The market for identity and data governance solutions is intensely competitive and is characterized by constant change and innovation. We face competition from both traditional, larger software vendors offering enterprise-wide software frameworks and services and smaller companies offering point solutions for specific identity and data governance issues. We also compete with IT equipment vendors and systems management solution providers whose products and services address identity and data governance requirements. Our principal competitors vary depending on the product we offer and include CA Technologies, IBM, Oracle and several smaller vendors. Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Given their larger size, greater resources and existing customer relationships, our competitors may be able to compete and respond more effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Our competitors may also seek to extend or supplement their existing offerings to provide identity and data governance solutions that more closely compete with our offerings. Potential customers may also prefer to purchase, or incrementally add solutions, from their existing suppliers rather than a new or additional supplier regardless of product performance or features.
In addition, with the recent increase in large merger and acquisition transactions in the technology industry, particularly transactions involving cloud-based technologies, there is a greater likelihood that we will compete with other large technology companiessignificantly in the future. Some of our competitors have made acquisitions or entered into strategic relationships to offer a more comprehensive product than they individually had offered. Companies and alliances resulting from these possible consolidations and partnershipsThese results may create more compelling product offerings and be able to offer more attractive pricing, making it more difficult for us to compete effectively. In addition, continued industry consolidation may adversely impact customers’ perceptions of the viability of small and medium-sized technology companies and consequently their willingness to purchase from those companies.
New start-up companies that innovate and competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our products, and our business could be materially and adversely affected if such technologies or products are widely adopted. Conditions in our market could change rapidly and significantlyfluctuate as a result of technological advancements, partnering by our competitors or continuing market consolidation. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses, and loss of market share. Any failure to meet and address these factors could adversely affect our business, financial condition and operating results.
We anticipate that our operations will continue to increase in complexity as we grow, which will add additional challenges to the management of our business in the future.
Our business has experienced significant growth and is becoming increasingly complex. We increased the number of our employees from 806 at December 31, 2017 to 1,003 at December 31, 2018. We have also experienced growth in the number of customers of our solutions from 695 at December 31, 2016 to 1,173 at December 31, 2018. At December 31, 2018, we had personnel in 24 countries, and we expect to expand into additional countries in the future. We expect this growth to continue and for our operations to become increasingly complex. To effectively manage this growth, we have made and plan to continue to make substantial investments to improve our operational, financial and management controls as well as our reporting systems and procedures. Our success will depend in part on our ability to manage this complexity effectively without undermining our corporate culture, which we believe has been central to our success. If we are unable to manage this complexity, our business, operations, operating results and financial condition may suffer.
As our customer base continues to grow, we likely will need to expand our professional services and other personnel, and maintain and enhance our existing partner network, to provide a high level of customer service. We also will need to effectively manage our direct and indirect sales processes as the number and type of our sales personnel and partner network continues to grow and become more complex and as we continue to expand into new geographies and vertical markets. This complexity is further driven by the various ways in which we sell our solutions, including on a per identity and per module basis through perpetual licenses and SaaS. If we do not effectively manage the increasing complexity of our business and operations, the quality of our solutions and customer service could suffer, and we may not be able to adequately address competitive challenges. These factors could impair our ability, and our channel partners’ ability, to attract new customers, retain existing customers, expand our customers’ use of existing solutions and adoption of more of our solutions and continue to provide high levels of customer service, all of which would adversely affect our reputation, overall business, operations, operating results and financial condition.
Interruptions with the delivery of our SaaS solutions, or third-party cloud-based systems that we use in our operations, may adversely affect our business, operating results and financial condition.
Our continued growth depends in part on the ability of our existing customers and new customers to access our platform and solutions, particularly our cloud-based deployments, at any time and within an acceptable amount of time. In addition, our ability to access certain third-party SaaS solutions is important to our operations and the delivery of our customer support and professional services, including our online training for customers, professional services partners and channel partners. We have experienced, and may in the future experience, service disruptions, outages and other performance problems both in the delivery of our SaaS solutions and in third-party SaaS solutions we use due to a variety of factors, including infrastructure changes, malicious actors, human or software errors or capacity constraints. In some instances, we may not be ablethe mix of revenue and associated costs attributable to identifylicenses, subscription and professional services, the cause or causesmix of these performance problems within an acceptable periodrevenue attributable to larger transactions as opposed to smaller transactions, and others discussed throughout this “Risk Factors” section, many of time. It may become increasingly difficult to maintain and improve the performancewhich are outside of our SaaS solutions as they become more complex. If our SaaS solutions are unavailable or if our customers are unable to access features of our SaaS solutions within a reasonable amount of time or at all, our business would be negatively affected. In addition, if any of the third-party SaaS solutions that we use were to experience a significant or prolonged outage or security breach, our business could be adversely affected.
We host our SaaS solutions using Amazon Web Services (“AWS”) data centers, a provider of cloud infrastructure services. All of our SaaS solutions residecontrol. Consequently, you should not rely on hardware owned or leased and operated by us in these locations. Our SaaS operations depend on protecting the virtual cloud infrastructure hosted in AWS by maintaining its configuration, architecture, features and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake or other natural disasters, cyber-attacks, terrorist or other attacks, and other similar events beyond our control could negatively affect our SaaS platform. A prolonged AWS service disruption affecting our SaaS platform for any of the foregoing reasons would negatively impact our ability to serve our customers and could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use. In addition, AWS may terminate the agreement by providing 30 days’ prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. In the event that our AWS service agreements are terminated, or there is a lapse of service, elimination of AWS services or features that we utilize, interruption of internet service provider
connectivity or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our SaaS solutions for deployment on a different cloud infrastructure service provider, which may adversely affect our business, operating results and financial condition.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations and changing customer needs, requirements or preferences, our platform and solutions may become less competitive.
The market in which we compete is relatively new and subject to rapid technological change, evolving industry standards and changing regulations, as well as changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. In addition, as our customers’ technologies and business plans grow more complex, we expect them to face new and increasing challenges. Our customers require that our solution effectively identifies and responds to these challenges without disrupting the performance of our customers’ IT systems. As a result, we must continually modify and improve our products in response to changes in our customers’ IT infrastructures.
We may be unable to anticipate future market needs and opportunities or be unable to develop enhancements to our platform or existing solutions or new solutions to meet such needs or opportunities in a timely manner, if at all. Even if we are able to anticipate, develop and commercially introduce enhancements to our platform and existing solutions and new solutions, those enhancements and new solutions may not achieve widespread market acceptance. Our enhancements or new solutions could fail to attain sufficient market acceptance for many reasons, including:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If we were unable to enhance our platform or existing solutions or develop new solutions that keep pace with rapid technological and industry change, our business, operating results and financial condition could be adversely affected. If new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete effectively.
Our failure to achieve and maintain an effective system of disclosure controls and internal control over financial reporting could adversely affect our financial position and lower our stock price.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations of the applicable listing standards of the New York Stock Exchange (the “NYSE”). The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
In finalizing our financial statements for our initial public offering, we identified a material weakness in our internal control over financial reporting. We continue to have this material weakness related to controls surrounding accounting and reporting for certain complex, non-routine transactions. We are taking measures to remediate this material weakness, including establishing more robust accounting policies and procedures, reviewing the adoption of new accounting positions and financial statement disclosures, and selecting and engaging consultants to assist us in determining positions and evaluating new accounting policies.
Additionally, in connection with the preparation of our 2018 financial statements, management has identified a material weakness in our internal control over financial reporting related to controls surrounding the recording and processing of revenue transactions. We have developed and initiated a remediation plan designed to address the material weakness, including strengthening the design and level of precision of control activities related to revenue transactions, including enhancing our guidelines for how to document reviews of revenue transactions.
These remediation actions are subject to ongoing review by our management, as well as oversight by our Board of Directors. Although we plan to complete these remediation processes as quickly as possible, we cannot, at this time, estimate when such remediation may occur, and our initiatives may not prove successful in remediating these material weaknesses. We cannot assure you that these measures and any further measures that we implement will be sufficient to remediate our existing material weaknesses or to identify or prevent additional material weaknesses.
Our internal resources and personnel may in the future be insufficient to avoid accounting errors and there can be no assurance that we will not have additional material weaknesses in the future. Any failure to develop or maintain effective controls or any difficulties encountered implementing required new or improved controls could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectivenessany one quarter as an indication of future performance. Period-to-period comparisons of our internal control over financial reporting that we are required to include in our periodic reports that are filed with the Securities and Exchange Commission (the “SEC”). Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
As a public company, we are required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore required to make a formal assessment of the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm may issue, and as of December 31, 2018 has issued, a report that is adverse in connection with identified material weaknesses. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business and operating results and could cause a decline in the price of our common stock.
Forecasting our estimated annual effective tax rate for financial accounting purposes is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates.
Forecasts of our income tax position and effective tax rate for financial accounting purposes are complex and subject to uncertainty because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination or other reorganization or financing transaction. To forecast our tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax expense by jurisdiction. If the mix of profits and losses, our ability to use tax credits, or effective tax rates by jurisdiction is different than those estimated, our actual tax rate could be materially different than forecasted, which could have a material impact on our results of business, financial condition and results of operations.
On December 22, 2017, U.S. Federal tax reform was enacted with the signing of the Tax Cuts and Jobs Act, or the (“TCJA”). Notable provisions of the TCJA include significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal many business deductions and credits.
The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued. As additional regulatory guidance is issued by the applicable taxing authorities, as accounting treatment is clarified, as we perform additional analysis on the application of the law, and as we refine estimates in calculating the effect, our final analysis, which will be recorded in the period completed, may be different from our current provisional amounts, which could materially affect our tax obligations and effective tax rate.
If we are not able to maintain and enhance our brand or reputation as an industry leader and innovator, our businessrevenue and operating results may not be adversely affected.
We believe that maintainingmeaningful and, enhancing our reputation as a leader and innovator in the market for identity and data governance solutions is critical to our relationship with our existing customers and commercial relationships and our ability to attract new customers and commercial relationships. The successful promotion of our brand attributes will depend on a number of factors, including our marketing efforts, our ability to continue to develop high-quality features and solutions for our platform and our ability to successfully differentiate our platform and solutions from competitive products and services. Our brand promotion activitiesresult, may not be successful or yield increased revenue. In addition, independent industry analysts often provide reports of our platform and solutions, as well as products and services of our competitors, and perception of our platform and solutions infully reflect the marketplace may be significantly influenced by these reports. If these reports are negative, or less positive as compared to those of our competitors’ products and services, our reputation may be adversely affected. Additionally, theunderlying performance of our channel partners may affect our brandbusiness.
Security
reputation.
If we or our partners or one or more customers were to suffer a highly publicized breach, even if our platform and solutions perform effectively, such a breach could cause our customers or potential customers to lose trust in our identity governance platform in general, which could cause us to suffer reputational harm, lose existing commercial relationships and customers or deter them from purchasing additional solutions and preventattract new customers from purchasingand retain existing customers, and damage our solutions.
customers’ businesses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AlthoughThe contractual protections we have contractual protections,in our standard terms and conditions of sale, such as warranty disclaimers and limitation of liability provisions, in our standard terms and conditions of sale, they may not fully or effectively protect us from claims by customers, commercial relationships or other third parties. Any insurance coverage we may have may not adequately cover all claims asserted against us or cover only a portion of such claims. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and the diverting of management’s time and other resources.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations and changing customer needs, requirements or preferences, our platform and solutions do not effectively interoperate with our customers’ existing or future IT infrastructures, installations could be delayed or cancelled, which would harm our business.
Our success depends on the interoperability of our platform and solutions with third-party operating systems, applications, data and devices that we have not developed and do not control. Any changesmay become less competitive.
Our success depends on the experience and expertise of our senior management team and key employees. If we are unable to hire, retain, train and motivate our personnel, our business, operating results and prospects may be harmed.
Our success has depended, and continues to depend, on the efforts and talents of our senior management team and key employees, including our engineers, product managers, sales and marketing personnel and professional services personnel. Our future success will also depend upon our continued ability to identify, hire and retain additional skilled and highly qualified personnel, which will require significant time, expense and attention.
Our officers and key employees are employed on an at-will basis, which means that they could terminate their employment with us at any time. The loss of one or more members of our senior management team, particularly if closely grouped, could adversely affect our ability to execute our business plan and thus, our business, operating results and prospects. We do not maintain key man insurance on any of our officers or key employees, and we may not be able to find adequate replacements. If we fail to identify, recruit and integrate strategic hires, our business, operating results and financial condition could be adversely affected.
We have from time to time experienced, and we expect to continue to experience, difficulty in hiring, and may in the future have difficulty retaining, employees with appropriate qualifications and many of the companies with which we compete for experienced personnel have greater resources than we have. In additionis relatively new and subject to hiring new employees, we must continue to focus on training, motivatingrapid technological change, evolving industry standards and retaining our best employees, substantially all of whom are at-will employees, which means they may terminate their employment relationship with us at any time. Many of our employees may be able to receive significant proceeds from sales of our common stock in the public markets, which may reduce their motivation to continue to work for us. Conversely, employees may be more likely to leave us if the exercise prices of the stock options that they hold are significantly above the market price of our common stock. Competition for highly skilled personnel is intense,changing regulations, as well as changing customer needs, requirements and we may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments.
Competition for well-qualified employees in all aspectspreferences. The success of our business including sales personnel, professional services personnel and software engineers, is intense. Our primary recruiting competition are well-known, high-paying firms. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate existing employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business would be adversely affected.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, which could adversely affect our business.
We believe that our culture has been and will continue to be a key contributor to our success. From January 1, 2017 to December 31, 2018, we have increased the size of our workforce by 241 employees domestically and 105 employees internationally, and we expect to continue to hire aggressively as we expand. In addition, we plan to continue to expand our international operations, which may affect our culture as we seek to find, hire and integrate additional international employees while maintaining our corporate culture. If we do not continue to maintain our corporate culture as we grow, we may be unable to continue to foster the innovation, integrity, and collaboration we believe we need to support our growth. Our substantial anticipated headcount growth, international expansion and our transition from a private company to a public company may result in a change to our corporate culture, which could adversely affect our business.
Because our long-term success depends,depend, in part, on our ability to expandadapt and respond effectively to these changes on a timely basis. In addition, as our customers’ technologies and business plans grow more complex, we expect them to face new and increasing challenges. Our customers require that our solution effectively identifies and responds to these challenges without disrupting the sales and marketingperformance of our platform and solutions to customers located outside of the United States, and we perform a significant portion of our development outside of the United States, our business will be susceptible to risks associated with international operations.
At December 31, 2018, we had sales and marketing and product development personnel outside the United States in Australia, Canada, Denmark, France, Germany, Hong Kong, India, Israel, Italy, the Netherlands, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, the United Arab Emirates and the United Kingdom, and we intend to expand our international sales and marketing operations.
Conducting international operations subjects us to risks that we do not generally face in the United States. These risks include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The occurrence of any one of these risks could harm our international business and, consequently, our operating results. Additionally, operating in international markets requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to operate in other countries will produce desired levels of revenue or net income.
In addition, general worldwide economic conditions could experience significant downturns and instability, including ascustomers’ IT systems. As a result, ofwe must continually modify and improve our products and introduce or acquire new products in response to changes in global trade policies, such as how the United Kingdom's vote to exit the EU, commonly referred to as "Brexit," develops in the United Kingdom, trade disputes and increased tariffs between the United States and China, or other political or economic developments. For example, Brexit has created substantial economic and political uncertainty, the impact of which depends on the terms of the United Kingdom’s withdrawal from the EU. This uncertainty may cause some of our customers or potential customers to curtail spending and may ultimately result in new regulatory and cost challenges to our United Kingdom and global operations. These conditions make it extremely difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers to reevaluate their decisions to purchase our products, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times and/or during times of rising interest rates, our customers may tighten their budgets and face issues in gaining timely access to sufficient and/or affordable credit, which could result in an impairment of their ability to make timely payments to us. In turn, we may be required to increase our allowance for doubtful accounts, which would adversely affect our financial results.
Adverse economic conditions may negatively impact our business.
Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers. Any significant weakening of the economy in the United States or Europe and of the global economy, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, economic uncertainty and other difficulties may affect one or more of the sectors or countries in which we sell our solutions. Global economic and political uncertainty may cause some of our customers or potential customers to curtail spending generally orcustomers’ IT and identity and data governance spending specifically and may ultimately result in new regulatory and cost challenges to our international operations. In addition, a strong dollar could reduce demand for our products in countries with relatively weaker currencies. These adverse conditions could result in reductions in sales of our solutions, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events could have an adverse effect on our business, operating results and financial position.
Forecasts of our market and market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will grow at similar rates, or at all.
Growth forecasts included in this Form 10-K relating to our market opportunity and the expected growth in that market are subject to significant uncertainty and are based on assumptions and estimates which may prove to be inaccurate. Even if this market meets our size estimate and experiences the forecasted growth, we may not grow our business at a similar rate, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this Form 10-K should not be taken as indicative of our future growth.
Any failure to offer high-quality customer support may adversely affect our relationships with our customers and our financial results.
We typically bundle customer support with arrangements for our solutions. In deploying and using our platform and solutions, our customers typically require the assistance of our support teams to resolve complex technical and operational issues.infrastructures. We may be unable to modify the nature, scopeanticipate future market needs and delivery of our customer support to compete with changes in product support services provided by our competitors. Increased customer demand for support, without corresponding revenue, could increase costs and adversely affect our operating results. We may alsoopportunities or be unable to respond quickly enoughdevelop enhancements to accommodate short-term increases in customer demand for support. Our sales are highly dependent on our reputation and on positive recommendations from ourplatform or existing customers. Any failure to maintain high-quality customer support,solutions or a market perception that we do not maintain high-quality product support, could adversely affect our reputation, and our ability to sell ournew solutions to existingmeet such needs or opportunities in a timely manner, if at all. Even if we are able to anticipate, develop and new customers.
If we failcommercially introduce enhancements to meet contractual commitments related to response time, service level commitments or quality of professional services, we could be obligated to provide credits for future service, or face contract termination, which could adversely affect our business, operating results and financial condition.
Depending on the products purchased, our customer agreements contain service level agreements, under which we guarantee specified availability of our platform and solutions. If we are unable to meet the stated service level commitments to our customersexisting solutions and new solutions, those enhancements and new solutions may not achieve widespread market acceptance. Our enhancements or suffer extended periods of unavailability of our SaaS platform or solutions, we may be contractually obligated to provide affected customers with service credits or customers could elect to terminate and receive refunds for prepaid amounts. In addition, if the quality of our professional services does not meet contractual requirements, we may be required to re-perform the services at our expense or refund amounts paid for the services. Any failure to meet these contractual commitments could adversely affect our revenue, operating results and financial condition and any failure to meet service level commitments or extended service outages of our SaaSnew solutions could adversely affect our business and reputation as customers may elect notfail to renew and we could lose future sales.
Our business depends, in part, on sales to the public sector, and significant changes in the contracting or fiscal policies of the public sector could have an adverse effect on our business.
We derive a portion of our revenue from sales of our solutions to federal, state, local and foreign governments, and we believe that the success and growth of our business will continue to depend in part on our successful procurement of government contracts. Factors that could impede our ability to maintain or increase the amount of revenue derived from government contracts include:
|
|
|
|
|
|
|
|
|
|
The occurrence of any of the foregoing could cause governments and governmental agencies to delay or refrain from purchasing our solutions or otherwise have an adverse effect on our business, operating results and financial condition.
Any actual or perceived failure by us to comply with our privacy policycommitments or legal or regulatory data protection requirements in one or multiple jurisdictions could result in proceedings, actions or penalties against us.
us, as well as a loss of goodwill.
In jurisdictions outside of the United States, we may face data protection and privacy requirements that are more stringent than those in place in the United States. In the EU, for example, Directive 95/46/EC (the “Directive”) has required EU member states to implement data protection laws to meet the strict privacy requirements of the Directive. Among other requirements, the Directive regulates transfers of personal data that is subject to the Directive (“Personal Data”) to third countries, such as the United States, that have not been found to provide adequate protection to such Personal Data. The safe harbor framework previously relied on to ensure compliance with the Directive is no longer deemed to be a valid method of compliance with requirements set forth in the Directive, and so we face uncertainty as to whether our efforts to comply with our obligations under European privacy laws are sufficient. We and our customers are at risk of enforcement actions taken by certain EU data protection authorities until such point in time that we may be able to ensure that all transfers of Personal Data to us in the United States from the EU are conducted in compliance with all applicable regulatory obligations, the guidance of data protection authorities and evolving best practices. The Directive was replaced with the European General Data Protection Regulation (“GDPR”), which entered into force on May 25, 2018, and which imposes additional obligations, costs and risk upon our business. The GDPR may increase substantially the penalties to which we could be subject in the event of any non-compliance. In addition, we may incur substantial expense in complying with the new obligations imposed by the GDPR and we may be required to make significant changes in our business operations, all of which may adversely affect our revenues and our business overall.
In addition, we are subject to certain contractual obligations and have made privacy commitments, including in privacy policies, and practices regarding theour collection, use, storage, transfer, disclosure, disposal or processing of personal data. EvenAs a company that supports customer privacy and security objectives, even the perception of a failure by us to comply with such contractual obligations and/orour privacy policies and practices or other privacy concerns,commitments, whether or not valid, may harm our reputation, inhibit adoption of our solutions by current and future customers or adversely impact our ability to attract and retain workforce talent.
Additionally, a failure or perceived failure to comply with privacy commitments could lead to regulator or civil claims if our commitments are found to be deceptive or otherwise misrepresentative of our actual policies and practices.
This includes evolutions in definitions of what constitutes “Personal Information” and “Personal Data” subject to privacy laws, especially relating to classification of IP addresses, machine or device identification numbers, location data and other information.
Changes in the law may limit or inhibit our ability to offer certain products or features, limit the growth ofEvolvingnegatively impacted.
We use third-party licensed software in or with our solutions, and the inability to maintain these licenses or issues with the software we license could result in increased costs or reduced service levels, which would adversely affect our business. If we fail to adequately protect our proprietary rights, our competitive position could be impaired, and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights. agree to indemnify them or otherwise be liable for losses suffered or incurred as a result of claims of intellectual property infringement or misappropriation, damages caused by us to property or persons, or other liabilities relating to or arising from our platform, solutions, services or other contractual obligations. Some of these indemnity agreements provide for significant or uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and adversely affect our business and operating results. Our use of “open source” software could negatively affect our ability to sell our solutions and subject us to possible litigation. Our charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable. (i) a classified board of directors with three-year staggered terms; (ii) removal of directors only for cause; (iii) the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval; (iv) allowing only our directors to fill vacancies on our board of directors; (v) a prohibition on stockholder action by written consent; (vi) the requirement that a special meeting of stockholders may be called only by or at the direction of our board of directors; (vii) the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our charter relating to the management of our business (including our classified board structure) or certain provisions of our bylaws; (viii) the ability of our board of directors to amend the bylaws; (ix) advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting; and (x) a prohibition of cumulative voting in the election of our board of directors. Our charter also contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law Our charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings For more information about our lease commitments, see also Note 7 “ such proceedings contemplated by governmental authorities. See Note 9 “Credit Agreement” in our notes to our consolidated financial statements included in this Annual Report for more information regarding terms and conditions of the Credit Agreement. filing. Company/Index 11/17/2017 12/31/2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 SAIL $ 100.00 $ 111.54 $ 159.15 $ 188.77 $ 261.69 $ 180.69 NYSE Composite $ 100.00 $ 104.23 $ 101.92 $ 103.08 $ 108.50 $ 94.91 S&P 600 IT Index $ 100.00 $ 94.45 $ 94.25 $ 98.62 $ 102.32 $ 84.40 Year Ended December 31, 2018 (a) Total Number of Shares (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs March 1 through March 31, 2018 6,495 $ 0.05 NA NA April 1 through April 30, 2018 9,570 $ 0.05 NA NA September 1 through September 30, 2018 63 $ 0.05 NA NA Total 16,128 $ 0.05 NA NA Year Ended December 31, 2018 2018 2017 2016 2015 with adoption (ASC 606) without adoption (ASC 605) as previously reported (ASC 605) (In thousands, except share and per share data) Total revenue $ 248,920 $ 248,475 $ 186,056 $ 132,412 $ 95,356 Gross profit $ 194,250 $ 193,805 $ 141,466 $ 95,374 $ 66,097 Income (loss) from operations $ 10,913 $ 5,611 $ 9,943 $ 2,729 $ (8,173 ) Net income (loss) $ 3,670 $ (2,333 ) $ (7,592 ) $ (3,173 ) $ (10,807 ) Net income (loss) per share Basic: $ 0.04 $ (0.03 ) $ (0.55 ) $ (0.58 ) $ (0.74 ) Diluted: $ 0.04 $ (0.03 ) $ (0.55 ) $ (0.58 ) $ (0.74 ) Weighted average shares outstanding Basic: 86,495,301 86,495,301 52,339,804 45,933,218 43,929,159 Diluted: 90,002,752 86,495,301 52,339,804 45,933,218 43,929,159 As of December 31, 2018 2018 2017 2016 2015 with adoption (ASC 606) without adoption (ASC 605) (as previously reported ASC 605) (In thousands) Cash and cash equivalents $ 70,964 $ 70,964 $ 116,049 $ 18,214 $ 14,896 Working capital, excluding deferred revenue (1) $ 172,045 $ 161,847 $ 172,492 $ 60,047 $ 27,982 Total assets $ 534,434 $ 512,500 $ 506,433 $ 387,410 $ 371,504 Deferred revenue, current and non-current portion $ 114,301 $ 124,187 $ 83,125 $ 55,104 $ 34,888 Long-term debt $ — $ — $ 68,329 $ 107,344 $ 99,770 Total liabilities $ 156,741 $ 162,570 $ 178,036 $ 177,307 $ 160,465 Redeemable convertible preferred stock $ — $ — $ — $ 223,987 $ 222,898 Total stockholders' equity (deficit) $ 377,693 $ 349,930 $ 328,397 $ (13,884 ) $ (11,859 ) Our solutions address the complex needs of global enterprises and mid-market organizations. Our success is principally dependent on our ability to deliver compelling solutions to attract new customers and retain existing customers. duration of three years. For our IdentityIQ solutions, our customers the customer purchases. maintenance and support revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Nevertheless, our revenue and gross margins vary depending on the type of solution we sell, and we expect that in a primarily subscription-based model, retention rates for our subscription customers could be slightly lower than the retention rates for support and maintenance for our perpetual customers. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results. Our shift to a subscription model has fluctuated between periods, and our ability to predict our revenue and margins in any particular period has been, and may continue to be, limited. •Add New Customers Within Existing Markets. There is significant opportunity to expand our footprint in our existing markets through new, greenfield deployments and displacement of our competitors’ legacy solutions. We plan to grow our sales organization, expand and leverage our channel partners and enhance our marketing efforts. •Generate Additional Sales to Existing Customers. We believe that our existing customer base provides us with a significant opportunity to drive incremental sales. In most cases, our customers initially purchase a subset of the modules or offerings we provide based on their immediate need. We focus on generating more revenue from the modules that our customers have already purchased from us as our customers grow the number of identities our solutions manage and govern and as our customers deploy our solutions across other business units or geographies within their organizations. This is especially true when it comes to our new and expanded SaaS offerings, including AI and cloud governance. Over time, we also identify up-selling and cross-selling opportunities and seek to sell additional modules and offerings to our existing customers. •Retain Customers. We believe that our ability to retain our subscription-based customer contracts is an important component of our growth strategy and reflects the long-term value of our customer relationships. In order to maintain high renewal rates, we invest in the quality and reliability of our solutions and our customer service and support functions to help drive high levels of customer success. Metric Year Ended December 31, 2018 2018 2017 2016 with adoption (ASC 606) without adoption (ASC 605) as previously reported (ASC 605) Number of customers 1,173 1,173 933 695 Subscription revenue as a percentage of total revenue 42 % 43 % 38 % 37 % Adjusted EBITDA (in thousands) $ 39,480 $ 34,178 $ 25,501 $ 15,135 Year Ended December 31, 2018 2018 2017 2016 with adoption (ASC 606) without adoption (ASC 605) as previously reported (ASC 605) (In thousands) Net income (loss) $ 3,670 $ (2,333 ) $ (7,592 ) $ (3,173 ) Stock-based compensation (1) 19,209 19,209 4,514 568 Amortization of acquired intangibles 8,825 8,825 8,841 9,092 Depreciation 1,911 1,911 1,379 890 Purchase price accounting adjustment 68 68 141 1,373 Acquisition and sponsor related costs — — 1,142 1,093 Interest expense, net (2) 4,707 4,707 14,783 7,277 Income tax expense (benefit) 1,090 1,791 2,293 (1,985 ) Adjusted EBITDA $ 39,480 $ 34,178 $ 25,501 $ 15,135 Three Months Ended 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2018 9/30/2018 6/30/2018 3/31/2018 with adoption (ASC 606) without adoption (ASC 605) (In thousands) Net income (loss) $ 5,143 $ 1,808 $ (979 ) $ (2,302 ) $ 5,979 $ 3,302 $ (5,647 ) $ (5,967 ) Stock-based compensation (1) 4,956 4,932 4,182 5,139 4,956 4,932 4,182 5,139 Amortization of acquired intangibles 2,207 2,206 2,206 2,206 2,207 2,206 2,206 2,206 Depreciation 552 493 445 421 552 493 445 421 Purchase price accounting adjustment 18 18 19 13 18 18 19 13 Acquisition and sponsor related costs — — — — — — — — Interest expense, net (2) 527 202 2,800 1,178 527 202 2,800 1,178 Income tax (benefit) expense 5,177 2,385 (3,742 ) (2,730 ) 380 618 441 352 Adjusted EBITDA $ 18,580 $ 12,044 $ 4,931 $ 3,925 $ 14,619 $ 11,771 $ 4,446 $ 3,342 Three months ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 as previously reported (ASC 605) (in thousands) Net income (loss) $ 5,382 $ (6,387 ) $ (4,304 ) $ (2,283 ) Stock-based compensation (1) 3,970 201 185 158 Amortization of acquired intangibles 2,206 2,207 2,207 2,221 Depreciation 444 385 295 255 Purchase price accounting adjustment 15 16 55 55 Acquisition and sponsor related costs 164 322 328 328 Interest expense, net (2) 5,704 3,726 2,696 2,657 Income tax (benefit) expense (769 ) 2,906 395 (239 ) Adjusted EBITDA $ 17,116 $ 3,376 $ 1,857 $ 3,152 Components of Results of Operations Cost of Revenue Sales and Marketing Expenses. Sales and marketing expenses consist primarily of Year Ended December 31, 2018 2017 2016 with adoption (ASC 606) Impact of adoption without adoption (ASC 605) as previously reported (ASC 605) (In thousands) Revenue Licenses $ 105,000 $ 3,307 $ 101,693 $ 79,209 $ 54,395 Subscription 104,033 (2,499 ) 106,532 71,007 49,364 Services and other 39,887 (363 ) 40,250 35,840 28,653 Total revenue 248,920 445 248,475 186,056 132,412 Cost of revenue Licenses 4,634 — 4,634 4,561 4,278 Subscription (1) 20,734 — 20,734 16,406 13,051 Services and other (1) 29,302 — 29,302 23,623 19,709 Total cost of revenue 54,670 — 54,670 44,590 37,038 Gross profit 194,250 445 193,805 141,466 95,374 Operating expenses Research and development (1) 43,154 — 43,154 33,331 24,358 General and administrative (1) 34,781 — 34,781 17,678 9,680 Sales and marketing (1) 105,402 (4,857 ) 110,259 80,514 58,607 Total operating expenses 183,337 (4,857 ) 188,194 131,523 92,645 Income from operations 10,913 5,302 5,611 9,943 2,729 Other expense, net: Interest expense, net (4,707 ) — (4,707 ) (14,783 ) (7,277 ) Other, net (1,446 ) — (1,446 ) (459 ) (610 ) Total other expense, net (6,153 ) — (6,153 ) (15,242 ) (7,887 ) Income (loss) before income taxes 4,760 5,302 (542 ) (5,299 ) (5,158 ) Income tax (expense) benefit (1,090 ) 701 (1,791 ) (2,293 ) 1,985 Net income (loss) $ 3,670 $ 6,003 $ (2,333 ) $ (7,592 ) $ (3,173 ) Year Ended December 31, 2018 2017 2016 (In thousands) Cost of revenue - subscription $ 945 $ 133 $ 34 Cost of revenue - services and other 1,504 458 63 Research and development 3,026 658 118 General and administrative 7,798 2,062 96 Sales and marketing 5,702 1,203 257 Total stock-based compensation expense $ 18,975 $ 4,514 $ 568 Year Ended December 31, 2018 2018 2017 2016 with adoption (ASC 606) without adoption (ASC 605) as previously reported (ASC 605) Revenue Licenses 42 % 41 % 43 % 41 % Subscription 42 43 38 37 Services and other 16 16 19 22 Total revenue 100 100 100 100 Cost of revenue Licenses 2 2 2 3 Subscription 8 8 9 10 Services and other 12 12 13 15 Total cost of revenue 22 22 24 28 Gross profit 78 78 76 72 Operating expenses Research and development 17 17 18 18 General and administrative 14 14 10 7 Sales and marketing 42 44 43 45 Total operating expenses 73 75 71 70 Income from operations 5 3 5 2 Other expense, net: Interest expense, net (2 ) (2 ) (8 ) (5 ) Other, net (1 ) (1 ) 0 0 Total other expense, net (3 ) (3 ) (8 ) (5 ) Income (loss) before income taxes 2 0 (3 ) (3 ) Income tax (expense) benefit 0 (1 ) (1 ) 1 Net income (loss) 2 % (1 )% (4 )% (2 )% Year Ended December 31, 2018 2018 2017 2018 to 2017 $ and % variance 2018 to 2017 $ and % variance with adoption (ASC 606) without adoption (ASC 605) with adoption (ASC 606) without adoption (ASC 605) (In thousands, except percentages) Revenue: Licenses $ 105,000 $ 101,693 $ 79,209 $ 25,791 33% $ 22,484 28% Subscription 104,033 106,532 71,007 33,026 47% 35,525 50% Services and other 39,887 40,250 35,840 4,047 11% 4,410 12% Total revenue $ 248,920 $ 248,475 $ 186,056 $ 62,864 34% $ 62,419 34% Year Ended December 31, 2018 2018 2017 with adoption (ASC 606) without adoption (ASC 605) as previously reported (ASC 605) $ % of revenue $ % of revenue $ % of revenue (In thousands, except percentages) United States $ 171,497 69 % $ 169,927 68 % $ 134,676 72 % EMEA (1) 49,871 20 % 49,854 20 % 33,097 18 % Rest of the World (1) 27,552 11 % 28,694 12 % 18,283 10 % Total revenue $ 248,920 100 % $ 248,475 100 % $ 186,056 100 % Year Ended December 31, 2018 2018 2017 2018 to 2017 $ and % variance 2018 to 2017 $ and % variance with adoption (ASC 606) without adoption (ASC 605) with adoption (ASC 606) without adoption (ASC 605) (In thousands, except percentages) Gross profit: Licenses $ 100,366 $ 97,059 $ 74,648 $ 25,718 34% $ 22,411 30% Subscription 83,299 85,798 54,601 28,698 53% 31,197 57% Services and other 10,585 10,948 12,217 (1,632 ) (13)% (1,269 ) (10)% Total gross profit $ 194,250 $ 193,805 $ 141,466 $ 52,784 37% $ 52,339 37% Gross margin: Licenses 96 % 95 % 94 % Subscription 80 % 81 % 77 % Services and other 27 % 27 % 34 % Total gross margin 78 % 78 % 76 % Year Ended December 31, 2018 2018 2017 2018 to 2017 $ and % variance 2018 to 2017 $ and % variance with adoption (ASC 606) without adoption (ASC 605) with adoption (ASC 606) without adoption (ASC 605) (In thousands, except percentages) Operating expenses: Research and development $ 43,154 $ 43,154 $ 33,331 $ 9,823 29% $ 9,823 29% General and administrative 34,781 34,781 17,678 17,103 97% 17,103 97% Sales and marketing 105,402 110,259 80,514 24,888 31% 29,745 37% Total operating expenses $ 183,337 $ 188,194 $ 131,523 $ 51,814 39% $ 56,671 43% Year Ended December 31, 2017 (1) 2016 (1) variance $ variance % (In thousands, except percentages) Revenue: Licenses $ 79,209 $ 54,395 $ 24,814 46 % Subscription 71,007 49,364 21,643 44 % Services and other 35,840 28,653 7,187 25 % Total revenue $ 186,056 $ 132,412 $ 53,644 41 % Year Ended December 31, 2017 (1) 2016 (1) $ % of revenue $ % of revenue (In thousands, except percentages) United States $ 134,676 72 % $ 92,116 70 % EMEA (2) 33,097 18 % 25,668 19 % Rest of the World (2) 18,283 10 % 14,628 11 % Total revenue $ 186,056 100 % $ 132,412 100 % Year Ended December 31, 2017 (1) 2016 (1) variance $ variance % (In thousands, except percentages) Gross profit: Licenses $ 74,648 $ 50,117 $ 24,531 49 % Subscription 54,601 36,313 18,288 50 % Services and other 12,217 8,944 3,273 37 % Total gross profit $ 141,466 $ 95,374 $ 46,092 48 % Gross margin: Licenses 94 % 92 % Subscription 77 % 74 % Services and other 34 % 31 % Total gross margin 76 % 72 % Year Ended December 31, 2017 (1) 2016 (1) variance $ variance % (In thousands, except percentages) Operating expenses: Research and development $ 33,331 $ 24,358 $ 8,973 37 % General and administrative 17,678 9,680 7,998 83 % Sales and marketing 80,514 58,607 21,907 37 % Total operating expenses $ 131,523 $ 92,645 $ 38,878 42 % Three Months Ended 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2018 9/30/2018 6/30/2018 3/31/2018 with adoption (ASC 606) without adoption (ASC 605) (In thousands, except share and per share data) Total revenue $ 80,588 $ 65,735 $ 53,656 $ 48,941 $ 77,782 $ 66,419 $ 54,560 $ 49,714 Gross profit $ 66,078 $ 51,721 $ 40,280 $ 36,171 $ 63,272 $ 52,405 $ 41,184 $ 36,944 Income (loss) from operations $ 11,189 $ 4,783 $ (1,352 ) $ (3,707 ) $ 7,228 $ 4,510 $ (1,837 ) $ (4,290 ) Net income (loss) $ 5,143 $ 1,808 $ (979 ) $ (2,302 ) $ 5,979 $ 3,302 $ (5,647 ) $ (5,967 ) Net income (loss) per share Basic: $ 0.06 $ 0.02 $ (0.01 ) $ (0.03 ) $ 0.07 $ 0.04 $ (0.07 ) $ (0.07 ) Diluted: $ 0.06 $ 0.02 $ (0.01 ) $ (0.03 ) $ 0.07 $ 0.04 $ (0.07 ) $ (0.07 ) Weighted average shares outstanding Basic: 87,171,161 86,825,168 86,246,056 85,719,240 87,171,161 86,825,168 86,246,056 85,719,240 Diluted: 90,234,993 90,355,212 86,246,056 85,719,240 90,234,993 90,355,212 86,246,056 85,719,240 Three months ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 as previously reported (ASC 605) (in thousands, except share and per share data) Total revenue $ 67,768 $ 43,562 $ 39,260 $ 35,466 Gross profit $ 55,086 $ 32,484 $ 28,565 $ 25,331 Income (loss) from operations $ 10,520 $ 407 $ (1,183 ) $ 199 Net income (loss) $ 5,382 $ (6,387 ) $ (4,304 ) $ (2,283 ) Net income (loss) per share Basic: $ 0.03 $ (0.24 ) $ (0.22 ) $ (0.18 ) Diluted: $ 0.03 $ (0.24 ) $ (0.22 ) $ (0.18 ) Weighted average shares outstanding Basic: 65,870,258 48,219,826 47,930,190 47,208,477 Diluted: 69,166,069 48,219,826 47,930,190 47,208,477 Three Months Ended 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017 Number of customers 1,173 1,090 1,031 984 933 829 776 725 Subscription revenue as a percentage of total revenue (1) 37 % 42 % 45 % 46 % 31 % 42 % 42 % 42 % Adjusted EBITDA (in thousands) (ASC 606) (1) $ 18,580 $ 12,044 $ 4,931 $ 3,925 NA NA NA NA Adjusted EBITDA (in thousands) (ASC 605) $ 14,619 $ 11,771 $ 4,446 $ 3,342 $ 17,116 $ 3,376 $ 1,857 $ 3,152 increased or decreased under specified circumstances and is subject to certain financial covenants. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including for acquisitions permitted under the Credit Agreement. The Credit Agreement is scheduled to mature on March 11, 2024. We had no outstanding revolving credit loan balance and we were in compliance with all applicable covenants as of December 31, 2021. See Note 9 “Credit Agreement” in our notes to our consolidated financial statements included in this Annual Report for more information regarding terms and conditions of the Credit Agreement. financial condition would be adversely affected. long-term growth. Year Ended December 31, 2018 2018 2017 2016 with adoption (ASC 606) without adoption (ASC 605) as previously reported (ASC 605) (In thousands) Net cash provided by operating activities $ 37,540 $ 37,540 $ 21,856 $ 6,540 Net cash used in investing activities (10,856 ) (10,856 ) (2,521 ) (1,255 ) Net cash (used in) provided by financing activities (65,575 ) (65,575 ) 78,520 (1,962 ) Net (decrease) increase in cash, cash equivalents and restricted cash $ (38,891 ) $ (38,891 ) $ 97,855 $ 3,323 disbursements. Payments Due by Period Less Than More than Total 1 Year 1 to 3 Years 3 to 5 Years 5 Years (In thousands) Operating lease obligations (1) $ 49,611 $ 3,112 $ 9,451 $ 9,473 $ 27,575 Contractual commitments, including hosting service agreements (2) 8,713 6,006 2,707 — — Total $ 58,324 $ 9,118 $ 12,158 $ 9,473 $ 27,575 Report. We derive subscription revenue through the sale of our SaaS subscription, maintenance and support and other subscription services offerings. We typically recognize subscription revenue ratably over the contract term. We derive services and other revenue primarily through the sale of professional services. We typically recognize services and other revenue over time as the services are performed. Judgment is required to determine the standalone selling price (“ deferred contract acquisition costs. deferred tax liabilities, and the impact of any feasible and prudent tax planning strategies. standalone existing technology. Report. As of December 31, 2021, we do not believe a hypothetical 10% change in interest rates would have a material impact on the value of our cash equivalents. Foreign Currency Exchange Risk Item 8. Financial Statements and Supplementary Data Accounting Principle Entity’s Own Equity We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. As of December 31, 2018 2017 (In thousands, except share and per share data) Assets Current assets Cash and cash equivalents $ 70,964 $ 116,049 Restricted cash 6,272 78 Accounts receivable 101,469 72,907 Prepayments and other current assets 21,850 10,013 Total current assets 200,555 199,047 Property and equipment, net 19,268 3,018 Deferred tax asset - non-current — 264 Other non-current assets 20,374 3,542 Goodwill 219,377 219,377 Intangible assets, net 74,860 81,185 Total assets $ 534,434 $ 506,433 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 4,636 $ 2,231 Accrued expenses and other liabilities 21,731 22,636 Income taxes payable 2,143 1,688 Deferred revenue - current 95,919 73,671 Total current liabilities 124,429 100,226 Deferred tax liability - non-current 4,142 — Long-term debt — 68,329 Other long-term liabilities 9,788 27 Deferred revenue - non-current 18,382 9,454 Total liabilities 156,741 178,036 Commitments and contingencies (Note 6) Stockholders’ equity Common stock, $0.0001 par value, authorized 300,000,000 shares, issued and outstanding 87,512,175 and 84,948,126 shares at December 31, 2018 and 2017, respectively 9 8 Preferred stock, $0.0001 par value, authorized 10,000,000 shares, no shares issued and outstanding at December 31, 2018 and 2017 — — Additional paid in capital 377,473 353,609 Retained earnings (accumulated deficit) 211 (25,220 ) Total stockholders' equity 377,693 328,397 Total liabilities and stockholders’ equity $ 534,434 $ 506,433 Year Ended December 31, 2018 2017 2016 (In thousands, except share and per share data) Revenue Licenses $ 105,000 $ 79,209 $ 54,395 Subscription 104,033 71,007 49,364 Services and other 39,887 35,840 28,653 Total revenue 248,920 186,056 132,412 Cost of revenue Licenses 4,634 4,561 4,278 Subscription 20,734 16,406 13,051 Services and other 29,302 23,623 19,709 Total cost of revenue 54,670 44,590 37,038 Gross profit 194,250 141,466 95,374 Operating expenses Research and development 43,154 33,331 24,358 General and administrative 34,781 17,678 9,680 Sales and marketing 105,402 80,514 58,607 Total operating expenses 183,337 131,523 92,645 Income from operations 10,913 9,943 2,729 Other expense, net: Interest expense, net (4,707 ) (14,783 ) (7,277 ) Other, net (1,446 ) (459 ) (610 ) Total other expense, net (6,153 ) (15,242 ) (7,887 ) Income (loss) before income taxes 4,760 (5,299 ) (5,158 ) Income tax (expense) benefit (1,090 ) (2,293 ) 1,985 Net income (loss) $ 3,670 $ (7,592 ) $ (3,173 ) Net income (loss) available to common stockholders $ 3,641 $ (28,721 ) $ (26,791 ) Net income (loss) per share Basic $ 0.04 $ (0.55 ) $ (0.58 ) Diluted $ 0.04 $ (0.55 ) $ (0.58 ) Weighted average shares outstanding Basic 86,495,301 52,339,804 45,933,218 Diluted 90,002,752 52,339,804 45,933,218 Redeemable Convertible Preferred Stock Common Stock Treasury Stock Additional Retained earnings Stockholders' Number of shares Amount Number of shares Par value Number of shares Amount paid in capital (accumulated deficit) equity (deficit) (In thousands, except share data) Balance at December 31, 2015 222,898 $ 222,898 44,736,300 $ 4 — $ — $ 2,592 $ (14,455 ) $ (11,859 ) Issuance of preferred and common stock, net 1,263 1,263 36,079 — — — 66 — 66 Repurchase of preferred and common stock (174 ) (174 ) (62,402 ) — — — (52 ) — (52 ) Exercise of stock options — — 10,568 — — — 18 — 18 Capital contribution — — — — — — 459 — 459 Stock-based compensation expense — — — — — — 568 — 568 Incentive units vested — — 1,676,824 1 — — 88 — 89 Net loss — — — — — — — (3,173 ) (3,173 ) Balance at December 31, 2016 223,987 $ 223,987 46,397,369 $ 5 — $ — $ 3,739 $ (17,628 ) $ (13,884 ) Issuance of preferred and common stock, net — — 15,800,000 1 — — 171,979 — 171,980 Conversion of preferred stock to common stock upon initial public offering (223,816 ) (173,429 ) 20,500,400 2 — — 173,427 — 173,429 Repurchase of preferred and common stock (171 ) (171 ) — — 190,434 (487 ) — — (487 ) Exercise of stock options — — 160,680 — — — 359 — 359 Preferred dividend payment — (50,387 ) — — — — — — — Treasury stock activity — — (112,772 ) — (190,434 ) 487 (487 ) — — Stock-based compensation expense — — — — — — 4,514 — 4,514 Incentive units vested — — 2,202,449 — — — 78 — 78 Net loss — — — — — — — (7,592 ) (7,592 ) Balance at December 31, 2017 — $ — 84,948,126 $ 8 — $ — $ 353,609 $ (25,220 ) $ 328,397 Cumulative effect adjustment from the adoption of ASC 606 — — — — — — — 21,761 21,761 Exercise of stock options — — 637,188 — — — 1,809 — 1,809 Stock-based compensation expense — — — — — — 18,975 — 18,975 Incentive units vested — — 1,502,726 1 — — 77 — 78 Restricted stock units vested, net of tax settlement — — 256,325 — — — (348 ) — (348 ) Common stock issued under employee stock plans — — 167,810 — — — 3,351 — 3,351 Net income — — — — — — — 3,670 3,670 Balance at December 31, 2018 — $ — 87,512,175 $ 9 — $ — $ 377,473 $ 211 $ 377,693 Year Ended December 31, 2018 2017 2016 (In thousands) Operating activities Net income (loss) $ 3,670 $ (7,592 ) $ (3,173 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 10,736 10,220 9,982 Amortization of loan origination fees 238 746 749 Amortization of contract acquisition costs 7,753 3,008 1,281 Loss on modification and extinguishment of debt 1,848 1,702 — (Gain) loss on disposal of fixed assets (20 ) (20 ) 5 Bad debt expense 2,332 — — Stock-based compensation expense 18,975 4,514 568 Deferred taxes (1,280 ) 69 (2,537 ) Changes in operating assets and liabilities: Accounts receivable (31,249 ) (24,116 ) (17,245 ) Prepayments and other current assets (13,742 ) (5,182 ) (4,060 ) Other non-current assets (3,599 ) (2,453 ) (857 ) Accounts payable 2,406 1,443 (262 ) Accrued expenses and other liabilities (882 ) 10,882 1,712 Income taxes 455 614 161 Deferred revenue 39,899 28,021 20,216 Net cash provided by operating activities 37,540 21,856 6,540 Investing activities Purchase of intangibles (2,500 ) — — Purchase of property and equipment (8,389 ) (2,711 ) (1,263 ) Proceeds from sale of property and equipment 33 190 8 Net cash used in investing activities (10,856 ) (2,521 ) (1,255 ) Financing activities Repayments of line of credit — — (10,000 ) Proceeds from term loan — 50,000 115,000 Repayments of term loan (70,000 ) (90,000 ) (105,000 ) Prepayment penalty and fees (387 ) (1,390 ) — Dividend payments — (50,387 ) — Debt issuance costs — (1,384 ) (3,083 ) Proceeds from issuance of equity 3,351 171,980 1,329 Repurchase of equity shares — (658 ) (226 ) Taxes associated with net issuances of shares upon vesting of restricted stock units (348 ) — — Exercise of stock options 1,809 359 18 Net cash (used in) provided by financing activities (65,575 ) 78,520 (1,962 ) Net (decrease) increase in cash, cash equivalents and restricted cash (38,891 ) 97,855 3,323 Cash, cash equivalents and restricted cash, beginning of period 116,127 18,272 14,949 Cash, cash equivalents and restricted cash, end of period $ 77,236 $ 116,127 $ 18,272 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,780 $ 13,250 $ 5,848 Cash paid for income taxes $ 1,631 $ 1,612 $ 406 Tenant improvement allowance $ 9,787 $ — $ — Conversion of redeemable convertible preferred stock to common stock $ — $ 173,429 $ — Conversion of prepaid incentive units to common stock (Note 10) $ 78 $ 78 $ 89 Forgiveness of liability to controlling entity $ — $ — $ 459 and Summary of Significant Accounting Policies worldwide. position or cash flows. As of December 31, 2018 2017 (In thousands) Cash and cash equivalents per balance sheet $ 70,964 $ 116,049 Restricted cash per balance sheet 6,272 78 Cash, cash equivalents and restricted cash per cash flow $ 77,236 $ 116,127 Fair Value of Financial Instruments •Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2: Observable inputs, other thanOur failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our operating results.We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:•develop and enhance our products;•continue to expand our product development, sales and marketing organizations;•hire, train and retain employees;•respond to competitive pressures or unanticipated working capital requirements; or•pursue acquisition opportunities.Our credit agreement contains restrictions that impact our business and could expose us to risks that could adversely affect our liquidity and financial condition.Our credit agreement contains various covenants that, among other things, limit our and certain of our subsidiaries’ abilities to:•incur additional indebtedness or guarantee indebtedness of others;•create additional liens on our assets;•merge, consolidate or dissolve;•make loans or investments, including acquisitions;•sell assets;•engage in sale and leaseback transactions;•pay dividends and make other distributions on our capital stock, and redeem and repurchase our capital stock; or•enter into transactions with affiliates.Our credit agreement also contains numerous affirmative covenants and a financial covenant. Any additional debt that we incur in the future could subject us to similar or additional covenants.Our credit agreement provides for an initial $150 million in commitments for revolving credit loans, with a $15 million letter of credit sublimit, which amount can be increased or decreased under specified circumstances. As of March 11, 2019, we had no outstanding revolving credit loans. Our credit agreement also provides for the ability to incur uncommitted term loan facilities if we meet certain requirements. We have historically relied on the availability of some amount of debt financing. If we experience a decline in cash flow due to any of the factors described in this “Risk Factors” section or otherwise, we could have difficulty paying interest and principal amounts due on our indebtedness and meeting the financial covenant set forth in our credit agreement. If we are unable to generate sufficient cash flow or otherwise to obtain the funds necessary to make required payments under our credit agreement, or if we fail to comply with the various requirements of our indebtedness, we could default under our credit agreement. Any such default that is not cured or waived could result in an acceleration of indebtedness then outstanding under our credit agreement, an increase in the applicable interest rates under our credit agreement, and require our subsidiaries that have guaranteed our borrowings under our credit agreement to pay the obligations in full, and would permit the lenders to exercise remedies with respect to all of the collateral that is securing our borrowings under the credit agreement, including substantially all of our and our subsidiary guarantors’ assets. Thus, any such default could have a material adverse effect on our liquidity and financial condition.We may acquire or invest in companies, which may divert our management’s attention and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.Our success will depend, in part, on our ability to expand our solutions and services and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may choose to do so through the acquisition of, or investment in, new or complementary businesses and technologies rather than through internal development. The identification of suitable acquisition or investment candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or investments. The risks we face in connection with acquisitions and/or investments include:•an acquisition may negatively affect our operating results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;•we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire;•an acquisition or investment may disrupt our ongoing business, divert resources, increase our expenses and distract our management;•an acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company;•we may encounter difficulties in, or may be unable to, successfully sell any acquired products or effectively integrate them into or with our existing solutions;•our use of cash to pay for acquisitions or investments would limit other potential uses for our cash;•if we incur debt to fund any acquisitions or investments, such debt may subject us to material restrictions on our ability to conduct our business; and•if we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.The occurrence of any of these risks could adversely affect our business, operating results and financial condition. and trade secret laws, confidentiality procedures, employment proprietary information and inventions assignment agreements, trademarks and patents to protect our intellectual property rights. However, the steps we take to protect our intellectual property may not be adequate. To protect our trade secrets and proprietary information, we rely in significant part on confidentiality arrangements with our employees, licensees, independent contractors, advisers, channel partners, resellers and customers. These arrangements and other steps we take may not be effective to prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, if others independently discover trade secrets and proprietary information, we would not be able to assert trade secret rights against such parties. To protect our intellectual property, wesuchour intellectual property rights. Litigation brought to enforce our intellectual property could be costly, time-consuming and distracting to management and could be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property, which may result in the impairment or loss of portions of our intellectual property. The laws of some foreign countries do not protect our intellectual property to the same extent as the laws of the United States, and effective intellectual property protection and mechanisms may not be available in those jurisdictions. We may need to expend additional resources to defend our intellectual property in these countries, and our inability to do so could impair our business or adversely affect our international expansion. Even if we are able to secure intellectual property, there can be no assurances that such rights will provide us with competitive advantages or distinguish our platform or solutions and services from those of our competitors or that our competitors will not independently develop similar technology.includingmany of which have significantly larger and more mature patent holdings than we do or are patent holding companies whose sole business is to assert such claims. To the extent we increase our visibility in the market, we face a higher risk of being the subject of intellectual property claims. Additionally, we do not have a significant patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now or in the future be subject to claims that we, our employees or our contractors have significantly largerinadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties.more mature patent portfolios thanother third parties may include indemnification provisions under which we do.Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them or otherwise be liable for losses suffered or incurred as a result of claims of intellectual property infringement or misappropriation, damages caused by us to property or persons, or other liabilities relating to or arising from our platform, solutions, services or other contractual obligations. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement.From time to time, customers also require us to indemnify or otherwise be liable to them for breach of confidentiality, violation of applicable law or failure to implement adequate security measures with respect to their data stored, transmitted or accessed using our platform. Although we normally seek contractual limitations to our liability with respect to the foregoing obligations, the existence of such a dispute may have adverse effects on our customer relationship and reputation and even if we contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any assertions by a third party, whether or not successful, with respect to any of these indemnification obligations could subject us to costly and time-consuming litigation, expensive remediation and licenses, divert management attention and financial resources, harm our relationship with that customer and other current and prospective customers, reduce demand for our platform and solutions, and harm our brand, business, operating results and financial condition. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and adversely affect our business and operating results.We may be subject to damages resulting from claims that our employees or contractors have wrongfully used or disclosed alleged trade secrets of their former employers or other parties.We could in the future be subject to claims that we, our employees or our contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to our solutions, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of these parties. In addition, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to develop, market and support potential solutions or enhancements, which could severely harm our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and be a distraction to management.Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we may be unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage, and if not addressed, could have a negative effect on our business, operating results and financial condition.We may be required to defer or adjust recognition of some of our license revenue, which may harm our operating results in any given period.We may be required to defer or adjust recognition of license revenue for a significant period of time after entering into an agreement due to a variety of factors, including, among other things, whether:•the transaction involves products or features that are under development;•the transaction involves extended payment terms; or•the transaction involves acceptance criteria.Although we strive to enter into agreements that meet the criteria under GAAP for current revenue recognition on delivered performance obligations, our agreements are often subject to negotiation and revision based on the demands of our customers. The final terms of our agreements sometimes result in deferred revenue recognition well after the time of delivery, which may adversely affect our financial results in any given period.Furthermore, the presentation of our financial results requires us to make estimates and assumptions that may affect revenue recognition, including determination of stand-alone selling price. In some instances, we could reasonably use different estimates and assumptions, and changes in estimates are likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates.If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, capitalized internal-use software costs, income taxes, other non-income taxes, business combinations and valuation of goodwill and purchased intangible assets and stock-based compensation. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.Changes in existing financial accounting standards or practices, or taxation rules or practices, may harm our operating results.Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practice could harm our operating results or the manner in which we conduct our business. Further, such changes could potentially affect our reporting of transactions completed before such changes are effective.GAAP is subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.Our business may be subject to additional obligations to collect and remit sales tax, value-added and other taxes, and we may be subject to tax liability for past sales. Any successful action by state, foreign or other authorities to collect additional or past sales tax could adversely affect our business.States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of sales taxes to our platform in various jurisdictions is unclear. It is possible that we could face sales tax audits and that our liability for these taxes could exceed our estimates as state tax authorities could still assert that we are obligated to collect additional amounts as taxes from our customers and remit those taxes to those authorities. We could also be subject to audits in states and international jurisdictions for which we have not accrued tax liabilities. A successful assertion that we should be collecting additional sales or other taxes on our services in jurisdictions where we have not historically done so and do not accrue for sales taxes could result in substantial tax liabilities for past sales, discourage customers from purchasing our products or otherwise adversely affect our business, operating results and financial condition.We file sales tax returns in certain states within the United States as required by law and certain customer contracts for a portion of the products that we provide. We do not collect sales or other similar taxes in other states and many of such states do not apply sales or similar taxes to the vast majority of the products that we provide. However, one or more states or foreign authorities could seek to impose additional sales, use or other tax collection and record-keeping obligations on us or may determine that such taxes should have, but have not been, paid by us. Liability for past taxes may also include substantial interest and penalty charges. Any successful action by state, foreign or other authorities to compel us to collect and remit sales tax, use tax or other taxes, either retroactively, prospectively or both, could adversely affect our business, operating results and financial condition.If our products fail to help our customers achieve and maintain compliance with certain government regulations and industry standards, our business and operating results could be materially and adversely affected.We believe we generate a portion of our revenues from our products and services because our customers use our products and services as part of their efforts to achieve and maintain compliance with certain government regulations and industry standards, and we expect that will continue for the foreseeable future. Examples of industry standards and government regulations include the Payment Card Industry Data Security Standard (“PCI-DSS”); the Federal Information Security Management Act (“FISMA”) and associated National Institute for Standards and Testing (“NIST”) Network Security Standards; the Sarbanes-Oxley Act; Title 21 of the U.S. Code of Federal Regulations, which governs food and drugs industries; the North American Electric Reliability Corporation Critical Infrastructure Protection Plan (“NERC-CIP”); the GDPR; the German Federal Financial Supervisory Authority (“BaFin”) Minimum Requirements for Risk Management; and the Monetary Authority of Singapore’s Technology Risk Management Notices. These industry standards may change with little or no notice, including changes that could make them more or less onerous for businesses. In addition, governments may also adopt new laws or regulations, or make changes to existing laws or regulations, that could affect whether our customers believe our solution assists them in maintaining compliance with such laws or regulations. If our solutions fail to expedite our customers’ compliance initiatives, our customers may lose confidence in our products and could switch to products offered by our competitors. In addition, if government regulations and industry standards related to IT security are changed in a manner that makes them less onerous, our customers may view compliance as less critical to their businesses, and our customers may be less willing to purchase our products and services. In either case, our sales and financial results would suffer.Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.We are subject to the Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The U.K. Bribery Act is similar but even broader in scope in that it prohibits bribery of private (non-government) persons as well. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Our sales model presents some risk under these laws. We leverage third parties, including channel partners, to sell our solutions and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies, state-owned or affiliated entities and non-governmental commercial entities, and may be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities. While we have policies and procedure to address compliance with these laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage and other consequences. Any investigations, actions or sanctions could adversely affect our business, operating results and financial condition.We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.Our business activities are subject to various restrictions under U.S. export controls and trade and economic sanctions laws, including the U.S. Commerce Department’s Export Administration Regulations and economic and trade sanctions regulations maintained by the U.S. Treasury Department’s Office of Foreign Assets Control. The U.S. export control laws and U.S. economic sanctions laws include prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities and also require authorization for the export of encryption items. We are also subject to Israeli export controls on encryption technology for SecurityIQ (now IndentityIQ File Access Manager). If the applicable U.S. or Israeli requirements regarding export of encryption technology were to change or if we change the encryption means in our products, we may need to satisfy additional requirements in the United States or Israel. There can be no assurance that we will be able to satisfy any additional requirements under these circumstances in either the United States or Israel.In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our services or could limit our customers’ ability to implement our services in those countries. Although we take precautions to prevent our products from being provided in violation of such laws, our products may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export privileges and monetary penalties. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities. Although we take precautions to prevent transactions with U.S. sanction targets, we could inadvertently provide our products to persons prohibited by U.S. sanctions. This could result in negative consequences to us, including government investigations, penalties and harm to our reputation.Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which would harm our operating results.Based on our current corporate structure, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. In addition, the authorities in these jurisdictions could challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing. The relevant taxing authorities may determine that the manner in which we operate our business does not achieve the intended tax consequences. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties. Such authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries. Any increase in the amount of taxes we pay or that are imposed on us could increase our worldwide effective tax rate and adversely affect our business and operating results.Our ability to use net operating losses and other tax attributes to offset future taxable income may be subject to certain limitations.In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), a corporation that undergoes an “ownership change” is subject to an annual limitation on its ability to utilize its pre-change net operating losses (“NOLs”), tax credits or other tax attributes, to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who own at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. We recently performed a Section 382 study to determine if any of our existing NOLs, tax credits or other tax attributes would be subject to such limitation. Although we have determined, based on that study, that we underwent an “ownership change” during 2018, we believe the annual limitation will not result in the expiration of any NOLs, tax credits or other tax attributes prior to utilization. However, future changes in our stock ownership, many of which are outside of our control, could result in another “ownership change” and subsequently could substantially impair our ability to utilize any NOLs, tax credits or other tax attributes.We function as a HIPAA “business associate” for certain of our customers and, as such, are subject to strict privacy and data security requirements. If we fail to comply with any of these requirements, we could be subject to significant liability, all of which can adversely affect our business as well as our ability to attract and retain new customers.The Health Insurance Portability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations (“HIPAA”), imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates.” We function as a business associate for certain of our customers that are HIPAA covered entities and service providers and, in that context, we are regulated as a business associate for the purposes of HIPAA. If we are unable to comply with our obligations as a HIPAA business associate, we could face substantial civil and even criminal liability. Modifying the already stringent penalty structure that was present under HIPAA prior to HITECH, HITECH created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.The HIPAA covered entities and service providers to which we provide services require us to enter into HIPAA-compliant business associate agreements with them. These agreements impose stringent data security obligations on us. If we are unable to meet the requirements of any of these business associate agreements, we could face contractual liability under the applicable business associate agreement as well as possible civil and criminal liability under HIPAA, all of which can have an adverse impact on our business and generate negative publicity, which, in turn, can have an adverse impact on our ability to attract and retain new customers.Risks Related to Ownership of Our Common StockThe requirements of being a public company, including compliance with the reporting requirements of the Exchange Act, and the requirements of the Sarbanes-Oxley Act and the NYSE, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.As a public company, we are subject to laws, regulations and requirements with which we were not required to comply as a private company, including compliance with reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE. As a newly public company, complying with these statutes, regulations and requirements occupies a significant amount of time of our board of directors and management and has significantly increased our costs and expenses as compared to when we were a private company. For example, as a newly public company, we have had to institute a more comprehensive compliance function, establish new internal policies, such as those relating to insider trading, and involve and retain to a greater degree outside counsel and accountants. Additionally, as a public company, we must comply with Section 404 of the Sarbanes-Oxley Act, including having our independent registered public accounting firm attest to the effectiveness of our internal controls. Our independent registered public accounting firm may issue a report attesting to the effectiveness of our internal controls that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed. Compliance with these requirements may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.Furthermore, being a public company subject to these rules and regulations has made it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers as compared to when we were a private company. The trading price of our common stock could be volatile, which could cause the value of your investment to decline.Our initial public offering occurred in November 2017. Therefore, there has only been a public market for our common stock for a short period of time. Although our common stock is listed on the NYSE, an active trading market for our common stock may not develop or, if developed, be sustained. Technology stocks have historically experienced high levels of volatility. Since shares of our common stock were sold in our initial public offering in November 2017 at a price of $12.00 per share, our stock price has fluctuated significantly. The trading price of our common stock may fluctuate substantially in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors” section:•announcements of new products or technologies, commercial relationships, acquisitions or other events by us or our competitors;•changes in how customers perceive the benefits of our platform;•shifts in the mix of revenue attributable to perpetual licenses and to SaaS subscriptions from quarter to quarter;•departures of key personnel;•price and volume fluctuations in the overall stock market from time to time;•fluctuations in the trading volume of our shares or the size of our public float;•sales of large blocks of our common stock;•actual or anticipated changes or fluctuations in our operating results;•whether our operating results meet the expectations of securities analysts or investors;•changes in actual or future expectations of investors or securities analysts;•litigation involving us, our industry or both;•regulatory developments in the United States, foreign countries or both;•general economic conditions and trends;•major catastrophic events in our domestic and foreign markets;•cyber-attacks or incidents; and•“flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed.In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have an adverse effect on our business, operating results and financial condition.An active public trading market may not continue to develop or be sustained.Prior to the completion of our initial public offering in November 2017, no public market for our common stock existed. An active public trading market for our common stock may not continue to develop or be sustained. The lack of an active market may impair your ability to sell your shares of our common stock at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.If securities analysts or industry analysts were to downgrade our stock, publish negative research or reports or fail to publish reports about our business, our competitive position could suffer, and our stock price and trading volume could decline.The trading market for our common stock, to some extent, depends on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our stock or publish negative research or reports, cease coverage of our company or fail to regularly publish reports about our business, our competitive position could suffer, and our stock price and trading volume could decline.Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.We may issue additional capital stock in the future that will result in dilution to all other stockholders. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.•a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;•removal of directors only for cause;•the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;•allowing only our board of directors to fill vacancies on, which prevents stockholders from being able to fill vacancies on our board of directors;•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;•the requirement that a special meeting of stockholders may be called only by or at the direction of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;•the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our charter relating to the management of our business (including our classified board structure) or certain provisions of our bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;•the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt;•advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us; and•a prohibition of cumulative voting in the election of our board of directors, which would otherwise allow less than a majority of stockholders to elect director candidates(“DGCL”(the “DGCL”), and prevents us from engaging in a business combination, such as a merger, with an interested stockholder (i.e., a person or group who acquires at least 15% of our voting stock) for a period of three years from the date such person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner.We may issue preferred stock whose terms could adversely affect the voting power or valuethat may be initiated by our stockholders, which could limit our stockholders’their ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents. Alternatively, ifWe have a lease for a new 164,818 square-feetthat has recently completed construction. The lease’s term commences in February 2019, and it expires approximately 10 years from such commencement date. Our current corporate headquarters occupy 44,633consists of 164,818 square feet in Austin, Texasof space under a lease that expires 20 business days after the commencement date for the lease for our new corporate headquarters. In addition to our headquarters, wein April 2029. We also have additional office space under traditional leases in Austin, Texas, and office space in Pune, India, and Tel Aviv, Israel. Consistent with our growth, we are currently consolidating our Austin officesIsrael, and London, United Kingdom and under coworking arrangements in 2019.We lease all of our facilities. various locations in North America, Europe and APAC.proceedings. Weproceedings other than ordinary routine litigation incidental to the business, and we are not aware of any inquiries or investigations into our business.None.
Not applicable.NYSENew York Stock Exchange under the symbol “SAIL.”On March 11, 2019, the closing sale price of our common stock on the NYSE was $28.46 per share.On March 11, 2019,2819 holders of record of our common stock including the Cede & Co,a nominee for The Depository Trust Company (“DTC”), which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one stockholder. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record holders.credit agreementCredit Agreement places restrictions on our ability to pay cash dividends.of 1933, as amended (the “Securities Act”), except to the extent we specifically incorporate it by reference into such filing.commencedcommenced), and (ii) on November 17,October 31, 2017, in the NYSE Composite IndexS&P Mid Cap 400 and the S&P 600 Information Technology Index, and in each case, that all dividends were reinvested. reinvested, and shows the returns through December 31, 2021. The stock pricereturn performance on the following graph is required by the SEC and is not necessarily intended to forecast or be indicative of future stock price performanceperformance..
Company/Index 11/17/2017 12/31/2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019 SAIL $ 100.00 $ 111.54 $ 159.15 $ 188.77 $ 261.69 $ 180.69 $ 220.92 $ 154.15 $ 143.77 $ 181.54 S&P MidCap 400 $ 100.00 $ 103.90 $ 103.10 $ 107.53 $ 111.68 $ 92.39 $ 105.77 $ 108.99 $ 108.90 $ 116.59 S&P 600 IT Index $ 100.00 $ 94.32 $ 93.53 $ 97.94 $ 102.12 $ 82.13 $ 97.71 $ 99.70 $ 101.86 $ 112.95 Company/Index 3/31/2020 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 9/30/2021 12/31/2021 SAIL $ 117.08 $ 203.62 $ 304.38 $ 409.54 389.54 392.85 329.85 371.85 S&P MidCap 400 $ 81.96 $ 101.69 $ 106.55 $ 132.52 150.37 155.83 153.09 165.33 S&P 600 IT Index $ 81.70 $ 101.16 $ 100.74 $ 142.41 150.59 159.84 154.4 172.68 SaleSales of Unregistered SecuritiesThe shares purchased for the year ended December 31, 2018, as noted above, were non-vested incentive units that were forfeited uponemployees who departed the Company. The shares were part of the Incentive Unit Plan as described further in Note 10 of the accompanying Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.Issuer and Affiliated Purchasers
None.23,000,00023.0 million shares of our common stock, of which 15,800,00015.8 million shares were sold by us and 7,200,0007.2 million shares were sold by certain selling stockholders named therein at a price to the public of $12.00 per share (for an aggregate offering price of $276.0 million). We received net proceeds of approximately $172.0 million, after deducting underwriting discounts and commissions of approximately $13.3 million and offering-related expenses of $4.4 million. No payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities or any affiliates. Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Jefferies LLC and RBC Capital Markets, LLC acted as book-running managers and KeyBanc Capital Markets Inc., Canaccord Genuity Inc. and Oppenheimer & Co. Inc. acted as co-managers (collectively, the “Underwriters”) for our initial public offering.Our initial public offering closed in November 2017. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus dated November 16, 2017 and filed with the SEC on November 17, 2017 pursuant to Rule 424(b) of the Securities Act. 2018,2021, we have used $160.0 million of the proceeds from our initial public offering to repay borrowings under our previous term loan facility and approximately $1.8 million of such proceeds to pay a related prepayment premium. As of December 31, 2018,premium; the remaining net proceeds are held in cash and have not been deployed.Selected Financial DataThe following selected historical financial data has been derived from, and should be read in conjunction with, the audited Consolidated Financial Statements and the Notes to Consolidated Financial Statements and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. Our selected consolidated financial data may not be indicative of our future financial condition or results of operations.In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification or ASC 606). “ASC 606”, the “revised standard” supersedes the revenue recognition requirements in Revenue Recognition (“ASC 605”) or “prior standard” and requires the recognition of revenue as promised goods or services are transferred to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. ASC 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires deferred recognition of the incremental costs of obtaining a contract with a customer over the life of the customer.Our results of operations presented in the following tables include financial results for reporting periods during 2018, which are disclosed in compliance with the revised standard (ASC 606). We have elected the modified retrospective transition method; therefore, our historical financial results for reporting periods prior to 2018 have not been retroactively restated and are presented in conformity with the amounts previously reported under the prior standard (ASC 605). See Note 3 of the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our adoption of the revised standard (ASC 606).Consolidated Statements of Operations Data:Consolidated Balance Sheets Data:
[Reserved](1)We define working capital as current assets less current liabilities, excluding deferred revenue.section titled “Selected Financial Data” and the consolidated financial statements and related notes that are included elsewherein Item 8 in this Annual Report on Form 10-K.10-K (this “Annual Report”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth in the section titled “Risk Factors” in Part I, Item 1A and in other parts of this Annual Report on Form 10-K.Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future,future.our interim results are not necessarily indicativeanalysis of the financial condition and results we expectof operations of certain 2019 items and year-to-year comparisons between 2020 and 2019. Such discussion and analysis can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the full fiscal year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 25, 2021.any other period.OverviewSailPoint“SailPoint”) is the leading provider of enterprise identity governancesecurity solutions. Our open identity platform providessecurity solutions provide organizations with critical visibility into who on-premises software as a service (“SaaS”) and cloud-based solutions,software platforms, which provide organizations visibility and the intelligence required to both seamlessly empower our customers to efficientlyusers and securely govern the digital identities of employees, contractors, business partners and other users, and manage their constantly changing access rights to enterprisesystems, applications and data across hybrid ITinformation technology (“IT”) environments, whether comprised ofspanning on-premises, cloud orand mobile applications.applications and file storage platforms. We help customers enable their businesses with more agile and innovativefrictionless IT, streamline and accelerate the delivery of access to their businesses, enhance their security posture and better meet compliance and regulatory requirements. We believe that our open identity platform is a critical, foundational layer of a modern cyber security strategy that complements and builds upon traditional perimeter- and endpoint-centric security solutions, which on their own are increasingly insufficient to secure organizations, and their applications and data. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, educationalfinancial institutions and governments.We were founded by identity industry veterans to develop a new categorysolutionsfor applications and address emerging identity governance challenges. Since our inception, we have focused on driving innovationdata hosted on-premises or in the cloud;market,security solution, which can be hosted in the public cloud or deployed in a customer’s data center, that provides large, complex enterprise customers a unified and highly configurable identity security solution; andkey milestones including:•cloud-based access controls solution that enables our customers to manage their risk by automating access controls for business applications with complex security requirements;in 2007, we pioneered identity governance through our release of IdentityIQ, our on-premises identity governance solution;•◦Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure;in 2010, we revolutionized provisioning by integrating it with IdentityIQ into a single solution;•◦Recommendation Engine: uses AI, ML, peer group analysis, identity attributes and access activity to help customers decide whether access should be granted or removed; andin 2013, we introduced our cloud-based identity governance solution, IdentityNow;•◦SaaS Management: our cloud-based solution that helps customers discover, manage and secure their SaaS applications.in 2015, we extended identity governance by adding our identity governance for data stored in files solution, SecurityIQ (now referred as the data access manager module within IdentityIQ), which manages user access to unstructured data, a rapidly growing area of risk; and•in 2017, we further extended identity governance with the introduction of our advanced identity analytics solution, IdentityAI, which is designed to use machine learning technologies to enable rapid detection of security threats before they turn into security breaches.As of December 31, 2018, 1,173 customers across a wide variety of industries were using our products to enable and secure digital identities across the globe. No single customer represented more than 10% of our revenue for the years ended December 31, 2018, 2017 and 2016.For the years ended December 31, 2018, 2017 and 2016, our revenue was $248.9 million, $186.1 million and $132.4 million, respectively. Purchase accounting adjustments related to the Acquisition (defined herein) reduced our revenue by $1.4 million for the year ended December 31, 2016. The impact of the Acquisition to revenue was not material for the years ended December 31, 2018 and 2017. For the year ended December 31, 2018, our net income was $3.7 million as compared to our net loss of $7.6 million and $3.2 million for the years ended December 31, 2017 and 2016, respectively. For the years ended December 31, 2018, 2017 and 2016, our net cash provided by operations was $37.5 million, $21.9 million and $6.5 million, respectively. Delivering these solutions is challenging because our customers have large, complex IT environments, often rely on both legacy and innovative technologies, and deploy different business models, including on-premises and cloud solutions. Rising security threats and evolving regulations and compliance standards for cyber security, data protection, privacy and internal IT controls create new opportunities for our industry and require us to adapt our solutions to be successful. Our ability to continue to maintainMaintaining our historical growth ratesrate is also challenging because our growth strategy depends in part on our ability to drive new customer growth within existing geographic markets, further penetrate our existing customer base, continue to invest in our platform, leverage and expand our network of partners, expand market and product investment across existing vertical markets, and continue to expand our global presence, and invest in new vertical markets, while competing against much larger companies with more recognizable brands and financial resources. Although we seek to grow rapidly, we also focus on delivering positive net cash from operationsoperating leverage and efficiency while continuing to invest in our platform and to deliver innovative solutions to our customers. Additionally, our gross margins vary depending ontypecloud to house their critical security infrastructure. As a result, a growing number of solution we sell, and a shift in the mix of our solutions could affect our performance relativeenterprises are changing their approach to historical results.Our Business ModelWe deliver an integrated set of solutions that supports all aspects of identity governance, including provisioning, access request, compliance controls, password management and identity governance for data stored in files. Our solutions are built on an open identity platform, which offers connectivity to a variety of security and operational IT applications, extending the reach ofnow prefer to use a SaaS solution rather than purchase software outright and install it in their own infrastructure. This industry shift aligns well with our current product strategy. Our product strategy is to (1) accelerate innovation within our core identity governance processessecurity SaaS offerings, (2) deliver continued innovation as we execute against our vision for SailPoint identity security, and enabling effective identity governance controls across customer environments.Our set of solutions currently consists of (i) IdentityIQ,(3) ensure that as we deliver these new innovations, they work in concert with our SaaS offerings in addition to our on-premises identity governance solution, (ii) offerings.cloud-based, multi-tenant governance suite, which is delivered asSailPoint Identity Services are provided in exchange for a subscription service,fee and (iii) IdentityAI,offer customers access to these solutions and infrastructure support for the duration of their subscription agreement. Our standard subscription agreement for our cloud-based, multi-tenant advanced identity analytics solution, which is delivered asSaaS offerings has a subscription service. See Part I, Item 1. “Business—Products” for more information regarding our solutions.typicallyeither purchase a perpetual software license, which includes one year of maintenance.maintenance and support, or a term license, sold as bundled arrangements that include the rights to a term license and maintenance and support typically for a three-year term. Accordingly, we allocate the transaction price to each performance obligation. Our maintenance provides software maintenance as well as access to our technical support services during the maintenance term. After the initial maintenance period, customers with perpetual licenses may renew their maintenance and support agreement for an additional fee. For our cloud-based solutions, IdentityNow and IdentityAI, for a subscription fee, we offer customers access to these solutions and infrastructure support for the duration of their subscription agreement. Our standard subscription agreement for our cloud solution has a duration of three years.IdentityIQ, IdentityNow and IdentityAIIdentityIQ solutions into modules. Each module has unique functionalities, and our customers are able to purchase one or more modules, depending on their needs. We also offer advanced integration modules for key applications and systems which can be purchased in addition to our base solution modules. They are also priced based onidentities.identities, as are our SailPoint Identity Services. Thus, our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules (forpurchased by the customer for our IdentityIQ and IdentityNow solutions) purchased bysolutions and which, if any, of the customer.Our go-to-market strategy consists of both direct sales and indirect sales through our partnership network of systems integrators, value-added resellers and adjacent technology vendors. We work closely with systems integrators, many of whom have dedicated SailPoint practices (including Accenture, Deloitte, KPMG, and PwC and most recently EY), with some dating back more than eight years, and resellers (including value-added resellers such as Optiv) to identify potential sales opportunities and help us increase our reach, and we frequently cooperate with systems integrators to make joint sales proposals to address our mutual customers’ requirements. We also collaborate with leading access management vendors by adding our identity governance capabilities to their access management services (e.g., Okta and VMware). We do not have any material payment obligations to systems integrators, resellers or our technology partners; nor do they have any material payment obligations to us, exceptIdentity Services that resellers typically purchase solutions directly from us and resell to customers. See Part I, Item 1. “Business—Partnerships and Strategic Relationships” for more information regarding our partnership network.time and materials basis;time-and-materials basis, whereas our training services are provided through multiple pricing models, including on a per-person basis (forfor instructor led courses provided at our headquarters and on-site at our customers’ offices) and a flat-rate basis (forfor our e-learning course).courses.We devote significant resourcesOver the past several years, our revenue mix has changed as demand for our products and services has shifted from sales of perpetual licenses to acquiresales of SaaS and term licenses, and in 2021, we largely completed our transition to a subscription model, with our principal focus on selling subscription-based arrangements, including SaaS and term licenses, with revenue from perpetual licenses representing an increasingly smaller portion of our total revenue. Although we expect to occasionally see perpetual license transactions with new customers in both existing and new markets, in orderongoing expansion deals for current customers, our principal focus is on selling subscription-based arrangements. For customers that still wish to growpurchase and operate non-SaaS software, we are increasingly selling our customer base. In addition,software through subscription-based term licenses, rather than through perpetual licenses, and over time, we focus on three distinct opportunities to increaseexpect that sales to existing customers: (i) expandnew customers will be exclusively comprised of SaaS, term licenses and other subscriptions.numbertiming of digital identities; (ii) up-sell additional modules or target storage systems,our recognition of revenue as applicable, withinan increasing percentage of our sales become recognized ratably, as well as impact our operating margins as subscription revenue becomes a single solution;larger percentage of our sales. However, we believe that continued growth of SaaS, term-based license and (iii) cross-sell additional solutions.•Add New Customers Within Existing Markets. Based on data from S&P Global Market Intelligence, we believe that we have penetrated less than 2% of over 65,000 companies in the countries where we have customers today and that as a result, there is significant opportunity to expand our footprint in our existing markets through new, greenfield installations and displacement of our competitors’ legacy solutions. To do so, we plan to grow our sales organization, increase and leverage our indirect channel partners and enhance our marketing efforts.Generate Additional Sales to Existing Customers. We believe that our existing customer base provides us with a significant opportunity to drive incremental sales. In most cases, our customers initially purchase a subset of the modules or solutions we offer based on their immediate need. We focus on generating more revenue from the modules that our customers have already purchased from us as our customers grow the number of identities our solutions manage and govern and as our customers deploy our solutions across other business units or geographies within their organizations. Over time, we also identify up-selling and cross-selling opportunities and seek to sell additional modules and solutions to our existing customers.Retain Customers. We believe that our ability to retain our customers is an important component of our growth strategy and reflects the long-term value of our customer relationships. For example, when we add a new customer, we generate new license revenue. If the customer renews, we generate incremental maintenance revenue. As we add new IdentityIQ customers, our high renewal rates result in incremental maintenance revenue. Our key strategies to maintain our high renewal rates include focusing on the quality and reliability of our solutions, customer service and support to ensure our customers receive value from our solutions, providing consistent software upgrades and having dedicated customer success teams.Expand into New Markets. We expect to continue to invest significantly in sales, marketing and customer service, as well as our indirect channel partner network, to expand into new geographies and vertical markets. We believe that our market opportunity is large and growing and that the global cyber security market represents a significant growth opportunity for us. In 2018, we generated only 31% of our revenue outside of the United States.MetricsGAAP financial information such as revenue and net income discussed above,prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we monitor the following key metricsmetric to help us measure and evaluate the effectiveness of our operations:•Number of Customers. We believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity. We define a customer as a distinct entity, division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date.Year Ended December 31, 2021 2020 2019 Total annual recurring revenue (in thousands) $ 370,442 $ 250,951 $ 178,953 •Subscription Revenue as a PercentageWe use total annual recurring revenue (“Total ARR”) to monitor the growth of our recurring business as we have shifted to a subscription model. Total ARR represents the annualized value of the active portion of SaaS, term-based license, maintenance and support contracts and other subscription services at the end of the reporting period. We calculate Total ARR by dividing the active contract value by the number of days in the active portion of the overall contract term and then multiplying by 365. Total ARR should be viewed independently of revenue and deferred revenue as Total ARR is an operating Total Revenue. Subscription revenue is a portion of our total revenue and is derived from (i) IdentityNow, our cloud-based solution where customers enter into SaaS subscription agreements with us, and (ii) IdentityIQ maintenance and support agreements, but not licenses. As we generally sell our solutions on a per-identity basis, our subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern as part of a SaaS subscription, and the ongoing price paid per-identity under a maintenance and support agreement or SaaS subscription. Thus, we consider our subscription revenue to be the recurring portion of our revenue base and believe that its continued growth as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Because we recognize our subscription revenue ratably over the duration of those agreements, a portion of the revenue we recognize each period is derived from agreements we entered into in prior periods. In contrast, we typically recognize license revenue upon entering into the applicable license, the timing of which is less predictable and may cause significant fluctuations in our quarterly financial results.•Adjusted EBITDA. We believe that adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. We believe that adjusted EBITDA is an important measure for evaluating our performance because it facilitates comparisons of our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation. In addition, we base certain of our forward-looking estimates and budgets on adjusted EBITDA. See the section titled “Non-GAAP Financial Measures” for more information regarding adjusted EBITDA, including the limitations of using adjusted EBITDA as a financial measure, and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.Non-GAAP Financial MeasuresIn addition to our financial information presented in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding of past performance and future prospects. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. As discussed below, we monitor the non-GAAP financial measures described below, and we believe they are helpful to investors. Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, interest expense, which is excluded from adjusted EBITDA has been and will continuedeemed to be a significant recurring expense in our business for the foreseeable future. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.We exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies. We also exclude amortization of acquired intangible assets, acquisition-related costs, the partial release of the valuation allowance due to acquisition, facility exit costs, and make adjustments related to a financing lease obligation from our non-GAAP financial measures because these are considered by management to be outside of our core operating results. Accordingly, we believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of our business operations and may also facilitate comparison with the results of other companies in our industry.Adjusted EBITDAAdjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss) adjusted to exclude income taxes, interest expense, net, depreciation and amortization, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation expense.We believe that adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. We believe that adjusted EBITDA is an important measure for evaluating our performance because it facilitates comparisons of our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation. In addition, we base certain of our forward-looking estimates and budgets on adjusted EBITDA.The following table reflects the reconciliation of GAAP to non-GAAP financial measures for the years ended December 31, 2018, 2017 and 2016:
nature.(1)Stock-based compensation includes employer related payroll taxes.(2)Interest expense includes amortization of debt issuance costs, loss on the modification and extinguishment of debt and prepayment penalty.The following table reflects the reconciliation of GAAP to non-GAAP financial measures for our unaudited quarterly consolidated statements of operations data for each of the quarters indicated:(1)Stock-based compensation includes employer related payroll taxes.(2)Interest expense includes amortization of debt issuance costs, loss on the modification and extinguishment of debt and prepayment penalty.toto new customers and sales of additional licenses to the existing customers who can purchase additional users for existing licenses or purchase new licenses. licenses. Customers may also purchase term license agreements, under which we recognize the amount allocated to the licenses upfront. Perpetual license fee upfront. License transactions generally include an amount for first-year maintenance and support, which we recognize as subscription revenue. We typically recognize license revenue upon delivering the applicable license. See the section titled “Critical Accounting Policies and Estimates—Revenue Recognition” for more information. Over time, we will continue to expect license revenue to decrease as a percentage of our total revenue as we continue to focus on increasing our subscription revenue as a key strategic priority.growth initiative.(i)access to, and related support for, our SaaS offerings, (ii) fees for ongoing maintenance and support of our licensed solutions and (ii)(iii) other subscription fees for access to, and related support for,services, which includes our cloud-based solution.cloud managed services. We typically invoice subscription fees in advance, in annual installments, and recognize subscription revenue ratably over the term of the applicable agreement. See the section titled “Critical Accounting Policies and Estimates—Revenue Recognition” for more information. Over time, we expect subscription revenue will increase as a percentage of total revenue as we continue to focus on increasing subscription revenue as a key strategic priority. growth initiative.time and materialstime-and-materials basis and we generally invoice customers monthly as the work is performed. We generally have standalone value for our professional services and recognize revenue as services are performed based on an estimated fair value as a separate unit of accounting. See the section titled “Critical Accounting Policies and Estimates—Revenue Recognition” for more information. Most of our professional services activity is in support of our partners, who perform the significant majority of all initial and follow-on configuration and optimization work for our customers. Over time, we expect our professional services revenue as a percentage of total revenue to declinedecrease as we increasingly rely on partners to help our customers deploy our software.Impact of Purchase Accounting. On September 8, 2014, SailPoint Technologies Holdings, Inc. acquired all of the capital stock of SailPoint Technologies, Inc. We refer to this transaction as the “Acquisition”. As a result of the Acquisition, we applied purchase accounting and a new basis of accounting beginning on the date of the Acquisition. As such, we were required by GAAP to record all assets and liabilities, including deferred revenue and long-lived assets, at fair value as of the effective date of the Acquisition, which in some cases was different than their historical book values. This had the effect of reducing revenue and deferred revenue and increasing cost of revenue from that which would have otherwise been recognized, as described in more detail below.We assessed the fair value of deferred revenue acquired in the Acquisition to be $10.2 million, representing a decrease of $12.6 million from its historical book value. Recognizing deferred revenue at fair value reduces revenue in the periods subsequent to the Acquisition. The impact of the Acquisition to revenue was $1.4 million for the year ended December 31, 2016. The impact of the Acquisition to revenue was not material for the years ended December 31, 2018 and 2017. The effect of the Acquisition on the deferred costs was not material.in business combinations and third-party royalties.employee compensation costemployee-based costs (which consists of salaries, benefits, bonusesemployee compensation and stock-based compensation)allocated overhead), costs of our customer support organization, contractor costs to supplement our staff levels, allocated overhead, amortization expense for developed technology acquired in business combinations and third-party cloud-based hosting costs.employee compensationemployee-based costs of our professional services and training organizations, travel-related costs and contractor costs to supplement our staff levels and allocated overhead.levels.cloud-based subscriptions,SaaS offerings, contractor costs to supplement our staff levels and the extent to which we expand our customer support and professional services and training organizations. We expect that our overall gross margin will fluctuate from period to period depending on the interplay of these various factors. Also, we expect our investment in technology to expand the capability of our services, enabling us to improve our gross margin over time.employee compensationemployee-based costs, allocated overhead and software and maintenancehosting arrangement expenses which(which includes cloud-based hosting costs related to the development of our cloud-based solution.solution), professional services expense and amortization expense for acquired intangible assets. We believe that continued investment in our offerings is vital to the growth of our business, and we intend to continue to invest in product development. We expect our research and development and in SailPoint Labs, our dedicated, stand-alone technology investigation and engineering group,expenses to continue to innovate and offer our customers new solutions and to enhance our existing solutions as our business grows. See Part I, Item 1. “Business—Research and Development” for more information. We expect such investment to increase on a dollar basis for the foreseeable future, as our business grows.employee compensationemployee-based costs for corporate personnel, such as those in our executive, human resources, facilities, accounting and finance and information technology departments.personnel. In addition, general and administrative expenses include third-party professional feesservices expense, software and sponsor-related costs, as well ashosting arrangement expenses and all other supporting corporate expenses not allocated to other departments. OurWe expect our general and administrative expenses to increase on a dollar basis for the foreseeable future, as our business grows. Also, we have incurred increased general and administrative expenses as a result of becoming a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations and professional services.employee compensationemployee-based costs, sales commissions, costs of general marketing and promotional activities, professional services expense, software and hosting arrangement expenses, amortization expense for acquired intangible assets and travel-related expenses and allocated overhead. Under the revised standard, salesexpenses. Sales commissions earned by our sales force and the related payroll taxes, a primary component of “deferred contract acquisition costs”, which are considered incremental and recoverable costs of obtaining a contract with a customer which are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years. Under the prior standard, the Company generally capitalized deferred contract costs associated with subscription revenues, which were subsequently amortized over the term of the subscription while deferred contract cost related to license revenues were previously recognized as incurred. We expect our sales and marketing expenses to increase on a dollar basis for the foreseeable future as we continue to invest in our sales force for expansion to new geographic and vertical markets. Wemarkets, and we expect our sales and marketing expenses to increase on a dollar basis and continue to be our largest operating expense category for the foreseeable future. See Note 3 of the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our adoption of the revised standard (ASC 606).category.utilities)depreciation on assets shared by all departments), information technology costs and recruiting costs, to all departments based on headcount. As such, allocated shared costs are reflected in each cost of revenue and operating expense category.Expense,Income (Expense), Netexpense,income (expense), net consists primarily of interest income, interest expense and foreign currency transaction gains and losses related to the impact of transactions denominated in a foreign currency. Interest income consists of interest earned on our cash equivalents, which we expect to fluctuate due to cash balance and interest rates. Interest expense, net of interest income, consists primarily of interest on our term loan facility, amortization of debt issuance costs, loss on the modification and extinguishment of debt and prepayment penalties. (Expense)the tax effects of purchase accounting for acquisitions.research and development credits. We expect this fluctuation in income tax rates, as well as its potential impact on our results of operations, to continue.Results of OperationsThe following table sets forth our results of operations for the periods indicated:(1)Includes stock-based compensation expense as follows:The following table sets forth the consolidated statements of operations data for each of the periods presented as a percentage of total revenue:Impact of ASC 606 on the Comparability of Our Results of OperationsOur results of operations presented in the following tables include financial results for reporting periods during 2018, which are disclosed in compliance with the revised standard (ASC 606). We have elected the modified retrospective transition method; therefore, our historical financial results for reporting periods prior to 2018 have not been retroactively restated and are presentedgenerally experience seasonal fluctuations in conformity with the amounts previously reported under the prior revenue standard (ASC 605). See Note 3 of the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our adoption of the revised standard (ASC 606).Comparison of the Years Ended December 31, 2018 and 2017RevenueLicense Revenue. ASC 605 license revenue increased by $22.5 million, or 28%, for the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to increased demand for our products and services from new and existing customers. The revised standard impacts the timing of revenue recognition related to our term license. Prior to our adoption of the revised standard, we historically recognized revenue under ASC 605 related to term license agreements ratably over the license term as license revenues. Under the revised standard, revenue allocable to the license portion of the arrangement is recognized in license revenues upon delivery of the license, while revenues allocated to maintenanceservices. Our quarterly sales are recognized ratably as subscription revenues. During the year ended December 31, 2018, total ASC 605 revenue from new customers was $60.4 million and license revenue from existing customers was $41.3 million. See Note 3 of the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our adoption of the revised standard (ASC 606).ASC 606 license revenue increasedimpacted by $25.8 million, or 33%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. License revenue from new customers was greater than license revenue from existing customers for the year ended December 31, 2018. The increase in total license revenue was attributable to both increases in license sales to our new customers as well as follow-on sales to our existing customers. During the year ended December 31, 2018, revenue from new customers was $67.2 million and license revenue from existing customers was $37.8 million. Our revenue from any single customer is determined by the number of identities the customer is entitled to govern as well as the number of modules and solutions purchased.Subscription Revenue. ASC 605 subscription revenue increased by $35.5 million, or 50%, for the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to increase in ongoing maintenance revenue from our increased installed base. Approximately 90% of growth in year over year revenue was attributable to existing customers.ASC 606 subscription revenue increased by $33.0 million, or 47%, for the year ended December 31, 2018. The increase was primarilyindustry buying patterns. As a result, of an increaseour sales have generally been highest in ongoing maintenance renewals derived from our existing customers. Revenue from existing customers accounted for 88% of total subscription revenue during the year ended December 31, 2018. Our customer base increased by 240, or 26%, from 933 customers at December 31, 2017 to 1,173 customers at December 31, 2018.Services and Other Revenue. ASC 605 service and other revenue increased by $4.4 million, or 12% for the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to higher demand for services from an increased number of customers.ASC 606 services and other revenue increased by $4.0 million, or 11%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase is primarily a result of an increase in the number of customers using our consulting and training services.Geographic Regions. Our operations in the United States contributed the largest portion of our revenue in each year ended December 31, 2018 and 2017 because of our larger and more established sales force and partner network in the United States as compared to our other regions. Revenue from Europe, the Middle East and Africa (“EMEA”) and the rest of the world also increased for years ended December 31, 2018 and 2017, primarily due to our investment in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide.The following table sets forth, for each of the periods presented, our consolidated total revenue by geography and the respective percentage of total revenue:(1)No single country represented more than 10% of our consolidated revenue.Gross Profit and Gross MarginLicenses. ASC 606 license gross profit increased by $25.7 million, or 34%, during the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase was the result of increased license revenues with only minor increases in third-party royalties. ASC 605 license gross profit increased by $22.4 million, or 30%, during the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to increase in license revenue as the adoption of ASC 606 did not have any impact on cost of license revenues.Subscription. ASC 605 subscription gross profit increased by $31.2 million, or 57%, during the year ended December 31, 2018 compared to the year ended December 31, 2017. Cost of subscription revenues under ASC 605 did not differ from cost of subscription revenues under ASC 606 during the year ended December 31, 2018.ASC 606 subscription gross profit increased by $28.7 million, or 53%, during the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase was the result of growth in subscription revenue, coupled with an increase in corresponding costs of subscription revenue at a rate lower than our revenue growth as we continue to build economies of scale within our customer support organization and our utilization of cloud-based hosting services. Approximately $1.2 million of the increase in cost of subscription revenue was due to increased cloud-based hosting costs for our cloud-based solution. Substantially all of the remaining year-over-year increase in cost of subscription revenue was due to increases in headcount, and related allocated overhead, to support the growth of our subscription cloud-based offering and ongoing maintenance for our expanding licensed customer base.Services and Other. ASC 606 services and other gross profit decreased by $1.6 million, or 13%, during the year ended December 31, 2018 compared to the year ended December 31, 2017. This decrease was primarily attributable to the higher costs associated with expanding our infrastructure for our professional services and training organization to support an increasing number of customers for the year ended December 31, 2018. ASC 605 services and other gross profit decreased by $1.3 million, or 10%, during the year ended December 31, 2018 compared to the year ended December 31, 2017. Cost of services and other revenues under ASC 605 did not differ from cost of services and other revenues under ASC 606 during the year ended December 31, 2018.Operating ExpensesResearch and Development Expenses. Adoption of ASC 606 had no impact on research and development expenses. Research and development expenses increased by $9.8 million, or 29%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. Approximately 81% of the increase was the result of an increase in headcount, and related allocated overhead, to optimize and expand our product offerings as well as pursue innovation in identity governance. Substantially all of the remaining increase in research and development expenses was the result of increased software and maintenance expenses, primarily cloud-based hosting costs related to the development of our cloud-based offering.General and Administrative Expenses. Adoption of ASC 606 had no impact on general and administrative expenses. General and administrative expenses increased by $17.1 million, or 97%, for the year ended December 31, 2018, compared to the year ended December 31, 2017. Approximately 62% of the increase was the result of an increase in corporate headcount and related allocated overhead, to support the growth and scale of the business. In 2018, general and administrative expenses also increased by $6.3 million, or 37%, as a result of increased professional services expenses comprised of legal, accounting and consulting fees.Sales and Marketing Expenses. ASC 606 sales and marketing expenses were $105.4 million for the year ended December 31, 2018 compared to ASC 605 sales and marketing expenses of $110.3 million. The difference of $4.9 million relates to the net impact of the deferral and subsequent amortization of contract acquisition cost under ASC 606.ASC 606 sales and marketing expenses increased by $24.9 million, or 31%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. Approximately $18.3 million, or 73%, of the increase was the result of our increased sales and marketing headcount and related allocated overhead, to support increased penetration into our existing customer base as well as expansion into new industry verticals and geographic markets. During the year ended December 31, 2018, as our headcount increased, we also experienced year-over-year increases in travel costs of $2.4 million. Advertising costs also increased by $1.4 million, for the year ended December 31, 2018. We adopted ASC 606 on January 1, 2018 and elected the modified retrospective transition method which included the capitalization and amortization of incremental costs of obtaining contracts. For the year ended December 31, 2018, deferred contract acquisition costs were $4.9 million lower than they would have been under the prior standard. See Note 3 of the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our adoption of the revised standard (ASC 606).Interest Expense, NetAdoption of ASC 606 had no impact on interest expense, net of interest income, Interest expense, net decreased by $10.1 million, or 68%, for the year ended December 31, 2018, compared to the year ended December 31, 2017. As of December 31, 2018, we had no debt balances outstanding. Our interest expense decreased as a result of paying down our debt; please refer to the discussion of our credit facility below. This decrease was partially offset by approximately a $1.8 million loss on the resulting modification and subsequent extinguishment of our debt, inclusive of $0.4 million of cash prepayment penalties.Comparison of the Years Ended December 31, 2017 and 2016Revenue(1)The comparative information for years prior to 2018 has not been adjusted to reflect the adoption of the revised standard and is reported on an ASC 605 basis. For additional information see Note 3 of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.License Revenue. License revenue increased by $24.8 million, or 46%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. Although license revenue from new customers was greater than license revenue from existing customers for December 31, 2017 and 2016, the increase in total license revenue was primarily attributable to follow-on sales to our existing customers. During the years ended December 31, 2017 and 2016 revenue from new customers was $48.4 million and $42.2 million and license revenue from existing customers was $30.8 million and $12.2 million, respectively. Our revenue from any single customer is determined by the number of identities the customer is entitled to govern as well as the number of modules and solutions purchased.Subscription Revenue. Subscription revenue increased by $21.6 million, or 44%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was primarily a result of an increase in ongoing maintenance renewals and an increase in maintenance revenue derived from new licenses. Our customer base increased by 238, or 34%, from 695 customers at December 31, 2016 to 933 customers at December 31, 2017. Approximately $1.2 million of the increase in subscription revenue is the result of a decrease in the purchase accounting write down of deferred revenue subsequent to the Acquisition.Services and Other Revenue. Services and other revenue increased by $7.2 million, or 25%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase is primarily a result of an increase in the number of customers using our consulting and training services.Geographic Regions. Our operations in the United States were responsible for the largest portion of our revenue in each year ended December 31, 2017 and 2016 because of our larger and more established sales force and partner network in the United States as compared to our other regions. Revenue from both Europe, the Middle East and Africa (“EMEA”) and the rest of the world also increased for years ended December 31, 2017 and 2016, primarily due to our investment in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide.The following table sets forth, for each of the periods presented, our consolidated total revenue by geography and the respective percentage of total revenue:(1)The comparative information for years prior to 2018 has not been adjusted to reflect the adoption of the revised standard and is reported on an ASC 605 basis. For additional information see Note 3 of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.(2)No single country represented more than 10% of our consolidated revenue.Gross Profit and Gross Margin(1)The comparative information for years prior to 2018 has not been adjusted to reflect the adoption of the revised standard and is reported on an ASC 605 basis. For additional information see Note 3 of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.Licenses. License gross profit increased by $24.5 million, or 49%, during the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was the result of increased license revenues with only minor increases in third party royalties.Subscription. Subscription gross profit increased by $18.3 million, or 50%, during the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase was the result of growth in subscription revenue, as described above, coupled with growth in costs of subscription revenue at a rate lower than our revenue growth as we continue to build economies of scale within our customer support organization and our utilization of cloud-based hosting services.Services and Other. Services and other gross profit increased by $3.3 million, or 37%, during the year ended December 31, 2017, compared to the year ended December 31, 2016. This increase was the result of the volume and mix of services provided in the period yielding a higher price per hour as well as the headcount required to provide such professional services increasing at a slower rate as we continue to build economies of scale within our professional services and training organization.Operating Expenses(1)The comparative information for years prior to 2018 has not been adjusted to reflect the adoption of the revised standard and is reported on an ASC 605 basis. For additional information see Note 3 of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.Research and Development Expenses. Research and development expenses increased by $9.0 million, or 37%, for the year ended December 31, 2017, compared to the year ended December 31, 2016. Approximately 81% of this increase was the result of an increase in headcount, and related allocated overhead, to optimize and expand our product offerings as well as pursue innovation in identity governance. Substantially all of the remaining increase in research and development expenses was the result of increased software and maintenance expenses, primarily cloud-based hosting costs related to the development of our cloud-based offering.General and Administrative Expenses. General and administrative expenses increased by $8.0 million, or 83%, for the year ended December 31, 2017, compared to the year ended December 31, 2016. Approximately 77% of the increase was the result of an increase in corporate headcount, and related allocated overhead, to support the growth and scale of the business. In 2017, approximately $2.0 million of increase was related to stock-based compensation expense compared to 2016. Additionally, general and administrative expenses increased as a result of increase in professional services expenses comprised of legal, accounting and consulting fees.Sales and Marketing Expenses. Sales and marketing expenses increased by $21.9 million, or 37%, for the year ended December 31, 2017, compared to the year ended December 31, 2016. Approximately $17.4 million, or 80%, of the increase was the result of our increased sales and marketing headcount, and related allocated overhead, to support increased penetration into our existing customer base as well as expansion into new industry verticals and geographic markets. As our headcount increased, we also experienced related increases in travel and advertising costs of $1.2 million and $1.7 million, respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016. Substantially all of the remaining increase in sales and marketing expenses was the result of increased partner commissions and consulting costs.Interest Expense, NetInterest expense, net of interest income, increased by $7.3 million, or 93%, for the year ended December 31, 2017, compared to the year ended December 31, 2016. These increases were the result of our entry into a new credit facility, effective in August 2016, which increased the stated interest rate from 3.7% to 9.0%, as well as our amendment in June of 2017, which increased the term loan principal by $50 million. Additionally, during the fourth quarter of 2017, we paid down $90.0 million of our debt resulting in approximately $1.4 million of cash prepayment penaltiesa calendar year and $1.7 million in a non-cash loss on the resulting modification and partial extinguishment of our debt.Selected Quarterly Financial Data (Unaudited)The following table sets forth selected summarized unaudited quarterly financial information for the years ended December 31, 2018 and 2017. The information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements, and reflect,lowest in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair presentation of the financial information contained in those statements. The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.2018:2017:Seasonality and Quarterly TrendsOur quarterly results reflect seasonality in the sale of our products and services. first quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. Our quarterlyYear Ended December 31, 2021 2020 2019 (In thousands) Revenue Licenses $ 113,004 $ 120,874 $ 102,800 Subscription 273,197 196,817 143,390 Services and other 52,753 47,563 42,325 Total revenue 438,954 365,254 288,515 Cost of revenue Licenses 5,212 4,467 4,239 58,790 37,644 26,877 50,486 38,517 34,359 Impairment of intangible assets 744 5,119 — Total cost of revenue 115,232 85,747 65,475 Gross profit 323,722 279,507 223,040 Operating expenses 98,255 71,191 56,120 48,979 37,783 39,816 235,564 169,656 136,537 Total operating expenses 382,798 278,630 232,473 Income (loss) from operations (59,076) 877 (9,433) Other income (expense), net Interest income 775 2,019 2,468 Interest expense (2,680) (18,612) (5,041) Other income (expense), net (467) 33 (1,082) Total other expense, net (2,372) (16,560) (3,655) Loss before income taxes (61,448) (15,683) (13,088) Income tax (expense) benefit (186) 4,920 4,588 Net loss $ (61,634) $ (10,763) $ (8,500) Year Ended December 31, 2021 2020 2019 (In thousands) Cost of revenue - subscription $ 3,688 $ 1,758 $ 1,142 Cost of revenue - services and other 3,733 1,963 1,379 Research and development 12,827 6,282 3,517 General and administrative 10,563 6,802 5,990 Sales and marketing 20,946 12,252 6,686 Total stock-based compensation expense $ 51,757 $ 29,057 $ 18,714 Year Ended December 31, 2021 2020 2019 Revenue Licenses 26 % 33 % 35 % Subscription 62 54 50 Services and other 12 13 15 Total revenue 100 100 100 Cost of revenue Licenses 1 1 2 Subscription 13 10 9 Services and other 12 11 12 Impairment of intangible assets — 1 — Total cost of revenue 26 23 23 Gross profit 74 77 77 Operating expenses Research and development 22 19 20 General and administrative 11 10 14 Sales and marketing 54 47 47 Total operating expenses 87 76 81 Income (loss) from operations (13) 1 (4) Other income (expense), net Interest income — 1 1 Interest expense (1) (6) (2) Other income (expense), net — — — Total other expense, net (1) (5) (1) Loss before income taxes (14) (4) (5) Income tax (expense) benefit — 1 2 Net loss (14) % (3) % (3) % Year Ended December 31, 2021 2020 variance $ variance % (In thousands, except percentages) Revenue Licenses $ 113,004 $ 120,874 $ (7,870) (7) % Subscription SaaS 112,720 66,913 45,807 68 % Maintenance and support 153,621 126,792 26,829 21 % Other subscription services 6,856 3,112 3,744 120 % Total subscription 273,197 196,817 76,380 39 % Services and other 52,753 47,563 5,190 11 % Total revenue $ 438,954 $ 365,254 $ 73,700 20 % sequentially within each calendarby $76.4 million, or 39%, for the year presented; however,ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to an increase in SaaS revenue as we experiencedcontinue to see strong momentum in our SaaS business and an increase in ongoing maintenance and support revenue from our increased installed base. During the years ended December 31, 2021 and 2020, SaaS and other subscription services revenue from new customers was $25.3 million and $13.7 million, and SaaS and other subscription services revenue from existing customers was $94.3 million and $56.4 million for the respective periods. During the years ended December 31, 2021 and 2020, maintenance and support revenue from new customers was $9.5 million and $8.3 million, and maintenance and support revenue from existing customers was $144.1 million and $118.5 million for the respective periods.decline sequentially fromresult of an increase in the fourth quarternumber of customers using our consulting and training services.first quarterUnited States as compared to our other regions. Revenue is classified by the following major geographic areas: (i) United States, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) rest of the subsequent year due to increased customer purchasing activity in each fourth quarter due toworld. customer budget and purchasing trends. We continue to experience growthinvest in revenue when comparing similar periods year over yearincreasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide, and as a result, our international revenues are growing as a percentage of total revenues. For the year ended December 31, 2021, revenue in the United States, EMEA and the rest of the world increased year-over-year.Year Ended December 31, 2021 2020 $ % of revenue $ % of revenue (In thousands, except percentages) United States $ 302,524 69 % $ 263,332 72 % 80,838 18 % 62,249 17 % 55,592 13 % 39,673 11 % Total revenue $ 438,954 100 % $ 365,254 100 % abilityrevenue.Year Ended December 31, 2021 2020 variance $ variance % (In thousands, except percentages) Gross profit Licenses $ 107,792 $ 116,407 $ (8,615) (7) % Subscription Subscription 214,407 159,173 55,234 35 % Impairment of intangible assets (744) (5,119) 4,375 (85) % Total subscription 213,663 154,054 59,609 39 % Services and other 2,267 9,046 (6,779) (75) % Total gross profit $ 323,722 $ 279,507 $ 44,215 16 % Gross margin Licenses 95 % 96 % Subscription 78 % 78 % Services and other 4 % 19 % Total gross margin 74 % 77 % attract newthe year ended December 31, 2020. The decrease in gross profit was the result of decreased license revenues with only minor increases in third party royalties. Gross margin remained materially consistent with the prior period.Year Ended December 31, 2021 2020 variance $ variance % (In thousands, except percentages) Operating expenses Research and development $ 98,255 $ 71,191 $ 27,064 38 % General and administrative 48,979 37,783 11,196 30 % Sales and marketing 235,564 169,656 65,908 39 % Total operating expenses $ 382,798 $ 278,630 $ 104,168 37 % withinas well as pursue innovation in identity security. Substantially all of the remaining increase in research and development expenses was the result of a $2.1 million increase in software and hosting arrangement expenses, partially offset by a $0.4 million decrease in professional services expense.base.Our operatingbase and expansion into new industry verticals and geographic markets, as well as a $0.9 million increase in professional services expense relating primarily to advisory services, a $2.7 million increase in software and hosting arrangement expenses have generallyprimarily to support increased sequentially headcount and a $1.8 million increase in intangible amortization. growth adoption of ASU 2020-06, which eliminated the embedded conversion feature of the Notes. See Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to our consolidated financial statements included in this Annual Report for more information regarding the adoption of ASU 2020-06.increasesloss and credit carryforwards.personnel-related coststhe rates from the prior period to support our expanded operations and our continued investment in our platform infrastructure and service capabilities. Also, general and administrative expenses have increased as a result of being a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costscurrent period are related to compliancean increase in pre-tax bookreporting obligations pursuantthe increase in valuation allowance. Our tax expense to the rules and regulations of the SEC and increased expenses for insurance, investor relations and professional services.Quarterly Key Business Metrics(1)The comparative information for years prior to 2018 has not been adjusted to reflect the adoption of the revised standard and is reported on an ASC 605 basis. For additional information see Note 3 of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.Our number of customers increased sequentially as of December 31, 2018date relates primarily to 1,173 from 725 as of March 31, 2017. Our growth in customer count was driven by increased demand of our products and market acceptance of our subscription servicesstate as well as an increased presence of our product offerings across all of our geographies. The growthforeign income taxes. For further information, refer to Note 15 “Income Taxes” in our sales of productnotes to our consolidated financial statements included in this Annual Report.services was consistent with our plansare subject to continue expanding our global presence, through our channel partner network which allows us to target new customers while continuing to support our existing customers.Our quarterly subscription revenue increasedtaxes in each period presented primarily duecountry or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to increases in maintenance renewals as a result of our expanding licensed customer base. Subscription revenue as a percentage of total revenue experienced a decline sequentially in fourth quarter of each year duelocal country income tax and may be subject to composition of revenue mix between license and subscription as well as timing of sales volume. For additional information see Seasonality and quarterly trend discussion above. Sales of subscriptionsU.S. income tax if such earnings are distributed to our platform also continue to grow as a result of the expanding breadth and functionality of our platform, increasing brand awareness, and the success of our sales efforts with new and existing customers. We recognize revenue from maintenance and subscription fees ratably over the term of the contract period; therefore, changes in our sales activity in a period may not be as apparent as a change to our revenue until future periods.Liquidity and Capital ResourcesAs of December 31, 2018, we had $71.0 million of cash and cash equivalents, of which, $3.4 million of cash and cash equivalents were held in our foreign subsidiaries. We do not consider the earnings of our foreign subsidiaries, with the exception of India, to be permanently reinvested in foreign jurisdictions. Prior to the Tax Cuts and Jobs Act, the Company had consistently applied Section 956 to its intercompany cash flows. Under the Act, beginning in 2018, global intangible low-taxed income (“GILTI”) provisions apply providing an incremental tax on low taxed foreign income. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As a result of applying these provisions, the majority of the earnings in our foreign subsidiaries represent income that was previously taxed in the United States. As a result, there would be no material income tax consequences to repatriating the cash currently held in our foreign subsidiaries. In India, weWe continue to invest and grow our research and development activities in India and have no plans to repatriate undistributed earningearnings held in India back to the U.S. parent company,company.therefore consider earningsCash RequirementsIndiaour foreign subsidiaries) and $75.0 million of availability under the Credit Agreement. As of December 31, 2021, we had $182.6 million in net working capital, which we define as current assets less current liabilities, excluding deferred revenue. As of December 31, 2020, we had $510.3 million of cash and cash equivalents (of which $4.8 million is held in our foreign subsidiaries) and $75.0 million of availability under the Credit Agreement. As of December 31, 2020, we had $278.7 million in net working capital. The decrease in cash and cash equivalents and net working capital is due primarily to cash paid for the acquisitions of Intello Inc. and ERP Maestro Inc. See Note 5 "Business Combinations" in our notes to our consolidated financial statements included in this Annual Report for more information regarding these business acquisitions.permanently reinvested.credit agreementCredit Agreement will be sufficient to support working capital, and capital expenditure and other cash requirements for at least the next 12 months.months and, based on our current expectations, for the foreseeable future thereafter. Our future capital requirements, both near-term and long-term, will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, and the introduction of new solutions and product enhancements.enhancements, the continuing market acceptance of our offerings and services, the costs of any future acquisitions in complementary businesses and technologies and the impact of the COVID-19 pandemic to our and our customers', vendors' and partners' businesses. To the extent existing cash and cash equivalents are not sufficient to fund future activities, we may borrow under our Credit Agreement or seek to raise additional funds through equity, equity-linked or debt financings. Any additional equity financing may be dilutive to our existing stockholders. We may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity financing, incur indebtedness or use cash resources. Also, as of December 31, 2018 In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and 2017, we had no material commitments for capital expenditures.fees, subscriptionand support fees, consulting and training fees, borrowings under our prior credit agreement and, to a lesser degree, the sale of our equity securities. Our principal uses of cash are funding operations, capital expenditures, and capital expenditures.making strategic business acquisitions. Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have increased. However, operating expenses have also increased significantly as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in the strategic growth of our company.Credit AgreementOn March 11, 2019, we, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement with the lenders party thereto, Citibank, N.A., as administrative agent, sole lead arranger and sole bookrunner, and Royal Bank of Canada and Bank of America, N.A., as co-documentation agents. Our credit agreement provides for an initial $150 million in commitments for revolving credit loans, with a $15 million letter of credit sublimit, which amount can be increased or decreased under specified circumstances. As of March 11,2019, we had no outstanding revolving credit loans. In addition, our credit agreement provides for the abilitykey initiatives to incur uncommitted term loan facilities if, among other things, the Senior Secured Net Leverage Ratio (as defined in our credit agreement), calculated giving pro forma effect to the requested term loan facility, is no greater than 3.50 to 1.00.Borrowings under our credit agreement are scheduled to mature in March 2024. Any borrowing under our credit agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid may be reborrowed.The interest rates applicable to revolving credit loans under our credit agreement are, at the borrower’s option, either (i) a base rate, which is equal to the greatest of (a) the Prime Rate (as defined in our credit agreement), (b) the Federal Funds Effective Rate (as defined in our credit agreement) plus 1/2 of 1%, and (c) the one-month Adjusted LIBO Rate (as defined in our credit agreement) plus 1%, in each case, plus an interest margin ranging from 0.25% to 0.75% based on the Senior Secured Net Leverage Ratio, or (ii) the Adjusted LIBO Rate plus an interest margin ranging from 1.25% to 1.75% based on the Senior Secured Net Leverage Ratio. The Adjusted LIBO Rate cannot be less than zero. The borrower will pay an unused commitment fee during the term of our credit agreement ranging from 0.20% to 0.30% per annum based on the Senior Secured Net Leverage Ratio.We were previously party to a credit and guaranty agreement by and among SailPoint Technologies, Inc., as the borrower, and SailPoint Technologies Intermediate Holdings, LLC and SailPoint International, Inc., as guarantors, the lenders party thereto from time to time and Goldman Sachs Bank USA, as administrative agent and collateral agent, (as amended, the “prior credit agreement”), which provided for a term loan facility and a revolving credit facility with a letter of credit sub-facility. As of December 31, 2017, the balance outstanding under the term loan facility was $70.0 million, and our revolving credit facility had a face value of $7.5 million (under which we had no outstanding borrowings and $6.0 million outstanding under a letter of credit facility. The term loan facility and the revolving credit facility both had interest based on the adjusted LIBOR rate, as defined in the prior credit agreement, with a 1% floor plus an applicable margin of 4.5%. The term loan facility and revolving credit facility had a stated maturity of August 16, 2021. On June 29, 2018, we voluntarily prepaid $60.0 million of the borrowings outstanding under the term loan facility to reduce the aggregate outstanding principal balance to $10.0 million. On November 29, 2018, we repaid the remaining balance of $10.0 million of borrowings outstanding under the term loan facility, cancelled the $6.0 million standby letter of credit (the “prior letter of credit”) and terminated the prior credit agreement. To replace the prior letter of credit, in November 2018, on behalf of the Company, U.S. Bank National Association issued an irrevocable, cash collateralized, unconditional standby letter of credit in an aggregate amount of $6.0 million underdrive the Company’s corporate headquarters lease. See Item 2 “Properties” for more information regarding our new corporate headquarters lease.indicated:presented:Year Ended December 31, 2021 2020 2019 (In thousands) Net cash provided by (used in) operating activities $ (957) $ 57,949 $ 50,091 Net cash used in investing activities (75,021) (3,973) (38,906) Net cash provided by financing activities 1,498 12,548 361,699 Net increase (decrease) in cash, cash equivalents and restricted cash $ (74,480) $ 66,524 $ 372,884 2018,2021, cash provided byused in operating activities was $37.5$1.0 million, which consisted of ASC 606a net incomeloss of $3.7$61.6 million, adjusted by non-cash charges of $40.5$96.0 million and a net changedecrease of $6.7$35.3 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of stock-based compensation of $51.8 million, depreciation and amortization expense of $10.7$22.4 million, amortization of debt discount and issuance costs of $0.2$2.0 million, provision for credit losses of $3.0 million and amortization of contract acquisition costs of $7.8$20.2 million, losses on modification and subsequent extinguishment of debt of $1.8 million, bad debt expense of $2.3 million, stock-based compensation of $19.0 million and partially offset by a net decrease in operating leases of $0.7 million and a reduction in deferred tax liabilities of $1.3$3.5 million. The changedecrease in our net operating assets and liabilities was primarily as a result of an increase in deferred contract acquisition costs of $60.8 million which has accelerated as subscription sales continue to grow, an increase in prepayments and other assets of $27.4 million primarily for increased contract assets, an increase in accounts receivable of $31.3$34.6 million due to the timing of receipts of payments from customers, an increase in prepayments and other assets of $17.4 million due to deferral of contract acquisition costs, and a decrease in accrued expenses and other liabilities of $0.9 million, partially offset by an increase in deferred revenue of $39.9$57.7 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services, an increase in accrued expenses of $28.3 million due primarily to accrual of additional commissions and bonuses and an increase in accounts payable of $2.4$1.3 million due to timing of cash disbursements and, an increase in income taxes payable of $0.5 million.2017,2020, cash provided by operating activities was $21.9$57.9 million, which consisted of a net loss of $7.6$10.8 million, adjusted by non-cash charges of $20.2$76.7 million and a net changedecrease of $9.2$8.0 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization expense of $10.2$18.3 million, amortization of debt discount and issuance costs of $0.7 million, loss on modification and partial extinguishment of debt of $1.7$17.8 million, amortization of contract acquisition costs of $3.0$13.7 million, loss on disposal of fixed assets of $0.2 million, provision for credit losses of $0.6 million, impairment of intangible assets of $5.1 million and stock-based compensation of $4.5$29.1 million, partially offset by a net decrease in operating leases of $0.4 million and a reduction in deferred tax liabilities of $7.6 million. The changedecrease in our net operating assets and liabilities was primarily as a result of an increase in deferred revenue of $28.0contract acquisition costs $32.6 million, due to the timing of billings and cash received in advance of revenue recognition primarily for subscriptionand support services, an increase in accrued expenses of $10.9 million due primarily to accrual of additional commissions and bonuses, an increase in accounts payable of $1.4 million due to timing of cash disbursements, an increase in income taxes payable of $0.6 million, partially offset by an increase in prepayments and other assets of $5.2$18.1 million, and increase in other non-current assets of $2.5 million, and an increase in accounts receivable of $24.1$6.8 million due to the timing of receipts of payments from customers.During 2016, cash provided by operating activities was $6.5 million, which consisted of a net loss of $3.2 million, adjusted by non-cash charges of $10.0 millioncustomers and a net changedecrease in income taxes payable of $0.3 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $10.0 million, amortization of debt issuance costs of $0.7 million, amortization of contract acquisition costs of $1.3 million, and stock-based compensation of $0.6$1.0 million, partially offset by $2.5 million in deferred taxes. The change in our net operating assets and liabilities was primarily as a result of an increase in deferred revenue of $20.2$32.7 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services, and an increase in accrued expenses of $1.7$16.3 million relateddue primarily to accrual of additional commissions on our subscription revenue, partially offset byand bonuses and an increase in accounts receivable of $17.2 million due to the timing of receipts of payments from customers, an increase in prepayments and other assets of $4.9 million due to payments for various services to be rendered in subsequent periods and a decrease in accounts payable of $0.3$1.5 million due to timing of cash disbursements.fromused in Investing Activities2018,2021, cash used in investing activities was $10.9$75.0 million, consisting primarily of $2.5$71.0 million in cash paid for business acquisitions, of intangiblesnet, and $8.4$4.1 million in purchases of property and equipment, partially offset by proceeds from sales of property and equipment.2017,2020, cash used in investing activities was $2.5$4.0 million, consisting primarily of $2.7$3.9 million in purchases of property and equipment, partially offset by $0.2 million in proceeds from sales of property and equipment.During 2016, cash used in investing activities was $1.3 million, consisting of purchases of property and equipment.2018,2021, cash used inprovided by financing activities was $65.6$1.5 million, consisting of $70.0$10.1 million of proceeds from issuance of equity related to share issues pursuant to our Employee Stock Purchase Plan and $7.6 million of the proceeds from exercise of stock options,partially offset by $10.2 million in repaymentspayments for partial conversion of debt, $0.4the Notes and $6.1 million in debt prepayment penalties, $0.3vesting of restricted stock units, primarily related to tax payments funded in the form of net issuances.officers, partially offset by $3.3 million of proceeds from issuance of equity, primarily related to shares issues pursuant to our Employee Stock Purchase Plan, and $1.8 million of the proceeds from exercise of stock options.During 2017, cash provided by financing activities was $78.5 million, consisting of $172.0 million of net proceeds from the issuance of common stock after deducting underwriting discounts and commissions of approximately $13.3 million, proceeds from borrowing of $50.0 million, $0.4 million of the proceeds from exercise of stock options, partially offset by $90.0 million in repayments of debt, $1.4 million of debt issuance cost, $50.4 million for preferred dividend payments, $1.4 million in debt prepayment and $0.7 million in purchase of equity shares.During 2016, cash used in financing activities was $2.0 million, consisting of $3.1 million in debt issuance costs and $0.2 million for the repurchase of common and preferred stock, partially offset by $1.3 million in proceeds from the issuance of common and preferred stock.Off-Balance Sheet ArrangementsWe have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities, which includes special purposes entities and other structured finance entities.Contractual ObligationsOur principal commitments consist of obligations under leases for office space. The following table summarizes our non-cancellable contractual obligations as of December 31, 2018:
officers.(1)Consists of future non-cancelable minimum rental payments under operating leases for our offices, primarily our corporate headquarters in Austin. See Item 2 of this Annual Report for more information.(2)Our purchase orders represent authorizations to purchase rather than binding agreements and therefore not included in the table above. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without significant penalty are not included in the table above.Policies and Estimatesshare-based compensation,the expected period of benefit of deferred contract acquisition costs, income taxes, and the valuation, impairment and estimated useful lives of long-lived assets and goodwill arising from business combinations are the most significant areas involving management's judgments and estimates. Therefore, these are considered to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 21 “Description of Business and Summary of Significant Accounting Policies” in our accompanying Notesnotes to Consolidated Financial Statementsour consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.maintenance)maintenance and support), other subscription services, professional services which includes training software as a service (“SaaS”) and other revenue. We derive license revenue through the sale of our on-premises software license agreements. We typically recognize license revenue upon delivering the applicable license.following,following: software licenses, SaaS subscriptions, maintenance subscriptions,and support, other subscription services and professional services.SSP"SSP”) for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately. We use a range to determine SSP based on the selling price of the products and services when sold separately. The SSP range is used to allocate the total transaction price to each performance obligation in a contract to the transaction price and to apply a discount that will be allocated based on the relative SSP of the various products and services.goodproduct or service, we estimate SSP by our overall pricing objectives, taking into consideration market factors, pricing practices including historical discounting, historical standalone sales of similar products, customer demographics, geographic locations, and the number and types of users within our contracts. The determination of standalone selling priceSSP using the adjusted market assessment approach is made by the Company’s management.Wehavehas standalone value for our professional services and recognize revenue as services are performed based on an estimated fair value as a separate performance obligation.recognizesrecognize revenue when or as it satisfieswe satisfy a performance obligation by transferring control of a product or service to a customer.We dos not incur shippinghandling for its goods as theythe related employer payroll taxes, collectively “deferred contract acquisition costs,” are generally deliveredconsidered incremental and recoverable costs of obtaining a contract with a customer. The Company capitalizes and amortizes deferred contract acquisition costs over an expected period of benefit. The Company has determined the expected period of benefit to abe five years. The expected period of benefit was determined by taking into consideration our customer electronically. We do not believe that it currently has any rights to return that would result in a material impact to revenues.The revised standard related to revenue recognition, Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification or ASC 606), had a material impact in our consolidated financial statements. Refer to Note 3contracts, customer turnover rates, the life of our accompanying Notestechnology and other factors. In addition, the Company pays sales commissions for renewals of term licenses and subscription offerings at a lower rate, which is therefore not commensurate with commissions paid on an initial sale and are amortized over each renewal’s period of benefit. The Company periodically reviews the amortization periods of its deferred contract acquisition costs and will update such amortization period when there is aConsolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.Stock-Based CompensationWe recognize stock-based compensation expense related to equity awards, including stock options, restricted stock units, employee stock purchase plans and incentive units, granted based on the estimated fair valuecustomer of the awards on the date of grant, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the period during which the employee is required to provide service in exchange for the award (generally the vesting period).The Black-Scholes option-pricing model requires the input of highly subjective assumptions. Our assumptions are as follows:•Expected volatility. As we have been a public company for a limited amount of time and do not have a sufficiently long trading history for our common stock, the expected stock price volatility for our common stock is estimated by taking the average historical price volatility for industry peers over a period equivalent to the expected term of the stock option grants. We intend to continue to consistently apply this process until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available.•Risk-free interest rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.•Expected dividend yield. We have never declared or paid any cash dividends to common stockholders and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero.•Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we base our expected term for awards issued to employees or members of our board of directors on the simplified method, which represents the average period from vesting to the expiration of the stock option.In addition to the assumptions usedproducts or services. Such changes in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates used for our stock-based compensation calculations on a prospective basis.We analyze the facts and circumstancesamortization period could materially affect amortization amounts of each equity instrument to determine if modification accounting is required. This analysis includes a review of factors that influence the probability of vesting. If circumstances arise that have changed the probability that an equity instrument will vest, or other factors have triggered a modification, the revised fair value is calculated, and additional stock-based compensation is recognized over the remaining service period of the modified option.Historically, for all periods prior to our initial public offering, the fair values of the shares of common stock underlying our stock-based awards were estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, enterprise value of comparable public companies evaluated on a quarterly basis and the overall market and economic environment.For stock awards after the completion of our initial public offering, our board of directors determines the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.The Company also offers an Employee Stock Purchase Plan (“ESPP”) that allows permitted employees to purchase shares by authorizing payroll deductions from 1% to 15% of employee’s eligible compensation during the semi-annual offering period, with an annual cap of $25,000. Unless an employee has previously withdrawn from the offering, the payroll deductions will be used to purchase shares of common stock after the closing of the offering period at a price equal to 85% of the fair market value of the closing price of the shares at the opening or closing of the semi-annual offering period, whichever is lower.ESPP purchase rights have an expected volatility that is based on the historical volatility of the common stock of a collection of our peers in the market. The expected term represents the period of time the ESPP purchase rights are expected to be outstanding and approximates the offering period.We are subject to federal, state and local taxes in the United States as well as in other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current federal and state income tax in the United States.AsDecember 31, 2018, we have athe deferred tax liabilityassets will not be realized. In evaluating our ability to realize deferred tax assets, we consider all available positive and negative evidence including historical and projected pre-tax book earnings, scheduled reversals of approximately $4.1 million.Goodwillrepresents the excess of acquisition cost overIntangibles, and Other Long-Lived Assetsnetpurchase consideration to the tangible and identified net assets acquired. Goodwillacquired, liabilities assumed, and intangible assets that have indefinite livesacquired based on their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Recognized goodwill pertains in part to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets may include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be amortized,reasonable, but rather testedwhich are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. It is possible that the judgments and estimates described above could change in future periods.annually,on an annual basis, or more oftenfrequently if a significant event or circumstance indicates impairment. We also evaluate the estimated remaining useful lives of acquired intangible assets for changes in circumstances that warrant a revision to the remaining periods of amortization. For purposes of assessing potential impairment of goodwill, we estimate the fair value of the reporting unit, based on our market capitalization, and when events or circumstances indicatecompare this amount to the carrying value of the reporting unit. If we determine that the carrying value may notof the reporting unit exceeds its fair value, an impairment charge would be recoverable.required. We have determined that we operate as one reporting unit and may first assess qualitative factors to determine whether the existence of events or circumstances leads to a determinationindicate that it is “more likely than not” that the fair value of the reporting unit is less than its carrying amount and whether the two-stepan impairment test on goodwill is required. Goodwill is tested using a two-step process. The first step of the goodwill impairment test, usedto identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to the excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference. Goodwill is tested on an annual basis during the fourth quarter,as of October 31, or sooner if an indicator of impairment occurs. The companyCompany internally monitors business and market conditions for evidence of triggering events. There were no triggering events for anygoodwill and acquired intangible assets. Such events or changes in circumstances include, but are not limited to, a significant decrease in the fair value of the underlying asset types through October 31, 2018 or any materialasset group, a significant adverse change in business trends indicating the need for impairment loss. Asextent or manner in which a long-lived asset or asset group is being used or in its physical condition, an accumulation of October 31, 2018,costs and resources in excess of the Company performed qualitative analysisoriginal expectation, or a significant change in the operations of the acquired assets or use of an asset or asset group. Changes in these estimates and concludedassumptions could materially affect the determination of fair value and goodwill impairment for goodwill, including intangibles, was not required. Hence,our reporting unit.first and second step was not required for 2018. There were no impairments of goodwill during the yearsyear ended December 31, 2018, 2017 and 2016.The Jumpstart Our Business Startups Act (“JOBS”) Act Accounting ElectionWe were2021, the Company recorded an emerging growth company (“EGC”), as definedimpairment charge of $0.7 million related to certain developed technology assets due to a decrease in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactmentfair value of the JOBS Act until such time as those standards apply to private companies. We had elected to take advantage of all ofunderlying assets. During the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, until we are no longer an emerging growth company. Effective July 1, 2018,year ended December 31, 2020, the Company lost its EGC status which acceleratedrecorded an impairment charge of $5.1 million related to certain developed technology assets due to our strategic decision to discontinue further investment and enhancements in the requirement of ASC 606 adoption. As a result, the Company adjusted its previously reported consolidated financial statements effective January 1, 2018 in this 10-K report and amendment to previously filed 10-Q reports were not required.21 “Description of Business and Summary of Significant Accounting Policies” in our accompanying Notesnotes to Consolidated Financial Statementsour consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.rates and interest rates and inflation.rates. We do not hold or issue financial instruments for trading purposes.of $77.2 million and $116.1 million, including restricted cash of $6.3 million and $0.1$442.2 million as of December 31, 2018 and 2017, respectively. Our cash and cash equivalents2021, which are held in cash deposits and money market funds. Due to the short-term nature of these instruments, we do not believe that we do not have any material risk of exposure to changes in the fair value of our investment portfoliocash and cash equivalents as a result of changes in interest rates. current investments in marketable securities as of December 31, 20182021.2017.sold the Notes in the Offering to qualified institutional buyers. The fair value of the Notes is subject to interest rate risk, market risk and other factors due to the conversion feature. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price decreases. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized debt issuance costs on our balance sheets, and we present the fair value for required disclosure purposes only.risksrisk related to operating expenses denominated in currencies other than the U.S. dollar, primarily the British pound, Euro, British Pound, Swiss Franc, Israeli Shekelshekel, Indian rupee, Australian dollar, Singapore dollar and the Indian Rupee.Canadian dollar. As of December 31, 2018 and 2017,2021, our cash and cash equivalents included $3.4$7.5 million and $3.2 million, respectively, held in currencies other than the U.S. dollar. Decreases in the relative value of the U.S. dollar relative to other currencies may negatively affect our operating results as expressed in U.S. dollars. These amounts are included in other expense,income (expense), net on our consolidated statements of operations.an immediatea hypothetical 10% increase or decreasechange in the relative value of the U.S. dollar relative to other currencies would have a material effect on our results of operations or cash flows, and to date, we have not engaged in any hedging strategies with respect to foreign currency transactions. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates, and we may choose to engage in the hedging of foreign currency transactions in the future.Inflation RiskWe do not believe that inflation has had a material effect on our business, financial condition or results72757677787920182021 and 2017 and2020, the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity, (deficit), and cash flows for each of the three years in the period ended December 31, 2018,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.20182021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 18, 2019February 28, 2022 expressed an adverseunqualified opinion.accounting principlesrevenue from contracts with customers in 2018its Convertible Senior Notes outstanding at January 1, 2021 due to the adoption of ASC 606 “Revenue from contracts with customers”. The Company adopted the new revenue standard using the modified retrospective approach withAccounting Standard Update 2020-06, Accounting for Convertible Instruments and Contracts in an adjustment to retained earnings as of January 1, 2018 for the cumulative effect of adoption.supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.2010Denver, ColoradoMarch 18, 2019
St. Louis, Missouri2018,2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.•There are ineffective internal controls related to the accounting for certain complex or non-routine transactions, including equity compensation and the adoption of new accounting standards.•Certain internal controls related to the recording and processing of revenue transactions are not designed or operating at a precise enough level to prevent or detect errors and insufficient documentation exists to support the operating effectiveness of these controls.2018. The material weaknesses identified above were considered in determining the nature, timing,2021, and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report dated March 18, 2019 whichFebruary 28, 2022 expressed an unqualified opinionon those financial statements.Denver, Colorado March 18, 2019
St. Louis, MissouriSailpoint technologies HoldingS, Inc. and subsidiariesConsolidated Balance SheetsCONSOLIDATED BALANCE SHEETSAs of December 31, 2021 December 31, 2020 (In thousands, except per share data) Assets Current assets Cash and cash equivalents $ 435,445 $ 510,289 Restricted cash 6,719 6,355 Accounts receivable, net of allowance Accounts receivable, net of allowance 147,156 112,255 Deferred contract acquisition costs Deferred contract acquisition costs 25,966 15,592 Prepayments and other current assets 49,446 25,904 Income taxes receivable Income taxes receivable 506 123 Total current assets 665,238 670,518 Deferred tax asset - non-current Deferred tax asset - non-current 4,047 — Property and equipment, net 17,151 19,443 Right-of-use assets, net Right-of-use assets, net 23,806 27,048 Deferred contract acquisition costs, non-current Deferred contract acquisition costs, non-current 68,725 38,510 Other non-current assets, net of allowance Other non-current assets, net of allowance 17,974 15,016 Goodwill 289,430 241,103 Intangible assets, net 73,469 63,962 Total assets $ 1,159,840 $ 1,075,600 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 6,097 $ 4,753 Accrued expenses and other liabilities 89,972 59,460 Income taxes payable 1,413 978 Convertible senior notes, net Convertible senior notes, net 385,172 326,672 Deferred revenue Deferred revenue 218,937 165,995 Total current liabilities 701,591 557,858 Deferred tax liability - non-current — 1,329 Long-term operating lease liabilities Long-term operating lease liabilities 28,817 33,080 Deferred revenue - non-current 25,193 18,723 Total liabilities 755,601 610,990 Commitments and contingencies (Note 8) Commitments and contingencies (Note 8) 0 0 Stockholders’ equity 9 9 Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding as of December 31, 2021 and December 31, 2020 Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding as of December 31, 2021 and December 31, 2020 — — Additional paid in capital 481,910 484,012 Accumulated deficit Accumulated deficit (77,680) (19,411) Total stockholders' equity 404,239 464,610 Total liabilities and stockholders’ equity $ 1,159,840 $ 1,075,600 Sailpoint technologies Holdings, Inc. and subsidiariesConsolidated StatementsYear Ended December 31, 2021 2020 2019 (In thousands, except per share data) Revenue Licenses $ 113,004 $ 120,874 $ 102,800 Subscription 273,197 196,817 143,390 Services and other 52,753 47,563 42,325 Total revenue 438,954 365,254 288,515 Cost of revenue Licenses 5,212 4,467 4,239 Subscription 58,790 37,644 26,877 Services and other 50,486 38,517 34,359 Impairment of intangible assets 744 5,119 — Total cost of revenue 115,232 85,747 65,475 Gross profit 323,722 279,507 223,040 Operating expenses Research and development 98,255 71,191 56,120 General and administrative 48,979 37,783 39,816 Sales and marketing 235,564 169,656 136,537 Total operating expenses 382,798 278,630 232,473 Income (loss) from operations (59,076) 877 (9,433) Other income (expense), net Interest income 775 2,019 2,468 Interest expense (2,680) (18,612) (5,041) Other income (expense), net (467) 33 (1,082) Total other expense, net (2,372) (16,560) (3,655) Loss before income taxes (61,448) (15,683) (13,088) Income tax (expense) benefit (186) 4,920 4,588 Net loss $ (61,634) $ (10,763) $ (8,500) Net loss available to common stockholders $ (61,634) $ (10,763) $ (8,500) Net loss per share Basic $ (0.67) (0.12) $ (0.10) Diluted $ (0.67) $ (0.12) $ (0.10) Weighted average shares outstanding Basic 92,664 90,512 88,907 Diluted 92,664 90,512 88,907 Sailpoint technologies Holdings, Inc. and subsidiariesConsolidated StatementsCommon Stock Additional
paid in
capitalRetained earnings (accumulated
deficit)Stockholders'
equityNumber
of sharesPar
value(In thousands) Balance at December 31, 2018 87,512 $ 9 $ 377,473 $ 211 $ 377,693 Exercise of stock options 730 — 3,053 — 3,053 Restricted stock units vested, net of tax settlement 322 — (351) — (351) Stock-based compensation expense — — 18,714 — 18,714 Incentive units vested 724 — 37 — 37 Common stock issued under employee stock purchase plan 388 — 5,649 — 5,649 Equity component of convertible senior notes, net of issuance costs — — 86,764 — 86,764 Purchase of capped calls — — (37,080) — (37,080) Deferred tax liability related to issuance of convertible senior notes and capped calls — — (11,852) — (11,852) Net loss — — — (8,500) (8,500) Balance at December 31, 2019 89,676 $ 9 $ 442,407 $ (8,289) $ 434,127 Cumulative effect adjustment from the adoption of ASC 326, net of tax — — — (359) (359) Exercise of stock options 763 — 5,967 — 5,967 Restricted stock units vested, net of tax settlement 566 — (797) — (797) Stock-based compensation expense — — 29,057 — 29,057 Common stock issued under employee stock purchase plan 381 — 7,378 — 7,378 Net loss — — — (10,763) (10,763) Balance at December 31, 2020 91,386 $ 9 $ 484,012 $ (19,411) $ 464,610 Cumulative effect adjustment from the adoption of ASU 2020-06 — — (65,517) 3,365 (62,152) Exercise of stock options 609 — 7,615 — 7,615 Restricted stock units vested, net of tax settlement 1,347 — (6,056) — (6,056) Stock-based compensation expense — — 51,757 — 51,757 Common stock issued under employee stock purchase plan 277 — 10,099 — 10,099 Partial conversion of convertible senior notes 182 — — — — Settlement of capped calls related to partial conversion of convertible senior notes (37) — — — — Net loss — — — (61,634) (61,634) Balance at December 31, 2021 93,764 $ 9 $ 481,910 $ (77,680) $ 404,239 Sailpoint technologies HoldingS, Inc. and subsidiariesConsolidated StatementsYear Ended December 31, 2021 2020 2019 (In thousands) Operating activities Net loss $ (61,634) $ (10,763) $ (8,500) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 22,376 18,290 14,992 Amortization of debt discount and issuance costs 2,038 17,787 4,691 Amortization of contract acquisition costs 20,210 13,684 10,130 (Gain) loss on disposal of fixed assets 35 158 (4) Provision for credit losses 3,015 586 178 Impairment of intangible assets 744 5,119 — Stock-based compensation expense 51,757 29,057 18,714 Operating leases, net (707) (415) 477 Deferred taxes (3,463) (7,553) (7,268) Net changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions Accounts receivable (34,579) (6,772) (5,072) Deferred contract acquisition costs (60,799) (32,634) (17,330) Prepayments and other current assets (23,378) (9,119) (3,392) Other non-current assets (3,978) (8,875) (4,798) Accounts payable 1,344 1,529 (1,630) Accrued expenses and other liabilities 28,335 16,262 11,786 Income taxes 51 (1,077) (149) Deferred revenue 57,676 32,685 37,266 Net cash provided by (used in) operating activities (957) 57,949 50,091 Investing activities Purchase of property and equipment (4,060) (3,945) (6,173) Proceeds from sale of property and equipment 39 29 39 Purchase of intangibles (40) (57) (379) Business acquisitions, net of cash acquired (70,960) — (32,393) Net cash used in investing activities (75,021) (3,973) (38,906) Financing activities Payment of debt issuance costs — — (9,572) Proceeds from issuance of convertible senior notes — — 400,000 Purchases of capped calls — — (37,080) Payments for partial conversion of convertible senior notes (10,160) — — Taxes associated with net issuances of shares upon vesting of restricted stock units (6,056) (797) (351) Proceeds from employee stock purchase plan contributions 10,099 7,378 5,649 Exercise of stock options 7,615 5,967 3,053 Net cash provided by financing activities 1,498 12,548 361,699 Net increase (decrease) in cash, cash equivalents and restricted cash (74,480) 66,524 372,884 Cash, cash equivalents and restricted cash, beginning of period 516,644 450,120 77,236 Cash, cash equivalents and restricted cash, end of period $ 442,164 $ 516,644 $ 450,120 Supplemental disclosure of cash flow information: Cash paid for interest $ 811 $ 641 $ 180 Cash paid for income taxes, net of refunds $ 3,660 $ 2,587 $ 2,658 Conversion of prepaid incentive units to common stock $ — $ — $ 37 statementsstatements.Sailpoint technologies HoldingS, Inc. and subsidiariesTable of ContentsNotes to Consolidated Financial Statements Organization and Description of Businesswe”,we,” “our” or “the Company”the “Company”) was incorporated in the state of Delaware on August 8, 2014, in preparation for the purchase of SailPoint Technologies, Inc. The purchase occurred on September 8, 2014 and our certificate of incorporation was amended and restated as of such date. SailPoint Technologies, Inc. was formed July 14, 2004 as a Delaware corporation. The Company designs, develops, and markets identity governancesecurity software that helps organizations govern user access to critical systems and data. The Company currently markets its products and services throughout North America, Europe and the Asia Pacific regions.2. Summary of Significant Accounting Policiessubsidiaries, SailPoint Technologies Intermediate Holdings, LLC, SailPoint Technologies, Inc., SailPoint Technologies UK LTD, SailPoint Holdings, Inc., SailPoint International, Inc., SailPoint Technologies India Private LTD, SailPoint Technologies Netherlands B.V., SailPoint Technologies Israel Ltd, SailPoint Technologies SARL, SailPoint Technologies GmbH, and SailPoint Technologies Pte. Ltd. and Whitebox Security Ltd.subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.The Company operates as one operating segment. The Company’s chief operating decision makers, who review financial information presented on a consolidated basis for purposes of making operating decisions, assess financial performance and allocate resources.Accounting PrinciplesWe adopted the revised revenue recognition accounting standard, codified as Accounting Standards Codification (“ASC”) 606, effective January 1, 2018 on a modified retrospective basis (see Recently Adopted Accounting Pronouncements). Financial results for reporting periods during 2018 are presented compliance with the revised revenue recognition standard. Historical financial results for reporting periods prior to 2018 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, ASC 605. Theseyear financial statements include additional information regarding the impacts from the adoption of the revised revenue recognition standard on our financial results for the year ended December 31, 2018. This includesto conform to the presentation ofand classifications used in the current year. These reclassifications had no net effect on the Company’s consolidated operating results, financial results for the year ended December 31, 2018 under ASC 605 for comparison to the prior year.obligationobligations in revenue recognition, the uncollectibleexpected period of benefit of deferred contract acquisition costs, the collectability of accounts receivable, valuation of long-lived assets, stock-based compensation expense, fair value of the Notes (as defined below), recognition and measurement of income taxes.tax positions, realizability of deferred tax assets and the valuation, and estimated useful lives and impairment of intangible assets and goodwill arising from business combinations. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately. We use a range to determine SSP based on the selling price of the products and services when sold separately. The SSP range is used to allocate the total transaction price to each performance obligation in a contract and to apply a discount that will be allocated based on the relative SSP of the various products and services. When we do not have a directly observable SSP for a particular product or service, we estimate SSP by our overall pricing objectives, taking into consideration market factors, pricing practices including historical discounting, historical standalone sales of similar products, customer demographics, geographic locations, and the number and types of users within our contracts. The determination of SSP using the adjusted market assessment approach is made by the Company’s management.We allocate the transaction price to each performance obligation identified in the contract on a relative SSP basis and recognize revenue when or as we satisfy a performance obligation by transferring control of a product or service to a customer.subsidiary as well as subsidiary.Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.• Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.•Level 3: Unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.The Company’s carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are considered Level 1 and approximate their fair values due to their short maturitiesprices, such as of December 31, 2018 and 2017. The carrying valuequoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the Company’s line of credit and long-term debt approximateassets or liabilities.
be consistent with market participant assumptions that are reasonably available.
The following tables sets forth the Company’s consolidated total revenue by geography:
|
| Year Ended December 31, |
| |||||||||||||
|
| 2018 |
|
| 2018 |
|
| 2017 (1) |
|
| 2016 (1) |
| ||||
|
| with adoption (ASC 606) |
|
| without adoption (ASC 605) |
|
| as previously reported (ASC 605) |
| |||||||
|
| (In thousands) |
| |||||||||||||
United States |
| $ | 171,497 |
|
| $ | 169,927 |
|
| $ | 134,676 |
|
| $ | 92,116 |
|
EMEA (2) |
|
| 49,871 |
|
|
| 49,854 |
|
|
| 33,097 |
|
|
| 25,668 |
|
Rest of the World (2) |
|
| 27,552 |
|
|
| 28,694 |
|
|
| 18,283 |
|
|
| 14,628 |
|
Total revenue |
| $ | 248,920 |
|
| $ | 248,475 |
|
| $ | 186,056 |
|
| $ | 132,412 |
|
|
|
|
|
Accounts Receivable and Allowance for Doubtful Accounts
Expected Credit Losses
The annual evaluation of goodwill requires the use of estimates about future operating results to determine its estimated fair value. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations. The estimate of fair value requires significant judgment and we base our fair value estimates on assumptions that we believe to be reasonable; but that are unpredictable and inherently uncertain, including: estimates of future growth rates, operating margins and assumptions about the overall economic climate as well as the competitive environment. There can be no assurance that our estimates and assumptions made for purposes of our goodwill testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments or anticipated growth rates are not correct, we may be required to record goodwill impairment charges in future periods, whether in connection with our next annual impairment testing, or earlier, if an indicator of an impairment is present prior to our next annual evaluation.
required. Goodwill is tested on an annual basis during the fourth quarter,as of October 31, or sooner if an indicator of impairment occurs. The companyCompany internally monitors business and market conditions for evidence of triggering events. There were no triggering events for any of the asset types during 2018, 2017 or 2016 or any material changes in business trend indicating the need for impairment loss. As of October 31, 2018, the Company performed a qualitative “Step 0” assessment and concluded no impairment for goodwill, was required. Hence, the first and second steps were not required to be performed for 2018. There were no impairments of goodwill during the years ended December 31, 2018, 2017 or 2016.
Net
fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets may include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Liquidity
Our principal sources of liquidity have been the net proceeds we received through the sale of our common stock in our initial public offering, other equity financing, and cash generated from our operations. The Company had cash and cash equivalents of approximately $71.0 million at December 31, 2018, which we intend to use for working capital, operating expenses, and capital expenditures. We believe that our existing cash and cash equivalents, net operating cash flows, and revenues will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Item 1A, Part I of this Annual Report on Form 10-K titled “Risk Factors.”
Revenue Recognition ASC 606
Revenue
Revenue
prepaid basis.
Deferred Contract Acquisition Costs
Under ASC 606, sales
Revenue Recognition ASC 605
Our revenue recognition accounting policysheets, net of an allowance for ASC 605 is shown below. We applied the revenue recognition accounting policy for ASC 605 to our disclosures in Note 3, which include amounts presented for 2018.
Revenue consistsexpected credit losses.
The Company recognizes revenue in accordance with the provisionsRevenue
License Revenue is recognized when:
|
|
|
|
|
|
|
|
The Company frequently enters into sales arrangements that contain multiple elements or deliverables. For arrangements that include both software and non-software elements, the Company allocates revenue to the software deliverables as a group and separable non-software deliverables as a group based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the selling price used for allocating revenue to the deliverables as follows: (i) Vendor Specific Objective Evidence (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) the best estimate of the selling price (“ESP”). Cloud-based services, and professional services related to cloud-based services, are considered to be non-software elements in the Company’s arrangements.
VSOE of fair value for each element is based on the Company’s standard rates charged for the product or service when such product or service is sold separately or based upon the price established by the Company’s pricing committee when that product or service is not yet being sold separately. The Company establishes VSOE for maintenance and professional services using a “bell-shaped curve” approach. When applying the “bell-shaped curve” approach the Company analyzes all maintenance renewal transactions over the past twelve months for that categoryCost of license and plots those data points on a bell-shaped curve to ensure that a high percentage of the data points are within an acceptable margin of the established VSOE rate. This analysis is performed quarterly on a rolling 12-month basis.
When the Company is unable to establish a selling price for non-software arrangements using VSOE or TPE, the Company uses ESP in the allocation of arrangement consideration. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The determination of ESP is made through consultation with and formal approval by the Company’s management, taking into consideration the Company’s go-to-market strategy, pricing factors, and historical transactions.
The Company recognizes revenue for software arrangements that include undelivered elements using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and recognized as such elements are delivered to the customer and the remaining portion of the agreement fee is recognized as license revenue upon delivery. The determination of fair value of each undelivered element in software arrangements is based on VSOE. If VSOE has not been established for certain undelivered elements in an agreement, revenue is deferred until those elements have been delivered or their VSOE has been determined.
Revenue from maintenance and SaaS services is recognized ratably over the relevant contract period.
Service revenue includes consulting and training. The Company has determined that consulting and training services are not essential to the functionality of the Company’s software and SaaS offerings, and consulting and training services are typically listed separately in arrangements, are optional, and sold separately. As a result, the Company has established VSOE or ESP for consulting and training services and they therefore qualify for separate accounting.
In order to account for deliverables in a multiple-deliverable arrangement as separate unit of accounting, delivered elements must have standalone value. In determining whether professional services have standalone value, we consider the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the software or SaaS arrangement and the contractual dependence of the arrangement on the customer’s satisfaction with the professional services. Professional services sold as part of arrangements generally qualify for separate accounting.
Consulting and training service revenue that qualifies for separate accounting is recognized as the services are performed using the proportional performance method for fixed fee consulting contracts, or when the right to the service expires. The majority of the Company’s consulting contracts are billed on a time and materials basis.
Cost of Revenue
Cost of revenue for licenses consists of amortization expense for developed technology acquired in business combinations and third-party royalties.
and third-party cloud-based hosting costs.
levels.
Research and development costs are expensed as incurred.
Advertising Expenses
The Company expenses advertising costsare expensed as incurred. Advertising expenses were approximately $7.3 million, $6.0 million and $4.2 million for the years ended December 31, 2018, 2017 and 2016, respectively,incurred and are included in sales and marketing expense.
Advertising expenses were approximately $11.2 million, $10.7 million and $11.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.
During 2021 and 2020, the Company continued to increase the weighting factor of the Company’s own volatility as additional time periods became
The Company estimates potential forfeitures
The Company also offers an Employee Stock Purchase Plan (ESPP) that allows(the “ESPP”). The ESPP became effective November of 2017, after the date our registration statement was declared effective by the SEC. The first offering period opened July 1, 2018 and permitted eligible employees to purchase shares by authorizing payroll deductions from 1% to 15% of employee’s eligible compensation during the semi-annual offering period, which is generally six-months, with an annual cap of $25,000.$25,000 in fair market value, determined at the grant date. Unless an employee has previously withdrawn from the offering, thehis or her accumulated payroll deductions will be used to purchase shares of common stock after the closing of the offering period at a price equal to 85% of the fair market value of the closing price of the shares at the opening or closing of the semi-annual offering period, whichever is lower.
ESPP purchase rights have an expected volatility consistent with our volatility estimates that is based on the historical volatility of the commonare used to value our stock of a collection of our peers in the market.options. The expected term represents the period of time the ESPP purchase rights are expected to be outstanding and approximates the offering period.
Stock-based compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the offering period.
Recently IssuedFinancial Accounting Standards Not Yet Adopted
In February 2016, the FASBBoard (“FASB”) issued ASU 2016-022020-06,
This standard will be adopted using a modified retrospective transition method with certain practical expedients available for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company currently expects that most of existing operating lease commitments will be subject to the new standard and will be recognized as operating lease liabilities and right-of-use (“ROU”) assets upon our adoption of ASC 842. The Company anticipates this standard will have a material impact on the consolidated balance sheets and will result in the recognition of ROU assets and lease liabilities for leases currently classified as operating leases that are not reported on the balance sheets. While the Company continues to assess the qualitative and quantitative impacts of adopting this standard, the most significant anticipated impact relates to physical office space leases.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07)an Entity’s Own Equity, which simplifies the accounting for share-based paymentscertain financial instruments with characteristics of liability and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change will reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to nonemployees by aligningliabilities as it withrelates to the accounting for share-based paymentsNotes. Additionally, ASU 2020-06 requires the application of the as if-converted method to employees, with certain exceptions.calculate the impact of convertible instruments on diluted earnings per share. ASU 2018-072020-06 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that2021, with early adoption permitted for fiscal year. Earlyyears beginning after December 15, 2020, and can be adopted on either the fully retrospective or modified retrospective basis.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwillmeasure contract assets and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurredliabilities from contracts with customers acquired in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15), which clarifies the accounting for implementation costs in cloud computing arrangements.business combination. ASU 2018-15 is effective for public entities, for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, and earlier adoption is permitted. The Company does not plan to early adopt, and therefore plans to adopt for the annual period beginning after December 15, 2019. The Company is currently evaluating the impact of the pending adoption of ASU 2018-15 on the consolidated financial statements.
Recently Adopted Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (ASC 718). This standard clarifies which changes2021-08 creates an exception to the termsgeneral recognition and conditionsmeasurement principle in ASC 805, Business Combinations, and will result in recognition of share-based payment awards require an entity to apply modification accounting under ASC 718. An entity is required to account forcontract assets and contract liabilities consistent with those recorded by the effects of a modification unless all of the following conditions are met: (i) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original awardacquiree immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.acquisition date. The new standard is effective for annual period beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The company has adopted this standard retrospectively beginning with the reporting period ended after December 31, 2017. This adoption resulted in no material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (ASC 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. This guidance is effective for annual periodsus beginning after December 15, 2018, includingJanuary 1, 2023 and interim periods within that reporting period. Earlytherein, with early adoption is permitted. The company has adopted this standard modified retrospectively beginning with the reporting period ended after December 31, 2017. This adoption resulted in no material impact on the Company’s consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606). ASC 606 supersedes the revenue recognition requirements in
Effective July 1, 2018, the Company lost its emerging growth company (“EGC”) status which accelerated the requirement of ASC 606 adoption. As a result, the Company adjusted its previously reported consolidated financial statements effective January 1, 2018. On December 31, 2018, we adopted ASC 606, with an effective date of January 1, 2018 using the modified retrospective transition method, which requires us to evaluate whether any cumulative adjustment is required to be recorded to retained earnings (or accumulated deficit) as a result of applying the provisions set forth under ASC 606 for any existing arrangements not yet completed as of January 1, 2018. We recorded a cumulative adjustment in the amount of approximately $21.8 million, net of tax, to retained earnings (accumulated deficit) as of the January 1, 2018 as a result of applying the modified retrospective transition method. In addition, it is important to note that under the modified retrospective transition method, our prior period results were not re-casted to reflect the revised recognition standard. The reported results for three-month periods ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 reflect the application of the revised standard as indicated by the “as adjusted”, or “ASC 606”, while the comparative periods for 2017 and prior periods have not been revised to reflect the adoption of the revised standard and remain “as reported”, or “ASC 605”, under the prior standard. Except for the changes discussed with respect to revenue recognition and the related customer acquisition costs, the impact of which is summarized in the tables below, we have consistently applied our accounting policies to all periods presented in our consolidated financial statements for year ended December 31, 2018.
The adoption of the revised standard represents a change in accounting principle with the intent to align revenue recognition and provide financial statement readers with enhanced disclosures. In accordance with the revised standard, revenue is recognized when a customer has the right to obtain control of promised products and services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these products and services. To achieve this core principle, the Company applies the following five steps:
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to these products and services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, customer creditworthiness assessment and financial information at the outset of entering into the contract.
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the products and services either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products and services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products and services, the Company applies judgment to determine whether promised products and services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised products and services are accounted for as a combined performance obligation. The Company will evaluate any additional promises for goods and services that may occur in its contracts with customers in accordance with the framework in order to determine if these promises represent performance obligations.
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products and services to the customer. None of the Company's contracts as of January 1, 2018 contained a significant financing component. The Company considered whether there are any items within the contract that should be accounted for as variable consideration. The Company has elected to use the practical expedient for a service contract in which it bills a fixed amount for each hour of service provided, for time and materials services contracts as the amount corresponds with the value of the entity’s performance completed to date, which is needed to use this practical expedient. Because this practical expedient allows an entity to recognize revenue on the basis of invoicing, revenue is recognized by multiplying the price assigned to the goods or services delivered by the measure of progress (i.e., the quantities or units transferred). Therefore, the Company effectively bypasses the steps of determining the transaction price, allocating that transaction price to the performance obligations and determining when to recognize revenue when sold on a stand-alone basis. The Company has elected to utilize the practical expedient related to this performance obligation, if and when applicable.
Fees related to time and materials service represents performance obligation with an undefined quantity of outputs but the contractual rate per output is fixed, the Company has enforceable rights and obligations and the consideration received is contingent upon the quantity completed, the total transaction price would be variable (related to this performance obligation) and the contract has a range of possible transaction prices, and the ultimate consideration will depend on the occurrence or non-occurrence of a future event even though the rate per unit is fixed. The Company noted no other variable consideration in the contracts existed as of the adoption date.
Determining the transaction price requires significant judgment, which is discussed in further detail below. The Company has determined that its contracts generally do not include a significant financing component. The primary purpose of the Company's invoicing terms is to provide customers with simplified and predictable ways of purchasing its solutions, not to receive financing from customers or to provide customers with financing. Examples of such terms include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred.
Allocate the transaction price to the performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past standalone transactions, the Company estimates the standalone selling price taking into account available information such as past transactions, market conditions and internally approved pricing guidelines related to the performance obligations.
Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised products and services to a customer.
Upon adoption of the revised standard, the Company’s revenue recognition policy was modified in the following ways:
The core principle of the standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The most significant impacts of the revised standard to the Company relate to the timing of revenue recognition for arrangements involving term licenses and treatment of deferred contract acquisition costs.
At contract inception, the Company assesses the products and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product or service (or bundle of products or services) that is distinct – i.e., if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The Company has contracts with customers that may have multiple performance obligations, including some or all of the following: software licenses, maintenance, subscriptions, professional services and or training. For these contracts, the Company accounts for individual performance obligations separately if they are distinct within the context of the contract by allocating the contract's total transaction price to each performance obligation in an amount based on the relative standalone selling price, or “SSP”, of each distinct good or service in the contract.
In order to determine the SSP of its promised goods or services, the Company conducts an annual analysis to determine whether its goods or services have an observable SSP. In determining SSP, the Company requires that a substantial majority of the standalone selling prices for a goods or service that fall within a reasonably narrow pricing range. If the Company does not have a directly observable standalone selling price for a particular good or service, then the Company estimates a standalone selling price by our overall pricing objectives, taking into consideration market factors, pricing practices including historical discounting, historical standalone sales of similar products, customer demographics, geographic locations, and the number and types of users within our contracts. The determination of standalone selling price is made by the Company’s management. Selling prices are analyzed at least on an annual basis to identify if the Company has experienced significant changes in its selling prices.
The Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis and recognizes revenue when or as it satisfies a performance obligation by transferring control of a product or service to a customer.
Taxes collected from customers and remitted to governmental authorities are not included in revenue. The Company does not incur shipping and handling for its goods as they are generally delivered to a customer electronically.
The Company notes that it does not believe that it currently has any rights to return that would result in a material impact to revenues.
Other considerations
The Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) for vendor reseller agreements. Generally, the Company reports revenues from these types of contracts on a gross basis, meaning the amounts billed to customers are recorded as revenues, and direct expenses incurred are recorded as cost of revenues. Where the Company is the principal, it first obtains control of the inputs to the specific good or service and directs their use to create the combined output. The Company's control is evidenced by its involvement in the integration of the good or service on its platform before it is transferred to its customers and is further supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing.
Practical expedients elected
The Company elected to use the following practical expedients upon adoption of the revised standard:
|
|
|
|
|
|
|
|
|
|
Reclassifications
Certain reclassifications to December 31, 2017 and 2016 year end balances were made to conform to the current period presentation in the consolidated balance sheets and consolidated statements of cash flows. These reclassifications include amortization of contract acquisition costs and prepayments and other current assets.
3. Revenue Recognition
ASC 606 Adoption and Impact to Previously Reported Results
The Company adopted the revised standard as of January 1, 2018, utilizing the modified retrospective transition method for all contracts not completed as of the date of adoption. For contracts that were originated before the effective date, the Company reflected the aggregate effect of all modifications when identifying the performance obligations and allocating the transaction price in accordance with the practical expedients elected. As a result, the Company recognized the cumulative effect of initially applying the revised standard as an adjustment to the opening balance of retained earnings (accumulated deficit) on January 1, 2018. The comparative information for 2017 and prior periods has not been adjusted to reflect the adoption of the revised standard and remains as presented under the prior standard. The details of the revised policy with significant changes and quantitative impacts of the changes are described in a separate note below.
Effective July 1, 2018, the Company lost its EGC status which accelerated the requirement of ASC 606 adoption. As a result, the Company adjusted its previously reported interim financial statements effective January 1, 2018. As of January 1, 2018, the adoption of the revised standard resulted in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These adjustments are as a result of the capitalization of customer acquisition costs, primarily deferred contract acquisition costs, and the upfront recognition of license revenues from term licenses. The cumulative impact to the Company’s accumulated deficit as of January 1, 2018 is a decrease of $21.8 million as prescribed in the table below (in thousands):
|
| December 31, 2017 |
|
|
|
|
|
| January 1, 2018 |
| ||
|
| As reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 116,049 |
|
| $ | — |
|
| $ | 116,049 |
|
Restricted cash |
|
| 78 |
|
|
| — |
|
|
| 78 |
|
Accounts receivable |
|
| 72,907 |
|
|
| (355 | ) |
|
| 72,552 |
|
Prepayments and other current assets |
|
| 10,013 |
|
|
| 5,848 |
|
|
| 15,861 |
|
Total current assets |
|
| 199,047 |
|
|
| 5,493 |
|
|
| 204,540 |
|
Property and equipment, net |
|
| 3,018 |
|
|
| — |
|
|
| 3,018 |
|
Deferred tax asset - non-current |
|
| 264 |
|
|
| (264 | ) |
|
| — |
|
Other non-current assets |
|
| 3,542 |
|
|
| 13,232 |
|
|
| 16,774 |
|
Goodwill |
|
| 219,377 |
|
|
| — |
|
|
| 219,377 |
|
Intangible assets, net |
|
| 81,185 |
|
|
| — |
|
|
| 81,185 |
|
Total assets |
| $ | 506,433 |
|
| $ | 18,461 |
|
| $ | 524,894 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 2,231 |
|
| $ | — |
|
| $ | 2,231 |
|
Accrued expenses and other liabilities |
|
| 22,636 |
|
|
| — |
|
|
| 22,636 |
|
Income taxes payable |
|
| 1,688 |
|
|
| — |
|
|
| 1,688 |
|
Deferred revenue - current |
|
| 73,671 |
|
|
| (9,508 | ) |
|
| 64,163 |
|
Total current liabilities |
|
| 100,226 |
|
|
| (9,508 | ) |
|
| 90,718 |
|
Deferred tax liability - non-current |
|
| — |
|
|
| 5,422 |
|
|
| 5,422 |
|
Long-term debt |
|
| 68,329 |
|
|
| — |
|
|
| 68,329 |
|
Other long-term liabilities |
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Deferred revenue - non-current |
|
| 9,454 |
|
|
| 786 |
|
|
| 10,240 |
|
Total liabilities |
|
| 178,036 |
|
|
| (3,300 | ) |
|
| 174,736 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value |
|
| 8 |
|
|
| — |
|
|
| 8 |
|
Preferred stock, $0.0001 par value, |
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 353,609 |
|
|
| — |
|
|
| 353,609 |
|
Accumulated deficit |
|
| (25,220 | ) |
|
| 21,761 |
|
|
| (3,459 | ) |
Total stockholders' equity |
|
| 328,397 |
|
|
| 21,761 |
|
|
| 350,158 |
|
Total liabilities and stockholders’ equity |
| $ | 506,433 |
|
| $ | 18,461 |
|
| $ | 524,894 |
|
Unaudited consolidated statement of financial position which reflect the adoption of ASC 606 are as follows by quarter (in thousands):
|
| March 31, 2018 |
|
| June 30, 2018 |
| ||||||||||||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 130,859 |
|
| $ | — |
|
| $ | 130,859 |
|
| $ | 81,809 |
|
| $ | — |
|
| $ | 81,809 |
|
Restricted cash |
|
| 126 |
|
|
| — |
|
|
| 126 |
|
|
| 120 |
|
|
| — |
|
|
| 120 |
|
Accounts receivable |
|
| 55,997 |
|
|
| (697 | ) |
|
| 55,300 |
|
|
| 55,196 |
|
|
| (689 | ) |
|
| 54,507 |
|
Prepayments and other current assets |
|
| 9,094 |
|
|
| 7,369 |
|
|
| 16,463 |
|
|
| 9,784 |
|
|
| 7,545 |
|
|
| 17,329 |
|
Income taxes receivable |
|
| — |
|
|
| 1,164 |
|
|
| 1,164 |
|
|
| — |
|
|
| 5,841 |
|
|
| 5,841 |
|
Total current assets |
|
| 196,076 |
|
|
| 7,836 |
|
|
| 203,912 |
|
|
| 146,909 |
|
|
| 12,697 |
|
|
| 159,606 |
|
Property and equipment, net |
|
| 3,126 |
|
|
| — |
|
|
| 3,126 |
|
|
| 3,595 |
|
|
| — |
|
|
| 3,595 |
|
Deferred tax asset - non-current |
|
| 264 |
|
|
| (264 | ) |
|
| — |
|
|
| 264 |
|
|
| (264 | ) |
|
| — |
|
Other non-current assets |
|
| 3,106 |
|
|
| 13,090 |
|
|
| 16,196 |
|
|
| 3,328 |
|
|
| 14,101 |
|
|
| 17,429 |
|
Goodwill |
|
| 219,377 |
|
|
| — |
|
|
| 219,377 |
|
|
| 219,377 |
|
|
| — |
|
|
| 219,377 |
|
Intangible assets, net |
|
| 78,979 |
|
|
| — |
|
|
| 78,979 |
|
|
| 76,773 |
|
|
| — |
|
|
| 76,773 |
|
Total assets |
|
| 500,928 |
|
|
| 20,662 |
|
|
| 521,590 |
|
|
| 450,246 |
|
|
| 26,534 |
|
|
| 476,780 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 1,872 |
|
|
| — |
|
|
| 1,872 |
|
|
| 2,894 |
|
|
| — |
|
|
| 2,894 |
|
Accrued expenses and other liabilities |
|
| 12,012 |
|
|
| (867 | ) |
|
| 11,145 |
|
|
| 14,106 |
|
|
| (1,467 | ) |
|
| 12,639 |
|
Income taxes payable |
|
| 1,918 |
|
|
| (1,918 | ) |
|
| — |
|
|
| 1,423 |
|
|
| (1,423 | ) |
|
| — |
|
Deferred revenue - current |
|
| 75,883 |
|
|
| (7,144 | ) |
|
| 68,739 |
|
|
| 81,322 |
|
|
| (6,079 | ) |
|
| 75,243 |
|
Total current liabilities |
|
| 91,685 |
|
|
| (9,929 | ) |
|
| 81,756 |
|
|
| 99,745 |
|
|
| (8,969 | ) |
|
| 90,776 |
|
Deferred tax liability - non-current |
|
| — |
|
|
| 5,422 |
|
|
| 5,422 |
|
|
| — |
|
|
| 5,422 |
|
|
| 5,422 |
|
Long-term debt |
|
| 68,321 |
|
|
| — |
|
|
| 68,321 |
|
|
| 9,640 |
|
|
| — |
|
|
| 9,640 |
|
Other long-term liabilities |
|
| 65 |
|
|
| — |
|
|
| 65 |
|
|
| 51 |
|
|
| — |
|
|
| 51 |
|
Deferred revenue - non-current |
|
| 13,175 |
|
|
| (256 | ) |
|
| 12,919 |
|
|
| 13,817 |
|
|
| (12 | ) |
|
| 13,805 |
|
Total liabilities |
|
| 173,246 |
|
|
| (4,763 | ) |
|
| 168,483 |
|
|
| 123,253 |
|
|
| (3,559 | ) |
|
| 119,694 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
Preferred stock, $0.0001 par value |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 358,858 |
|
|
| — |
|
|
| 358,858 |
|
|
| 363,818 |
|
|
| — |
|
|
| 363,818 |
|
Accumulated deficit |
|
| (31,185 | ) |
|
| 25,425 |
|
|
| (5,760 | ) |
|
| (36,834 | ) |
|
| 30,093 |
|
|
| (6,741 | ) |
Total stockholders' equity |
|
| 327,682 |
|
|
| 25,425 |
|
|
| 353,107 |
|
|
| 326,993 |
|
|
| 30,093 |
|
|
| 357,086 |
|
Total liabilities and stockholders’ equity |
| $ | 500,928 |
|
| $ | 20,662 |
|
| $ | 521,590 |
|
| $ | 450,246 |
|
| $ | 26,534 |
|
| $ | 476,780 |
|
|
| September 30, 2018 |
|
| December 31, 2018 |
| ||||||||||||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
|
| Presented without adoption (ASC 605) |
|
| Impact of adoption |
|
| As adjusted with adoption (ASC 606) |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 83,315 |
|
| $ | — |
|
| $ | 83,315 |
|
| $ | 70,964 |
|
| $ | — |
|
| $ | 70,964 |
|
Restricted cash |
|
| 121 |
|
|
| — |
|
|
| 121 |
|
|
| 6,272 |
|
|
| — |
|
|
| 6,272 |
|
Accounts receivable |
|
| 71,316 |
|
|
| (551 | ) |
|
| 70,765 |
|
|
| 102,188 |
|
|
| (719 | ) |
|
| 101,469 |
|
Prepayments and other current assets |
|
| 11,743 |
|
|
| 6,702 |
|
|
| 18,445 |
|
|
| 10,982 |
|
|
| 10,868 |
|
|
| 21,850 |
|
Income taxes receivable |
|
| — |
|
|
| 3,399 |
|
|
| 3,399 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total current assets |
|
| 166,495 |
|
|
| 9,550 |
|
|
| 176,045 |
|
|
| 190,406 |
|
|
| 10,149 |
|
|
| 200,555 |
|
Property and equipment, net |
|
| 10,103 |
|
|
| — |
|
|
| 10,103 |
|
|
| 19,268 |
|
|
| — |
|
|
| 19,268 |
|
Deferred tax asset - non-current |
|
| 264 |
|
|
| (264 | ) |
|
| — |
|
|
| 736 |
|
|
| (736 | ) |
|
| — |
|
Other non-current assets |
|
| 3,236 |
|
|
| 15,107 |
|
|
| 18,343 |
|
|
| 7,853 |
|
|
| 12,521 |
|
|
| 20,374 |
|
Goodwill |
|
| 219,377 |
|
|
| — |
|
|
| 219,377 |
|
|
| 219,377 |
|
|
| — |
|
|
| 219,377 |
|
Intangible assets, net |
|
| 74,567 |
|
|
| — |
|
|
| 74,567 |
|
|
| 74,860 |
|
|
| — |
|
|
| 74,860 |
|
Total assets |
|
| 474,042 |
|
|
| 24,393 |
|
|
| 498,435 |
|
|
| 512,500 |
|
|
| 21,934 |
|
|
| 534,434 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 3,036 |
|
|
| — |
|
|
| 3,036 |
|
|
| 4,636 |
|
|
| — |
|
|
| 4,636 |
|
Accrued expenses and other liabilities |
|
| 18,623 |
|
|
| (1,076 | ) |
|
| 17,547 |
|
|
| 21,886 |
|
|
| (155 | ) |
|
| 21,731 |
|
Income taxes payable |
|
| 2,099 |
|
|
| (2,099 | ) |
|
| — |
|
|
| 2,037 |
|
|
| 106 |
|
|
| 2,143 |
|
Deferred revenue - current |
|
| 86,679 |
|
|
| (6,432 | ) |
|
| 80,247 |
|
|
| 102,996 |
|
|
| (7,077 | ) |
|
| 95,919 |
|
Current portion of long-term debt |
|
| 9,669 |
|
|
| — |
|
|
| 9,669 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total current liabilities |
|
| 120,106 |
|
|
| (9,607 | ) |
|
| 110,499 |
|
|
| 131,555 |
|
|
| (7,126 | ) |
|
| 124,429 |
|
Deferred tax liability - non-current |
|
| — |
|
|
| 5,422 |
|
|
| 5,422 |
|
|
| — |
|
|
| 4,142 |
|
|
| 4,142 |
|
Long-term debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other long-term liabilities |
|
| 4,404 |
|
|
| — |
|
|
| 4,404 |
|
|
| 9,824 |
|
|
| (36 | ) |
|
| 9,788 |
|
Deferred revenue - non-current |
|
| 13,976 |
|
|
| (22 | ) |
|
| 13,954 |
|
|
| 21,191 |
|
|
| (2,809 | ) |
|
| 18,382 |
|
Total liabilities |
|
| 138,486 |
|
|
| (4,207 | ) |
|
| 134,279 |
|
|
| 162,570 |
|
|
| (5,829 | ) |
|
| 156,741 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
Preferred stock, $0.0001 par value |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid in capital |
|
| 369,079 |
|
|
| — |
|
|
| 369,079 |
|
|
| 377,473 |
|
|
| — |
|
|
| 377,473 |
|
(Accumulated deficit) retained earnings |
|
| (33,532 | ) |
|
| 28,600 |
|
|
| (4,932 | ) |
|
| (27,552 | ) |
|
| 27,763 |
|
|
| 211 |
|
Total stockholders' equity |
|
| 335,556 |
|
|
| 28,600 |
|
|
| 364,156 |
|
|
| 349,930 |
|
|
| 27,763 |
|
|
| 377,693 |
|
Total liabilities and stockholders’ equity |
| $ | 474,042 |
|
| $ | 24,393 |
|
| $ | 498,435 |
|
| $ | 512,500 |
|
| $ | 21,934 |
|
| $ | 534,434 |
|
Select unaudited consolidated statement of operations which reflect the adoption of ASC 606 are as follows (in thousands, except share and per share data):
|
| Three Month Ended |
| |||||||||||
|
| March 31, 2018 |
| |||||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
|
|
| As adjusted (ASC 606) |
| |||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
| $ | 16,987 |
|
| $ | (179 | ) |
|
|
| $ | 16,808 |
|
Subscription |
|
| 23,005 |
|
|
| (500 | ) |
|
|
|
| 22,505 |
|
Services and other |
|
| 9,722 |
|
|
| (94 | ) |
|
|
|
| 9,628 |
|
Total revenue |
|
| 49,714 |
|
|
| (773 | ) |
|
|
|
| 48,941 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
| 1,138 |
|
|
| — |
|
|
|
|
| 1,138 |
|
Subscription |
|
| 4,658 |
|
|
| — |
|
|
|
|
| 4,658 |
|
Services and other |
|
| 6,974 |
|
|
| — |
|
|
|
|
| 6,974 |
|
Total cost of revenue |
|
| 12,770 |
|
|
| — |
|
|
|
|
| 12,770 |
|
Gross profit |
|
| 36,944 |
|
|
| (773 | ) |
|
|
|
| 36,171 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 9,762 |
|
|
| — |
|
|
|
|
| 9,762 |
|
General and administrative |
|
| 7,657 |
|
|
| — |
|
|
|
|
| 7,657 |
|
Sales and marketing |
|
| 23,815 |
|
|
| (1,356 | ) |
|
|
|
| 22,459 |
|
Total operating expenses |
|
| 41,234 |
|
|
| (1,356 | ) |
|
|
|
| 39,878 |
|
Loss from operations |
|
| (4,290 | ) |
|
| 583 |
|
|
|
|
| (3,707 | ) |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,178 | ) |
|
| — |
|
|
|
|
| (1,178 | ) |
Other, net |
|
| (147 | ) |
|
| — |
|
|
|
|
| (147 | ) |
Total other expense, net |
|
| (1,325 | ) |
|
| — |
|
|
|
|
| (1,325 | ) |
Loss before income taxes |
|
| (5,615 | ) |
|
| 583 |
|
|
|
|
| (5,032 | ) |
Income tax (expense) benefit |
|
| (352 | ) |
|
| 3,082 |
|
|
|
|
| 2,730 |
|
Net loss |
| $ | (5,967 | ) |
| $ | 3,665 |
|
|
|
| $ | (2,302 | ) |
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.07 | ) |
| $ | 0.04 |
|
|
|
| $ | (0.03 | ) |
Diluted |
| $ | (0.07 | ) |
| $ | 0.04 |
|
|
|
| $ | (0.03 | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 85,719,240 |
|
|
| — |
|
|
|
|
| 85,719,240 |
|
Diluted |
|
| 85,719,240 |
|
|
| — |
|
|
|
|
| 85,719,240 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| June 30, 2018 |
|
| June 30, 2018 |
| ||||||||||||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| ||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
| $ | 19,128 |
|
| $ | 492 |
|
| $ | 19,620 |
|
| $ | 36,115 |
|
| $ | 313 |
|
| $ | 36,428 |
|
Subscription |
|
| 25,051 |
|
|
| (941 | ) |
|
| 24,110 |
|
|
| 48,056 |
|
|
| (1,441 | ) |
|
| 46,615 |
|
Services and other |
|
| 10,381 |
|
|
| (455 | ) |
|
| 9,926 |
|
|
| 20,103 |
|
|
| (549 | ) |
|
| 19,554 |
|
Total revenue |
|
| 54,560 |
|
|
| (904 | ) |
|
| 53,656 |
|
|
| 104,274 |
|
|
| (1,677 | ) |
|
| 102,597 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
| 1,260 |
|
|
| — |
|
|
| 1,260 |
|
|
| 2,398 |
|
|
| — |
|
|
| 2,398 |
|
Subscription |
|
| 4,919 |
|
|
| — |
|
|
| 4,919 |
|
|
| 9,577 |
|
|
| — |
|
|
| 9,577 |
|
Services and other |
|
| 7,197 |
|
|
| — |
|
|
| 7,197 |
|
|
| 14,171 |
|
|
| — |
|
|
| 14,171 |
|
Total cost of revenue |
|
| 13,376 |
|
|
| — |
|
|
| 13,376 |
|
|
| 26,146 |
|
|
| — |
|
|
| 26,146 |
|
Gross profit |
|
| 41,184 |
|
|
| (904 | ) |
|
| 40,280 |
|
|
| 78,128 |
|
|
| (1,677 | ) |
|
| 76,451 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 10,115 |
|
|
| — |
|
|
| 10,115 |
|
|
| 19,877 |
|
|
| — |
|
|
| 19,877 |
|
General and administrative |
|
| 7,743 |
|
|
| — |
|
|
| 7,743 |
|
|
| 15,400 |
|
|
| — |
|
|
| 15,400 |
|
Sales and marketing |
|
| 25,163 |
|
|
| (1,389 | ) |
|
| 23,774 |
|
|
| 48,978 |
|
|
| (2,745 | ) |
|
| 46,233 |
|
Total operating expenses |
|
| 43,021 |
|
|
| (1,389 | ) |
|
| 41,632 |
|
|
| 84,255 |
|
|
| (2,745 | ) |
|
| 81,510 |
|
Loss from operations |
|
| (1,837 | ) |
|
| 485 |
|
|
| (1,352 | ) |
|
| (6,127 | ) |
|
| 1,068 |
|
|
| (5,059 | ) |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (2,800 | ) |
|
| — |
|
|
| (2,800 | ) |
|
| (3,978 | ) |
|
| — |
|
|
| (3,978 | ) |
Other, net |
|
| (569 | ) |
|
| — |
|
|
| (569 | ) |
|
| (716 | ) |
|
| — |
|
|
| (716 | ) |
Total other expense, net |
|
| (3,369 | ) |
|
| — |
|
|
| (3,369 | ) |
|
| (4,694 | ) |
|
| — |
|
|
| (4,694 | ) |
Loss before income taxes |
|
| (5,206 | ) |
|
| 485 |
|
|
| (4,721 | ) |
|
| (10,821 | ) |
|
| 1,068 |
|
|
| (9,753 | ) |
Income tax (expense) benefit |
|
| (441 | ) |
|
| 4,183 |
|
|
| 3,742 |
|
|
| (793 | ) |
|
| 7,265 |
|
|
| 6,472 |
|
Net loss |
| $ | (5,647 | ) |
| $ | 4,668 |
|
| $ | (979 | ) |
| $ | (11,614 | ) |
| $ | 8,333 |
|
| $ | (3,281 | ) |
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.07 | ) |
| $ | 0.06 |
|
| $ | (0.01 | ) |
| $ | (0.14 | ) |
| $ | 0.10 |
|
| $ | (0.04 | ) |
Diluted |
| $ | (0.07 | ) |
| $ | 0.06 |
|
| $ | (0.01 | ) |
| $ | (0.14 | ) |
| $ | 0.10 |
|
| $ | (0.04 | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 86,246,056 |
|
|
| — |
|
|
| 86,246,056 |
|
|
| 85,984,103 |
|
|
| — |
|
|
| 85,984,103 |
|
Diluted |
|
| 86,246,056 |
|
|
| — |
|
|
| 86,246,056 |
|
|
| 85,984,103 |
|
|
| — |
|
|
| 85,984,103 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2018 |
|
| September 30, 2018 |
| ||||||||||||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| ||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
| $ | 28,131 |
|
| $ | (108 | ) |
| $ | 28,023 |
|
| $ | 64,246 |
|
| $ | 205 |
|
| $ | 64,451 |
|
Subscription |
|
| 28,461 |
|
|
| (545 | ) |
|
| 27,916 |
|
|
| 76,517 |
|
|
| (1,986 | ) |
|
| 74,531 |
|
Services and other |
|
| 9,827 |
|
|
| (31 | ) |
|
| 9,796 |
|
|
| 29,930 |
|
|
| (580 | ) |
|
| 29,350 |
|
Total revenue |
|
| 66,419 |
|
|
| (684 | ) |
|
| 65,735 |
|
|
| 170,693 |
|
|
| (2,361 | ) |
|
| 168,332 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
| 1,145 |
|
|
| — |
|
|
| 1,145 |
|
|
| 3,543 |
|
|
| — |
|
|
| 3,543 |
|
Subscription |
|
| 5,252 |
|
|
| — |
|
|
| 5,252 |
|
|
| 14,829 |
|
|
| — |
|
|
| 14,829 |
|
Services and other |
|
| 7,617 |
|
|
| — |
|
|
| 7,617 |
|
|
| 21,788 |
|
|
| — |
|
|
| 21,788 |
|
Total cost of revenue |
|
| 14,014 |
|
|
| — |
|
|
| 14,014 |
|
|
| 40,160 |
|
|
| — |
|
|
| 40,160 |
|
Gross profit |
|
| 52,405 |
|
|
| (684 | ) |
|
| 51,721 |
|
|
| 130,533 |
|
|
| (2,361 | ) |
|
| 128,172 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 11,474 |
|
|
| — |
|
|
| 11,474 |
|
|
| 31,351 |
|
|
| — |
|
|
| 31,351 |
|
General and administrative |
|
| 8,763 |
|
|
| — |
|
|
| 8,763 |
|
|
| 24,163 |
|
|
| — |
|
|
| 24,163 |
|
Sales and marketing |
|
| 27,658 |
|
|
| (957 | ) |
|
| 26,701 |
|
|
| 76,636 |
|
|
| (3,702 | ) |
|
| 72,934 |
|
Total operating expenses |
|
| 47,895 |
|
|
| (957 | ) |
|
| 46,938 |
|
|
| 132,150 |
|
|
| (3,702 | ) |
|
| 128,448 |
|
Income (loss) from operations |
|
| 4,510 |
|
|
| 273 |
|
|
| 4,783 |
|
|
| (1,617 | ) |
|
| 1,341 |
|
|
| (276 | ) |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (202 | ) |
|
| — |
|
|
| (202 | ) |
|
| (4,180 | ) |
|
| — |
|
|
| (4,180 | ) |
Other, net |
|
| (388 | ) |
|
| — |
|
|
| (388 | ) |
|
| (1,104 | ) |
|
| — |
|
|
| (1,104 | ) |
Total other expense, net |
|
| (590 | ) |
|
| — |
|
|
| (590 | ) |
|
| (5,284 | ) |
|
| — |
|
|
| (5,284 | ) |
Income (loss) before income taxes |
|
| 3,920 |
|
|
| 273 |
|
|
| 4,193 |
|
|
| (6,901 | ) |
|
| 1,341 |
|
|
| (5,560 | ) |
Income tax (expense) benefit |
|
| (618 | ) |
|
| (1,767 | ) |
|
| (2,385 | ) |
|
| (1,411 | ) |
|
| 5,498 |
|
|
| 4,087 |
|
Net income (loss) |
| $ | 3,302 |
|
| $ | (1,494 | ) |
| $ | 1,808 |
|
| $ | (8,312 | ) |
| $ | 6,839 |
|
| $ | (1,473 | ) |
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.02 |
|
| $ | (0.10 | ) |
| $ | 0.08 |
|
| $ | (0.02 | ) |
Diluted |
| $ | 0.04 |
|
| $ | (0.02 | ) |
| $ | 0.02 |
|
| $ | (0.10 | ) |
| $ | 0.08 |
|
| $ | (0.02 | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 86,825,168 |
|
|
| — |
|
|
| 86,825,168 |
|
|
| 86,267,539 |
|
|
| — |
|
|
| 86,267,539 |
|
Diluted |
|
| 90,355,212 |
|
|
| — |
|
|
| 90,355,212 |
|
|
| 86,267,539 |
|
|
| — |
|
|
| 86,267,539 |
|
|
| Three Months Ended |
|
| Year Ended |
| ||||||||||||||||||
|
| December 31, 2018 |
|
| December 31, 2018 |
| ||||||||||||||||||
|
| Presented without adoption (ASC 605) |
|
| Impact of adoption |
|
| As adjusted with adoption (ASC 606) |
|
| Presented without adoption (ASC 605) |
|
| Impact of adoption |
|
| As adjusted with adoption (ASC 606) |
| ||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
| $ | 37,447 |
|
| $ | 3,102 |
|
| $ | 40,549 |
|
| $ | 101,693 |
|
| $ | 3,307 |
|
| $ | 105,000 |
|
Subscription |
|
| 30,015 |
|
|
| (513 | ) |
|
| 29,502 |
|
|
| 106,532 |
|
|
| (2,499 | ) |
|
| 104,033 |
|
Services and other |
|
| 10,320 |
|
|
| 217 |
|
|
| 10,537 |
|
|
| 40,250 |
|
|
| (363 | ) |
|
| 39,887 |
|
Total revenue |
|
| 77,782 |
|
|
| 2,806 |
|
|
| 80,588 |
|
|
| 248,475 |
|
|
| 445 |
|
|
| 248,920 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
| 1,091 |
|
|
| — |
|
|
| 1,091 |
|
|
| 4,634 |
|
|
| — |
|
|
| 4,634 |
|
Subscription |
|
| 5,905 |
|
|
| — |
|
|
| 5,905 |
|
|
| 20,734 |
|
|
| — |
|
|
| 20,734 |
|
Services and other |
|
| 7,514 |
|
|
| — |
|
|
| 7,514 |
|
|
| 29,302 |
|
|
| — |
|
|
| 29,302 |
|
Total cost of revenue |
|
| 14,510 |
|
|
| — |
|
|
| 14,510 |
|
|
| 54,670 |
|
|
| — |
|
|
| 54,670 |
|
Gross profit |
|
| 63,272 |
|
|
| 2,806 |
|
|
| 66,078 |
|
|
| 193,805 |
|
|
| 445 |
|
|
| 194,250 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 11,803 |
|
|
| — |
|
|
| 11,803 |
|
|
| 43,154 |
|
|
| — |
|
|
| 43,154 |
|
General and administrative |
|
| 10,618 |
|
|
| — |
|
|
| 10,618 |
|
|
| 34,781 |
|
|
| — |
|
|
| 34,781 |
|
Sales and marketing |
|
| 33,623 |
|
|
| (1,155 | ) |
|
| 32,468 |
|
|
| 110,259 |
|
|
| (4,857 | ) |
|
| 105,402 |
|
Total operating expenses |
|
| 56,044 |
|
|
| (1,155 | ) |
|
| 54,889 |
|
|
| 188,194 |
|
|
| (4,857 | ) |
|
| 183,337 |
|
Income from operations |
|
| 7,228 |
|
|
| 3,961 |
|
|
| 11,189 |
|
|
| 5,611 |
|
|
| 5,302 |
|
|
| 10,913 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (527 | ) |
|
| — |
|
|
| (527 | ) |
|
| (4,707 | ) |
|
| — |
|
|
| (4,707 | ) |
Other, net |
|
| (342 | ) |
|
| — |
|
|
| (342 | ) |
|
| (1,446 | ) |
|
| — |
|
|
| (1,446 | ) |
Total other expense, net |
|
| (869 | ) |
|
| — |
|
|
| (869 | ) |
|
| (6,153 | ) |
|
| — |
|
|
| (6,153 | ) |
Income before income taxes |
|
| 6,359 |
|
|
| 3,961 |
|
|
| 10,320 |
|
|
| (542 | ) |
|
| 5,302 |
|
|
| 4,760 |
|
Income tax expense (benefit) |
|
| (380 | ) |
|
| (4,797 | ) |
|
| (5,177 | ) |
|
| (1,791 | ) |
|
| 701 |
|
|
| (1,090 | ) |
Net income (loss) |
| $ | 5,979 |
|
| $ | (836 | ) |
| $ | 5,143 |
|
| $ | (2,333 | ) |
| $ | 6,003 |
|
| $ | 3,670 |
|
Net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.07 |
|
| $ | (0.01 | ) |
| $ | 0.06 |
|
| $ | (0.03 | ) |
| $ | 0.07 |
|
| $ | 0.04 |
|
Diluted |
| $ | 0.07 |
|
| $ | (0.01 | ) |
| $ | 0.06 |
|
| $ | (0.03 | ) |
| $ | 0.07 |
|
| $ | 0.04 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 87,171,161 |
|
|
| — |
|
|
| 87,171,161 |
|
|
| 86,495,301 |
|
|
| — |
|
|
| 86,495,301 |
|
Diluted |
|
| 90,234,993 |
|
|
| — |
|
|
| 90,234,993 |
|
|
| 86,495,301 |
|
|
| 3,507,451 |
|
|
| 90,002,752 |
|
Adoption of the revised standard related to revenue recognition had no impact to financing or investing cash flows on the Company’s consolidated statements of cash flows. Selected unaudited consolidated statement of cash flows line items which reflect the adoption of ASC 606 are as follows (in thousands):
|
| Three Months Ended |
| |||||||||
|
| March 31, 2018 |
| |||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (5,967 | ) |
| $ | 3,665 |
|
| $ | (2,302 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 2,628 |
|
|
| — |
|
|
| 2,628 |
|
Amortization of loan origination fees |
|
| 108 |
|
|
| — |
|
|
| 108 |
|
Amortization of contract acquisition costs |
|
| 1,139 |
|
|
| 536 |
|
|
| 1,675 |
|
Gain on disposal of fixed assets |
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
Stock-based compensation expense |
|
| 5,139 |
|
|
| — |
|
|
| 5,139 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 16,910 |
|
|
| 342 |
|
|
| 17,252 |
|
Prepayments and other current assets |
|
| (220 | ) |
|
| (2,057 | ) |
|
| (2,277 | ) |
Other non-current assets |
|
| 436 |
|
|
| 142 |
|
|
| 578 |
|
Accounts payable |
|
| (358 | ) |
|
| — |
|
|
| (358 | ) |
Accrued expenses and other liabilities |
|
| (10,651 | ) |
|
| (868 | ) |
|
| (11,519 | ) |
Income taxes |
|
| 230 |
|
|
| (3,082 | ) |
|
| (2,852 | ) |
Deferred revenue |
|
| 5,932 |
|
|
| 1,322 |
|
|
| 7,254 |
|
Net cash provided by operating activities |
| $ | 15,322 |
|
| $ | — |
|
| $ | 15,322 |
|
|
| Six Months Ended |
| |||||||||
|
| June 30, 2018 |
| |||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (11,614 | ) |
| $ | 8,333 |
|
| $ | (3,281 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 5,278 |
|
|
| — |
|
|
| 5,278 |
|
Amortization of loan origination fees |
|
| 191 |
|
|
| — |
|
|
| 191 |
|
Amortization of contract acquisition costs |
|
| 2,007 |
|
|
| 1,394 |
|
|
| 3,401 |
|
Loss on modification and partial extinguishment of debt |
|
| 1,536 |
|
|
| — |
|
|
| 1,536 |
|
Gain on disposal of fixed assets |
|
| (48 | ) |
|
| — |
|
|
| (48 | ) |
Stock-based compensation expense |
|
| 9,255 |
|
|
| — |
|
|
| 9,255 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 17,711 |
|
|
| 333 |
|
|
| 18,044 |
|
Prepayments and other current assets |
|
| (1,778 | ) |
|
| (3,091 | ) |
|
| (4,869 | ) |
Other non-current assets |
|
| 214 |
|
|
| (869 | ) |
|
| (655 | ) |
Accounts payable |
|
| 663 |
|
|
| — |
|
|
| 663 |
|
Accrued expenses and other liabilities |
|
| (8,557 | ) |
|
| (1,467 | ) |
|
| (10,024 | ) |
Income taxes |
|
| (264 | ) |
|
| (7,265 | ) |
|
| (7,529 | ) |
Deferred revenue |
|
| 12,013 |
|
|
| 2,632 |
|
|
| 14,645 |
|
Net cash provided by operating activities |
| $ | 26,607 |
|
| $ | — |
|
| $ | 26,607 |
|
|
| Nine Months Ended |
| |||||||||
|
| September 30, 2018 |
| |||||||||
|
| As previously reported (ASC 605) |
|
| Impact of adoption |
|
| As adjusted (ASC 606) |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (8,312 | ) |
| $ | 6,839 |
|
| $ | (1,473 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 7,977 |
|
|
| — |
|
|
| 7,977 |
|
Amortization of loan origination fees |
|
| 220 |
|
|
| — |
|
|
| 220 |
|
Amortization of contract acquisition costs |
|
| 3,001 |
|
|
| 2,555 |
|
|
| 5,556 |
|
Loss on modification and partial extinguishment of debt |
|
| 1,536 |
|
|
| — |
|
|
| 1,536 |
|
Gain on disposal of fixed assets |
|
| (36 | ) |
|
| — |
|
|
| (36 | ) |
Bad debt |
|
| 299 |
|
|
| — |
|
|
| 299 |
|
Stock-based compensation expense |
|
| 14,138 |
|
|
| — |
|
|
| 14,138 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 1,292 |
|
|
| 195 |
|
|
| 1,487 |
|
Prepayments and other current assets |
|
| (4,731 | ) |
|
| (3,409 | ) |
|
| (8,140 | ) |
Other non-current assets |
|
| 306 |
|
|
| (1,873 | ) |
|
| (1,567 | ) |
Accounts payable |
|
| 805 |
|
|
| — |
|
|
| 805 |
|
Accrued expenses and other liabilities |
|
| (4,078 | ) |
|
| (1,077 | ) |
|
| (5,155 | ) |
Income taxes |
|
| 411 |
|
|
| (5,498 | ) |
|
| (5,087 | ) |
Deferred revenue |
|
| 17,530 |
|
|
| 2,268 |
|
|
| 19,798 |
|
Net cash provided by operating activities |
| $ | 30,358 |
|
| $ | — |
|
| $ | 30,358 |
|
|
| Year Ended |
| |||||||||
|
| December 31, 2018 |
| |||||||||
|
| Presented without adoption (ASC 605) |
|
| Impact of adoption |
|
| As adjusted with adoption (ASC 606) |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | (2,333 | ) |
| $ | 6,003 |
|
| $ | 3,670 |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 10,736 |
|
|
| — |
|
|
| 10,736 |
|
Amortization of loan origination fees |
|
| 238 |
|
|
| — |
|
|
| 238 |
|
Amortization of contract acquisition costs |
|
| 3,889 |
|
|
| 3,864 |
|
|
| 7,753 |
|
Loss on modification and extinguishment of debt |
|
| 1,848 |
|
|
| — |
|
|
| 1,848 |
|
(Gain) loss on disposal of fixed assets |
|
| (20 | ) |
|
| — |
|
|
| (20 | ) |
Bad debt expense |
|
| 2,332 |
|
|
| — |
|
|
| 2,332 |
|
Stock-based compensation expense |
|
| 18,975 |
|
|
| — |
|
|
| 18,975 |
|
Deferred taxes |
|
| (471 | ) |
|
| (809 | ) |
|
| (1,280 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (31,613 | ) |
|
| 364 |
|
|
| (31,249 | ) |
Prepayments and other current assets |
|
| (4,858 | ) |
|
| (8,884 | ) |
|
| (13,742 | ) |
Other non-current assets |
|
| (4,310 | ) |
|
| 711 |
|
|
| (3,599 | ) |
Accounts payable |
|
| 2,406 |
|
|
| — |
|
|
| 2,406 |
|
Accrued expenses and other liabilities |
|
| (690 | ) |
|
| (192 | ) |
|
| (882 | ) |
Income taxes |
|
| 349 |
|
|
| 106 |
|
|
| 455 |
|
Deferred revenue |
|
| 41,062 |
|
|
| (1,163 | ) |
|
| 39,899 |
|
Net cash provided by operating activities |
|
| 37,540 |
|
|
| — |
|
|
| 37,540 |
|
Disaggregation of revenue
The Company’s revenue by geographic region based on the customer’s location is presented in Footnote 14.
The following table presents the Company’s revenue by timing of revenue recognition during the reporting periods to understand the risks of timing of transfer of control and cash flows:
|
| Year Ended December 31, 2018 |
| ||||||||||||||||||||||||||||||||||||||||||||
|
| License |
|
| Subscription |
|
| Services and other |
| Licenses | SaaS (1) | Maintenance and Support (1) | Other Subscription Services(1) | Total Subscription | Services and Other | ||||||||||||||||||||||||||||||||
|
| (in thousands) |
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||
Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2021 | Year Ended December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue recognized at a point in time |
| $ | 105,000 |
|
| $ | — |
|
| $ | — |
| Revenue recognized at a point in time | $ | 113,004 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||
Revenue recognized over time |
|
| — |
|
|
| 104,033 |
|
|
| 39,887 |
| Revenue recognized over time | — | 112,720 | 153,621 | 6,856 | 273,197 | 52,753 | ||||||||||||||||||||||||||||
Total revenue |
| $ | 105,000 |
|
| $ | 104,033 |
|
| $ | 39,887 |
| Total revenue | $ | 113,004 | $ | 112,720 | $ | 153,621 | $ | 6,856 | $ | 273,197 | $ | 52,753 | ||||||||||||||||||||||
| Year Ended December 31, 2020 | Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | Revenue recognized at a point in time | $ | 120,874 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Revenue recognized over time | Revenue recognized over time | — | 66,913 | 126,792 | 3,112 | 196,817 | 47,563 | ||||||||||||||||||||||||||||||||||||||||
| Total revenue | Total revenue | $ | 120,874 | $ | 66,913 | $ | 126,792 | $ | 3,112 | $ | 196,817 | $ | 47,563 | ||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2019 | Year Ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | Revenue recognized at a point in time | $ | 102,800 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Revenue recognized over time | Revenue recognized over time | — | 42,432 | 100,435 | 523 | 143,390 | 42,325 | ||||||||||||||||||||||||||||||||||||||||
| Total revenue | Total revenue | $ | 102,800 | $ | 42,432 | $ | 100,435 | $ | 523 | $ | 143,390 | $ | 42,325 | ||||||||||||||||||||||||||||||||||
| Contract Acquisition Costs | |||||||||||
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Beginning Balance | $ | 54,102 | $ | 35,152 | |||||||
| Additional deferred contract acquisition costs | 60,799 | 32,634 | |||||||||
| Amortization of deferred contract acquisition costs | (20,210) | (13,684) | |||||||||
| Ending Balance | $ | 94,691 | $ | 54,102 | |||||||
|
| Contract acquisition costs |
| |
Balances at December 31, 2017 |
| $ | 5,949 |
|
Adoption of ASC 606 |
|
| 16,199 |
|
Additional deferred contract acquisition costs |
|
| 1,439 |
|
Amortization of deferred contract acquisition costs |
|
| (1,675 | ) |
Balances at March 31, 2018 |
|
| 21,912 |
|
Additional deferred contract acquisition costs |
|
| 3,096 |
|
Amortization of deferred contract acquisition costs |
|
| (1,726 | ) |
Balances at June 30, 2018 |
|
| 23,282 |
|
Additional deferred contract acquisition costs |
|
| 3,345 |
|
Amortization of deferred contract acquisition costs |
|
| (2,155 | ) |
Balances at September 30, 2018 |
|
| 24,472 |
|
Additional deferred contract acquisition costs |
|
| 5,768 |
|
Amortization of deferred contract acquisition costs |
|
| (2,197 | ) |
Balances at December 31, 2018 |
| $ | 28,043 |
|
| Deferred Revenue | |||||||||||
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Beginning Balance | $ | 184,718 | $ | 152,033 | |||||||
| Increase, net | 59,412 | 32,685 | |||||||||
| Ending Balance | $ | 244,130 | $ | 184,718 | |||||||
|
| Deferred revenue (current) |
|
| Deferred revenue (non-current) |
| ||
Balances at December 31, 2017 |
| $ | 73,671 |
|
| $ | 9,454 |
|
Adoption of ASC 606 |
|
| (9,508 | ) |
|
| 786 |
|
Increase (decrease), net |
|
| 4,576 |
|
|
| 2,679 |
|
Balances at March 31, 2018 |
|
| 68,739 |
|
|
| 12,919 |
|
Increase (decrease), net |
|
| 6,504 |
|
|
| 886 |
|
Balances at June 30, 2018 |
|
| 75,243 |
|
|
| 13,805 |
|
Increase (decrease), net |
|
| 5,004 |
|
|
| 149 |
|
Balances at September 30, 2018 |
|
| 80,247 |
|
|
| 13,954 |
|
Increase (decrease), net |
|
| 15,672 |
|
|
| 4,428 |
|
Balances at December 31, 2018 |
| $ | 95,919 |
|
| $ | 18,382 |
|
The deferred revenue balance decreased as of January 1, 2018 primarily due to the impacts of upfront recognition of term licenseDeferred revenue, which were delivered prior to January 1, 2018, and from allocation of transaction prices based on performance obligations on revised standalone selling price (SSP) methodologies. Under the prior standard, the entire transaction fee was recognized ratably, however the revised standard requires upfront recognition of a portion of the transaction price allocated to the term license deliveredis netted with unbilled amounts at the inceptioncontract level, is a contract liability, consists primarily of payments received in advance of revenue recognition under the arrangement.Company’s contracts with customers and is recognized as the revenue recognition criteria are met. Revenue recognized during the 20182021, 2020 and 2019 reporting periodperiods that was previously deferred at January 1, 2018 was $75.0 million.$203.4 million, $147.5 million and $113.0 million, respectively. The difference between the opening and closing balances of the Company’s contract assets and deferred revenue primarily results from the timing difference between the Company’s performance and the customer billings.
Contract assets primarily relate to unbilled amounts, which are netted with deferred revenue at the contract level, and typically result from sales contracts when revenue recognized exceeds the amount billed to the customer, and the right to payment is subject to more than the passage of time. The contractContract assets are transferred to accounts receivable when the rights become unconditional.unconditional and the customer is billed. Contract assets are included in prepayments and other current assets and other non-current assets in the consolidated balance sheets. During the yearyears ended December 31, 2018, other significant changes to the opening2021 and closing balances include2020, amounts reclassified from contract assets of $6.3to accounts receivable were $20.2 million that were reclassified to receivables. During the year ended December 31, 2018, there were no impairment losses recognized on contract assets.
and $6.2 million, respectively.
The Company applied the practical expedient in accordance with ASC 606 to exclude contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. This primarily consists of professional services contracts that are on a time-and-material basis and for contracts with an original expected length of one year or less.
obligations
Assets Recognizedbalance recognized thereafter over the period from 2023 to 2028. The additional performance obligations include $80.8 million of current unbilled receivables and $234.8 million of long-term unbilled receivables.
changes in the allowance for expected credit losses for financial assets measured at amortized cost:
| Accounts Receivable | |||||||||||
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Beginning Balance | $ | 376 | $ | — | |||||||
| Adoption of ASC 326 | — | 407 | |||||||||
| Provision for credit losses | 1,095 | 757 | |||||||||
| Write-offs | (907) | (788) | |||||||||
| Ending Balance | $ | 564 | $ | 376 | |||||||
| Contract Assets | |||||||||||
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Beginning Balance | $ | 50 | $ | — | |||||||
| Adoption of ASC 326 | — | 65 | |||||||||
| Provision for (reduction in) credit losses | 2,336 | (15) | |||||||||
| Write-offs | — | — | |||||||||
| Ending Balance | $ | 2,386 | $ | 50 | |||||||
2019 was $0.2 million.
| As of December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 24,996 | — | — | $ | 24,996 | |||||||||||||||||
| Total cash equivalents | $ | 24,996 | — | — | $ | 24,996 | |||||||||||||||||
| As of December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 511,229 | — | — | $ | 511,229 | |||||||||||||||||
| Total cash equivalents | $ | 511,229 | — | — | $ | 511,229 | |||||||||||||||||
Deferred contract acquisition costs, which primarily consist of cumulative capitalized incremental costs to obtain contracts were $28.0 milliontheir short maturities as of December 31, 20182021 and $22.1 million2020 and are excluded from the fair value tables above.
| As of | |||||
| February 22, 2021 | |||||
| (In thousands) | |||||
| Cash and cash equivalents | $ | 1,143 | |||
| Accounts receivable | 146 | ||||
| Prepayments and other current assets | 43 | ||||
| Property and equipment, net | 17 | ||||
| Goodwill | 32,425 | ||||
| Intangible assets | 12,300 | ||||
| Accrued expenses and other liabilities | (97) | ||||
| Deferred tax liability - non-current | (1,409) | ||||
| Deferred revenue | (536) | ||||
| Total fair value of assets acquired and liabilities assumed | $ | 44,032 | |||
| Amount | Estimated Useful Life | ||||||||||
| (In thousands) | (In years) | ||||||||||
| Developed technology | $ | 9,500 | 5 | ||||||||
| Customer lists | $ | 2,800 | 3 | ||||||||
| As of | |||||
| March 15, 2021 | |||||
| (In thousands) | |||||
| Cash and cash equivalents | $ | 924 | |||
| Accounts receivable | 850 | ||||
| Prepayments and other current assets | 59 | ||||
| Property and equipment, net | 152 | ||||
| Right-of-use assets | 223 | ||||
| Goodwill | 15,902 | ||||
| Intangible assets | 13,900 | ||||
| Accrued expenses and other liabilities | (503) | ||||
| Deferred tax liability - non-current | (1,314) | ||||
| Deferred revenue | (1,200) | ||||
| Total fair value of assets acquired and liabilities assumed | $ | 28,993 | |||
| Amount | Estimated Useful Life | ||||||||||
| (In thousands) | (In years) | ||||||||||
| Developed technology | $ | 10,000 | 5 | ||||||||
| Customer lists | $ | 3,900 | 3 | ||||||||
| As of | |||||
| October 15, 2019 | |||||
| (In thousands) | |||||
| Cash and cash equivalents | $ | — | |||
| Prepayments and other current assets | 34 | ||||
| Right-of-use assets | 90 | ||||
| Goodwill | 7,637 | ||||
| Intangible assets | 9,760 | ||||
| Accounts payable | (21) | ||||
| Accrued expenses and other liabilities | (133) | ||||
| Deferred tax liability - non-current | (861) | ||||
| Total fair value of assets acquired and liabilities assumed | $ | 16,506 | |||
| Amount | Estimated Useful Life | ||||||||||
| (In thousands) | (In years) | ||||||||||
| Developed technology | $ | 9,760 | 5 | ||||||||
| As of | |||||
| October 15, 2019 | |||||
| (In thousands) | |||||
| Cash and cash equivalents | $ | 45 | |||
| Accounts receivable | 66 | ||||
| Prepayments and other current assets | 103 | ||||
| Deferred tax asset - non-current | 687 | ||||
| Right-of-use assets | 175 | ||||
| Goodwill | 14,107 | ||||
| Intangible assets | 6,610 | ||||
| Accounts payable | (256) | ||||
| Accrued expenses and other liabilities | (185) | ||||
| Deferred revenue | (466) | ||||
| Total fair value of assets acquired and liabilities assumed | $ | 20,886 | |||
| Amount | Estimated Useful Life | ||||||||||
| (In thousands) | (In years) | ||||||||||
| Developed technology | $ | 6,610 | 5 | ||||||||
4. Goodwill
Goodwill represents thein connection with each acquisition. The excess of the purchase price over the identifiable tangible andassets, identifiable intangible assets acquired plusand assumed liabilities assumedwas recorded as goodwill. Goodwill arising from business combinations. these acquisitions are not deductible for tax purposes.
| (In thousands) | |||||
| Balance, December 31, 2020 | $ | 241,103 | |||
| Goodwill acquired | 47,307 | ||||
| Measurement period adjustments | 1,020 | ||||
| Balance, December 31, 2021 | $ | 289,430 | |||
5. Intangible Assets
|
|
|
| As of December 31, |
| As of | |||||||||||||||||||||
|
| Weighted Average Useful Life |
| 2018 |
|
| 2017 |
| Weighted Average Useful Life | December 31, 2021 | December 31, 2020 | ||||||||||||||||
Intangible assets, net |
| (In years) |
| (In thousands) |
| Intangible assets, net | (In years) | (In thousands) | |||||||||||||||||||
Customer lists |
| 15 |
| $ | 42,500 |
|
| $ | 42,500 |
| Customer lists | 14.6 | $ | 49,200 | $ | 42,500 | |||||||||||
Developed technology |
| 9.6 |
|
| 42,000 |
|
|
| 42,000 |
| Developed technology | 8.6 | 66,260 | 51,760 | |||||||||||||
Trade names and trademarks |
| 17 |
|
| 24,500 |
|
|
| 24,500 |
| Trade names and trademarks | 17 | 24,500 | 24,500 | |||||||||||||
Order backlog |
| 1.5 |
|
| 1,100 |
|
|
| 1,100 |
| |||||||||||||||||
Non-competition agreements and other related items |
| 4.9 |
|
| 3,310 |
|
|
| 810 |
| |||||||||||||||||
| Other | Other | 4.8 | 2,976 | 3,746 | |||||||||||||||||||||||
Total intangible assets |
|
|
|
| 113,410 |
|
|
| 110,910 |
| Total intangible assets | 142,936 | 122,506 | ||||||||||||||
Less: Accumulated amortization |
|
|
|
| (38,550 | ) |
|
| (29,725 | ) | Less: Accumulated amortization | (69,467) | (58,544) | ||||||||||||||
Total intangible assets, net |
|
|
| $ | 74,860 |
|
| $ | 81,185 |
| Total intangible assets, net | $ | 73,469 | $ | 63,962 | ||||||||||||
In December 2018, the Company purchased certain technology patents from an unrelated third party for approximately $2.5 million. These patents pertain to technology that the Company plans to use by incorporating into or expanding its current products and will be amortized on a straight-line basis over five years. Amortization expense is included in the consolidated statements of operations for each of the years ended December 31, 2018, 2017 and 2016, respectively, as follows:
|
| Year Ended December 31, |
| |||||||||
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||
|
| (In thousands) |
| |||||||||
Cost of revenue - licenses |
| $ | 4,032 |
|
| $ | 4,032 |
|
| $ | 4,032 |
|
Cost of revenue - subscription |
|
| 384 |
|
|
| 384 |
|
|
| 384 |
|
Research and development |
|
| 136 |
|
|
| 149 |
|
|
| 162 |
|
General and administrative |
|
| — |
|
|
| — |
|
|
| 100 |
|
Sales and marketing |
|
| 4,273 |
|
|
| 4,276 |
|
|
| 4,414 |
|
Total amortization of intangibles |
| $ | 8,825 |
|
| $ | 8,841 |
|
| $ | 9,092 |
|
Periodically, the Company evaluates intangible assets for triggering events for indications of possible impairment. During the year ended December 31, 2021, the Company recorded an impairment charge of $0.7 million related to certain developed technology assets due to a decrease in the fair value of the underlying assets. Due to our strategic decision to discontinue further investment and enhancements in the standalone existing technology, we recorded an impairment charge of $5.1 million related to certain developed technology assets during the year ended December 31, 2020. There were no impairments for intangible assets during the yearsyear ended December 31, 2018, 2017 and 2016.
2019.
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Cost of revenue - licenses | $ | 3,674 | $ | 4,031 | $ | 4,032 | |||||||||||
| Cost of revenue - subscription | 5,539 | 3,549 | 1,076 | ||||||||||||||
| Research and development | 674 | 703 | 647 | ||||||||||||||
| Sales and marketing | 6,101 | 4,274 | 4,273 | ||||||||||||||
| Total amortization expense | $ | 15,988 | $ | 12,557 | $ | 10,028 | |||||||||||
Year ending December 31, |
| (In thousands) |
| ||||||
2019 |
| $ | 9,325 |
| |||||
2020 |
|
| 9,262 |
| |||||
2021 |
|
| 9,189 |
| |||||
| Year Ending December 31, | Year Ending December 31, | (In thousands) | |||||||
2022 |
|
| 8,861 |
| 2022 | $ | 16,719 | ||
2023 |
|
| 8,475 |
| 2023 | 16,557 | |||
| 2024 | 2024 | 12,674 | |||||||
| 2025 | 2025 | 8,175 | |||||||
| 2026 | 2026 | 4,968 | |||||||
Thereafter |
|
| 29,748 |
| Thereafter | 14,376 | |||
Total amortization expense |
| $ | 74,860 |
| Total amortization expense | $ | 73,469 | ||
6.
| Year Ended | |||||||||||
| December 31, 2021 | December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Lease cost | |||||||||||
| Operating lease cost | $ | 5,097 | $ | 5,155 | |||||||
| Variable lease cost | 2,521 | 2,434 | |||||||||
| Short-term lease cost | 782 | 395 | |||||||||
| Total lease cost | $ | 8,400 | $ | 7,984 | |||||||
| Year Ended | |||||||||||
| December 31, 2021 | December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
| Operating cash flows from operating leases | $ | 6,199 | $ | 5,181 | |||||||
| Right-of-use assets obtained in exchange for lease liabilities | |||||||||||
| Operating leases | $ | 472 | $ | 106 | |||||||
| Year Ending December 31, | (In thousands) | ||||
| 2022 | $ | 6,128 | |||
| 2023 | 5,210 | ||||
| 2024 | 5,033 | ||||
| 2025 | 4,890 | ||||
| 2026 | 5,036 | ||||
| Thereafter | 12,357 | ||||
| Total minimum lease payments | $ | 38,654 | |||
| Less: interest | (5,042) | ||||
| Total present value of operating lease liabilities | $ | 33,612 | |||
Operating Leases
The Company leases its facilities under non-cancelable operating lease agreements. The majority of these agreements include a renewal option, and/or require the Company to pay taxes, insurance, and maintenance costs, which are not included in the table below. Certain of these facility leases contain predetermined fixed escalations of the minimum rentals, and the Company recognizes expense for these leases on a straight-line basis. The difference between the recognized rental expense and amounts payable under the lease is recorded as deferred rent included in other long-term liabilities on the accompanying consolidated balance sheets.
Future minimum annual lease payments under these non-cancelable operating leases and contractual commitments, including hosting service agreements, as
Year ending December 31, |
| Operating leases |
|
| Contractual commitments |
| ||
2019 |
| $ | 3,112 |
|
| $ | 6,006 |
|
2020 |
|
| 4,454 |
|
|
| 2,577 |
|
2021 |
|
| 4,997 |
|
|
| 130 |
|
2022 |
|
| 4,921 |
|
|
| — |
|
2023 |
|
| 4,552 |
|
|
| — |
|
Thereafter |
|
| 27,575 |
|
|
| — |
|
Total minimum lease payments |
| $ | 49,611 |
|
| $ | 8,713 |
|
Rent expense under all operating leases was approximately $3.8 million, $2.9 million and $1.8 million, for the years ended December 31, 2018, 2017 and 2016, respectively. The Company had a deferred rent balance of approximately $1.4 million as of December 31, 2017, which is included in accrued expenses and other liabilities on the accompanying consolidated balance sheets. The deferred rent balance as of December 31, 2018 was $9.8 million, included in other long-term liabilities on the accompanying consolidated balance sheets.
purchase orders represent authorizations to purchase rather than binding agreements.
The Company includes service level commitments to our cloud customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those levels.
7. Line
In August 2016, the Companyour other wholly owned subsidiaries entered into a senior secured credit facilityagreement (as amended, restated, amended and restated, supplemented or otherwise
On June 28, 2017, the Company amended and restated its loan agreement to enter into a seriesin compliance with all applicable covenants as of transactions in which the Company incurred $50.0 million of incremental debt which expanded the current facility to $167.5 million consisting of a $160.0 million term loan and a $7.5 million revolving credit facility, undrawn at close. Proceeds were used to partially fund $50.4 million in accumulated preferred stock dividends for shares of preferred stock through December 15, 2016. Borrowings bear interest based on the adjusted LIBOR rate, as defined in the agreement with a 1% floor, plus an applicable margin of 7.0%. The rate prevalent at December 31, 2017 was 8%, consisting of the 1% floor plus 7% margin.2021.
In 2017, the Company amended its existing credit facility in connection with the consummation of its initial public offering. Such amendment required that the Company use a portion of its net proceeds to repay $90.0 million of borrowings outstanding under our term loan facility to reduce the aggregate outstanding principal amount thereof to $70.0 million. This repayment was subject to a prepayment premium of 1.50%, approximately $1.4 million, which is recorded as interest expense. As a result of this paydown, the Company incurred a $1.7 million loss on the modification and partial extinguishment of debt which was also recorded as interest expense in the accompanying consolidated statements of operations for the year ended December 31, 2017.
In 2017, the Company incurred total debt issuance costs of $4.5$0.8 million in connection with these loanthe Credit Agreement, which the net balance is included in other non-current assets on the accompanying consolidated balance sheets as of December 31, 2021 and security agreements, of which $1.4 million relates to the modified agreement.2020. These costs were to beare being amortized to interest expense over the life of the debtCredit Agreement on a straight-line basis, which approximates the effective interest rate method.basis. Amortization of debt issuance costs for existing loan and security agreement for the years ended December 31, 20182021, 2020 and 20172019 were approximately$0.2 million, $0.2 million and $0.7$0.1 million, respectively, and were recorded in interest expense on the accompanying consolidated statements of operations.
| As of | |||||||||||
| December 31, 2021 | December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Liability component | |||||||||||
| Principal | $ | 389,840 | $ | 400,000 | |||||||
Unamortized discount (1) | — | (68,270) | |||||||||
Unamortized issuance costs (1) | (4,668) | (5,058) | |||||||||
| Net carrying amount | $ | 385,172 | $ | 326,672 | |||||||
Equity component, net of issuance costs (1) | $ | — | $ | 86,764 | |||||||
| Year Ended | |||||||||||
| December 31, 2021 | December 31, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Contractual interest expense | $ | 484 | $ | 664 | |||||||
| Amortization of debt discount (1) | — | 16,272 | |||||||||
| Amortization of debt issuance costs (2) | 1,872 | 1,349 | |||||||||
| Total | $ | 2,356 | $ | 18,285 | |||||||
The outstanding balancerelated to the partial conversion of the term loan atNotes.
On October 5, 2017, in connection with our corporate headquarters lease, a standby letter of credit in the amount of $6.0 million was executed. On November 29, 2018, as a resultsettlement of the prepayment of the term loan, the standby letter of credit was cancelled and replaced by the 2018 Letter of Credit on behalf of the Company by U.S. Bank National Association. The 2018 Letter of Credit is an irrevocable, cash collateralized, unconditional standby letter of credit in an aggregate amount of $6.0 million under the Company’s corporate headquarters lease. The cash used as collateral is included as restricted cash on the balance sheet as of December 31, 2018.
8. Related Party Transactions
In 2016, the Company entered into agreements totaling approximately $626,000 with certain non-executive employees related to their personal tax liabilities. These agreements will be forgiven over a three-year period, beginning in 2016, if the employees remain employed by the Company through the applicable dates. During the year ended December 31, 2016, $0.2 million were forgiven related to the agreement. All the remaining balances related to these agreements were forgiven in 2017. No amounts were forgiven2021 Converted Notes during the year ended December 31, 2018.
In September 2014,2021, the Company entered intoterminated a pro rata amount of the Capped Call Transactions pursuant to the terms thereof. As a result of this pro rata termination, the Company received 37,301 shares of its common stock with an advisory services agreement (the “Consulting Agreement”) with its controlling entity. The Consulting Agreement required quarterly payments from September 8, 2014 throughaggregate value of approximately $1.9 million based on the trading price of our common stock at that time. As of December 31, 2018 for business consulting services provided by2021, the controlling entity. Consulting fees from the Consulting Agreement totaled $1.1Capped Call Transactions cover, subject to anti-dilution adjustments, 13.7 million shares of our common stock.
Throughout 2017 and 2016 the Company engaged in ordinary sales transactions of $858,000 and $37,000, and purchase transactions of $942,000 and $313,000, respectively, with entities affiliated with its controlling entity. At December 31, 2017, the accompanying consolidated balance sheets included accounts payable balances of $3,400, as well as accounts receivable balances $516,000, associated with these transactions. As of August 13, 2018, Thoma Bravo is no longer considered a controlling entity. Sales and purchase transactions were not considered material to the consolidated financial statements from January 1, 2018 through August 13, 2018.
9. Stockholders’2019.
Stock
Stock
Redeemable Convertible Preferred Stock
Prior to the November 2017 Amended and Restated Certificate of Incorporation, the Company classified the redeemable convertible preferred stock outside of stockholders’ equity (deficit) as required by ASC 480-10-S99 since the shares possessed liquidation features which may have triggered a distribution that was not solely within the Company’s control. Pursuant to the Company’s Amended and Restated Certificate of Incorporation in effect prior to the IPO, a deemed liquidation event would have occurred upon the closing of the transfer of the Company’s securities to a person or a group of affiliated persons, in one or a series of related transactions, if immediately after such transaction, such person or group of affiliated persons would hold 50% or more of the outstanding voting stock of the Company. The holders of a majority of the outstanding preferred stock may elect to require that all or any portion of the preferred stock held by them be redeemed in connection with any of the following (each of which is defined as a “Fundamental Change”): (i) a change in control of the Company, (ii) a sale of 50% or more of the assets of the Company and its subsidiaries, and (iii) a merger or consolidation to which the Company is a party, except for a
merger where the Company is the surviving corporation, the terms of the preferred stock are not changed and the preferred stock is not exchanged for cash, securities or other properties, and the holders of a majority of the voting power (with respect to election of directors) of the Company’s capital stock immediately prior to the merger shall continue to hold a majority of the voting power following the merger. Upon such election, each other holder of preferred stock may also require that all or any portion of the preferred stock held by them be redeemed in connection with such Fundamental Change.
Upon the closing of the IPO on November 17, 2017, all shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into shares of common stock. As of such date, no redeemable convertible preferred stock was authorized or issued and outstanding.
Dividends
Prior to November 2017, the holders of the Company’s redeemable convertible preferred stock were entitled to dividends when and if declared by the board of directors. Dividends were payable in preference and priority to any payment of any dividend on the Company’s common stock. Dividends on redeemable convertible preferred stock were cumulative and compounded daily at a rate of 9% per annum, equivalent to $90 per share of preferred stock. On June 27, 2017, the board of directors declared, and the Company paid, an aggregate cash dividend of $50.4 million on the issued and outstanding shares of the Company’s preferred stock. The accumulated payment was made to eligible stockholders effective through December 15, 2016 and was primarily funded with the proceeds from the financing arrangement as noted in Note 7. Upon completing the initial public offering in November 2017, 223,816 shares of redeemable convertible preferred shares, with cumulative undeclared and unpaid dividends of $22.2 million, were converted to 20,500,400 shares of common stock.
Treasury Stock
During 2014, the Company entered into “Employee Purchase Agreements” with certain of its employees. Pursuant to the Employee Purchase Agreements, shares issued to the employee can be repurchased when the employee leaves the Company, subject to certain pricing parameters. Any shares purchased have been held in the Company’s treasury.
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity (deficit). As of December 31, 2017, the Company had repurchased 190,434 shares, cumulatively, of its common stock for approximately $0.5 million, at an average cost of $2.56 per share. During the fourth quarter of 2017, all repurchased shares of treasury stock were retired. There was no treasury stock activity for the year ended December 31, 2018.
10. Stock Option Plans and
At
2017 Long Term Incentive Plan
Employee Stock Purchase Plan
In November 2017, the Company’s board of directors adopted the Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective November of 2017, after the date our registration statement was declared effective by the SEC. The first offering period opened July 1, 2018 and permitted eligible employees to purchase shares by authorizing payroll deductions from 1% to 15% of employee’s eligible compensation during the six-month offering period, with an annual cap of $25,000. Unless an employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares after the closing of the offering period at a price equal to 85% of the closing price of the shares at the opening or closing of the offering period, whichever is lower.
The Company initially reserved 1,771,375 shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP will increase each January 1 beginning in 2019 by 885,688 shares of common stock. The ESPP will continue in effect until October 30, 2020; unless terminated prior thereto by the Company’s board of directors or compensation committee, each of which has the right to terminate the ESPP at any time.
ESPP purchase rights have an expected volatility that is based on the historical volatility of the common stock of a collection of our peers in the market. The expected term represents the period of time the ESPP purchase rights are expected to be outstanding and approximates the offering period.
As of December 31, 2018, approximately 168,000 shares of common stock have been purchased or distributed pursuant to the ESPP. Stock-based compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the offering period.
|
| Time Based |
|
| Performance Based |
| December 31, 2021 | December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||
Stock Options |
| December 31, 2018 |
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2017 |
|
| December 31, 2016 |
| Stock Options | |||||||||||||||||||||
Expected dividend rate |
| 0% |
|
| 0% |
|
| 0% |
|
| 0% |
|
| 0% |
| Expected dividend rate | —% | —% | —% | ||||||||||||||||||
Expected volatility |
| 40.0% - 46.0% |
|
| 40.9% - 49.0% |
|
| 49.0% |
|
| 40.9% - 49.0% |
|
| 49.0% |
| Expected volatility | 47.3%- 50.8% | 50.0% - 56.2% | 38.8% - 46.0% | ||||||||||||||||||
Risk-free interest rate |
| 2.63% - 2.97% |
|
| 1.96% - 2.18% |
|
| 1.31% - 2.24% |
|
| 1.96% - 2.18% |
|
| 1.27% - 2.16% |
| Risk-free interest rate | 0.80% - 1.14% | 0.36% - 1.53% | 1.39% - 2.59% | ||||||||||||||||||
Expected term (in years) |
|
| 6.25 |
|
|
| 6.25 |
|
| 5.50 - 6.25 |
|
| 5.50 - 6.29 |
|
| 5.75 - 6.4 |
| Expected term (in years) | 6.25 | 6.25 | 6.25 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ESPP | ||||||||||||||||
Expected dividend rate |
| 0% |
|
| NA |
|
| NA |
|
| NA |
|
| NA |
| Expected dividend rate | —% | —% | —% | ||||||||||||||||||
Expected volatility |
| 40.0% - 46.0% |
|
| NA |
|
| NA |
|
| NA |
|
| NA |
| Expected volatility | 47.9% - 50.8% | 48.1% - 56.2% | 39.8% - 48.1% | ||||||||||||||||||
Risk-free interest rate |
| 2.00% - 2.56% |
|
| NA |
|
| NA |
|
| NA |
|
| NA |
| Risk-free interest rate | 0.04% - 0.09% | 0.10% - 1.57% | 1.62% - 2.44% | ||||||||||||||||||
Expected term (in years) |
|
| 0.50 |
|
| NA |
|
| NA |
|
| NA |
|
| NA |
| Expected term (in years) | 0.50 | 0.50 | 0.42 0.50 | |||||||||||||||||
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
| (In thousands) | (Per share) | (Years) | (In thousands) | ||||||||||||||||||||
| Balances at December 31, 2018 | 2,817 | $ | 6.64 | 8.0 | $ | 47,589 | |||||||||||||||||
| Granted | 1,068 | $ | 26.63 | ||||||||||||||||||||
| Exercised | (730) | $ | 4.18 | ||||||||||||||||||||
| Forfeited | (369) | $ | 16.31 | ||||||||||||||||||||
| Balances at December 31, 2019 | 2,786 | $ | 13.67 | 7.7 | $ | 31,489 | |||||||||||||||||
| Options vested and expected to vest at December 31, 2019 | 2,786 | $ | 13.67 | 7.7 | $ | 31,489 | |||||||||||||||||
| Options vested and exercisable at December 31, 2019 | 1,143 | $ | 6.17 | 6.4 | $ | 19,964 | |||||||||||||||||
| Balances at December 31, 2019 | 2,786 | $ | 13.67 | 7.7 | $ | 31,489 | |||||||||||||||||
| Granted | 617 | $ | 25.30 | ||||||||||||||||||||
| Exercised | (763) | $ | 7.82 | ||||||||||||||||||||
| Forfeited | (236) | $ | 20.35 | ||||||||||||||||||||
| Balances at December 31, 2020 | 2,404 | $ | 17.85 | 7.7 | $ | 85,064 | |||||||||||||||||
| Options vested and expected to vest at December 31, 2020 | 2,404 | $ | 17.85 | 7.7 | $ | 85,064 | |||||||||||||||||
| Options vested and exercisable at December 31, 2020 | 1,064 | $ | 12.00 | 6.7 | $ | 43,889 | |||||||||||||||||
| Balance at December 31, 2020 | 2,404 | $ | 17.85 | 7.7 | $ | 85,064 | |||||||||||||||||
| Granted | 304 | $ | 60.57 | ||||||||||||||||||||
| Exercised | (609) | $ | 12.50 | ||||||||||||||||||||
| Forfeited | (198) | $ | 26.39 | ||||||||||||||||||||
| Balances at December 31, 2021 | 1,901 | $ | 25.52 | 7.0 | $ | 46,895 | |||||||||||||||||
| Options vested and expected to vest at December 31, 2021 | 1,901 | $ | 25.52 | 7.0 | $ | 46,895 | |||||||||||||||||
| Options vested and exercisable at December 31, 2021 | 1,097 | $ | 16.70 | 6.2 | $ | 34,711 | |||||||||||||||||
The Company has determined the volatility for stock options granted based on an analysis of reported data for a comparable peer group of companies that issued stock options with substantially similar terms. The Company did not utilize its own historic volatility because, prior to November 2017, there was no public market for the Company’s common stock, and current time in the public market was not sufficiently long. The expected volatility of stock options granted has been determined using an average of the historical volatility measures of this peer group of companies consistent with the life of the options.
periods presented:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| (In thousands) | (Per share) | ||||||||||
| Non-vested at December 31, 2018 | 1,728 | $ | 5.47 | ||||||||
| Granted | 1,068 | $ | 11.36 | ||||||||
| Vested | (781) | $ | 5.35 | ||||||||
| Forfeited | (370) | $ | 7.60 | ||||||||
| Non-vested at December 31, 2019 | 1,645 | $ | 8.88 | ||||||||
| Granted | 617 | $ | 13.44 | ||||||||
| Vested | (686) | $ | 8.36 | ||||||||
| Forfeited | (236) | $ | 9.44 | ||||||||
| Non-vested at December 31, 2020 | 1,340 | $ | 11.17 | ||||||||
| Granted | 304 | $ | 29.51 | ||||||||
| Vested | (642) | $ | 10.54 | ||||||||
| Forfeited | (198) | $ | 12.90 | ||||||||
| Non-vested at December 31, 2021 | 804 | $ | 18.18 | ||||||||
The following table summarizes activity for time-based stock options during the years ended December 31, 2018, 2017 and 2016:
|
| Number of Options |
|
| Weighted Average Exercise Price (per share) |
|
| Weighted Average Remaining Contractual Term (years) |
|
| Aggregate Intrinsic Value |
| ||||
Balances at December 31, 2015 |
|
| 1,326,449 |
|
| $ | 2.38 |
|
| 9.7 |
|
|
|
|
| |
Granted |
|
| 419,839 |
|
| $ | 1.69 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (6,568 | ) |
| $ | 1.77 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (117,602 | ) |
| $ | 2.31 |
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016 |
|
| 1,622,118 |
|
| $ | 2.21 |
|
| 8.9 |
|
| $ | 1,546,599 |
| |
Options vested and expected to vest at December 31, 2016 |
|
| 1,622,118 |
|
| $ | 2.21 |
|
| 8.9 |
|
| $ | 1,546,599 |
| |
Options vested and exercisable at December 31, 2016 |
|
| 416,265 |
|
| $ | 2.36 |
|
| 8.7 |
|
| $ | 340,334 |
| |
Balances at December 31, 2016 |
|
| 1,622,118 |
|
| $ | 2.21 |
|
| 8.9 |
|
| $ | 1,546,599 |
| |
Granted |
|
| 1,592,370 |
|
| $ | 9.54 |
|
|
|
|
|
|
|
|
|
Conversion of performance to time based |
|
| 591,892 |
|
| $ | 2.53 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (152,330 | ) |
| $ | 2.22 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (153,975 | ) |
| $ | 2.21 |
|
|
|
|
|
|
|
|
|
Balances at December 31, 2017 |
|
| 3,500,075 |
|
| $ | 5.43 |
|
| 8.8 |
|
| $ | 31,784,488 |
| |
Options vested and expected to vest at December 31, 2017 |
|
| 3,500,075 |
|
| $ | 5.43 |
|
| 8.8 |
|
| $ | 31,784,488 |
| |
Options vested and exercisable at December 31, 2017 |
|
| 926,614 |
|
| $ | 2.28 |
|
| 7.9 |
|
| $ | 11,324,729 |
| |
Balances at December 31, 2017 |
|
| 3,500,075 |
|
| $ | 5.43 |
|
| 8.8 |
|
| $ | 31,784,488 |
| |
Granted |
|
| 82,549 |
|
| $ | 23.17 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (637,188 | ) |
| $ | 2.84 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (128,110 | ) |
| $ | 3.20 |
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018 |
|
| 2,817,326 |
|
| $ | 6.64 |
|
|
| 8.0 |
|
| $ | 47,589,066 |
|
Options vested and expected to vest at December 31, 2018 |
|
| 2,817,326 |
|
| $ | 6.64 |
|
|
| 8.0 |
|
| $ | 47,589,066 |
|
Options vested and exercisable at December 31, 2018 |
|
| 1,095,211 |
|
| $ | 4.72 |
|
| 7.4 |
|
| $ | 20,557,640 |
| |
The following table summarizes the status of the Company’s non-vested time-based vesting stock options for the years ended December 31, 2018, 2017 and 2016:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Non-vested at December 31, 2015 |
|
| 1,315,668 |
|
| $ | 1.15 |
|
Granted |
|
| 401,094 |
|
| $ | 0.81 |
|
Vested |
|
| (382,364 | ) |
| $ | 1.16 |
|
Forfeited |
|
| (117,602 | ) |
| $ | 1.12 |
|
Non-vested at December 31, 2016 |
|
| 1,216,796 |
|
| $ | 1.05 |
|
Granted |
|
| 1,592,370 |
|
| $ | 4.13 |
|
Conversion of vested performance to time based |
|
| 322,988 |
|
| $ | 11.95 |
|
Vested |
|
| (437,829 | ) |
| $ | 1.04 |
|
Forfeited |
|
| (111,076 | ) |
| $ | 1.07 |
|
Non-vested at December 31, 2017 |
|
| 2,583,249 |
|
| $ | 4.32 |
|
Granted |
|
| 82,549 |
|
| $ | 10.35 |
|
Vested |
|
| (816,454 | ) |
| $ | 2.99 |
|
Forfeited |
|
| (121,728 | ) |
| $ | 2.32 |
|
Non-vested at December 31, 2018 |
|
| 1,727,616 |
|
| $ | 5.47 |
|
The total unrecognized compensation expense related to non-vested time-based vesting stock options granted is $7.5$12.5 million and is expected to be recognized over a weighted average period of 2.12.2 years asof December 31, 2018.
The following table summarizes activity of performance vesting stock options for the years ended December 31, 2017 and 2016. There was no activity of performance vesting stock options for the year ended December 31, 2018 as all performance vesting options were modified to become service-based vesting stock options during the fourth quarter of 2017.