

 

 

(75,120

)

 

 

(64,685

)

Proceeds from maturities of short-term investment

 

 

94,862

 

 

 

109,250

 

Net cash (used in) provided by investing activities

 

 

(23,746

)

 

 

19,134

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuances of common stock under stock plans

 

 

5,824

 

 

 

5,880

 

Payments for taxes related to net share settlement of equity awards

 

 

(10,449

)

 

 

(2,326

)

Repurchases and retirement of common stock under share repurchase program

 

 

(10,971

)

 

 

 

Principal payments on promissory note and capital lease obligations

 

 

(232

)

 

 

(161

)

Payments for contingent consideration

 

 

(14,800

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(30,628

)

 

 

3,393

 

Effect of exchange rates on cash and cash equivalents

 

 

9

 

 

 

(32

)

Net (decrease) increase in cash and cash equivalents

 

 

(46,160

)

 

 

52,490

 

Cash and cash equivalents at beginning of period

 

 

334,635

 

 

 

106,174

 

Cash and cash equivalents at end of period

 

$

288,475

 

 

$

158,664

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

173

 

 

$

113

 

Cash paid for interest

 

 

1,898

 

 

 

20

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of shares related to Crisp acquisition

 

 

 

 

 

12,957

 

Fixed asset purchases not yet paid

 

 

387

 

 

 

461

 

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’s adoption of 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, coupon code sales return reserve, 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 accounting 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 nine months ended September 30, 2018 was an increase of $0.8 million and $1.5 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. Following the adoption of ASU 2016-15, cash payments that are not made soon after the consummation of a business combination to settle a contingent consideration liability will be classified as cash outflows for financing and operating activities, as applicable. ASU 2016-15 requires that the portion of the cash payment up to the acquisition date fair value of the contingent consideration liability should be classified as a financing outflow, and amounts paid in excess of the acquisition date fair value of that liability should be classified as operating outflows. The Company adopted ASU 2016-15 as of January 1, 2018 and classified the cash payments related to contingent consideration in accordance with this guidance.

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. The pricing for promotion arrangements generally includes both coupon setup fees and coupon transaction fees. Coupon setup fees are related to the creation of digital coupons and set up of the underlying campaign on Quotient’s proprietary platform for tracking of related activations or redemptions. The Company recognizes revenues related to coupon setup fees over time, proportionally, on a per transaction basis, using the number of authorized transactions per insertion order, commencing on the date of the first coupon transaction. Coupon transaction fees are 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.

8


Promotion revenues also include the Company’s Specialty Retail business, in which specialty stores including clothing, electronics, home improvement and others, 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 the Company recognizes revenues for the delivery of coupon codes, it also estimates and records a reserve, based upon historical experience, to provide for end-user cancelations or product returns which may not be reported until a subsequent date. The Company presents sales returns reserve as a liability for the periods beginning with 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.

Deferred Revenues

Deferred revenues consist of coupon setup fees, coupon transaction fees and digital media fees that are expected to be recognized upon coupon activations, or delivery of media impressions or clicks, which generally occur 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 nine months ended September 30, 2018 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations of $15.2 million, partially offset by $13.9 million of recognized revenue.

9


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

Disaggregated Revenue

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017(1)

 

 

2018

 

 

2017(1)

 

Promotion

 

$

63,260

 

 

$

58,060

 

 

$

187,955

 

 

$

173,762

 

Media

 

 

40,331

 

 

 

23,890

 

 

 

91,947

 

 

 

55,260

 

Total Revenue

 

$

103,591

 

 

$

81,950

 

 

$

279,902

 

 

$

229,022

 

 

(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 (unadjusted) 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):

 

 

 

September 30,

2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

141,775

 

 

 

 

 

 

 

 

$

141,775

 

Certificate of deposit

 

 

 

 

 

5,096

 

 

 

 

 

 

5,096

 

Short-Term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

 

 

 

 

40,160

 

 

 

 

 

 

40,160

 

Total

 

$

141,775

 

 

$

45,256

 

 

$

 

 

$

187,031

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisitions

 

 

 

 

 

 

 

 

16,874

 

 

 

16,874

 

Total

 

$

 

 

$

 

 

$

16,874

 

 

$

16,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 acquisitions

 

 

 

 

 

 

 

 

18,500

 

 

 

18,500

 

Total

 

$

 

 

$

 

 

$

18,500

 

 

$

18,500

 

 

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 contingent consideration as of September 30, 2018 is related to the acquisition of MLW Squared Inc., doing business as Ahalogy (“Ahalogy”) and as of December 31, 2017 is related to the Crisp Media, Inc. (“Crisp”) acquisition. The fair value of the contingent consideration is based on achieving certain revenue targets as defined under the Share Purchase Agreement and 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 included expected achievement of certain financial metrics over the contingent consideration period, volatility and discount rate. The fair-value of the contingent consideration is classified as a liability and is remeasured each reporting period. 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

September 30, 2018

 

 

Nine Months Ended

September 30, 2018

 

 

 

Ahalogy

 

 

Crisp

 

 

Ahalogy

 

 

Crisp

 

 

 

Level 3

 

 

Level 3

 

 

Level 3

 

 

Level 3

 

Balance at the beginning of period

 

$

14,582

 

 

$

24,500

 

 

$

 

 

$

18,500

 

Addition related to acquisition

 

 

 

 

 

 

 

 

14,582

 

 

 

 

Change in fair value during the period

 

 

2,292

 

 

 

 

 

 

2,292

 

 

 

6,000

 

Payments made during the period

 

 

 

 

 

(24,500

)

 

 

 

 

 

(24,500

)

Balance as of September 30, 2018

 

$

16,874

 

 

$

 

 

$

16,874

 

 

$

 

 

For the three and nine months ended September 30, 2018, the Company remeasured the contingent consideration to fair value and recognized a charge of $2.3 million and $8.3 million, respectively, related to the changes in fair value of the contingent consideration and included as a component of operations in the accompanying condensed consolidated statements of operations.

Crisp achieved the financial metrics subject to contingent consideration during the measurement period ending May 31, 2018 and the Company paid out $24.5 million during the three months ended September 30, 2018 and as a result, no liability exists as of September 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 September 30, 2018 and December 31, 2017, the fair value of the Company’s 1.75% convertible senior notes due 2022 was $223.0 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 9 for additional information related to the Company’s convertible debt.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities are valued on the date of acquisition for businesses acquired on a nonrecurring basis.

As of September 30, 2018 and December 31, 2017, there were no assets and liabilities that are required to be measured at fair value on a nonrecurring basis.

 

4. Allowance for Doubtful Accounts  

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Balance at the beginning of period

 

$

768

 

 

$

1,035

 

 

$

786

 

 

$

1,338

 

Additions related to acquisitions

 

 

32

 

 

 

 

 

 

32

 

 

 

229

 

Bad debt expense (recovery)

 

 

222

 

 

 

(51

)

 

 

271

 

 

 

(548

)

Write-offs

 

 

(49

)

 

 

(71

)

 

 

(116

)

 

 

(106

)

Balance at the end of period

 

$

973

 

 

$

913

 

 

$

973

 

 

$

913

 

 

 

12


5. Balance Sheet Components

Property and Equipment, Net

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

 

 

September 30,

2018

 

 

December 31,

2017

 

Software

$

37,926

 

 

$

33,198

 

Computer equipment

 

23,772

 

 

 

24,342

 

Leasehold improvements

 

7,798

 

 

 

7,905

 

Furniture and fixtures

 

2,111

 

 

 

2,107

 

Total

 

71,607

 

 

 

67,552

 

Accumulated depreciation and amortization

 

(59,139

)

 

 

(55,752

)

Projects in process

 

1,881

 

 

 

4,810

 

Property and equipment, net

$

14,349

 

 

$

16,610

 

 

Depreciation and amortization expense related to property and equipment was $1.9 million and $1.6 million for the three months ended September 30, 2018 and 2017, respectively, and $5.4 million and $5.4 million for the nine months ended September 30, 2018 and 2017, respectively.

The Company capitalized internal use software development and enhancement costs of $0.4 million and $2.0 million during the three and nine months ended September 30, 2018, respectively, and $1.0 million and $3.1 million during the three and nine months ended September 30, 2017, respectively. During the three and nine months ended September 30, 2018, the Company had $0.4 million and $0.8 million, respectively, in amortization expense related to internal use software, which is included in property and equipment depreciation and amortization expense and recorded as cost of revenues, and zero and $0.6 million, respectively, during the comparable periods of 2017. The unamortized capitalized development and enhancement costs were $5.6 million and $4.4 million as of September 30, 2018 and December 31, 2017, respectively.

Accrued Compensation and Benefits

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

 

 

September 30,

2018

 

 

December 31,

2017

 

Bonus

$

4,758

 

 

$

7,212

 

Commissions

 

3,275

 

 

 

4,199

 

Vacation

 

299

 

 

 

371

 

Payroll and related expenses

 

3,219

 

 

 

2,132

 

Accrued compensation and benefits

$

11,551

 

 

$

13,914

 

 

Other Current Liabilities  

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

 

 

September 30,

2018

 

 

December 31,

2017

 

Distribution fees

$

17,362

 

 

$

18,485

 

Marketing expenses

 

2,247

 

 

 

2,826

 

Prefunded liability

 

5,325

 

 

 

2,151

 

Traffic acquisition cost

 

6,185

 

 

 

3,040

 

Facility exit costs

 

1,105

 

 

 

1,105

 

Interest payable

 

1,157

 

 

 

418

 

Other

 

8,952

 

 

 

7,513

 

Other current liabilities

$

42,333

 

 

$

35,538

 

 

13


6. Acquisitions

 

Acquisition of SavingStar, Inc.

On August 27, 2018, the Company acquired all the outstanding shares of SavingStar, Inc. (“SavingStar”), a digital promotions company with a CRM platform designed to help brands build and track loyalty programs with their consumers.

The total preliminary acquisition consideration at closing consisted of $7.5 million in cash. In addition, SavingStar may receive potential contingent consideration of up to $10.6 million payable in all cash, subject to achieving certain financial metrics between closing through February 29, 2020. At the date of acquisition, the contingent consideration’s fair value was determined to be zero using an option pricing model. The fair value of the contingent consideration is remeasured every reporting period.

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. 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 September 30, 2018. Certain closing balance sheet items in connection with the acquisition of Ahalogy were finalized during the third quarter of 2018. As a result, the net assets acquired decreased by $0.5 million which was accounted for as measurement period adjustments in the third quarter of 2018 with a corresponding adjustment to goodwill.

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. 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. The Company recorded a charge of $9.7 million since the acquisition date, related to the changes in fair value of Crisp contingent consideration due to an increase in expected achievement of certain financial metrics over the contingent consideration period. 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 and the Company paid out $24.5 million during the three months ended September 30, 2018, and as a result, no liability exists as of September 30, 2018. Of the total $24.5 million, $14.8 million is classified as a financing outflow and the remaining $9.7 million is classified as an operating outflow. Refer to Note 3 for the fair value of contingent consideration at September 30, 2018.

The SavingStar, Ahalogy, and Crisp transactions were each accounted for as a business combination. Accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date when control was obtained. The Company expensed all transaction costs in the period in which they were incurred. The Company acquired various intangible assets resulting from these acquisitions, such as, customer relationships, vendor relationships, developed technologies and trade names. The fair value of the customer relationships was determined by using a discounted cash flow model. The fair value of the vendor relationships was determined by using a cost approach. The fair value of developed technologies was determined by using the relief from royalty method or the with-and-without method. The fair value of trade names was determined by using the relief from royalty method. The excess of the consideration paid over the fair value of the net tangible assets and liabilities and identifiable intangible assets acquired is recorded as goodwill. The goodwill arising from the acquisitions are largely attributable to the synergies expected to be realized. None of the goodwill recorded from the acquisitions will be deductible for income tax purposes.

14


For each of these transactions, the fair value of the consideration transferred and the assets acquired and liabilities assumed was determined by the Company and in doing so management engaged a third-party valuation specialist to measure the fair value of identifiable intangible assets and obligations related to deferred revenue and contingent consideration. The estimated fair value of the identifiable assets acquired and liabilities assumed in the relevant acquisition is based on management’s best estimates. As the Company finalizes certain valuation assumptions, the provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to the acquisitions of Ahalogy and SavingStar are subject to change and the final purchase price accounting could be different from the amounts presented herein.

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

 

SavingStar

$

7,485

 

 

$

(1,126

)

 

$

2,577

 

 

$

6,034

 

 

Not Deductible

 

$

419

 

Ahalogy

$

36,432

 

 

$

2,196

 

 

$

11,580

 

 

$

22,656

 

 

Not Deductible

 

$

684

 

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):

 

 

SavingStar

 

 

Estimated

Useful Life

(in Years)

 

 

Ahalogy

 

 

Estimated

Useful Life

(in Years)

 

 

Crisp

 

 

Estimated

Useful Life

(in Years)

 

Developed technologies

$

1,476

 

 

 

3.0

 

 

$

3,100

 

 

 

4.0

 

 

$

5,000

 

 

 

4.0

 

Customer relationships

 

1,040

 

 

 

3.0

 

 

 

6,210

 

 

 

6.0

 

 

 

2,800

 

 

 

7.0

 

Trade names

 

61

 

 

 

1.5

 

 

 

650

 

 

 

4.0

 

 

 

1,600

 

 

 

4.0

 

Vendor relationships

 

 

 

 

 

 

 

1,620

 

 

 

2.0

 

 

 

 

 

 

 

Total identifiable intangible

   assets

$

2,577

 

 

 

 

 

 

$

11,580

 

 

 

 

 

 

$

9,400

 

 

 

 

 

 

7. Goodwill and Intangible Assets

 

Goodwill:

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

 

22,656

 

Acquisition of SavingStar

 

6,034

 

Balance as of September 30, 2018

$

109,196

 

 

15


Intangible Assets:

The following table summarizes the gross carrying amount and accumulated amortization for the intangible assets (in thousands):  

 

 

September 30, 2018

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

 

Weighted

Average

Amortization

Period

(Years)

 

Promotion service rights

$

22,492

 

 

$

(6,493

)

 

$

15,999

 

 

 

5.3

 

Media service rights

 

19,428