bnft-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

or

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

For the transition period from                      to                     .

Commission File Number: 001-36061

 

Benefitfocus, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

46-2346314

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

100 Benefitfocus Way

Charleston, South Carolina 29492

(Address of principal executive offices and zip code)

(843) 849-7476

(Registrant’s telephone number, including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

 

 

 

 

 

Smaller reporting company

Emerging growth company

 

 

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 Par Value

BNFT

Nasdaq Global Market

As of April 26, 2019, there were approximately 32,530,485 shares of the registrant’s common stock outstanding.

 

 

 

 


Benefitfocus, Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 2019

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

3

 

 

Unaudited Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

3

 

 

Unaudited Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

4

 

 

Unaudited Consolidated Statement of Changes in Stockholders' Deficit for the Three Months Ended March 31, 2019 and 2018  

5

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

6

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

20

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

29

 

 

ITEM 4. CONTROLS AND PROCEDURES

30

 

 

PART II. OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

31

 

 

ITEM 6. EXHIBITS

48

 

 

SIGNATURES

49

 

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Benefitfocus, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

As of

March 31,

2019

 

 

As of

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

144,158

 

 

$

190,928

 

Accounts receivable, net

 

 

28,247

 

 

 

21,077

 

Contract, prepaid and other current assets

 

 

19,039

 

 

 

16,667

 

Total current assets

 

 

191,444

 

 

 

228,672

 

Property and equipment, net

 

 

27,324

 

 

 

69,965

 

Financing lease right-of-use assets

 

 

80,867

 

 

 

 

Operating lease right-of-use assets

 

 

2,172

 

 

 

 

Intangible assets, net

 

 

14,411

 

 

 

 

Goodwill

 

 

12,304

 

 

 

1,634

 

Deferred contract costs and other non-current assets

 

 

12,507

 

 

 

13,668

 

Total assets

 

$

341,029

 

 

$

313,939

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,755

 

 

$

8,687

 

Accrued expenses

 

 

10,310

 

 

 

11,461

 

Accrued compensation and benefits

 

 

13,989

 

 

 

17,269

 

Deferred revenue, current portion

 

 

36,326

 

 

 

36,540

 

Lease liabilities and financing obligations, current portion

 

 

6,771

 

 

 

4,486

 

Total current liabilities

 

 

72,151

 

 

 

78,443

 

Deferred revenue, net of current portion

 

 

10,569

 

 

 

9,323

 

Convertible senior notes

 

 

179,442

 

 

 

176,692

 

Lease liabilities and financing obligations, net current portion

 

 

89,095

 

 

 

57,116

 

Other non-current liabilities

 

 

162

 

 

 

2,575

 

Total liabilities

 

 

351,419

 

 

 

324,149

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001, 5,000,000 shares authorized,

   no shares issued and outstanding at March 31, 2019

   and December 31, 2018

 

 

 

 

 

 

Common stock, par value $0.001, 50,000,000 shares authorized,

   32,070,628 and 32,017,773 shares issued and outstanding

   at March 31, 2019 and December 31, 2018, respectively

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

409,973

 

 

 

403,631

 

Accumulated deficit

 

 

(420,395

)

 

 

(413,873

)

Total stockholders' deficit

 

 

(10,390

)

 

 

(10,210

)

Total liabilities and stockholders' deficit

 

$

341,029

 

 

$

313,939

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

3


Benefitfocus, Inc.

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

 

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

68,299

 

 

$

62,363

 

Cost of revenue

 

 

32,852

 

 

 

31,403

 

Gross profit

 

 

35,447

 

 

 

30,960

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

19,619

 

 

 

19,917

 

Research and development

 

 

13,090

 

 

 

12,023

 

General and administrative

 

 

11,796

 

 

 

9,693

 

Total operating expenses

 

 

44,505

 

 

 

41,633

 

Loss from operations

 

 

(9,058

)

 

 

(10,673

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

660

 

 

 

58

 

Interest expense on building lease financing obligations (prior to adoption of ASC 842)

 

 

 

 

 

(1,866

)

Interest expense

 

 

(5,814

)

 

 

(1,317

)

Other income

 

 

9

 

 

 

 

Total other expense, net

 

 

(5,145

)

 

 

(3,125

)

Loss before income taxes

 

 

(14,203

)

 

 

(13,798

)

Income tax expense

 

 

6

 

 

 

4

 

Net loss

 

$

(14,209

)

 

$

(13,802

)

Comprehensive loss

 

$

(14,209

)

 

$

(13,802

)

Net loss per common share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.44

)

 

$

(0.44

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

32,056,934

 

 

 

31,333,348

 

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

4


Benefitfocus, Inc.

Unaudited Consolidated Statement of Changes in Stockholders’ Deficit

(in thousands, except share and per share data)

 

 

 

Common Stock,

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

$0.001 Par Value

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2018

 

 

32,017,773

 

 

$

32

 

 

$

403,631

 

 

$

(413,873

)

 

$

(10,210

)

Cumulative effect adjustment from adoption of lease standard

 

 

 

 

 

 

 

 

 

 

 

7,687

 

 

 

7,687

 

Exercise of stock options

 

 

18,600

 

 

 

 

 

 

89

 

 

 

 

 

 

89

 

Issuance of common stock upon vesting of restricted stock units

 

 

34,255

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,253

 

 

 

 

 

 

6,253

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,209

)

 

 

(14,209

)

Balance, March 31, 2019

 

 

32,070,628

 

 

$

32

 

 

$

409,973

 

 

$

(420,395

)

 

$

(10,390

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock,

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

$0.001 Par Value

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2017

 

 

31,307,989

 

 

$

31

 

 

$

352,496

 

 

$

(361,246

)

 

$

(8,719

)

Exercise of stock options

 

 

9,250

 

 

 

 

 

 

42

 

 

 

 

 

 

42

 

Issuance of common stock upon vesting of restricted stock units

 

 

15,208

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under Employee Stock Purchase Plan, or ESPP

 

 

7,022

 

 

 

 

 

 

180

 

 

 

 

 

 

180

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,325

 

 

 

 

 

 

4,325

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,802

)

 

 

(13,802

)

Balance, March 31, 2018

 

 

31,339,469

 

 

$

31

 

 

$

357,043

 

 

$

(375,048

)

 

$

(17,974

)

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

5


Benefitfocus, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

  

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(14,209

)

 

$

(13,802

)

Adjustments to reconcile net loss to net cash and cash

   equivalents used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,335

 

 

 

3,930

 

Stock-based compensation expense

 

 

6,367

 

 

 

4,325

 

Accretion of interest on convertible senior notes

 

 

2,749

 

 

 

 

Interest accrual on financing obligations (prior to adoption of ASC 842)

 

 

 

 

 

1,879

 

Rent expense in excess of payments

 

 

9

 

 

 

 

Provision for doubtful accounts

 

 

265

 

 

 

359

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(6,514

)

 

 

54

 

Contract, prepaid and other current assets

 

 

(2,495

)

 

 

881

 

Deferred costs and other non-current assets

 

 

1,568

 

 

 

1,166

 

Accounts payable and accrued expenses

 

 

(4,867

)

 

 

2,722

 

Accrued compensation and benefits

 

 

(3,580

)

 

 

(2,962

)

Deferred revenue

 

 

(5,089

)

 

 

(2,127

)

Other non-current liabilities

 

 

(23

)

 

 

(108

)

Net cash and cash equivalents used in operating activities

 

 

(20,484

)

 

 

(3,683

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Business combination, net of cash acquired

 

 

(21,033

)

 

 

 

Purchases of property and equipment

 

 

(2,955

)

 

 

(1,641

)

Net cash and cash equivalents used in investing activities

 

 

(23,988

)

 

 

(1,641

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Draws on revolving line of credit

 

 

 

 

 

31,000

 

Payments on revolving line of credit

 

 

 

 

 

(24,000

)

Payments of debt issuance costs

 

 

(357

)

 

 

 

Proceeds from exercises of stock options and ESPP

 

 

89

 

 

 

222

 

Payments on capital lease and financing obligations

 

 

(655

)

 

 

(2,448

)

Payments of principal on financing lease obligations

 

 

(1,375

)

 

 

 

Net cash and cash equivalents (used in) provided by financing activities

 

 

(2,298

)

 

 

4,774

 

Net decrease in cash and cash equivalents

 

 

(46,770

)

 

 

(550

)

Cash and cash equivalents, beginning of period

 

 

190,928

 

 

 

55,335

 

Cash and cash equivalents, end of period

 

$

144,158

 

 

$

54,785

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued expenses

 

$

382

 

 

$

452

 

Property and equipment purchased with financing and capital lease obligations

 

$

 

 

$

713

 

Post contract support purchased with financing obligations

 

$

 

 

$

275

 

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

6


BENEFITFOCUS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

1. Organization and Description of Business

Benefitfocus, Inc. (the “Company”) provides a leading cloud-based benefits management platform for consumers, employers, insurance carriers and brokers under a software-as-a-service (“SaaS”) model. The financial statements of the Company include the financial position and operations of its wholly owned subsidiaries, Benefitfocus.com, Inc. and BenefitStore, Inc.

 

2. Summary of Significant Accounting Policies

Principles of Consolidation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company is not the primary beneficiary of, nor does it have a controlling financial interest in, any variable interest entity. Accordingly, the Company has not consolidated any variable interest entity.

Interim Unaudited Consolidated Financial Information

The accompanying unaudited consolidated financial statements and footnotes have been prepared in accordance with GAAP as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information, and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ deficit and cash flows. The results of operations for the three-month period ended March 31, 2019 are not necessarily indicative of the results for the full year or for any other future period. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related footnotes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Such estimates include allowances for doubtful accounts and returns, valuations of deferred income taxes, long-lived assets, capitalizable software development costs and the related amortization, incremental borrowing rate used in lease accounting, stock-based compensation, the determination of the useful lives of assets and the impairment assessment of goodwill as well as the estimates disclosed in association with revenue recognition. Determination of these transactions and account balances are based on, among other things, the Company’s estimates and judgments. These estimates are based on the Company’s knowledge of current events and actions it may undertake in the future as well as on various other assumptions that it believes to be reasonable. Actual results could differ materially from these estimates.

Revenue and Deferred Revenue

The Company derives its revenues primarily from fees for software services and professional services sold to employers and insurance carriers. Revenues are recognized when control of these services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Taxes collected from customers relating to services and remitted to governmental authorities are excluded from revenues.

The Company determines revenue recognition through the following steps:

 

Identification of each contract with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, performance obligations are satisfied.

Software Services Revenues

Software services revenues primarily consist of monthly subscription fees paid to the Company by its employer and insurance carrier customers for access to, and usage of, cloud-based benefits software solutions for a specified contract term. Fees are generally charged based on the number of employees or subscribers with access to the solution. Software services revenue also includes certain other revenue which is generated from the value of policies or products enrolled in through Company’s marketplace.  

7


Software services revenues are generally recognized on a ratable basis over the contract term beginning on the date the software services are made available to the customer. The Company’s software service contracts are generally three years. Revenue from insurance broker commissions and supplier transactions is recognized at a point in time when the orders for the policies are received and transferred to the insurance carrier or supplier, and is reduced by estimates for risks from collectability, policy cancellation and termination.

Professional Services Revenues

Professional services revenues primarily consist of fees related to the implementation of software products purchased by customers. Professional services typically include discovery, configuration and deployment, integration, testing, and training. Fees from consulting services, support services and training are also included in professional services revenue.

Revenue from implementation services with insurance carrier customers are generally recognized over the contract term of the associated software services contract, including any extension periods representing a material right. In certain arrangements, the Company utilizes estimates of hours as a measure of progress to determine revenue.

Revenues from implementation services with employer customers are generally recognized as those services are performed.

Revenues from support and training fees are recognized over the service period.

Contracts with Multiple Performance Obligations

Certain of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are accounted for separately if they are distinct. The Company allocates the transaction price to the separate performance obligations based on their relative standalone selling prices. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the software services sold, customer size and complexity, and the number and types of users under the contracts.

Contract Costs

The Company capitalizes costs to obtain contracts that are considered incremental and recoverable, such as sales commissions.  Payments of sales commissions generally include multiple payments. The Company capitalizes only those payments made within an insignificant time from the contract inception, typically three months or less.  Subsequent payments are expensed as incurred. The capitalized costs are amortized to sales and marketing expense over the estimated period of benefit of the asset, which is generally four to five years. The Company expenses the costs to obtain a contract when the amortization period is less than one year. The balance of deferred costs related to obtaining contracts included in deferred contract costs and other non-current assets was $6,859 and $7,506 as of March 31, 2019 and December 31, 2018, respectively.  Sales and marketing expense includes $1,047 and $1,102 of amortization for the three months ended March 31, 2019 and 2018, respectively.

The Company capitalizes contract fulfillment costs directly associated with customer contracts that are not related to satisfying performance obligations. The costs are amortized to cost of revenue expense over the estimated period of benefit, which is generally five years. The balance of deferred fulfillment costs included in deferred contract costs and other non-current assets was $4,967 and $5,235 as of March 31, 2019 and December 31, 2018, respectively. Cost of revenue expense includes $802 and $895 of amortization for the three months ended March 31, 2019 and 2018, respectively.

Concentrations of Credit Risk

 The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The bank deposits of the Company might, at times, exceed federally insured limits and are generally uninsured and uncollateralized. The Company has not experienced any losses on cash and cash equivalents to date.

To manage accounts receivable risk, the Company evaluates the creditworthiness of its customers and maintains an allowance for doubtful accounts. Accounts receivable are unsecured and derived from revenue earned from customers located in the United States. Revenue from one customer was approximately 11% and 12% of the total revenue in the three-month period ended March 31, 2019 and 2018, respectively.

Accounts Receivable and Allowance for Doubtful Accounts and Returns

Accounts receivable are stated at realizable value, net of allowances for doubtful accounts and returns. The Company utilizes the allowance method to provide for doubtful accounts based on management’s evaluation of the collectability of amounts due, and other relevant factors. Bad debt expense is recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss. The Company’s estimate is based on historical collection experience and a review of the current status of accounts receivable. Historically, actual write-offs for uncollectible accounts have not significantly differed from the Company’s estimates. The Company removes recorded receivables and the associated allowances when they are deemed permanently uncollectible. However, higher than expected bad debts may result in future write-offs that are greater than the Company’s estimates. The allowance for doubtful accounts was $657 and $392 as of March 31, 2019 and December 31, 2018, respectively.

8


The allowances for returns are accounted for as reductions of revenue and are estimated based on the Company’s periodic assessment of historical experience and trends. The Company considers factors such as the time lag since the initiation of revenue recognition, historical reasons for adjustments, new customer volume, delivery issues or delays, and past due customer billings. The allowance for returns was $3,051 and $3,191 as of March 31, 2019 and December 31, 2018, respectively.

Capitalized Software Development Costs

The Company capitalizes certain costs related to its software developed or obtained for internal use. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Internal and external costs incurred during the application development stage, including upgrades and enhancements representing modifications that will result in significant additional functionality, are capitalized. Software maintenance and training costs are expensed as incurred. Capitalized costs are recorded as part of property and equipment and are amortized on a straight-line basis to cost of revenue over the software’s estimated useful life, which is three years. The Company evaluates these assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

In the three months ended March 31, 2019 and 2018, the Company capitalized software development costs of $2,063 and $1,280, respectively, and amortized capitalized software development costs of $1,178 and $889, respectively. The net book value of capitalized software development costs was $10,691 and $9,806 at March 31, 2019 and December 31, 2018, respectively.

Leases (after adoption of ASC 842)

The Company regularly enters into finance leases for property and equipment. The leasing arrangements for the Company’s office space at its headquarters campus are classified as finance leases.  The Company also leases office space under operating leases.

The Company determines if an arrangement is a lease at inception. Right of use, or ROU, assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent an obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s operating leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on information available at commencement date to determine the present value of lease payments. The ROU asset also consists of any prepaid lease payments, lease incentives, or initial direct costs. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense. The Company has lease agreements which require payments for lease and non-lease components (e.g. common area maintenance and equipment maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense.

Comprehensive Loss

The Company’s net loss equals comprehensive loss for all periods presented.

Recently Adopted Accounting Standards

Leases

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” codified as ASC 842. The amendments in this update require lessees, among other things, to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. ASC 842 introduces new disclosure requirements for leasing arrangements. The Company adopted this update using the modified transition method at the beginning of the period of adoption. Accordingly, the Company did not adjust prior period financial statements, and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit in 2019 in the amount of $7,687. The Company utilized the following additional significant policy elections:

 

Elected the package of three transition practical expedients to not reassess:

 

o

whether any expired or existing contracts are or contain a lease;

 

o

the classification of any expired or existing leases; and

 

o

the treatment of initial direct costs.

 

Adopted a policy to not separate lease and associated nonlease components for all classes of assets. The Company applied this policy to all existing leases on transition as well as new leases going forward.

9


 

Adopted a policy to not include leases with a term of 12 months or less in the recognized ROU assets and lease liabilities for all classes of assets.

The adoption of this standard had a significant impact on the Company’s consolidated financial statements as follows:

 

Net assets of $21,019 and related financing obligations and other noncurrent liabilities of $34,909 for existing build-to-suit lease arrangements were derecognized. These leases were transitioned to the new standard based on a proforma analysis of the lease balances as of the transition date as if they had been leases under ASC 840. Based on this analysis, the land component of these leases was combined with the remainder of the lease obligations. Historically, these obligations were accounted for separately and recognized as part of facilities expense and allocated to cost of revenue and operating expenses. Amounts recognized included $56,422 of net ROU assets, $2,848 of net leasehold improvements, and $63,952 of total finance lease liabilities. The net cumulative adjustment to accumulated deficit to derecognize and transition these leases was $7,687.

 

Finance lease liabilities and ROU assets of $3,589 were recorded related to payment obligations for nonlease components (e.g. common area maintenance and equipment maintenance) associated with existing capital leases.

 

Operating lease liabilities and ROU assets of $1,169 were recorded related to existing operating lease obligations.

Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU modifies the disclosure requirements required for fair value measurements. This ASU is effective for the Company for the interim and annual reporting periods starting January 1, 2020. Early adoption is permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The purpose of this ASU is to require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. This ASU is effective for interim and annual reporting periods starting January 1, 2020. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

3. Net Loss Per Common Share

Diluted loss per common share is the same as basic loss per common share for all periods presented because the effects of potentially dilutive items were anti-dilutive given the Company’s net loss. The following common share equivalent securities have been excluded from the calculation of weighted average common shares outstanding because the effect is anti-dilutive for the periods presented:

 

 

Three Months Ended

March 31,

 

Anti-Dilutive Common Share Equivalents

 

2019

 

 

2018

 

Restricted stock units

 

 

2,013,082

 

 

 

1,730,065

 

Stock options

 

 

214,647

 

 

 

253,905

 

Convertible senior notes

 

 

4,513,824

 

 

 

-

 

Employee Stock Purchase Plan

 

 

1,959

 

 

 

4,358

 

Total anti-dilutive common share equivalents

 

 

6,743,512

 

 

 

1,988,328

 

 

Basic and diluted net loss per common share is calculated as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,209

)

 

$

(13,802

)

Net loss attributable to common stockholders

 

$

(14,209

)

 

$

(13,802

)

Denominator:

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding, basic and diluted

 

 

32,056,934

 

 

 

31,333,348

 

Net loss per common share, basic and diluted

 

$

(0.44

)

 

$

(0.44

)

 

4. Fair Value Measurement

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable and other accrued liabilities, and accrued compensation and benefits, approximate fair value due to their

10


short-term nature. The carrying value of the Company’s financing obligations and revolving line of credit approximates fair value, considering the borrowing rates currently available to the Company with similar terms and credit risks.

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows:

 

Level 1.

Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2.

Other inputs that are directly or indirectly observable in the marketplace.

 

Level 3.

Unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis using the above categories, as of the periods presented.

 

 

March 31, 2019

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds (1)

 

$

136,596

 

 

$

 

 

$

 

 

$

136,596

 

Total assets

 

$

136,596

 

 

$

 

 

$

 

 

$

136,596

 

 

 

 

December 31, 2018

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds (1)

 

$

182,748

 

 

$

 

 

$

 

 

$

182,748

 

Total assets

 

$

182,748

 

 

$

 

 

$

 

 

$

182,748

 

 

________________

(1)

Money market funds are classified as cash equivalents in the Company’s unaudited consolidated balance sheets. As short-term, highly liquid investments readily convertible to known amounts of cash with remaining maturities of three months or less at the time of purchase, the Company’s cash equivalent money market funds have carrying values that approximate fair value.

 

5. Business Combination

On February 25, 2019, the Company purchased certain operating assets and liabilities, intellectual property and intangible assets, including the workforce in place, of the commercial business of Connecture, Inc., for $21,072 ($24,000 before working capital adjustments).  This acquisition added technology to potentially strengthen the Company’s platform, expand its customer reach, and enhance the value the Company delivers to its carrier customers.  

The following table summarizes the fair value of the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

Consideration Transferred

 

 

 

 

Cash

 

$

20,033

 

Payable

 

 

39

 

Contingent consideration arrangement

 

 

1,000

 

Fair value of total consideration transferred

 

$

21,072

 

 

11


Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed

 

 

 

 

Accounts receivable, net

 

$

921

 

Contract, prepaid and other current assets

 

 

561

 

Property and equipment, net

 

 

198

 

Operating lease right-of-use assets

 

 

1,107

 

Intangible assets, net

 

 

14,600

 

Deferred contract costs and other non-current assets

 

 

430

 

Accrued compensation and benefits

 

 

(186

)

Deferred revenue, current portion

 

 

(6,122

)

Operating lease ROU liabilities, current portion

 

 

(84

)

Operating lease ROU liabilities, net of current portion

 

 

(1,023

)

Total identifiable net assets

 

 

10,402

 

Goodwill

 

 

10,670

 

Total identifiable net assets and goodwill

 

$

21,072

 

The goodwill of $10,670 arising from the acquisition consists largely of the value of the acquired organized workforce as well as economies of scale. The goodwill recognized is expected to be deductible for income tax purposes.

The identifiable intangible assets acquired have a weighted average amortization period of 6.5 years and include developed technology, customer relationships, and trade name.  The Company did not acquire any contingent liabilities as part of the transaction.

The $21,072 fair value purchase price includes cash of $21,033 and a liability to Connecture of $39 for estimated working capital adjustments.  The cash transferred includes $1,000 in contingent consideration placed into a third-party escrow.  These escrowed funds are released to Connecture as required contractual consents to the assignment of service arrangements are obtained from specified customers.  The undiscounted consideration distributable to Connecture under this arrangement ranges from $0 to $1,000.  As customer consents are obtained, the amount of the undiscounted consideration associated with the customer is transferred to Connecture.  For any specified service contracts that, at the end of one year, are continuing to be honored by the customer, whether or not affirmative consent has been received from such customer, the related escrowed funds will be distributed to Connecture.  If during the first year after the closing date of the acquisition, a customer refuses to consent to the assignment of the contract, or fails to deliver consent and stops performing under the contract or otherwise terminates the contract, the portion of the escrow related to that customer contract will then be distributable back to the Company.  The Company expects all of the contingent consideration will be distributed to Connecture within one year of acquisition.  Therefore, the full $1,000 undiscounted escrow balance is included in the fair value of the consideration transferred for the acquisition.

The fair value of the consideration transferred along with accounts receivable, contract assets, and deferred revenue is provisional pending finalization of the working capital adjustment to the purchase price defined by the agreement between the parties.  The fair value of property and equipment, right of use assets, and lease liabilities is provisional pending finalization of the Company’s review of supporting records for these assets and liabilities.

The Company incurred $289 in costs related to completing the acquisition of which $191 are recognized in General and administrative expense for the quarter ended March 31, 2019.

Revenue and expenses recognized by the Company related to the operations of the acquired business were immaterial for the period from the acquisition to March 31, 2019.

Coincident with the acquisition, the Company entered into two additional agreements with Connecture each of which are accounted for separately at contracted prices as described below:

 

Transition Services Agreement where each party provides certain transition services to the other for a 12-month period to facilitate an orderly transition the acquired business.  

 

An agreement for the Company to provide interim services to Connecture as a subcontractor under a master services agreement maintained by Connecture that includes service commitments related to both the acquired business and Connecture’s retained business while the parties work together with the customer to legally separate the contract.  

Supplemental pro forma revenue and earnings information are not presented since historical records for the acquired business are not available.  Therefore, determining the amount of revenue and earnings of the combined entity as though the business combination had occurred as of the beginning of the comparable periods would require significant estimates of amounts that the Company cannot independently substantiate. The Company estimates that the difference between pro forma information compared to reported results would not be significant.

6. Convertible Senior Notes

In December 2018, the Company issued $240,000 aggregate principal amount of 1.25% convertible senior notes (“Notes”) due December 15, 2023, unless earlier repurchased by the Company or converted by the holder pursuant to their terms. Interest is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2019.

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The Notes are governed by an Indenture between the Company, as issuer, and U.S. Bank, National Association, as trustee. The Notes are unsecured and rank: senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s senior, secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election.

The Notes have an initial conversion rate of 18.8076 shares of common stock per $1 principal amount of Notes. This represents an initial effective conversion price of approximately $53.17 per share of common stock and 4,513,824 shares issuable upon conversion. Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest, if any, upon conversion of a Note, except in limited circumstances. Accrued but unpaid interest will be deemed to be paid by cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock paid or delivered, as the case may be, to the holder upon conversion of Notes.

Prior to the close of business on September 14, 2023, the Notes will be convertible at the option of holders during certain periods, only upon satisfaction of certain conditions set forth below. On or after September 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion price at any time regardless of whether the conditions set forth below have been met.

Holders may convert all or a portion of their Notes prior to the close of business on September 14, 2023, in multiples of $1 principal amount, only under the following circumstances:

 

during any calendar quarter commencing after the calendar quarter ending on March 31, 2019 (and only during such calendar quarter), if the last reported sales price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

 

during the five business day period after any five consecutive trading day period, or the Notes measurement period, in which the “trading price” (as defined in the Indenture) per $1 principal amount of notes for each trading day of the Notes measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

 

if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on September 14, 2023; or

 

upon the occurrence of specified corporate events.

As of March 31, 2019, the Notes were not convertible.

Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and with similar maturity, the Company estimated the implied market interest rate of its Notes to be approximately 7.30%, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component of the Notes, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the Notes, which resulted in a fair value of the liability component of $181,500 upon issuance, calculated as the present value of future contractual payments based on the $240,000 aggregate principal amount. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense over the term of the Notes. The $58,500 difference between the gross proceeds received from issuance of the Notes of $240,000 and the estimated fair value of the liability component represents the equity component of the Notes and was recorded in additional paid-in capital. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, the Company allocated the total amount incurred to the liability and equity components in proportion to the allocation of proceeds. Transaction costs attributable to the liability component, totaling $4,808, are being amortized to expense over the term of the Notes, and transaction costs attributable to the equity component, totaling $1,550, and were included with the equity component in shareholders’ equity.

The Notes consist of the following as of:

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Liability Component:

 

 

 

 

 

 

 

 

Principal

 

$

240,000

 

 

$

240,000

 

Less:  debt discount, net of amortization

 

 

(60,558

)

 

 

(63,308

)

Net carrying amount

 

$

179,442

 

 

$

176,692

 

Equity component (a)

 

 

56,950

 

 

 

56,950

 

 

(a)

Recorded in the consolidated balance sheet within additional paid-in capital, net of $1,550 transaction costs in equity.

 

13


The following table sets forth total interest expense recognized related to the Notes:

 

 

Three Months Ended March 31,

 

 

 

2019

 

1.25% coupon

 

$

750

 

Amortization of debt discount and transaction costs

 

 

2,749

 

 

 

$

3,499

 

 

As of March 31, 2019, the fair value of the Notes, which was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, quoted price of the Notes in an over-the-counter market (Level 2), and carrying value of debt instruments (carrying value excludes the equity component of the Company’s Notes classified in equity) were as follows:

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

Convertible senior notes

 

$

276,000

 

 

$

179,442

 

 

$

254,400

 

 

$

176,692

 

 

In connection with the issuance of the Notes, the Company entered into capped call transactions with certain counterparties affiliated with the initial purchasers and others. The capped call transactions are expected to reduce potential dilution of earnings per share upon conversion of the Notes. Under the capped call transactions, the Company purchased capped call options that in the aggregate relate to the total number of shares of the Company’s common stock underlying the Notes, with an initial strike price of approximately $53.17 per share, which corresponds to the initial conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes, and have a cap price of approximately $89.98. The cost of the purchased capped calls of $33,024 was recorded to stockholders’ deficit and will not be re-measured provided it continues to meet the conditions for equity classification.

Based on the closing price of our common stock of $49.52 on March 31, 2019, the if-converted value of the Notes was less than their respective principal amounts.

 

7. Revolving Line of Credit

The Company executed a loan and security agreement with a syndicate of lenders led by Silicon Valley Bank for a senior revolving credit agreement in February 2015 (as subsequently amended, the “Senior Revolver”). The Company is bound by customary affirmative and negative covenants in connection with the Senior Revolver, including financial covenants related to liquidity and EBITDA. In the event of a default, the lenders may declare all obligations immediately due and stop advancing money or extending credit under the line of credit. The line of credit is collateralized by substantially all of the Company’s tangible and intangible assets, including intellectual property and the equity of subsidiaries.

As of March 31, 2019 and December 31, 2018, there were no amounts outstanding under the Senior Revolver. As of March 31, 2019, the amount available to borrow was $89,609.

 

8. Commitments

Total net cash flows were not impacted by adoption of ASC 842; however, classification of some transactions moved between operating and financing activities. Supplemental cash flow information related to the Company’s operating and finance leases was as follows:

Cash Paid for Amounts Included in the Measurement of Lease Liabilities

 

Three Months Ended

March 31, 2019

 

Financing cash flows from finance leases

 

$

1,375

 

Operating cash flows from finance leases

 

$

2,131

 

Operating cash flows from operating leases

 

$

146

 

ROU Assets Obtained in Exchange for New Lease Obligations

 

 

 

 

Finance lease liabilities

 

$

-

 

Operating lease liabilities

 

$

1,107

 

As of March 31, 2019, the Company had no additional significant operating or finance leases that had not yet commenced.

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Operating Leases

The Company leases office facilities under various non-cancelable operating lease agreements with original lease periods expiring between 2020 and 2027. Some of the leases provide for renewal terms at the Company’s option. Certain future minimum lease payments due under these operating lease agreements contain free rent periods or escalating rent payment provisions. These leases generally do not contain purchase options. Lease expense is recognized on a straight-line basis over the lease term as an operating expense.  

The components of operating lease expense were as follows:

 

 

Three Months Ended

March 31, 2019

 

Fixed operating lease expense

 

$

155

 

Short-term lease expense, net

 

 

24

 

Variable operating lease expense

 

 

27

 

Total operating lease expense

 

$

206

 

The following table presents the lease balances within the Consolidated Balance Sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases:

Lease Assets and Liabilities

 

Classification

 

As of

March 31, 2019

 

Assets

 

 

 

 

 

 

Operating lease ROU asset - Buildings

 

Operating lease right-of-use assets

 

$

2,172

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Operating lease ROU liabilities, current portion

 

Current liabilities

 

 

615

 

Operating lease ROU liabilities, net of current portion

 

Other non-current liabilities

 

 

1,779

 

Total operating lease liabilities

 

 

 

 

2,394

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

 

 

5.87

 

Weighted average discount rate

 

 

 

5.73%

 

The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2019:

 

 

Operating

Leases

 

Year Ending December 31,

 

 

 

 

Remainder of 2019

 

$

575

 

2020

 

 

445

 

2021

 

 

385

 

2022

 

 

391

 

2023

 

 

398

 

Thereafter

 

 

660

 

Total minimum lease payments

 

 

2,854

 

Less:  imputed interest

 

 

(460

)

Total operating lease liabilities

 

$

2,394

 

Finance Leases

The Company leases three buildings on its Charleston, South Carolina campus. Under ASC 840, one leasing arrangements was accounted for as a capital lease while the remaining two lease agreements were accounted for as build-to-suit, failed sale-leaseback arrangements. Accordingly, the Company recognized liabilities for the lease payments related to these two buildings, which were recorded as financing obligations. Pursuant to ASC 842, the assets and related financing obligations for the existing build-to-suit lease arrangements were derecognized with a cumulative adjustment of $7,687 to accumulated deficit. These leases were transitioned to the new standard based on an analysis of the lease balances as of the transition date as if they had been a lease under ASC 840. Based on this analysis, the land components of these leases were combined with the remainder of the lease obligation whereas this obligation was previously accounted for separately and recognized as part of facility expense. To calculate the present value of lease payments, the Company used an incremental borrowing rate based on third-party valuation results as of December 2016. All three leasing arrangements are classified as finance leases under ASC 842.

As a result of the adoption of ASC 842, operating expenses increased as depreciation expense related to the buildings increased due to shortening the period of depreciation from the estimated life of the asset to the expected term of the lease.  Additionally, interest expense decreased as a result of a discount rate that is lower than the rate required for build-to-suit accounting.  Additional information regarding these three leases is incorporated in the following disclosures.

15


The Company has entered into various purchase agreements to obtain property and equipment for operations that are accounted for as finance leases. These arrangements have original terms ranging from 3 to 5 years with interest rates ranging from 5.25% to 14.09%. The leases are secured by the underlying leased property and equipment.

The components of finance lease expense were as follows:

 

 

Three Months Ended

March 31, 2019

 

Amortization of ROU assets

 

$

2,035

 

Interest on lease liabilities

 

 

2,125

 

Variable finance lease expense

 

 

8

 

Total finance lease expense

 

$

4,168

 

The following table presents the lease balances within the Consolidated Balance Sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s finance leases:

Lease Assets and Liabilities

 

Classification

 

As of

March 31, 2019

 

Assets

 

 

 

 

 

 

Finance lease ROU asset

 

Finance lease right-of-use assets, net

 

$

82,827

 

Finance lease ROU accumulated amortization

 

Finance lease right-of-use assets, net

 

 

(1,960

)

Finance lease ROU assets, net

 

 

 

 

80,867

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Finance lease ROU liabilities, current portion

 

Current Liabilities

 

$

5,384

 

Finance lease ROU liabilities, net of current portion

 

Other non-current liabilities

 

 

86,471

 

Total finance lease liabilities

 

 

 

 

91,855

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

12.14

 

Weighted average discount rate

 

 

9.40%

 

The following table presents the maturity of the Company’s finance lease liabilities as of March 31, 2019:

 

 

Finance

Leases

 

Year Ending December 31,

 

 

 

 

Remainder of 2019

 

$

10,422

 

2020

 

 

11,968

 

2021

 

 

11,430

 

2022

 

 

11,176

 

2023

 

 

11,506

 

Thereafter

 

 

103,616

 

Total minimum lease payments

 

 

160,118

 

Less: imputed interest

 

 

(68,263

)

Total finance lease liabilities

 

$

91,855

 

 

9. Stock-based Compensation

Restricted Stock Units

During the three months ended March 31, 2019, the Company granted 53,378 restricted stock units, or RSUs, to employees and officers with an aggregate grant date fair value of $2,543. These RSUs generally vest in equal annual installments over various periods ranging from less than 1 to 4 years from the grant date, subject to continued service to the Company. The Company amortizes the grant date fair value of the stock subject to the RSUs on a straight-line basis over the period of vesting. The weighted-average vesting period for these RSU’s is approximately 3.10 years from the date of grant.

 

10. Stockholders’ Deficit

Common Stock

The holders of common stock are entitled to one vote for each share.  The voting, dividend and liquidation rights of the holders of common stock are subject to and qualified by the rights, powers and preferences of the holders of preferred stock.

16


At March 31, 2019, the Company had reserved a total of 4,209,856 of its authorized 50,000,000 shares of common stock for future issuance as follows:

 

Outstanding stock options

 

 

214,647

 

Restricted stock units

 

 

2,013,082

 

Available for future issuance under stock award plans

 

 

1,858,712

 

Available for future issuance under ESPP

 

 

123,415

 

Total common shares reserved for future issuance

 

 

4,209,856

 

 

11. Revenue

Disaggregation of Revenue

The following tables provide information about disaggregation of revenue by service line:

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018

 

 

Service line:

 

 

 

 

 

 

 

 

 

Software services

 

$

53,012

 

 

$

48,170

 

 

Professional services

 

 

15,287

 

 

 

14,193

 

 

Total

 

$

68,299

 

 

$

62,363

 

 

 

Contract Balances

The following table provides information about contract assets and contract liabilities from contracts with customers:

 

 

Balance at Beginning of Period

 

 

Balance at End of Period

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

Contract assets

 

$

12,798

 

 

$

12,383

 

Contract liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

$

45,863

 

 

$

46,895

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

Contract assets

 

$

11,522

 

 

$

9,329

 

Contract liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

$

55,027

 

 

$

52,900

 

The Company recognizes payments from customers based on contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional.  Contract assets include amounts related to the Company’s contractual right to consideration for completed performance objectives not yet invoiced. Contract liabilities include payments received in advance of performance under the contract and are recognized as revenue when earned under the contract. The Company had no asset impairment charges related to contract assets during the three months ended March 31, 2019 and 2018.