mrin-10q_20170930.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, 2017

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: 001-35838

 

Marin Software Incorporated

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

20-4647180

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

123 Mission Street, 27th Floor, San Francisco, CA

 

94105

(Address of Principal Executive Offices)

 

(Zip Code)

(415) 399-2580

(Registrant’s Telephone Number, Including Area Code)

 

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

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files).    Yes      No  

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

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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

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

As of October 31, 2017, the registrant had 5,653,201 shares of common stock outstanding (adjusted to reflect the one-for-seven reverse stock split that took effect on October 5, 2017).

 

 

 


 

Table of Contents

 

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (unaudited).

 

3

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

 

3

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

 

4

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

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

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

28

Item 4.

 

Controls and Procedures.

 

29

PART II

 

OTHER INFORMATION

 

31

ITEM 1.

 

LEGAL PROCEEDINGS

 

31

ITEM 1A.

 

RISK FACTORS

 

31

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

48

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

48

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

48

ITEM 5.

 

OTHER INFORMATION

 

48

ITEM 6.

 

EXHIBITS

 

49

SIGNATURES

 

50

 

2

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)

 

 

 

At  September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016*

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,356

 

 

$

34,420

 

Restricted cash

 

 

1,293

 

 

 

1,293

 

Accounts receivable, net

 

 

12,706

 

 

 

18,761

 

Prepaid expenses and other current assets

 

 

4,686

 

 

 

3,808

 

Total current assets

 

 

48,041

 

 

 

58,282

 

Property and equipment, net

 

 

16,778

 

 

 

20,581

 

Goodwill

 

 

16,741

 

 

 

19,318

 

Intangible assets, net

 

 

5,174

 

 

 

7,325

 

Other noncurrent assets

 

 

1,662

 

 

 

1,587

 

Total assets

 

$

88,396

 

 

$

107,093

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,467

 

 

$

2,434

 

Accrued expenses and other current liabilities

 

 

9,249

 

 

 

8,362

 

Deferred revenues

 

 

449

 

 

 

795

 

Capital lease obligations

 

 

1,096

 

 

 

1,015

 

Total current liabilities

 

 

13,261

 

 

 

12,606

 

Capital lease obligations, non-current

 

 

1,707

 

 

 

2,381

 

Other long-term liabilities

 

 

4,489

 

 

 

4,508

 

Total liabilities

 

 

19,457

 

 

 

19,495

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity (1)

 

 

 

 

 

 

 

 

Common stock, $0.001 par value - 142,857 shares authorized, 5,653 and 5,542 shares issued, 5,653 and 5,541 outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

290,330

 

 

 

286,692

 

Accumulated deficit

 

 

(220,433

)

 

 

(196,213

)

Accumulated other comprehensive loss

 

 

(964

)

 

 

(2,887

)

Total stockholders’ equity

 

 

68,939

 

 

 

87,598

 

Total liabilities and stockholders’ equity

 

$

88,396

 

 

$

107,093

 

 

*

Derived from our audited consolidated financial statements as of December 31, 2016.

(1)

All share and per share amounts of our common stock for all periods presented have been retroactively adjusted to reflect the one-for-seven reverse stock split of the Company’s issued and outstanding common stock and a reduction in the Company’s authorized common stock, each of which took effect on October 5, 2017 (Note 1).

See accompanying notes to the condensed consolidated financial statements.

3

 


 

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues, net

 

$

18,224

 

 

$

24,013

 

 

$

57,299

 

 

$

76,954

 

Cost of revenues

 

 

8,256

 

 

 

8,668

 

 

 

24,787

 

 

 

26,752

 

Gross profit

 

 

9,968

 

 

 

15,345

 

 

 

32,512

 

 

 

50,202

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

6,630

 

 

 

7,581

 

 

 

20,016

 

 

 

25,973

 

Research and development

 

 

6,672

 

 

 

6,268

 

 

 

20,456

 

 

 

21,321

 

General and administrative

 

 

3,920

 

 

 

4,735

 

 

 

12,042

 

 

 

14,722

 

Impairment of goodwill

 

 

 

 

 

 

 

 

2,797

 

 

 

 

Total operating expenses

 

 

17,222

 

 

 

18,584

 

 

 

55,311

 

 

 

62,016

 

Loss from operations

 

 

(7,254

)

 

 

(3,239

)

 

 

(22,799

)

 

 

(11,814

)

Interest expense, net

 

 

(8

)

 

 

(39

)

 

 

(109

)

 

 

(91

)

Other (expenses) income, net

 

 

(136

)

 

 

188

 

 

 

(336

)

 

 

632

 

Loss before (provision for) benefit from income taxes

 

 

(7,398

)

 

 

(3,090

)

 

 

(23,244

)

 

 

(11,273

)

(Provision for) benefit from income taxes

 

 

(151

)

 

 

37

 

 

 

(976

)

 

 

(611

)

Net loss

 

 

(7,549

)

 

 

(3,053

)

 

 

(24,220

)

 

 

(11,884

)

Foreign currency translation adjustments

 

 

585

 

 

 

(15

)

 

 

1,923

 

 

 

86

 

Comprehensive loss

 

$

(6,964

)

 

$

(3,068

)

 

$

(22,297

)

 

$

(11,798

)

Net loss per share available to common stockholders, basic and diluted (1)

 

$

(1.34

)

 

$

(0.55

)

 

$

(4.31

)

 

$

(2.18

)

Weighted-average shares used to compute net loss per share available to common stockholders, basic and diluted (1)

 

 

5,651

 

 

 

5,503

 

 

 

5,625

 

 

 

5,456

 

Stock-based compensation expense is allocated as follows (Note 8):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

166

 

 

$

285

 

 

$

629

 

 

$

1,015

 

Sales and marketing

 

 

197

 

 

 

162

 

 

 

609

 

 

 

1,083

 

Research and development

 

 

326

 

 

 

852

 

 

 

1,640

 

 

 

4,149

 

General and administrative

 

 

234

 

 

 

532

 

 

 

805

 

 

 

2,345

 

Amortization of intangible assets is allocated as follows (Note 3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

240

 

 

$

246

 

 

$

732

 

 

$

780

 

Sales and marketing

 

 

216

 

 

 

223

 

 

 

661

 

 

 

711

 

Research and development

 

 

239

 

 

 

246

 

 

 

730

 

 

 

780

 

General and administrative

 

 

5

 

 

 

15

 

 

 

28

 

 

 

79

 

Restructuring related expenses are allocated as follows (Note 4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

 

 

$

24

 

 

$

 

 

$

175

 

Sales and marketing

 

 

 

 

 

2

 

 

 

 

 

 

213

 

Research and development

 

 

 

 

 

(4

)

 

 

 

 

 

44

 

General and administrative

 

 

 

 

 

2

 

 

 

 

 

 

17

 

 

(1)

All share and per share amounts of our common stock for all periods presented have been retroactively adjusted to reflect the one-for-seven reverse stock split of the Company’s issued and outstanding common stock, which took effect on October 5, 2017 (Note 1).

See accompanying notes to the condensed consolidated financial statements.

 

4

 


 

MARIN SOFTWARE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(24,220

)

 

$

(11,884

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

Impairment of goodwill

 

 

2,797

 

 

 

 

Depreciation

 

 

3,748

 

 

 

4,610

 

Amortization of internally developed software

 

 

2,671

 

 

 

2,180

 

Amortization of intangible assets

 

 

2,151

 

 

 

2,350

 

(Gain) loss on disposal of property and equipment

 

 

(11

)

 

 

2

 

Unrealized foreign currency losses (gains)

 

 

795

 

 

 

(268

)

Non-cash interest expense related to debt agreements

 

 

15

 

 

 

18

 

Stock-based compensation related to equity awards and restricted stock

 

 

3,683

 

 

 

8,592

 

Provision for bad debts

 

 

1,040

 

 

 

852

 

Payment of contingent consideration for prior acquisition

 

 

 

 

 

(93

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,798

 

 

 

560

 

Prepaid expenses and other current assets

 

 

(959

)

 

 

309

 

Other assets

 

 

(98

)

 

 

(340

)

Accounts payable

 

 

(692

)

 

 

246

 

Deferred revenues

 

 

(354

)

 

 

(280

)

Accrued expenses and other liabilities

 

 

169

 

 

 

(2,050

)

Net cash (used in) provided by operating activities

 

 

(4,467

)

 

 

4,804

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(351

)

 

 

(1,154

)

Proceeds from disposal of property and equipment

 

 

11

 

 

 

3

 

Capitalization of internally developed software

 

 

(1,398

)

 

 

(4,050

)

Net cash used in investing activities

 

 

(1,738

)

 

 

(5,201

)

Financing activities

 

 

 

 

 

 

 

 

Repayments of capital lease obligations

 

 

(788

)

 

 

(1,223

)

Proceeds from exercise of common stock options

 

 

 

 

 

350

 

Proceeds from employee stock purchase plan, net

 

 

215

 

 

 

592

 

Net cash used in financing activities

 

 

(573

)

 

 

(281

)

Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash

 

 

1,714

 

 

 

(206

)

Net decrease in cash and cash equivalents and restricted cash

 

 

(5,064

)

 

 

(884

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

35,713

 

 

 

37,326

 

End of period

 

$

30,649

 

 

$

36,442

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Acquisition of equipment through capital leases

 

$

181

 

 

$

1,283

 

Purchases of property and equipment recorded in accounts payable and accrued expenses

 

 

693

 

 

 

9

 

Issuance of common stock under employee stock purchase plan

 

 

130

 

 

 

328

 

 

See accompanying notes to the condensed consolidated financial statements.

5

 


 

Marin Software Incorporated

Notes to Condensed Consolidated Financial Statements

(dollars and share numbers in thousands, except per share data)

 

1. Summary of Business and Significant Accounting Policies

Marin Software Incorporated (the “Company”) was incorporated in Delaware in March 2006. The Company provides a leading cross-channel, cross-device, enterprise marketing software platform for search, social and display advertising channels, offered as an integrated software-as-a-service, or SaaS, solution for advertisers and agencies. The Company’s platform enables digital marketers to improve financial performance, realize efficiencies and time savings, and make better business decisions. The Company’s corporate headquarters are located in San Francisco, California, and the Company has additional offices in the following locations: Austin, Chicago, Dublin, Hamburg, London, New York, Paris, Portland, Shanghai, Sydney and Tokyo.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring items, considered necessary for fair statement have been included. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results to be expected for the year ending December 31, 2017, or for other interim periods or for future years.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated on consolidation. The condensed consolidated balance sheet as of December 31, 2016, is derived from audited financial statements as of that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017.

Amounts are shown in thousands unless otherwise indicated.

Reverse Stock Split and Reduction in Authorized Shares

On October 5, 2017, the Company effected a reverse stock split of its outstanding common stock. As a result of the reverse stock split, each seven outstanding shares of the Company’s common stock was combined into one outstanding share of common stock, without any change in par value. The common stock began trading on the New York Stock Exchange on a split-adjusted basis on October 6, 2017. No fractional shares were issued in connection with the reverse stock split and the Company will pay in cash the fair value of such fractional shares.

On October 5, 2017, the Company also effected a reduction in the Company’s authorized shares of common stock, from 500,000 shares to 142,857 shares.

All share and per share amounts of the Company’s common stock, as well as stock options and restricted stock units (“RSUs”), included in the accompanying condensed consolidated financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented. In addition, as a result of the reverse stock split, the Company reclassified an amount equal to the reduction in common stock at par value to additional paid-in capital on its condensed consolidated balance sheets.

Fair Value Measurements

The Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at cost, which approximates fair value because of the short-term nature of those instruments. Based on borrowing rates available to the Company for loans with similar terms and maturities, and in consideration of the Company’s credit risk profile, the carrying value of capital lease obligations (Note 5) approximates fair value (level 2 within the fair value hierarchy).

Cash equivalents consist of money market funds, which are readily convertible into cash and have original maturity dates of less than three months from the date of their respective purchases. These money market funds presented as cash equivalents on the

6

 


 

consolidated balance sheets are classified as level 1 within the fair value hierarchy, and totaled $10,768 and $15,657 as of September 30, 2017 and December 31, 2016, respectively.

Allowances for Doubtful Accounts and Revenue Credits

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the Company’s receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. The Company has not historically experienced significant credit losses from its accounts receivable. The Company performs a regular review of its customers’ payment histories and associated credit risks and it does not require collateral from its customers. Certain contracts with advertising agencies contain sequential liability provisions, whereby the agency does not have an obligation to pay the Company until payment is received from the agency’s customers. In these circumstances, the Company evaluates the credit worthiness of the agency’s customers, in addition to the agency itself. As of September 30, 2017 and December 31, 2016, the Company recorded an allowance for doubtful accounts in the amount of $3,628 and $3,510, respectively.

From time to time, the Company provides credits to customers and an allowance is made based on historical credit activity. As of September 30, 2017, and December 31, 2016, the Company recorded an allowance for potential customer credits in the amount of $1,042 and $1,947, respectively.

Goodwill, Intangible Assets and Impairment Assessments

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which generally range from two to six years. Estimated remaining useful lives of purchased intangible assets are evaluated to assess whether events or changes in circumstances warrant a revision to the remaining periods of amortization.

The Company evaluates goodwill for impairment in the fourth quarter annually, or more frequently if events or changes in circumstances indicate that these assets may be impaired. Because the Company operates its business in one reporting unit, the goodwill is tested for impairment at the enterprise level. During the fourth quarter of 2016 and continuing into the first half of 2017, the market capitalization of the Company’s common stock sustained a significant decline so that it fell below the book value of the Company’s net assets, triggering the Company to conduct an interim goodwill impairment test. The outcome of this goodwill impairment test resulted in an impairment of goodwill of $2,797, which was recorded in the condensed consolidated statements of comprehensive loss during the three months ended June 30, 2017. Refer to Note 3 for details of the Company’s goodwill impairment assessment.

During the third quarter of 2017, the market capitalization of the Company’s common stock rose above the book value of the Company’s net assets. Management considered that, along with other possible factors affecting the assessment of the Company’s reporting unit for the purposes of performing a goodwill impairment assessment, including management assumptions about expected future revenue forecasts and discount rates, changes in the overall economy, trends in the stock price, any estimated control premium and other operating conditions. Ultimately, no goodwill impairment triggering events were identified in the three months ended September 30, 2017.

The Company evaluates long-lived assets, excluding goodwill, for potential impairment whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. An impairment loss is recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair value. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. There were no such impairment losses recorded in any of the periods presented.

7

 


 

Revenue Recognition

The Company generates revenues principally from subscriptions either directly with advertisers or with advertising agencies to its platform for the management of search, social and display advertising. The Company’s direct search subscription agreements are generally one year or longer in length. The Company’s subscription fee under most contracts is variable based on the value of the advertising spend that the Company’s advertisers manage through the Company’s platform and is generally invoiced on a monthly basis. Contracts with direct advertisers and certain contracts with advertising agencies also include a minimum monthly fee that is payable over the duration of the contract. The Company’s customers do not have the right to take possession of the software supporting the application service at any time, nor do the arrangements contain general rights of return. The Company commences revenue recognition for both direct advertisers and advertising agencies when all of the following conditions are met:

 

persuasive evidence of an arrangement exists;

 

the Company’s platform is made available to the customer;

 

the fee is fixed or determinable; and

 

collection is reasonably assured.

The Company recognizes the total minimum fee for both direct advertisers and advertising agencies, where applicable, over the duration of the contract, commencing on the date that the Company’s platform is made available to the customer, provided revenues recognized do not exceed amounts that are invoiced and due. The variable fee, which is based on a percentage of the value of the advertising spend managed through the Company’s platform, is recognized once the amount is fixed or determinable, which is generally on a monthly basis concurrent with the issuance of the customer invoice. Signed contracts are used as evidence of an arrangement. The Company assesses collectability based on a number of factors such as past collection history with the customer and creditworthiness of the customer. Certain agreements with advertising agencies also contain sequential liability provisions, which provide that the agency has no obligation to pay the Company until the agency receives payment from its customers. In these circumstances, the Company evaluates the credit worthiness of the agency’s customers, in addition to the agency itself, to conclude whether or not collectability is reasonably assured. If the Company determines collectability is not reasonably assured, the Company defers the revenue recognition until collectability becomes reasonably assured.

The Company applies the authoritative accounting guidance regarding revenue recognition for arrangements with multiple deliverables. Professional services and training, when sold with the Company’s platform subscription services, are accounted for separately when those services have standalone value. In determining whether professional services and training services can be accounted for separately from subscription services, the Company considers the following factors: availability of the services from other vendors; the nature of the services; the dependence of the subscription services on the customer’s decision to buy the professional services; and whether the Company sells the Company’s subscription services without professional services. If the deliverables have stand-alone value, the Company accounts for each deliverable separately and revenues are recognized for the respective deliverables as they are delivered. If one or more of the deliverables do not have stand-alone value, the deliverables that do not have stand-alone value are combined with the final deliverables within the arrangement and treated as a single unit of accounting. Revenues for arrangements treated as a single unit of accounting are recognized over the period of the contract commencing upon delivery of the final deliverable. As of September 30, 2017, the Company did not have stand-alone value for the professional services and training services. This is because the Company includes professional services and training services with the Company’s subscription services and those services are not available from other vendors.

Cost of Revenues

Cost of revenues primarily consists of costs related to hosting the Company’s enterprise marketing software platform, providing implementation and ongoing customer support, data communications expenses, salaries and benefits of operations and support personnel, software license fees, indirect overhead, amortization expense associated with capitalized internally developed software and intangible assets and property and equipment depreciation.

Out-of-Period Adjustment

In the three months ended June 30, 2017, the Company recorded an out-of-period adjustment to correct previously overstated revenues related to our display product offering. These overstated revenues accumulated since the Company’s acquisition in June 2014 of NowSpots, Inc. (d.b.a. Perfect Audience), and the out-of-period adjustment resulted in a decrease to revenues in the amount of $400 in the nine months ended September 30, 2017. The Company determined that this adjustment was not material to its prior period consolidated financial statements and is not expected to be material to its consolidated financial statements for the current year.

8

 


 

Recent Accounting Pronouncements Adopted in 2017

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting (Topic 718), which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification on the statement of cash flows. ASU 2016-09 has separate transition guidance for each element of the new standard. The Company adopted this standard in the first quarter of 2017, and it did not result in a net cumulative-effect adjustment to accumulated loss, as the previously unrecognized net operating loss carryforwards, attributable to excess tax benefits on stock compensation expense in the amount of $1,423 was fully offset by an increase in the valuation allowance as of January 1, 2017. For the three and nine months ended September 30, 2017, the Company recognized all excess tax benefits and tax deficiencies in the provision for income taxes as a discrete item. In addition, the Company elected to continue to account for forfeitures by estimating forfeitures over the course of a vesting period.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Accounting for Goodwill Impairment (Topic 350), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted this standard for the second quarter of 2017, and applied the guidance to its interim goodwill impairment test at that time. Refer to Note 3 for details of the interim goodwill impairment test performed during the three months ended June 30, 2017.

Recent Accounting Pronouncements Not Yet Effective

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This new standard is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2017-09 on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize most leases on the balance sheet as lease assets and lease liabilities, as well as both quantitative and qualitative disclosures regarding key information about leasing arrangements. This new standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on the consolidated financial statements, as well as the expected adoption method.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers and has subsequently issued several supplemental and/or clarifying ASUs, which comprise the new comprehensive revenue recognition standard that will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, this new guidance will require significantly expanded disclosures about revenue recognition. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, and early adoption is permitted.

The Company expects to adopt the new guidance on January 1, 2018 using the modified retrospective approach, which would result in an adjustment to accumulated deficit for the cumulative effect, if any, of applying this standard to contracts in process as of the adoption date. Under this approach, the Company would not revise the prior financial statements presented, but would provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018 as a result of applying the new revenue guidance including a qualitative explanation of the significant changes between the reported results under the revenue standard and the previous guidance, if any.

The Company has conducted an initial assessment to identify the potential impact this guidance will have on its consolidated financial statements and related disclosures, but cannot reasonably estimate the quantitative impact of this guidance at this time. The Company currently expects to identify performance obligations under the new guidance comparable to the deliverables and units of accounts identified under previous guidance. The Company also expects to begin recognizing breakage from its arrangements with customers that prepay their advertising spend via credit card, based on historical breakage percentages. In addition, the new guidance may impact the timing of recognition for some contract costs, including sales commissions, which may be required to be capitalized

9

 


 

and amortized if they are associated with a contract with an expected term that is greater than one year. Currently, the Company’s policy is to expense these costs as incurred.

The Company continues to assess all potential impact of the guidance, and, given ongoing business dynamics, preliminary conclusions are subject to change.

 

 

2. Balance Sheet Components

The following table shows the components of property and equipment as of the dates presented:

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Computer equipment

 

$

29,855

 

 

$

28,905

 

Software, including internally developed software

 

 

22,720

 

 

 

21,323

 

Office equipment

 

 

896

 

 

 

951

 

Furniture, fixtures and leasehold improvements

 

 

5,847

 

 

 

5,946

 

 

 

 

59,318

 

 

 

57,125

 

Less:  Accumulated depreciation and amortization

 

 

(42,540

)

 

 

(36,544

)

 

 

$

16,778

 

 

$

20,581

 

 

Depreciation and amortization of internally developed software for the nine months ended September 30, 2017 and 2016 was $6,419 and $6,790, respectively.

The following table shows the components of accrued expenses and other current liabilities as of the dates presented:

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued compensation related expenses

 

$

3,898

 

 

$

3,894

 

Accrued accounts payable

 

 

2,368

 

 

 

1,915

 

Customer advances

 

 

1,960

 

 

 

1,582

 

Sales and use tax payable

 

 

208

 

 

 

210

 

Other

 

 

815

 

 

 

761

 

 

 

$

9,249

 

 

$

8,362

 

 

 

3. Goodwill and Intangible Assets

Due to a continued stock price decline, the Company’s market capitalization decreased to a value below the net book value of the Company’s net assets during the second quarter of 2017, triggering the Company to perform an interim goodwill impairment test at that time. Effective April 1, 2017, the Company early adopted ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Accounting for Goodwill Impairment (Topic 350), which eliminates the requirement to compute the implied fair value of goodwill to test for impairment. Instead, a goodwill impairment is measured as the amount by which the carrying amount of a reporting unit exceeds its fair value.

For the purposes of the goodwill impairment test performed during the three months ended June 30, 2017, the Company estimated the fair value of its sole reporting unit using the market approach. Under the market approach, the Company utilized the market capitalization of its fully diluted common stock, and applied an estimated control premium based on an analysis of control premiums paid in acquisitions of companies in the same or similar industries as the Company. Because the significant inputs used in this analysis are readily available from public markets or can be derived from observable market transactions, they have been classified as level 2 within the fair value hierarchy. Based on this approach, the Company determined that the carrying value of its sole reporting unit exceeded its fair value by $2,797, which has been recorded as an impairment of goodwill in the condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2017.

No goodwill impairment triggering events were identified during the three months ended September 30, 2017.

10

 


 

The goodwill activity for the nine months ended September 30, 2017 consisted of the following:

 

Balance at December 31, 2016

 

$

19,318

 

Impairment

 

 

(2,797

)

Foreign currency translation adjustments

 

 

220

 

Balance at September 30, 2017

 

$

16,741

 

Intangible assets consisted of the following as of the dates presented (in thousands, except years):

 

 

 

September 30,

 

 

December 31,

 

 

Estimated

 

 

2017

 

 

2016

 

 

Useful Life

Developed technology

 

$

9,910

 

 

$

9,910

 

 

5 - 6 years

Customer relationships

 

 

3,370

 

 

 

3,370

 

 

4 years

Non-compete agreements and tradenames

 

 

1,390

 

 

 

1,390

 

 

2 - 3 years

 

 

 

14,670

 

 

 

14,670

 

 

 

Less: accumulated amortization

 

 

(9,496

)

 

 

(7,345

)

 

 

 

 

$

5,174

 

 

$

7,325

 

 

 

 

Amortization expense was $700 and $730 for the three months ended September 30, 2017 and 2016, respectively, and $2,151 and $2,350 for the nine months ended September 30, 2017 and 2016, respectively.

Future estimated amortization of intangible assets as of September 30, 2017, is presented below:

 

Remaining three months of 2017

 

$

699

 

Year ending December 31, 2018

 

 

2,537

 

Year ending December 31, 2019

 

 

1,843

 

Year ending December 31, 2020

 

 

95

 

 

 

$

5,174

 

 

 

4. Restructuring Activities

During the second quarter of 2016, the Company executed an organizational restructuring, primarily to improve cost efficiencies and effectiveness in sales. The Company recorded $24 and $449 of restructuring related expenses for the three and nine months ended September 30, 2016, respectively. Actions pursuant to this organizational restructuring were complete as of December 31, 2016, and there were no associated costs during the three and nine months ended September 30, 2017.

 

 

5. Debt

Capital Lease Arrangements

Since 2013, the Company has entered into capital lease arrangements with equipment manufacturers to finance acquisitions of computer equipment. These leases have effective annual interest rates ranging from 5.2% to 5.7%, and carry terms of 48 months. At the end of the lease periods, the Company has the option to purchase the underlying equipment at the estimated fair market value, or for a nominal amount in some cases. As of September 30, 2017 and December 31, 2016, the net book value of the equipment under these capital leases was $2,526 and $3,158, respectively, and the remaining principal balance payable was $2,803 and $3,411, respectively.

11

 


 

The maturities of all outstanding debt, consisting of the capital lease arrangements, as of September 30, 2017, are as follows:

 

Year ending

 

 

 

 

2017

 

$

359

 

2018

 

 

1,117

 

2019

 

 

928

 

2020

 

 

389

 

2021

 

 

10

 

 

 

 

2,803

 

Less:

 

 

 

 

Current portion

 

 

(1,096

)

Non-current portion of debt

 

$

1,707

 

Revolving Credit Facility

In December 2016, the Company terminated its existing revolving credit facility with Silicon Valley Bank. No amounts were outstanding pursuant to the revolving credit facility at the date of termination.

 

 

6. Common Stock

As of September 30, 2017, and December 31, 2016, the Company’s amended certificate of incorporation authorizes the issuance of 142,857 shares of $0.001 par value common stock. Reserved shares of common stock are as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Options or RSUs available for future grant under stock option plans

 

 

1,240

 

 

 

839

 

Options outstanding under stock option plans

 

 

438

 

 

 

536

 

RSUs outstanding under stock option plans

 

 

373

 

 

 

429

 

Shares available for future issuance under employee stock purchase plan

 

 

210

 

 

 

170

 

Shares to be issued in connection with acquisition of SocialMoov

 

 

 

 

 

66

 

 

 

 

2,261

 

 

 

2,040

 

 

 

7. Equity Award Plans

In April 2006, the Company’s Board of Directors (the “Board”) adopted and the stockholders approved the 2006 Stock Option Plan (“2006 Plan”). The 2006 Plan provides for the grant of incentive stock options under the federal tax laws and non-statutory stock options. Only employees may receive incentive stock options, but non-statutory stock options may be granted to employees, non-employee directors and consultants. The stock options are exercisable at a price equal to the market value of the underlying shares of common stock on the date of the grant as determined by the Board. The term of options granted under the 2006 Plan may not exceed 10 years. Certain options are eligible for exercise prior to vesting. Exercised but unvested shares of common stock are subject to repurchase by the Company at the initial exercise price. The proceeds from the shares of common stock subject to repurchase are classified as a liability and reclassified to equity as the shares vest. Under the 2006 Plan’s early exercise feature, the Company had the right to repurchase zero and one share of common stock as of September 30, 2017 and December 31, 2016, respectively. The Company records cash received from the exercise of unvested stock options, as well as the fair value of vested outstanding options to non-employees, as a long-term liability. As of September 30, 2017 and December 31, 2016, $4 and $41, respectively, has been recorded as a long-term liability on the accompanying unaudited condensed consolidated balance sheets.

In February 2013, the Board and stockholders approved the 2013 Equity Incentive Plan (“2013 Plan”), under which 643 shares of common stock were originally reserved for issuance. Additionally, all reserved and unissued shares under the 2006 Plan at the time the 2013 Plan became effective are eligible for issuance under the 2013 Plan. The 2013 Plan became effective on March 21, 2013, at which time the Company ceased to grant equity awards under the 2006 Plan. The 2013 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and stock bonuses to the Company’s employees, directors, consultants, independent contractors and advisors. On January 1 of each of the first 10 calendar years through 2023, the number of shares of common stock reserved under the 2013 Plan will automatically increase by an amount equal to 5% of the total outstanding shares as of immediately preceding December 31, or such lesser number of shares as determined by the Board. Pursuant to terms of the 2013 Plan, the shares available for issuance increased by approximately 277 shares of common stock on January 1, 2017.

12

 


 

Stock Options

A summary of stock option activity under the 2006 Plan and 2013 Plan is as follows (in thousands except per share amounts and contractual terms):

 

 

 

Options Outstanding

 

 

 

Number of Shares

 

 

Weighted Average Exercise Price Per Share

 

 

Weighted Average Remaining Contractual Term (in Years)

 

 

Aggregate Intrinsic Value

 

Balances at December 31, 2016

 

 

536

 

 

$

43.83

 

 

 

7.48

 

 

$

194

 

Options granted

 

 

79

 

 

 

11.66

 

 

 

9.60

 

 

 

 

 

Options forfeited and cancelled

 

 

(177

)

 

 

44.80

 

 

 

 

 

 

 

 

Balances at September 30, 2017

 

 

438

 

 

 

37.65

 

 

 

7.31

 

 

 

130

 

Options exercisable

 

 

294

 

 

 

46.05

 

 

 

6.50

 

 

 

54

 

Options vested

 

 

294

 

 

 

46.04

 

 

 

6.50

 

 

 

54

 

Options vested and expected to vest

 

 

428

 

 

 

38.11

 

 

 

7.27

 

 

 

127

 

 

RSUs

A summary of RSUs granted and unvested under the 2013 Plan is as follows:

 

 

 

RSUs Outstanding

 

 

 

Number of Shares

 

 

Weighted Average Grant Date Fair Value Per Unit

 

Granted and unvested at December 31, 2016

 

 

429

 

 

$

21.48

 

RSUs granted

 

 

107

 

 

 

11.39

 

RSUs vested

 

 

(30

)

 

 

29.07

 

RSUs cancelled and withheld to cover taxes

 

 

(133

)

 

 

21.12

 

Granted and unvested at September 30, 2017

 

 

373

 

 

$

18.09

 

 

Employee Stock Purchase Plan

In February 2013, the Board and stockholders approved the 2013 Employee Stock Purchase Plan (“2013 ESPP”), under which 143 shares of common stock were originally reserved for issuance. The 2013 ESPP became effective on March 22, 2013. The 2013 ESPP provides generally for six-month purchase periods and the purchase price for shares of common stock purchased under the 2013 ESPP will be 85% of the lesser of the fair market value of the common stock on (1) the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period. On January 1 of each of the first 10 calendar years following the first offering date, the number of shares reserved under the 2013 ESPP will automatically increase by an amount equal to 1% of the total outstanding shares as of immediately preceding December 31, but not to exceed 100 shares. Pursuant to terms of the 2013 ESPP, the shares available for issuance increased by approximately 55 shares on January 1, 2017. During the three and nine months ended September 30, 2017, zero and 15 shares, respectively, were issued under the 2013 ESPP. During the three and nine months ended September 30, 2016, zero and 25 shares, respectively, were issued under the 2013 ESPP.

 

 

8. Stock-Based Compensation

For stock-based awards granted by the Company, stock-based compensation expense is measured at grant date based on the fair value of the award and is expensed over the requisite service period. The Company recorded stock-based compensation expense of $923 and $1,831 for the three months ended September 30, 2017 and 2016, respectively, and $3,683 and $8,592 for the nine months ended September 30, 2017 and 2016, respectively.

13

 


 

Stock Options

The Company uses the Black-Scholes option pricing model to estimate the fair value of options. This model requires the input of highly subjective assumptions including the expected volatility, risk-free interest rate and the expected life of options. The Company used the following assumptions:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Expected volatility

 

 

46.9

%

 

 

47.6

%

 

 

47.3

%

 

 

47.5

%

Risk-free interest rate

 

 

1.94

%

 

 

1.23

%

 

 

2.03

%

 

 

1.38

%

Expected life of options (in years)

 

 

6.25

 

 

 

6.25

 

 

 

6.25

 

 

 

6.25

 

For historical stock option grants, because the Company has limited historical option exercise data, the expected term of the stock options granted to employees was calculated based on the simplified method. Under the simplified method, the expected term is equal to the average of an option’s weighted-average vesting period and its contractual term. Pursuant to the SEC Staff Accounting Bulletin No. 110, the Company will continue to use the simplified method until sufficient information regarding exercise behavior, such as historical exercise data or exercise information from external sources, becomes available. The Company estimates the expected volatility of its common stock on the date of grant based on the historical stock volatilities of similar publicly-traded entities over a period equal to the expected terms of the options, as the Company does not have sufficient trading history to use the volatility of its own common stock. The Company has no history or expectation of paying cash dividends on its common stock. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the options in effect at the time of grant.

Cash proceeds from the exercise of stock options were zero and $350 during the nine months ended September 30, 2017 and 2016, respectively.

Compensation expense is recognized ratably over the requisite service period. As of September 30, 2017, there was $1,190 of unrecognized compensation cost related to options, which is expected to be recognized over a weighted-average period of 1.7 years.

RSUs

As of September 30, 2017, there was $4,758 of unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.1 years. The Company uses the fair market value of the underlying common stock on the dates of grant to determine the fair value of RSUs. Stock-based compensation expense related to these awards is recognized on a straight-line basis over the service period of the award for the estimated number of shares that are ultimately expected to vest.

Employee Stock Purchase Plan

The Company estimates the fair value of purchase rights under the 2013 ESPP using the Black-Scholes valuation model. The fair value of each purchase right under the 2013 ESPP was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with assumptions substantially similar to those used for the valuation of our stock option awards.

 

 

9. Income Taxes

The Company’s quarterly provision for income taxes is based on an estimated effective annual income tax rate. The Company’s quarterly provision for income taxes also includes the tax impact of certain unusual or infrequently occurring items, if any, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.

Income tax expense for the three and nine months ended September 30, 2017 was $151 and $976, respectively, on pre-tax losses of $7,398 and $23,244, respectively. For the three and nine months ended September 30, 2016, the Company recognized an income tax benefit of $37 and income tax expense of $611, respectively, on pre-tax losses of $3,090 and $11,273, respectively. As of September 30, 2017, the income tax rate varies from the U.S. statutory income tax rate primarily due to valuation allowances in the United States and taxable income generated by the Company’s foreign wholly owned subsidiaries.

14

 


 

The Company reviews the likelihood that it will realize the benefit of its deferred tax assets and, therefore, the need for valuation allowances on a quarterly basis. There is no income tax benefit recognized with respect to losses incurred and no income tax expense recognized with respect to earnings generated in jurisdictions with a valuation allowance. This causes variability in the Company’s effective tax rate. The Company will maintain the valuation allowances until it is more likely than not that the net deferred tax assets will be realized.

Tax positions taken by the Company are subject to audits by multiple tax jurisdictions. The Company accounts for uncertain tax positions and believes that it has provided adequate reserves for its unrecognized tax benefits for all tax years still open for assessment. The Company also believes that it does not have any tax position for which it is not reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next year. Interest or penalties associated with uncertain tax positions included within income tax expense were not material for the three and nine months ended September 30, 2017 and 2016.

 

 

10. Net Loss Per Share Available to Common Stockholders

Basic net loss per share available to common stockholders is calculated by dividing the net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The weighted-average number of shares of common stock used to calculate the Company’s basic net loss per share available to common stockholders excludes those shares subject to repurchase related to unvested common shares, stock options that were exercised prior to vesting, restricted stock issued and RSUs settled for shares of common stock, as these shares are not deemed to be outstanding for accounting purposes until they vest. The diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of shares of common stock, excluding common stock subject to repurchase, and, if dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of common stock subject to repurchase, stock options to purchase common stock, restricted common stock issued and RSUs settled for shares of common stock.

The following table presents the calculation of basic and diluted net loss per share:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common stockholders

 

$

(7,549

)

 

$

(3,053

)

 

$

(24,220

)

 

$

(11,884

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares, basic and diluted

 

 

5,651

 

 

 

5,503

 

 

 

5,625

 

 

 

5,456

 

Net loss per share available to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share available to common stockholders

 

$

(1.34

)

 

$

(0.55

)

 

$

(4.31

)

 

$

(2.18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents the potential shares of common stock outstanding that were excluded from the computation of diluted net loss per share available to common stockholders for the periods presented because including them would have been anti-dilutive:

 

 

 

Three and Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Options to purchase common stock

 

 

438

 

 

 

698

 

RSUs

 

 

373

 

 

 

224

 

Common stock subject to repurchase

 

 

 

 

 

1

 

Total

 

 

811

 

 

 

923

 

 

 

11. Segment Reporting

The Company defines the term “chief operating decision maker” to be the Chief Executive Officer. The Chief Executive Officer reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating of financial performance. Accordingly, the Company has determined that it operates as a single reportable and operating segment.

15

 


 

Revenues by geographic area, based on the billing location of the customer, were as follows for the periods presented:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

United States of America

 

$

11,995

 

 

$

16,636

 

 

$

38,040

 

 

$

53,472

 

International

 

 

6,229

 

 

 

7,377

 

 

 

19,259

 

 

 

23,482

 

Total revenues, net

 

$

18,224

 

 

$

24,013

 

 

$

57,299

 

 

$

76,954

 

 

Long-lived assets, excluding goodwill and intangible assets, by geographic area were as follows for the periods presented:

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

United States of America

 

$

16,224

 

 

$

19,861

 

International

 

 

554

 

 

 

720

 

Total long-lived assets, net

 

$

16,778

 

 

$

20,581

 

 

 

12. Commitments and Contingencies

Operating Leases

Rent expense for the three months ended September 30, 2017 and 2016 was $2,145 and $2,095, respectively, and for the nine months ended September 30, 2017 and 2016, was $6,413 and $6,647, respectively.

Future minimum lease payments for significant operating leases, net of sublease payments from a portion of the Company’s San Francisco and Portland office spaces, as of September 30, 2017, were as follows:

 

Remaining three months of 2017

 

$

1,179

 

Year ending December 31, 2018

 

 

3,891

 

Year ending December 31, 2019

 

 

4,397

 

Year ending December 31, 2020

 

 

3,653

 

Year ending December 31, 2021 and thereafter

 

 

6,112

 

 

 

$

19,232

 

 

Legal Matters

From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, ruling, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling was to occur in any specific period or if a loss becomes probable and estimable, there exists the possibility of a material adverse impact on the Company’s results of operations, financial position or cash flows.

Indemnification

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, each party may indemnify, defend and hold the other party harmless with respect to such claim, suit or proceeding brought against it by a third party alleging that the indemnifying party’s intellectual property infringes upon the intellectual property of the third party, or results from a breach of the indemnifying party’s representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded for these obligations on the unaudited consolidated condensed balance sheet as of September 30, 2017 and audited consolidated balance sheet as of December 31, 2016.

16

 


 

The Company also indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a directors and officers insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations as of September 30, 2017 and December 31, 2016.

Other Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

17

 


 

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

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with the (1) unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2016, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 28, 2017. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.” These statements are often identified by the use of words such as “believe,” “may,” “potentially,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “project,” “plan,” “predict,” “expect,” “seek” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Form 10-Q. Except as required by law, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We provide a leading cross-channel, cross-device, enterprise marketing software platform for search, social and display advertising channels, offered as an integrated software-as-a-service, or SaaS, solution for advertisers and agencies. Our integrated platform is an analytics, workflow and optimization solution for marketing professionals, allowing them to effectively manage their digital advertising spend across search, social and display advertising channels. Our solution is designed to help our customers:

 

measure the effectiveness of their advertising campaigns through our proprietary reporting and analytics capabilities;