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EX-31.1 - EX-31.1 - MOBILEIRON, INC.mobl-20200331ex3113b6214.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

Form 10-Q


(Mark One)

 

 

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

 

For the Quarterly Period Ended March 31, 2020

or

 

 

 

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

 

For the transition period from              to

 

Commission file number 001-36471


MobileIron, Inc.

(Exact name of Registrant as specified in its charter)


 

Delaware

26-0866846

(State or other jurisdiction of
incorporation or organization)

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

 

490 East Middlefield Road

Mountain View, California

94043

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code:

(650) 919-8100


Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.0001 per share

MOBL

NASDAQ

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒     No   ◻

 

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

 

Large accelerated filer   ◻

Accelerated filer   ☒

Nonaccelerated 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   ☒

 

The number of outstanding shares of the registrant’s common stock was 115,369,759 as of April  24, 2020.

 

 

 

 

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2020

 

 

 

Page

PART I FINANCIAL INFORMATION 

 

6

Item 1. Financial Statements:

 

6

Condensed Consolidated Balance Sheets as of March 31,  2020 and December 31, 2019 

 

6

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 

 

7

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 

 

8

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 

 

9

Notes to Condensed Consolidated Financial Statements 

 

10

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

 

29

Item 3. Quantitative and Qualitative Disclosure About Market Risk 

 

29

Item 4. Controls and Procedures 

 

45

PART II OTHER INFORMATION 

 

46

Item 1. Legal Proceedings 

 

46

Item 1A. Risk Factors 

 

46

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

 

73

Item 3. Defaults Upon Senior Securities 

 

75

Item 4. Mine Safety Disclosures 

 

75

Item 5. Other Information 

 

76

Item 6. Exhibits 

 

76

Signatures 

 

78

 

“MobileIron,” the MobileIron logos and other trademark or service marks of MobileIron, Inc. appearing in this Quarterly Report on Form 10-Q are the property of MobileIron, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

 

 

 

2

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

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

 

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

 

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

 

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

 

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

 

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

3

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

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

 

 

 

 

 

the potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations, including the effect of governmental lockdowns, restrictions and new regulations on our operations and processes;

 

 

 

 

beliefs and objectives for future operations, results and growth;

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

our ability to expand internationally;

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

economic and industry trends or trend analysis; and

 

 

 

 

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

 

 

 

 

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

 

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These risks are not exhaustive. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Quarterly Report on Form

4

10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

5

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

 

2020

    

2019

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

98,583

 

$

94,415

 

Accounts receivable, net of allowance for doubtful accounts of $412 at both March 31, 2020 and December 31, 2019

 

 

37,694

 

 

58,815

 

Deferred commissions - current

 

 

9,102

 

 

9,825

 

Prepaid expenses and other current assets

 

 

14,043

 

 

11,965

 

TOTAL CURRENT ASSETS

 

 

159,422

 

 

175,020

 

Property and equipment—net

 

 

4,066

 

 

4,804

 

Operating lease right-of-use asset

 

 

12,564

 

 

13,683

 

Deferred commissions - noncurrent

 

 

7,863

 

 

8,077

 

Goodwill

 

 

5,475

 

 

5,475

 

Other assets

 

 

4,803

 

 

5,371

 

TOTAL ASSETS

 

$

194,193

 

$

212,430

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,229

 

$

1,310

 

Accrued expenses

 

 

15,081

 

 

24,792

 

Lease liabilities - current

 

 

5,277

 

 

5,664

 

Unearned revenue - current

 

 

84,461

 

 

85,153

 

Customer arrangements with termination rights

 

 

13,463

 

 

16,130

 

TOTAL CURRENT LIABILITIES

 

 

119,511

 

 

133,049

 

Long-term liabilities:

 

 

 

 

 

 

 

Lease liabilities - noncurrent

 

 

8,786

 

 

10,088

 

Unearned revenue - noncurrent

 

 

29,577

 

 

33,058

 

Other long-term liabilities

 

 

131

 

 

237

 

TOTAL LIABILITIES

 

 

158,005

 

 

176,432

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized, 118,540,139 shares issued and 115,369,759 shares outstanding and 115,685,153 shares issued and 112,725,391 shares outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

12

 

 

11

 

Additional paid-in capital

 

 

517,575

 

 

504,041

 

Treasury stock

 

 

(15,825)

 

 

(15,141)

 

Accumulated deficit

 

 

(465,574)

 

 

(452,913)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

36,188

 

 

35,998

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

194,193

 

$

212,430

 

See accompanying notes.

6

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

Revenue

 

 

 

 

 

 

 

Cloud services

 

$

18,634

 

$

15,261

 

License

 

 

9,010

 

 

11,371

 

Software support and services

 

 

22,054

 

 

21,450

 

Total revenue

 

 

49,698

 

 

48,082

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

Cloud services

 

 

6,057

 

 

4,710

 

License

 

 

459

 

 

554

 

Software support and services

 

 

4,356

 

 

5,023

 

Restructuring expense

 

 

 —

 

 

76

 

Total cost of revenue

 

 

10,872

 

 

10,363

 

Gross profit

 

 

38,826

 

 

37,719

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

18,993

 

 

21,829

 

Sales and marketing

 

 

24,133

 

 

24,487

 

General and administrative

 

 

7,233

 

 

7,919

 

Restructuring expense

 

 

579

 

 

539

 

Total operating expenses

 

 

50,938

 

 

54,774

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(12,112)

 

 

(17,055)

 

Other income (expense) - net

 

 

(108)

 

 

412

 

Loss before income taxes

 

 

(12,220)

 

 

(16,643)

 

Income tax expense

 

 

441

 

 

457

 

Net loss

 

$

(12,661)

 

$

(17,100)

 

Net loss per share, basic and diluted

 

$

(0.11)

 

$

(0.16)

 

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

 

 

113,957

 

 

107,352

 

 

See accompanying notes.

 

7

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

    

 

    

    

 

    

 

 

 

    

 

    

 

 

 

 

    

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

 

 

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

 

Treasury Stock

 

Deficit

 

Equity

 

BALANCE—December 31, 2019

 

112,725,391

 

$

11

 

$

504,041

 

$

(15,141)

 

$

(452,913)

 

$

35,998

 

Issuance of common stock for stock option exercises

 

29,797

 

 

 

 

 

117

 

 

 —

 

 

 —

 

 

117

 

Issuance of common stock pursuant to the Employee Stock Purchase Plan

 

562,233

 

 

 —

 

 

2,151

 

 

 —

 

 

 —

 

 

2,151

 

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

 

1,730,682

 

 

 1

 

 

7,633

 

 

 —

 

 

 —

 

 

7,634

 

Shares withheld for net settlement of equity awards

 

(738,233)

 

 

 —

 

 

(3,182)

 

 

 —

 

 

 —

 

 

(3,182)

 

Repurchase of common stock

 

(210,618)

 

 

 —

 

 

 —

 

 

(684)

 

 

 —

 

 

(684)

 

Vesting of restricted stock units

 

1,270,507

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

6,815

 

 

 —

 

 

 —

 

 

6,815

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(12,661)

 

 

(12,661)

 

BALANCE—March 31, 2020

 

115,369,759

 

$

12

 

$

517,575

 

$

(15,825)

 

$

(465,574)

 

$

36,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

 

 

 

Accumulated

 

Stockholders’

 

 

Shares

 

Amount

 

Capital

 

 

Treasury Stock

 

Deficit

 

Equity

BALANCE—December 31, 2018

 

106,206,545

 

$

11

 

$

462,004

 

$

(3,831)

 

$

(404,067)

 

$

54,117

Issuance of common stock for stock option exercises

 

250,468

 

 

 —

 

 

798

 

 

 —

 

 

 —

 

 

798

Issuance of common stock pursuant to the Employee Stock Purchase Plan

 

518,112

 

 

 —

 

 

2,047

 

 

 —

 

 

 —

 

 

2,047

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

 

2,170,855

 

 

 —

 

 

10,485

 

 

 —

 

 

 —

 

 

10,485

Shares withheld for net settlement of equity awards

 

(894,194)

 

 

 —

 

 

(4,409)

 

 

 —

 

 

 —

 

 

(4,409)

Repurchase of common stock

 

(738,966)

 

 

 —

 

 

 —

 

 

(3,601)

 

 

 —

 

 

(3,601)

Vesting of restricted stock units

 

1,157,600

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 

6,464

 

 

 —

 

 

 —

 

 

6,464

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(17,100)

 

 

(17,100)

BALANCE—March 31, 2019

 

108,670,420

 

$

11

 

$

477,389

 

$

(7,432)

 

$

(421,167)

 

$

48,801

 

 

 

See accompanying notes.

8

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(12,661)

 

$

(17,100)

 

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

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

7,573

 

 

10,290

 

Depreciation

 

 

863

 

 

932

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

21,121

 

 

22,821

 

Deferred commissions

 

 

937

 

 

(35)

 

Other current and noncurrent assets

 

 

(398)

 

 

(2,647)

 

Accounts payable

 

 

(101)

 

 

186

 

Unearned revenue

 

 

(4,172)

 

 

(2,958)

 

Customer arrangements with termination rights

 

 

(2,667)

 

 

(2,184)

 

Accrued expenses and other long-term liabilities

 

 

(3,328)

 

 

(1,489)

 

Net cash provided by operating activities

 

 

7,167

 

 

7,816

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(93)

 

 

(177)

 

Proceeds from maturities of investment securities

 

 

 —

 

 

1,000

 

Purchase of investment securities

 

 

 —

 

 

(546)

 

Net cash provided by (used in) investing activities

 

 

(93)

 

 

277

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

837

 

 

953

 

Taxes paid for net settlement of equity awards

 

 

(3,182)

 

 

(4,409)

 

Proceeds from exercise of stock options

 

 

123

 

 

798

 

Repurchase of common stock

 

 

(684)

 

 

(3,601)

 

Net cash used in financing activities

 

 

(2,906)

 

 

(6,259)

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

4,168

 

 

1,834

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

94,415

 

 

104,613

 

CASH AND CASH EQUIVALENTS—End of period

 

$

98,583

 

$

106,447

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

621

 

$

269

 

Lease payments included in cash provided by operating activities

 

$

1,696

 

$

1,832

 

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Value of shares issued under the Bonus Plans

 

$

4,765

 

$

6,374

 

Value of shares issued under the Employee Stock Purchase Plan

 

$

2,151

 

$

2,047

 

Unpaid property and equipment purchases

 

$

32

 

$

165

 

 

 

 

 

 

 

See accompanying notes.

 

9

MOBILEIRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Description of Business and Significant Accounting Policies

 

Description of Business

 

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

 

In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. While the COVID-19 pandemic has not had a material adverse financial impact on the Company’s operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is difficult at this time to predict the impact that COVID-19 will have on the Company’s business, financial position and operating results in future periods due to numerous uncertainties. The Company is closely monitoring the impact of the pandemic on all aspects of its business.

 

Basis of Presentation and Consolidation

 

The accompanying unaudited condensed consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial statements and pursuant to the rules and regulations of the SEC, and include the accounts of our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

 

Certain information and footnote disclosures in this Quarterly Report on Form 10-Q normally included in annual financial statements prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of our balance sheet as of March 31, 2020, our operating results for the three months ended March 31, 2020 and 2019, and our cash flows for the three months ended March 31, 2020 and 2019. Our operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements as of that date, but does not include all the footnotes required by U.S. GAAP for complete financial statements.

 

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with our audited financial statements and related notes for the year ended December 31, 2019, included in our Annual Report on Form 10-K for the year ended December 31, 2019 previously filed with the SEC.

 

Foreign Currency Translation

 

Our reporting currency is the U.S. dollar. The functional currency of all our international operations is the U.S. dollar. All monetary asset and liability accounts are translated into U.S. dollars at the period-end rate, nonmonetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at the weighted-average exchange rates in effect during the period. Translation adjustments are recorded as foreign currency gains

10

(losses) in the condensed consolidated statements of operations. We recognized a foreign currency loss of $405,000 and $211,000 in the three months ended March 31, 2020 and 2019, respectively,  in other income (expense)—net in our condensed consolidated statements of operations.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, deferred commissions and commissions expense, stock-based compensation, goodwill, and accounting for income taxes. Actual results could differ from those estimates.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, money market funds and fixed income investments. Although we deposit our cash with multiple financial institutions, our deposits, at times, exceed federally insured limits. We invest in fixed income securities that are of high-credit quality. Substantially all of our money market funds, or $87.6 million, are held in five funds that are rated “AAA.”

 

We generally do not require collateral or other security in support of accounts receivable. Allowances are provided for individual accounts receivable when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration of the customer’s operating results, or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We also consider broader factors in evaluating the sufficiency of our allowances for doubtful accounts, including the length of time receivables are past due, significant one-time events and historical experience. At both March 31, 2020 and December 31, 2019, we had an allowance for doubtful accounts of $412,000.

 

One reseller accounted 11% (1% as end customer) of total revenue for the three months ended March 31, 2019. No resellers or end-user customers accounted for 10% or more of our total revenue in the three months ended March 31, 2020 and no other reseller or end-user customer accounted for 10% or more of our total revenue in the three months ended March 31, 2019. No reseller or end-user customer accounted for 10% or more of accounts receivable for any period presented.

 

Segments

 

We have one reportable segment, software and services to manage and secure mobile devices, applications and content.

 

Summary of Significant Accounting Policies

 

Revenue Recognition

Revenue Presentation

 

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

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

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

11

Revenue Recognition

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

Nature of Products and Services

 

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

Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase on-premise software licenses as perpetual licenses or as part of subscriptions. On-premise licenses are considered distinct performance obligations and revenue from the licenses is recognized upfront when the software is made available to the customer. In the case of our on-premise subscriptions, the license portion of revenue is recognized up-front, and the software support and services portion is recognized ratably.

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

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

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

 

Appliance revenue was less than 1% of total revenue for all periods presented and is included as a component of license revenue within the consolidated statements of operations.

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

Significant Judgments

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

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

12

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue will be recognized after invoicing. For multi-year agreements, we either invoice our customer in full at the inception of the contract or annually at the beginning of each annual period. We record an unbilled receivable related to revenue recognized for multi-year on-premise licenses invoiced annually when we have an unconditional right to invoice and receive payment in the future for those licenses or when we have the right to invoice future monthly periods under committed monthly recurring charge (“MRC”) agreements. The majority of our MRC agreements are for a month to month term (“non-committed”) or usage-based.

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

As of March 31, 2020 and December 31, 2019, the balance of accounts receivable, net of the allowance for doubtful accounts, included $2.2 million and $2.0 million, respectively, of unbilled receivables from upfront recognition of revenue for certain multi-period on-premises software subscriptions that include both distinct software licenses and software support and services.

As of March 31, 2020 and December 31, 2019, unbilled receivables included in other long-term assets on our consolidated balance sheets were $761,000 and $795,000, respectively.

Unearned Revenue and Customer Arrangements with Termination Rights

 

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

 

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

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

Deferred Commissions

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

 

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

 

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Changes in deferred commissions were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Balance, beginning of the period

 

$

17,902

 

$

17,331

Deferral of commissions earned

 

 

3,664

 

 

4,056

Recognition of commission expense

 

 

(4,596)

 

 

(3,929)

Impairment of deferred commissions

 

 

(5)

 

 

(93)

Balance, end of the period

 

$

16,965

 

$

17,365

 

Cash Equivalents

 

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of March 31, 2020 and December 31, 2019, cash and cash equivalents consist of cash deposited with banks and money market funds.

 

Comprehensive Loss

 

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. For the three months ended March 31, 2020 and 2019, there were no differences between net loss and comprehensive loss. Therefore, the consolidated statements of comprehensive loss have been omitted.

 

Net Loss per Share of Common Stock

 

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period after repurchases but without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, unvested restricted stock and stock options are considered to be potentially dilutive securities. Because we have reported a net loss for the three months ended March 31, 2020 and 2019, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

 

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

 

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

 

Internal Use Software

 

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

 

All software development costs incurred in connection with our cloud offering, or SaaS, are also sold or marketed to partners or end customers, therefore we start capitalizing costs when technological feasibility is achieved.

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No costs were capitalized in any periods presented as we believe that our current process for developing software is essentially completed concurrent with the establishment of technological feasibility.

 

Property and Equipment

 

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

 

Leases

 

We determine if an arrangement is a lease conveying the right to control identified property, plant, or equipment and whether the lease is operating or financing at the lease’s inception. We have determined that all of our leases are operating leases. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. The operating lease ROU asset also includes any advance lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have adopted the practical expedient as permitted by the new leasing standard to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. Our leases generally separate lease components from nonlease components. However, where lease and nonlease components are combined in our lease arrangements, we have adopted the practical expedient to not separate the lease from the nonlease components.  Refer to Note 11 - Leases for further information about our leases.

 

Goodwill

 

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

Long-Lived Assets with Finite Lives

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

 

Stock-Based Compensation

 

We use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718 Compensation—Stock Compensation. Fair value is determined using the Black-Scholes Model using various inputs, including our estimates of expected volatility, term and future dividends. We estimated the forfeiture rate based on our historical experience for annual grant years where the majority of the vesting terms have been satisfied.

 

We recognize compensation costs for awards with service and performance vesting conditions and for our Employee Stock Purchase Plan, or ESPP, on an accelerated method over the requisite service period of the award. For stock options or restricted stock unit grants with no performance condition, we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

15

 

Research and Development

 

Because we estimate that our software is essentially completed concurrent with the establishment of technological feasibility, we have charged all research and development to expense as incurred.

 

Advertising

 

Advertising costs are expensed and included in sales and marketing expense when incurred. Advertising expense for the three months ended March 31, 2020 and 2019 was not significant.

 

Income Taxes

 

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

 

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

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We are currently evaluating the impact of the CARES Act, but at present do not expect that the NOL carryback provision of the CARES Act would result in a cash benefit to us.

 

Recent Accounting Pronouncements

 

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

Recently Adopted Accounting Guidance

 

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments,” which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses are recognized as allowances rather than reductions in the amortized cost of the securities. The standard was effective for annual reporting periods beginning after December 15, 2019. Entities apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. We adopted ASU 2016-13 effective January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated balance sheet, results of operations, cash flows and disclosures for the three months ended March 31, 2020.

 

In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or

16

obtain internal-use software and require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The standard was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We adopted ASU 2018-15 effective January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated balance sheet, results of operations, or cash flows for the three months ended March 31, 2020.

 

Accounting Guidance Not Yet Adopted

 

Simplifying the Test for Goodwill Impairment

 

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. This ASU should be applied on a prospective basis. The ASU is effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption is permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated balance sheet, results of operations, or cash flows.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.Significant Balance Sheet Components

 

Accounts Receivable, Net  —Accounts receivable, net at March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

Accounts receivable - billed

 

$

35,940

 

$

57,184

Accounts receivable - unbilled

 

 

2,166

 

 

2,043

Allowance for doubtful accounts

 

 

(412)

 

 

(412)

Accounts receivable, net

 

$

37,694

 

$

58,815

 

Property and Equipment  —Property and equipment at March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

Computers and appliances

 

$

13,426

 

$

13,300

 

Purchased software

 

 

4,235

 

 

4,235

 

Furniture and fixtures

 

 

1,745

 

 

1,745

 

Leasehold improvements

 

 

3,403

 

 

3,403

 

Total property and equipment

 

 

22,809

 

 

22,683

 

Accumulated depreciation and amortization

 

 

(18,743)

 

 

(17,879)

 

Total property and equipment—net

 

$

4,066

 

$

4,804

 

 

 

 

Prepaid Expenses and Other Current Assets and Other Assets

 

Prepaid expenses and other current assets at March 31, 2020 and December 31, 2019 included $6.7 million and $6.3 million of prepaid royalties, respectively. Other assets at March 31, 2020 and December 31, 2019 included $2.3 million and $3.0 million of prepaid royalties, respectively. The prepaid royalties were primarily associated with MobileIron Threat Defense.

 

17

Accrued Expenses  —Accrued expenses at March 31, 2020 and December 31, 2019 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

Accrued commissions

 

$

2,703

 

$

4,810

 

Accrued stock-settled bonus

 

 

 —

 

 

6,875

 

Employee Stock Purchase Plan liability

 

 

873

 

 

2,187

 

Other accrued payroll-related expenses

 

 

2,849

 

 

2,839

 

Accrued royalties

 

 

3,080

 

 

2,386

 

Other accrued liabilities

 

 

5,576

 

 

5,695

 

Total accrued expenses

 

$

15,081

 

$

24,792

 

 

 

3.Fair Value Measurement

 

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

 

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

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

Our financial assets that are carried at fair value include cash and money market funds. We had no financial liabilities, or nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at fair value as of March 31, 2020 or December 31, 2019.

 

Our financial instruments measured at fair value as of March 31, 2020 and December 31, 2019 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2020

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money market funds

 

$

87,589

 

$

 —

 

$

 —

 

$

87,589

 

Total

 

$

87,589

 

$

 —

 

$

 —

 

$

87,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of December 31, 2019

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Money market funds

 

$

82,411

 

$

 —

 

$

 —

 

$

82,411

 

Total

 

$

82,411

 

$

 —

 

$

 —

 

$

82,411

 

 

18

 

 

4. Restructuring Expense

 

We implemented business restructurings in the three months ended March 31, 2020 and 2019 to reduce our cost structure through workforce reductions.

 

The following table summarizes the activity in accrued restructuring expense, included in accrued expenses, for the three months ended March 31, 2020 (in thousands):

 

 

 

 

 

 

 

 

 

 

    

 

Severance and Other Restructuring Costs

Accrued restructuring, December 31, 2019

 

$

282

Provision for restructuring expense

 

 

579

Cash payments

 

 

(219)

Accrued restructuring, March 31, 2020

 

$

642

 

We expect to pay the remaining accrued restructuring balance by March 31, 2021.

 

 

5. Line of Credit

 

We have a $20.0 million revolving line of credit with a financial institution that can be used to (a) borrow for working capital and general business requirements, (b) issue letters of credit, and (c) enter into foreign exchange contracts. Amounts borrowed accrue interest at a floating per annum rate equal to the prime rate. A default interest rate shall apply during an event of default at a rate per annum equal to 5% above the otherwise applicable interest rate. The line of credit is collateralized by substantially all of our assets, except intellectual property, and requires us to comply with working capital, net worth and other covenants, including limitations on indebtedness and restrictions on dividend distributions, among others, but does allow for the repurchase of a limited amount of our common stock as contemplated by a share repurchase program approved by the Board of Directors (the “Board”) in October 2018, and the borrowing capacity is limited to eligible accounts receivable. We are required to maintain an adjusted quick ratio (defined as the ratio of current assets to current liabilities minus deferred revenue) of at least 1.25.

 

In May 2015, we issued a letter of credit for $1.5 million as a security deposit for a new lease for office space in a building in Mountain View, California, and in November 2017 we issued a bank guarantee to a customer of approximately $3.0 million that can be drawn if we become insolvent or bankrupt. The issuances of the letter of credit and bank guarantee reduced the borrowing capacity under our line of credit to approximately $15.5 million.

 

In June 2019, we amended our revolving line of credit and extended its maturity date to June 2020.

 

There were no other outstanding amounts under the line of credit at March  31, 2020 or December 31, 2019 and we were in compliance with all financial covenants.

 

6.Preferred Stock

 

We were authorized to issue up to 10,000,000 shares of convertible preferred stock as of March  31, 2020 and December 31, 2019.  No shares of convertible preferred stock were issued and outstanding as of March 31, 2020 or December 31, 2019.

 

 

7.Common Stock

 

We were authorized to issue 300,000,000 shares of common stock with a par value of $0.0001 per share as of March 31, 2020 and December 31, 2019. Each share of common stock is entitled to one vote. The holders of common

19

stock are also entitled to receive dividends out of funds legally available therefore, when and if declared by the board of directors, subject to the approval and priority rights of holders of all classes of preferred stock outstanding.

 

As of March 31, 2020 and December 31, 2019,  our shares of common stock reserved for issuance were as follows:

 

 

 

 

 

 

 

    

 

    

 

 

    

March 31, 

    

December 31,

 

 

2020

 

2019

Options outstanding

 

2,798,122

 

2,898,977

Unvested restricted stock units outstanding

 

12,305,236

 

12,639,066

Unvested performance stock units outstanding

 

1,005,000

 

 —

Shares available for grant under the 2014 Equity Incentive Plan and 2015 Inducement Plan

 

4,075,082

 

1,301,881

Shares available for purchase under the Employee Stock Purchase Plan

 

943,545

 

378,525

Total

    

21,126,985

    

17,218,449

 

 

Repurchase Program

In October 2018, our Board of Directors approved a common stock repurchase program (“Repurchase Program”) whereby the Company is authorized to purchase up to a maximum of $25 million of its common stock, subject to compliance with applicable law and the limitations in the Company’s credit facilities on stock repurchases.

The authorization allows repurchases from time to time in the open market or in privately negotiated transactions. The amount and timing of repurchases made under the Repurchase Program will depend on a variety of factors, including available liquidity, cash flow and market conditions. Shares can be purchased through the Repurchase Program through October 2020, unless extended or shortened by our Board of Directors. The Repurchase Program does not obligate us to acquire any particular amount of common stock and the program may be modified or suspended at any time at our discretion. The repurchases would be funded from available working capital and are subject to compliance with the terms and limitations of the Company’s credit facilities.

 

In the three months ended March 31, 2020, we repurchased 210,618 shares of common stock at an average price of $3.25 per share for a total cost of $684,000 under the Repurchase Program. The maximum remaining dollar value of shares yet to be purchased under the Repurchase Program was $9.2 million at March 31, 2020. This excludes shares repurchased to settle employee tax withholding related to the vesting of our stock-settled bonus and RSUs.

 

8.Share Based Awards

 

2008 Stock Plan

 

Our 2008 Stock Plan, or 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory stock options to employees, nonemployee directors and consultants of the Company. Options granted under the 2008 Plan generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant.

 

Our 2008 Plan was terminated following the date our 2014 Equity Incentive Plan, or our 2014 Plan, became effective. Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable award agreements.

 

2014 Equity Incentive Plan

 

Our 2014 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock

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unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.

 

The initial number of shares of our common stock available to be issued under our 2014 Plan was 8,142,857, which number of shares will be increased by any shares subject to stock options or other stock awards granted under the 2008 Stock Plan that would have otherwise returned to our 2008 Stock Plan (such as upon the expiration or termination of a stock award prior to vesting), not to exceed 16,312,202.

 

The number of shares of our common stock reserved for issuance under our 2014 Plan automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. On January 1, 2020, we increased the number of shares of common stock reserved for issuance under our 2014 Plan by 5,636,269 shares, which was 5% of the total number of shares of common stock outstanding at December 31, 2019.

Amended and Restated 2015 Inducement Plan  

On December 20, 2015, our board of directors adopted our 2015 Inducement Plan, or the Inducement Plan, to reserve 1,600,000 shares of our common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company. The terms and conditions of the Inducement Plan are substantially similar to our stockholder-approved 2014 Plan. On January 5, 2016, our board of directors approved the amendment and restatement of the Inducement Plan to increase the share reserve under the Inducement Plan to 1,970,000 shares of our common stock. As of March 31, 2020, there were 690,625 stock options and restricted stock units outstanding under the Inducement Plan.

2014 Employee Stock Purchase Plan

 

The purpose of our 2014 Employee Stock Purchase Plan, or ESPP, is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our customers, other partners, and shareholders. Our ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Our ESPP permits eligible employees to purchase our common stock through payroll deductions, which may not exceed 15% of the employee’s base compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of our common stock on either the first day of the offering or the last day of the applicable purchase period, whichever is lower.

 

As of March 31, 2020 and December 31, 2019, approximately 943,545 and 378,525 shares of common stock were available for future issuance under our ESPP, respectively. The number of shares of our common stock reserved for issuance under our ESPP increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 2,142,857 shares of common stock; or (iii) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP. On January 1, 2020, we increased the number of shares available for issuance under the ESPP by 1,127,253 shares, which was 1% of the total number of shares of our common stock outstanding as of December 31, 2019.

 

Restricted Stock Units and Performance Stock Units

 

We grant restricted stock units (“RSUs”) and, beginning in our first quarter of 2020, performance stock units (“PSUs”) under our 2014 Plan. For stock-based compensation expense, we measure the value of the RSUs and PSUs based on the fair value of our common stock on the date of grant. Our RSU grants are subject to service conditions and we expense the fair value of those shares on a straight-line basis over their vesting periods. Our PSU grants are subject to performance and service conditions and we expense the fair value of those shares on an accelerated-graded basis over the employee’s requisite service period. The PSU expense may be adjusted each quarter based on our forecast of the Company’s performance relative to the annual recurring revenue metrics that determine the number of PSUs that will

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vest. To the extent that updated estimates of PSU expense differ from original estimates, the cumulative effect on current and prior periods of those changes is recorded in the period in which those estimates are revised.

 

Our RSU activity for the three months ended March 31, 2020 was as follows:

 

 

 

 

 

 

 

 

 

 

Restricted Stock Units

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Number of

 

Grant Date

 

 

    

Shares

    

Fair Value

 

Unvested, December 31, 2019

 

12,639,066

 

$

5.20

 

Granted

 

3,200,982

 

 

4.04

 

Vested

 

(3,001,189)

 

 

4.60

 

Forfeitures

 

(533,623)

 

 

4.67

 

Unvested, March 31, 2020

 

12,305,236

 

$

5.07

 

Our PSU activity for the three months ended March 31, 2020 was as follows:

 

 

 

 

 

 

 

 

 

Performance Stock Units

 

 

 

 

Weighted-

 

 

 

 

Average

 

 

Number of

 

Grant Date

 

    

Shares

    

Fair Value

Unvested, December 31, 2019

 

 —

 

$