AMBER ROAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(3,167,192
|
)
|
|
$
|
(4,413,196
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
1,284,346
|
|
|
1,553,214
|
|
Bad debt expense
|
2,199
|
|
|
195,889
|
|
Stock-based compensation
|
2,005,588
|
|
|
1,225,635
|
|
Changes in fair value of contingent consideration liability
|
—
|
|
|
18,525
|
|
Accretion of debt discount
|
8,902
|
|
|
11,177
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable and unbilled receivables
|
3,357,243
|
|
|
3,187,957
|
|
Prepaid expenses and other assets
|
(869,287
|
)
|
|
169,675
|
|
Accounts payable
|
(600,915
|
)
|
|
(978,355
|
)
|
Accrued expenses
|
(689,650
|
)
|
|
(938,082
|
)
|
Other liabilities
|
381,842
|
|
|
(91,416
|
)
|
Deferred revenue
|
(285,938
|
)
|
|
852,333
|
|
Net cash provided by operating activities
|
1,427,138
|
|
|
793,356
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(15,607
|
)
|
|
(11,014
|
)
|
Addition of capitalized software development costs
|
(850,373
|
)
|
|
(473,797
|
)
|
Cash received (paid) for deposits
|
421
|
|
|
(18,008
|
)
|
Net cash used in investing activities
|
(865,559
|
)
|
|
(502,819
|
)
|
Cash flows from financing activities:
|
|
|
|
Proceeds from revolving line of credit
|
7,000,000
|
|
|
6,000,000
|
|
Payments on revolving line of credit
|
(7,000,000
|
)
|
|
(6,000,000
|
)
|
Payments on term loan
|
(187,500
|
)
|
|
(187,500
|
)
|
Debt financing costs
|
—
|
|
|
(35,701
|
)
|
Repayments on capital lease obligations
|
(357,990
|
)
|
|
(367,365
|
)
|
Proceeds from the exercise of stock options
|
81,018
|
|
|
24,355
|
|
Net cash used in financing activities
|
(464,472
|
)
|
|
(566,211
|
)
|
Effect of exchange rate on cash, cash equivalents and restricted cash
|
(145,296
|
)
|
|
(117,620
|
)
|
Net decrease in cash and cash equivalents
|
(48,189
|
)
|
|
(393,294
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
9,417,001
|
|
|
15,464,274
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
9,368,812
|
|
|
$
|
15,070,980
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheet:
|
|
|
Cash and cash equivalents
|
$
|
9,312,412
|
|
|
$
|
15,014,839
|
|
Restricted cash in deposits and other assets
|
56,400
|
|
|
56,141
|
|
Total cash, cash equivalents and restricted cash
|
$
|
9,368,812
|
|
|
$
|
15,070,980
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
290,697
|
|
|
$
|
226,958
|
|
Non-cash property and equipment acquired under capital lease
|
318,014
|
|
|
1,319,106
|
|
Non-cash property and equipment purchases in accounts payable
|
—
|
|
|
17,729
|
|
See accompanying notes to condensed consolidated financial statements.
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Amber Road, Inc. (we, our or us) is a leading provider of a cloud-based global trade management solution, including modules for logistics contract and rate management, supply chain visibility and event management, international trade compliance, Global Knowledge trade content database, supply chain collaboration with overseas factories and vendors, and duty management solutions to importers and exporters, nonvessel owning common carriers (resellers), and ocean carriers. Our solution is primarily delivered using an on-demand, cloud-based, delivery model. We are incorporated in the state of Delaware and our corporate headquarters are located in East Rutherford, New Jersey. We also have offices in McLean, Virginia; Raleigh, North Carolina; Munich, Germany; Bangalore, India; Shenzhen and Shanghai, China; and Hong Kong.
|
|
(2)
|
Summary of Significant Accounting Policies and Practices
|
(a) Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (GAAP) in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement have been included. The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries primarily located in India, China and Europe. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for the
three
months ended
March 31, 2018
are not necessarily indicative of the results to be expected for the year ending
December 31, 2018
or for other interim periods or future years. The consolidated balance sheet as of
December 31, 2017
is derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Form 10-K for the year ended
December 31, 2017
.
(b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the carrying amount of intangibles and goodwill; valuation allowance for receivables and deferred income tax assets; revenue; capitalization of software costs; and valuation of share-based payments. Actual results could differ from those estimates.
(c)
Revenue from Contracts with Customers
Adoption of Accounting Standards Codification Topic 606
Effective January 1, 2018, we adopted the requirements of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), and all the related amendments (the new revenue standard) using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit as of the adoption date. The comparative information for 2017 has not been restated and continues to be reported under the accounting standards in effect for that period.
Revenue Recognition
We primarily generate revenue from the sale of subscriptions and subscription-related professional services. In instances involving subscriptions, revenue is generated under customer contracts with multiple elements, which are comprised of (1) subscription fees that provide the customers with access to our on-demand application and content, unspecified solution and content upgrades, and customer support, (2) professional services associated with consulting services (primarily implementation services), and (3) transaction-related fees (including publishing services). Our initial customer contracts have contract terms from, typically,
3 years
to
5 years
in length. Typically, the customer does not take possession of the software nor does the customer have the right to take possession of the software supporting the on-demand application service. However, in certain instances, we have customers that take possession of the software whereby the application is installed on the customer’s premises. Our subscription service arrangements typically may only be terminated for cause and do not contain refund provisions.
We determine revenue recognition through the following steps:
|
|
•
|
Identification of the contract, or contracts, with a customer
|
|
|
•
|
Identification of the performance obligations in the contract
|
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
•
|
Determination of the transaction price
|
|
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
|
|
•
|
Recognition of revenue when, or as, we satisfy a performance obligation
|
The subscription fees typically begin the first month following contract execution, whether or not we have completed the solution’s implementation. In addition, typically any services performed by us for our customers are not essential to the functionality of our products.
Subscription Revenue for Hosted and On-Premise Customers
Subscription revenue, which primarily consists of fees to provide customers access to our solution, is recognized ratably over contract terms beginning on the commencement date of each contract, which is the date our service is made available to customers. Typically, amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Transaction-related revenue is recognized as the transactions occur.
Professional Services Revenue for Hosted Customers
Professional services revenue primarily consists of fees for deployment of our solution. The majority of professional services contracts are on a time and material basis. When these services are not combined with subscription revenue as a single unit of accounting, as discussed below, this revenue is recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts.
Professional Services Revenue for On-Premise Customers
For customers that take possession of the software, billings for professional services will be recognized as revenue when services are performed, unlike under the previous standard where revenue from these billings was deferred and amortized ratably over the subscription term of the related contract. The adoption of ASC 606 will reduce revenue due to the loss of deferred services revenue from professional services billings delivered prior to December 31, 2017 for on-premise installations of our software. Deferred revenue associated with on-premise professional services at December 31, 2017 will not be amortized in 2018 and beyond.
Multiple Performance Obligations
Some of our contracts with customers contain multiple performance obligations that generally include subscription, professional services (primarily implementation) as well as transaction-related fees.
For contracts with enterprise customers (customers with annual revenues that we believe are greater than $1 billion), we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the solution sold, taking into account the modules included, term of the arrangement, and base transaction volume, customer demographics, and geographic locations.
For contracts with mid-market customers (customers with annual revenues that we believe are less than $1 billion), both subscription and professional services are combined and there is only one observable price. For these contracts that bundle the performance obligations into one annual fee, the transaction price is allocated based on the standard professional service rates and implementation hours.
Other Revenue Items
Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and, therefore, is not included in revenue and cost of revenue in the condensed consolidated statements of operations. We classify customer reimbursements received for direct costs paid to third parties and related expenses as revenue, in accordance with ASC 606.
Costs to Obtain and Fulfill a Contract
We defer commission costs that are incremental and directly related to the acquisition of customer contracts. Commission costs are accrued and deferred upon execution of the sales contract by the customer. Payments to sales personnel are made shortly after the receipt of the related customer payment. Under ASC 606, deferred commissions are amortized over an estimated customer life of
6 years
, which differs from the previous standard whereby deferred commissions were
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
amortized over the initial customer contract term. We determined the period of amortization of deferred commissions under ASC 606 by taking into consideration our customer contracts, our technology and other factors.
Our commission costs deferred and amortized in the period are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Commission costs deferred
|
$
|
670,037
|
|
|
$
|
636,745
|
|
Commission costs amortized
|
999,576
|
|
|
1,237,743
|
|
Financial Statement Impact of Adopting ASC 606
We adopted ASC 606 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to the following balance sheet accounts as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Adjustments
|
|
As Adjusted
|
|
December 31, 2017
|
|
Subscription Revenue
|
|
Professional Services Revenue
|
|
Cost to Obtain a Contract
|
|
January 1,
2018
|
Deferred commissions, current
|
$
|
4,400,015
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(562,607
|
)
|
|
$
|
3,837,408
|
|
Deferred commissions, non-current
|
6,734,326
|
|
|
—
|
|
|
—
|
|
|
2,211,294
|
|
|
8,945,620
|
|
Deferred revenue, current
|
37,812,239
|
|
|
229,093
|
|
|
(2,170,118
|
)
|
|
—
|
|
|
35,871,214
|
|
Deferred revenue, non-current
|
1,830,706
|
|
|
—
|
|
|
(1,418,098
|
)
|
|
—
|
|
|
412,608
|
|
Accumulated deficit
|
(167,908,038
|
)
|
|
(229,093
|
)
|
|
3,588,216
|
|
|
1,648,687
|
|
|
(162,900,228
|
)
|
Impact of New Revenue Standard on Financial Statement Line Items
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated balance sheet as of
March 31, 2018
and our condensed consolidated statement of operations for the
three months ended
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
As Reported
|
|
Balance Without Adoption of ASC 606
|
|
Effect of Change
Higher/(Lower)
|
Balance Sheet
|
|
|
|
|
|
Deferred commissions, current
|
$
|
3,841,985
|
|
|
$
|
4,342,834
|
|
|
$
|
(500,849
|
)
|
Deferred commissions, non-current
|
8,611,504
|
|
|
6,217,631
|
|
|
2,393,873
|
|
Deferred revenue, current
|
35,700,091
|
|
|
37,695,092
|
|
|
1,995,001
|
|
Deferred revenue, non-current
|
313,276
|
|
|
1,564,031
|
|
|
1,250,755
|
|
Accumulated deficit
|
(166,067,420
|
)
|
|
(171,206,200
|
)
|
|
5,138,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2018
|
|
As Reported
|
|
Balance Without Adoption of ASC 606
|
|
Effect of Change
Higher/(Lower)
|
Statement of Operations
|
|
|
|
|
|
Subscription revenue
|
$
|
15,089,112
|
|
|
$
|
15,049,289
|
|
|
$
|
39,823
|
|
Professional services revenue
|
4,975,280
|
|
|
5,128,469
|
|
|
(153,189
|
)
|
Sales and marketing
|
5,807,315
|
|
|
6,051,651
|
|
|
244,336
|
|
Net loss
|
(3,167,192
|
)
|
|
(3,298,162
|
)
|
|
130,970
|
|
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Deferred Revenue and Performance Obligations
Deferred revenue from subscriptions represents amounts collected from (or invoiced to) customers in advance of earning subscription revenue. Typically, we bill our annual subscription fees in advance of providing the service. Deferred revenue from professional services represents revenue for time and material contracts where revenue is recognized when milestones are achieved and accepted by the customer for fixed price contracts.
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Current:
|
|
|
|
Subscription revenue
|
$
|
35,552,642
|
|
|
$
|
35,247,750
|
|
Professional services revenue
|
147,449
|
|
|
2,564,489
|
|
Total current
|
35,700,091
|
|
|
37,812,239
|
|
Noncurrent:
|
|
|
|
Subscription revenue
|
313,276
|
|
|
412,608
|
|
Professional services revenue
|
—
|
|
|
1,418,098
|
|
Total noncurrent
|
313,276
|
|
|
1,830,706
|
|
Total deferred revenue
|
$
|
36,013,367
|
|
|
$
|
39,642,945
|
|
The amount of subscription revenue and professional services revenue recognized that was included in the beginning balance of deferred revenue is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Subscription revenue
|
$
|
13,164,922
|
|
|
$
|
12,131,054
|
|
Professional services revenue
|
349,222
|
|
|
604,968
|
|
As of
March 31, 2018
,
$126,641,538
of revenue is expected to be recognized from remaining performance obligations for subscription contracts and is expected to be recognized over the next
6.75 years
. Remaining performance obligations for professional services contracts are recognized within one year or less.
(d) Cost of Revenue
Cost of subscription revenue
. Cost of subscription revenue consists primarily of personnel and related costs of our hosting, support, and content teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as software license fees, hosting costs, Internet connectivity, and depreciation expenses directly related to delivering our solutions, as well as amortization of capitalized software development costs. Our cost of subscription revenue is generally expensed as the costs are incurred.
Cost of professional services revenue
. Cost of professional services revenue consists primarily of personnel and related costs, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, the costs of contracted third-party vendors, reimbursable expenses and allocated overhead. As our personnel are employed on a full-time basis, our cost of professional services is largely fixed in the short term, while our professional services revenue may fluctuate, leading to fluctuations in professional services gross profit. Cost of professional services revenue is generally expensed as costs are incurred.
(e) Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents at
March 31, 2018
and
December 31, 2017
consists of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Cash
|
$
|
9,269,808
|
|
|
$
|
9,318,074
|
|
Money market accounts
|
42,604
|
|
|
42,527
|
|
|
$
|
9,312,412
|
|
|
$
|
9,360,601
|
|
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(f) Fair Value of Financial Instruments and Fair Value Measurements
Our financial instruments consist of cash equivalents, accounts receivable, accounts payable, and accrued expenses. Management believes that the carrying values of these instruments are representative of their fair value due to the relatively short-term nature of those instruments.
We follow Financial Accounting Standards Board (FASB) accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Accounting Standards Codification (ASC) 820, Fair Value Measurements, among other things, defines fair value, establishes a framework for measuring fair value, and requires disclosure about such fair value measurements. Assets and liabilities measured at fair value are based on one or more of three valuation techniques provided for in the standards.
The three value techniques are as follows:
|
|
Market Approach
|
— Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities;
|
|
|
Income Approach
|
— Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques and option pricing models); and
|
|
|
Cost Approach
|
— Amount that currently would be required to replace the service capacity of an asset (often referred to as replacement cost).
|
The standards clarify that fair value is an exit price, representing the amount that would be received to sell an asset, based on the highest and best use of the asset, or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for evaluating such assumptions, the standards establish a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; or
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions about what market participants would use in pricing the asset or liability.
The following tables provide the financial assets and liabilities carried at fair value measured on a recurring basis as of
March 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
March 31, 2018
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents - money market accounts
|
$
|
42,604
|
|
|
$
|
42,604
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash - money market accounts
|
56,400
|
|
|
56,400
|
|
|
—
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
$
|
99,004
|
|
|
$
|
99,004
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents - money market accounts
|
$
|
42,527
|
|
|
$
|
42,527
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash - money market accounts
|
56,400
|
|
|
56,400
|
|
|
—
|
|
|
—
|
|
Total assets measured at fair value on a recurring basis
|
$
|
98,927
|
|
|
$
|
98,927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(g) Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical write-off experience, the industry, and the economy. We review our allowance for doubtful accounts monthly. Past-due balances over
90
days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers. Typically, we record unbilled receivables for contracts on which revenue has been recognized, but for which the customer has not yet been billed.
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(h) Major Customers and Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Our customer base is principally comprised of enterprise and mid-market companies within industries including Chemical/Pharmaceutical, High Technology/Electronics, Industrial/Manufacturing, Logistics, Oil & Gas, and Retail/Apparel. We do not require collateral from our customers. For the
three
months ended
March 31, 2018
,
one
customer accounted for
12.0%
of our total revenue. For the
three
months ended
March 31, 2017
, no single customer accounted for more than
10%
of our total revenue. As of
March 31, 2018
and
December 31, 2017
, no single customer accounted for more than
10%
of our total accounts receivable.
(i) Stock-Based Compensation
We recognize stock-based compensation as an expense in the condensed consolidated financial statements and measure that cost based on the estimated grant-date fair value using the Black-Scholes option pricing model.
(j) Geographic Information
Disaggregation of Revenue
We sell our subscription contracts and related professional services to customers primarily in two geographical markets. Revenue by geographic location based on the billing address of our customers is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
Country
|
2018
|
|
2017
|
United States
|
$
|
15,237,501
|
|
|
$
|
14,066,153
|
|
International
|
4,826,891
|
|
|
4,488,403
|
|
Total revenue
|
$
|
20,064,392
|
|
|
$
|
18,554,556
|
|
For the
three
months ended
March 31, 2018 and 2017
, no single country other than the United States had revenue greater than
10%
of our total revenue.
Long-lived assets by geographic location is as follows:
|
|
|
|
|
|
|
|
|
Country
|
March 31,
2018
|
|
December 31,
2017
|
United States
|
$
|
8,721,800
|
|
|
$
|
8,535,281
|
|
International
|
807,560
|
|
|
834,823
|
|
Total long-lived assets
|
$
|
9,529,360
|
|
|
$
|
9,370,104
|
|
(l) Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The adoption of this standard is not expected to have a material effect on our condensed consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. We adopted this standard on January 1, 2018 using the retrospective transition approach. The adoption of this standard did not have a material effect on our condensed consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The adoption of this standard on January 1, 2018 did not have a material effect on our condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. The effective date of
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements but believe the most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on our balance sheet for real estate operating leases.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The FASB has also issued several updates to ASU 2014-09. We adopted this standard on January 1, 2018 using the modified retrospective method. See 2(c) above for an explanation of the effect the adoption of this standard had on our condensed consolidated financial statements.
|
|
(3)
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Computer software and equipment
|
$
|
14,729,665
|
|
|
$
|
14,296,247
|
|
Software development costs
|
14,830,992
|
|
|
13,980,872
|
|
Furniture and fixtures
|
1,741,856
|
|
|
1,741,918
|
|
Leasehold improvements
|
2,546,721
|
|
|
2,546,686
|
|
Total property and equipment
|
33,849,234
|
|
|
32,565,723
|
|
Less: accumulated depreciation and amortization
|
(24,319,874
|
)
|
|
(23,195,619
|
)
|
Total property and equipment, net
|
$
|
9,529,360
|
|
|
$
|
9,370,104
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Depreciation and amortization expense
|
$
|
1,024,853
|
|
|
$
|
1,222,112
|
|
Certain development costs of our software solution are capitalized in accordance with ASC Topic 350-40, Internal Use Software, which outlines the stages of computer software development and specifies when capitalization of costs is required. Projects that are determined to be in the development stage are capitalized and amortized over their useful lives of
five years
. Projects that are determined to be within the preliminary stage are expensed as incurred.
Information related to capitalized software costs is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Software costs capitalized
|
$
|
850,373
|
|
|
$
|
473,698
|
|
Software costs amortized
(1)
|
454,232
|
|
|
536,839
|
|
(1)
Included in cost of subscription revenue on the accompanying condensed consolidated statements of operations.
|
|
March 31,
2018
|
|
December 31,
2017
|
Capitalized software costs not yet subject to amortization
|
$
|
1,319,343
|
|
|
$
|
824,738
|
|
(4)
Accrued Expenses
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Accrued bonus
|
$
|
2,696,845
|
|
|
$
|
1,980,218
|
|
Accrued commissions
|
1,061,397
|
|
|
1,901,132
|
|
Deferred rent
|
390,839
|
|
|
380,077
|
|
Accrued professional fees
|
817,252
|
|
|
712,345
|
|
Accrued taxes
|
761,514
|
|
|
805,555
|
|
Other accrued expenses
|
1,190,884
|
|
|
1,810,155
|
|
Total
|
$
|
6,918,731
|
|
|
$
|
7,589,482
|
|
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
We have several noncancelable operating leases that expire through 2024. These leases generally contain renewal options for periods ranging from
3 years
to
5 years
and require us to pay all executory costs such as maintenance and insurance. Rental expense for operating leases is allocated to various line items in the condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Rental expense from operating leases
|
$
|
891,000
|
|
|
$
|
920,000
|
|
Information related to the carrying value of assets recorded under capital leases and related accumulated amortization is as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Carry value of capital leases
|
$
|
2,653,306
|
|
|
$
|
3,691,383
|
|
Accumulated amortization included in carry value
|
6,128,072
|
|
|
6,864,443
|
|
Amortization of assets held under capital leases is allocated to various line items in the condensed consolidated statements of operations.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of
March 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
Operating
Leases
|
Remainder of 2018
|
$
|
1,208,224
|
|
|
$
|
3,561,745
|
|
2019
|
1,174,317
|
|
|
4,363,680
|
|
2020
|
462,102
|
|
|
2,987,153
|
|
2021
|
196,386
|
|
|
1,825,191
|
|
2022
|
63,034
|
|
|
1,190,145
|
|
2023 and thereafter
|
—
|
|
|
618,474
|
|
Total minimum lease payments
|
3,104,063
|
|
|
$
|
14,546,388
|
|
Less amount representing interest
|
(330,482
|
)
|
|
|
Present value of net minimum capital lease payments
|
2,773,581
|
|
|
|
Less current installments of obligations under capital leases
|
(1,416,455
|
)
|
|
|
Obligations under capital leases excluding current installments
|
$
|
1,357,126
|
|
|
|
In March 2015, we entered into a credit agreement (the Credit Agreement) providing for financing comprised of (i) a senior secured term loan facility (the Term Loan) of
$20,000,000
, and (ii) a senior secured revolving credit facility (the Revolver) that was amended in November 2015 to allow for a borrowing limit of
$10,000,000
, and includes a
$2,000,000
sublimit for the issuance of letters of credit. The original maturity date of the Credit Agreement was March 4, 2018. The Credit Agreement contains customary affirmative and negative covenants for financings of its type that are subject to customary exceptions. As of
March 31, 2018
, we were in compliance with all the reporting and financial covenants.
On February 15, 2017, we entered into Amendment No. 2 (the Second Amendment) to the Credit Agreement. The Second Amendment revised language in the Credit Agreement to include changes to the applicable margins with respect to Eurodollar and Base Rate loans, increased the available borrowing under the Revolver from
$10,000,000
to
$15,000,000
, and extended the maturity date for both the Term Loan and the Revolver to December 31, 2019.
On March 6, 2018, we entered into Amendment No. 3 (Third Amendment) to the Credit Agreement. The Third Amendment amends the definition of “Quick Liabilities” for purposes of calculating performance against the Credit Agreement covenant provisions.
The outstanding balance for the Term Loan as of
March 31, 2018
was
$13,375,185
, net of unaccreted discount and deferred financing costs of
$62,315
, and the outstanding balance under the Revolver was
$6,000,000
. For the
three months ended
March 31, 2018
, the weighted average interest rate used was
4.95%
for the Term Loan and
5.78%
for the Revolver.
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table reflects the schedule of principal payments for the Term Loan as of
March 31, 2018
:
|
|
|
|
|
|
Principal
Payments
|
Remainder of 2018
|
$
|
562,500
|
|
2019
|
12,875,000
|
|
|
$
|
13,437,500
|
|
Common Stock
The following table presents our activity for common stock during the
three
months ended
March 31, 2018
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Par Value
|
Balance at December 31, 2017
|
27,288,985
|
|
|
$
|
27,289
|
|
Exercise of stock options
|
15,836
|
|
|
16
|
|
Issuance of common stock for vested restricted stock units
|
26,201
|
|
|
26
|
|
Balance at March 31, 2018
|
27,331,022
|
|
|
$
|
27,331
|
|
|
|
(8)
|
Stock-Based Compensation
|
We grant stock-based incentive awards to attract, motivate and retain qualified employees (including officers), non-employee directors and consultants, and those of our affiliates. Awards granted under our 2012 Omnibus Incentive Compensation Plan (the 2012 Plan) include common stock options, restricted stock units (RSUs), performance-based restricted stock units (PSUs), and restricted stock awards. The 2002 Stock Option Plan (the 2002 Plan) expired in 2012 and we are no longer making grants under it. Information related to the 2012 Plan and the 2002 Plan as of
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
2012 Plan
|
|
2002 Plan
|
Shares of common stock authorized for issuance
|
9,646,696
|
|
|
4,939,270
|
|
Stock options outstanding
|
4,494,276
|
|
|
288,635
|
|
RSUs outstanding
|
1,228,094
|
|
|
—
|
|
PSUs outstanding
|
223,440
|
|
|
—
|
|
Shares available for future grant
|
2,776,864
|
|
|
—
|
|
Stock Options
The fair value of option grants is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Risk-free interest rate
|
2.71%
|
|
*
|
Expected volatility
|
31.22%
|
|
*
|
Expected dividend yield
|
—
|
|
*
|
Expected life in years
|
6.25
|
|
*
|
Weighted average fair value of options granted
|
$3.63
|
|
*
|
* There were no options granted during the three months ended March 31, 2017.
|
The computation of expected volatility for each period is based on historical volatility of comparable public companies. The volatility percentage represents the mean volatility of these companies. The computation of expected life for each period was determined based on the simplified method. The risk-free interest rate is based on U.S. Treasury yields for zero-coupon bonds with a term consistent with the expected life of the options.
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Information for the 2002 Plan and 2012 Plan is as follows:
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted Average
Exercise Price
|
Balance at December 31, 2017
|
4,632,654
|
|
|
$9.79
|
Granted
|
190,015
|
|
|
9.89
|
|
Exercised
|
(15,836
|
)
|
|
5.12
|
|
Canceled
|
(23,922
|
)
|
|
7.63
|
|
Expired
|
—
|
|
|
—
|
|
Balance at March 31, 2018
|
4,782,911
|
|
|
9.82
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2018
|
|
2017
|
Total intrinsic value of options exercised
|
$
|
70,170
|
|
|
$
|
37,118
|
|
Weighted average exercise price of fully vested options
|
$
|
10.52
|
|
|
$
|
9.98
|
|
Weighted average remaining term of fully vested options
|
6.1 years
|
|
|
7.2 years
|
|
Total unrecognized compensation cost related to non-vested stock options
|
$
|
4,599,373
|
|
|
$
|
5,824,903
|
|
Weighted average period to recognize compensation cost related to non-vested stock options
|
2.4 years
|
|
|
1.5 years
|
|
Options outstanding and exercisable under the 2002 Plan and the 2012 Plan at
March 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Price
Per Share
|
|
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Intrinsic
Value
|
|
Options
Exercisable
|
|
Weighted
Average Remaining
Contractual
Life
|
|
Intrinsic
Value
|
$
|
2.31
|
|
-
|
$
|
3.74
|
|
.
|
487,480
|
|
|
5.3 years
|
|
$
|
2,928,145
|
|
|
377,909
|
|
|
4.5 years
|
|
$
|
2,362,758
|
|
4.13
|
|
-
|
7.20
|
|
.
|
761,872
|
|
|
8.1 years
|
|
1,654,858
|
|
|
217,183
|
|
|
5.5 years
|
|
677,847
|
|
8.07
|
|
-
|
12.62
|
|
.
|
1,503,127
|
|
|
8.0 years
|
|
816,379
|
|
|
626,181
|
|
|
6.7 years
|
|
479,291
|
|
13.00
|
|
-
|
15.90
|
|
.
|
2,030,432
|
|
|
6.3 years
|
|
—
|
|
|
1,780,399
|
|
|
6.2 years
|
|
—
|
|
|
|
|
|
4,782,911
|
|
|
|
|
$
|
5,399,382
|
|
|
3,001,672
|
|
|
|
|
$
|
3,519,896
|
|
Restricted Stock and Performance Stock Units
The following table is a summary of our RSU and PSU activity for the
three months ended March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of RSU's
Outstanding
|
|
Number
of PSU's
Outstanding
|
|
Total
|
|
Weighted
Average
Grant Date
Fair Value
|
Balance at December 31, 2017
|
812,262
|
|
|
466,499
|
|
|
1,278,761
|
|
|
$7.41
|
Granted
|
442,033
|
|
|
25,000
|
|
|
467,033
|
|
|
9.62
|
|
Vested
|
(26,201
|
)
|
|
—
|
|
|
(26,201
|
)
|
|
3.99
|
|
Canceled
|
—
|
|
|
(268,059
|
)
|
|
(268,059
|
)
|
|
7.95
|
|
Balance at March 31, 2018
|
1,228,094
|
|
|
223,440
|
|
|
1,451,534
|
|
|
8.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
Weighted-average grant date fair value of unvested combined RSU/PSU
|
$8.09
|
Total unrecognized compensation cost related to non-vested combined RSU/PSU
|
$9,788,763
|
Weighted average period to recognize compensation cost related to non-vested combined RSU/PSU
|
3.2 years
|
|
Our income tax provision for the
three
months ended
March 31, 2018
and
2017
reflects our estimate of the effective tax rates expected to be applicable for the full fiscal years, adjusted for any discrete events that are recorded in the period in
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
which they occur. The estimates are re-evaluated each quarter based on our estimated tax expense for the full fiscal year. The tax provision for the
three
months ended
March 31, 2018
is primarily related to current foreign income taxes.
We have historically incurred operating losses and, given our cumulative losses and no history of profits, we have recorded a full valuation allowance against our deferred tax assets at
March 31, 2018
and
December 31, 2017
.
We have a federal net operating loss (NOL) carryforward of
$90,901,000
and
$82,141,000
as of
December 31, 2017
and
2016
, respectively. We expect to be in a taxable loss position for
2018
. The federal NOL carryforward will begin to expire in 2019.
I
f not used, these NOLs may be subject to limitation under Internal Revenue Code (IRC) Section 382 should there be a greater than 50% ownership change as determined under the regulations.
Under IRC Section 382, substantial changes in ownership may limit the amount of NOL carryforwards that may be utilized annually in the future to offset taxable income. We completed an IRC Section 382 study through June 30, 2016, which concluded that we have experienced several ownership changes, causing limitations on the annual use of NOL carryforwards. Provided there is sufficient taxable income,
$2,131,290
of NOL carryforwards are expected to expire without utilization between 2019 and 2022. Additionally, our ability to use our NOL carryforwards to reduce future taxable income may be further limited as a result of any future equity transactions, including, but not limited to, an issuance of shares of stock or sales of common stock by our existing stockholders.
For state income tax purposes, we have state NOL carryforwards in a number of jurisdictions in varying amounts and with varying expiration dates from 2018 through 2038.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on an income tax return. We have no liability for uncertain positions. Interest and penalties, if any, related to unrecognized tax benefits, would be recognized as income tax expense.
We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Tax years 2014 and forward remain open for examination for federal tax purposes and tax years 2013 and forward remain open for examination for our more significant state tax jurisdictions. To the extent utilized in future years’ tax returns, NOL carryforwards at December 31, 2016 will remain subject to examination until the respective tax year is closed.
On December 22, 2017, H.R. 1 (also, known as the Tax Cuts and Jobs Act (the Act)) was signed into law. Among its numerous changes to the Internal Revenue Code, the Act reduces U.S. federal corporate tax rate from 35% to 21%. As a result, we believe that the most significant impact on our consolidated financial statements will be a reduction in deferred tax assets related to NOLs and other deferred tax assets. Such reduction was offset by an equal reduction to our valuation allowance. Additionally, we have investments in various foreign subsidiaries. At December 31, 2017 and November 2, 2017, the cumulative earnings and profits of these entities combined were negative. Accordingly, we are not liable for the transition tax enacted under the Act. We have completed the accounting for the tax impact of the Act as of December 31, 2017 and have recorded no provisional amounts.
The following table sets forth the computation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
Net loss
|
$
|
(3,167,192
|
)
|
|
$
|
(4,413,196
|
)
|
Denominator:
|
|
|
|
Weighted average shares outstanding
|
27,596,070
|
|
|
27,238,887
|
|
Basic and diluted net loss per share
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
Diluted net loss per share does not include the effect of the following antidilutive common equivalent shares:
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Stock options outstanding
|
4,782,911
|
|
|
3,818,934
|
|
Restricted stock and performance stock units
|
1,451,534
|
|
|
641,724
|
|
|
6,234,445
|
|
|
4,460,658
|
|
AMBER ROAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
(11)
|
Commitments and Contingencies
|
(a) Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on our financial position, results of operations, or liquidity.
(b) Indemnifications
In the ordinary course of business and under the indemnification clause of our standard customer agreement, we provide indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our licensed materials. At present, we do not expect to incur any infringement liability as a result of the customer indemnification clauses.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our senior officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences so long as such officer or director may be subject to any possible claim. The maximum potential amount of future payments we could be required to make under these indemnification agreements is undetermined; however, we have director and officer insurance coverage that reduces our exposure and may enable us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.