acia-10q_20170331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

OR

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

For the transition period from               to              

Commission File Number: 001-37771

 

Acacia Communications, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

27-0291921

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Three Mill and Main Place, Suite 400

Maynard, Massachusetts 01754

(Address of principal executive offices)

(978) 938-4896

(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

As of April 28, 2017, the registrant had 38,641,841 shares of common stock issued and outstanding.

 

 

 

 


 

ACACIA COMMUNICATIONS, INC.

Table of Contents

 

 

 

 

 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

2

 

 

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

 

2

 

 

Condensed Consolidated Income Statements for the Three Months Ended March 31, 2017 and 2016

 

3

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016

 

4

 

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the Three Months Ended March 31, 2017 and 2016

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

 

6

 

 

Notes to Unaudited Condensed 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

 

25

Item 4.

 

Controls and Procedures

 

26

 

 

PART II - OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

27

Item 1A.

 

Risk Factors

 

27

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

Item 3.

 

Defaults Upon Senior Securities

 

49

Item 4.

 

Mine Safety Disclosures

 

49

Item 5.

 

Other Information

 

49

Item 6.

 

Exhibits

 

49

Signatures

 

50

 

 

 

EX-31.1

 

(CERTIFICATION OF THE CEO PURSUANT TO SECTION 302)

 

 

EX-31.2

 

(CERTIFICATION OF THE CFO PURSUANT TO SECTION 302)

 

 

EX-32.1

 

(CERTIFICATION OF THE CEO PURSUANT TO SECTION 906)

 

 

EX-32.2

 

(CERTIFICATION OF THE CFO PURSUANT TO SECTION 906)

 

 

 

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance.  In some cases, forward-looking statements can be identified by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions.  Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

our expectations regarding our expenses and revenue, our ability to maintain and expand gross profit, the sufficiency of our cash resources and needs for additional financing;

 

our anticipated growth strategies;

 

our expectations regarding competition;

 

the anticipated trends and challenges in our business and the market in which we operate;

 

our expectations regarding, and the stability of our, supply chain and manufacturing;

 

the scope, progress, expansion, and costs of developing and commercializing our products;

 

the size and growth of the potential markets for our products and the ability to serve those markets;

 

the timing, rate and degree of introducing any of our products into the market and the market acceptance of any of our products;

 

our ability to establish and maintain development partnerships;

 

our ability to attract or retain key personnel;

 

our expectations regarding federal, state and foreign regulatory requirements, including export controls, tax law changes and interpretations, economic sanctions and anti-corruption regulations;

 

regulatory developments in the United States and foreign countries, including under export control laws or regulations that could impede our ability to sell our products to certain customers or customers in certain foreign jurisdictions; and

 

our ability to obtain and maintain intellectual property protection for our products.

The foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, investors in our common stock should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

 

1


 

PART I—FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements (Unaudited).

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

March 31, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

139,641

 

 

$

206,402

 

Marketable securities - short-term

 

 

131,684

 

 

 

104,004

 

Accounts receivable

 

 

114,891

 

 

 

108,127

 

Inventory

 

 

33,684

 

 

 

31,681

 

Prepaid expenses and other current assets

 

 

17,544

 

 

 

12,076

 

Deferred product costs

 

 

279

 

 

 

85

 

Total current assets

 

 

437,723

 

 

 

462,375

 

Marketable securities - long-term

 

 

49,960

 

 

 

 

Restricted cash

 

 

586

 

 

 

1,630

 

Property and equipment, net

 

 

27,292

 

 

 

25,124

 

Deferred tax asset

 

 

25,022

 

 

 

23,533

 

Other assets

 

 

7,840

 

 

 

4,274

 

Total assets

 

$

548,423

 

 

$

516,936

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

37,062

 

 

$

49,430

 

Accrued liabilities

 

 

31,963

 

 

 

29,863

 

Deferred revenue

 

 

1,586

 

 

 

1,375

 

Total current liabilities

 

 

70,611

 

 

 

80,668

 

Other long-term liabilities

 

 

1,829

 

 

 

1,473

 

Total liabilities

 

 

72,440

 

 

 

82,141

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000 shares authorized; none issued and

    outstanding at March 31, 2017 and December 31, 2016

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000 shares authorized; 38,516 and 37,998

    shares issued and outstanding at March 31, 2017 and December 31, 2016,

    respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

301,408

 

 

 

295,893

 

Accumulated other comprehensive loss

 

 

(52

)

 

 

(16

)

Retained earnings

 

 

174,623

 

 

 

138,914

 

Total stockholders' equity

 

 

475,983

 

 

 

434,795

 

Total liabilities and stockholders' equity

 

$

548,423

 

 

$

516,936

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenue

 

$

114,667

 

 

$

84,489

 

Cost of revenue

 

 

58,367

 

 

 

49,083

 

Gross profit

 

 

56,300

 

 

 

35,406

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

17,728

 

 

 

15,414

 

Sales, general and administrative

 

 

8,691

 

 

 

4,054

 

Total operating expenses

 

 

26,419

 

 

 

19,468

 

Income from operations

 

 

29,881

 

 

 

15,938

 

Other income, net:

 

 

 

 

 

 

 

 

Interest income, net

 

 

445

 

 

 

9

 

Change in fair value of preferred stock warrant liability

 

 

 

 

 

248

 

Other expense

 

 

(38

)

 

 

(20

)

Total other income, net

 

 

407

 

 

 

237

 

Income before (benefit) provision for income taxes

 

 

30,288

 

 

 

16,175

 

(Benefit) provision for income taxes

 

 

(5,421

)

 

 

1,577

 

Net income

 

 

35,709

 

 

 

14,598

 

Accretion of redeemable convertible preferred stock

 

 

 

 

 

(1,086

)

Undistributed earnings attributable to participating securities

 

 

 

 

 

(10,566

)

Net income attributable to common stockholders - basic

 

 

35,709

 

 

 

2,946

 

Less: change in fair value of preferred stock warrant liability

 

 

 

 

 

(248

)

Net income attributable to common stockholders - diluted

 

$

35,709

 

 

$

2,698

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.93

 

 

$

0.44

 

Diluted

 

$

0.86

 

 

$

0.30

 

Weighted-average shares used to compute net income per share attributable

   to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

 

38,308

 

 

 

6,743

 

Diluted

 

 

41,654

 

 

 

8,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


3


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

35,709

 

 

$

14,598

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Changes in unrealized loss on marketable securities, net of income taxes

   of $15 for the three months ended March 31, 2017

 

 

(36

)

 

 

 

Comprehensive income

 

$

35,673

 

 

$

14,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

 

 

 

Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 31, 2015

 

 

24,177

 

 

$

70,780

 

 

 

 

6,669

 

 

$

1

 

 

$

 

 

$

 

 

$

8,015

 

 

$

8,016

 

Accretion of preferred stock issuance costs

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

 

 

 

 

 

(20

)

Accretion to redemption value

 

 

 

 

 

 

1,066

 

 

 

 

 

 

 

 

 

 

 

 

(388

)

 

 

 

 

 

 

(678

)

 

 

(1,066

)

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options

 

 

 

 

 

 

 

 

 

 

 

115

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

 

 

118

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

 

 

290

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,598

 

 

 

14,598

 

Balance at March 31, 2016

 

 

24,177

 

 

$

71,866

 

 

 

 

6,805

 

 

$

1

 

 

$

 

 

$

 

 

$

21,935

 

 

$

21,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

 

 

$

 

 

 

 

37,998

 

 

$

4

 

 

$

295,893

 

 

$

(16

)

 

$

138,914

 

 

$

434,795

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of common stock options

 

 

 

 

 

 

 

 

 

 

 

341

 

 

 

 

 

 

883

 

 

 

 

 

 

 

 

 

 

 

883

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

 

 

 

149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,632

 

 

 

 

 

 

 

 

 

 

 

4,632

 

Unrealized losses on marketable securities,

     net of tax of $15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

 

(36

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,709

 

 

 

35,709

 

Balance at March 31, 2017

 

 

 

 

$

 

 

 

 

38,516

 

 

$

4

 

 

$

301,408

 

 

$

(52

)

 

$

174,623

 

 

$

475,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

ACACIA COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

35,709

 

 

$

14,598

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

2,877

 

 

 

1,666

 

Stock-based compensation

 

 

4,632

 

 

 

290

 

Deferred income taxes

 

 

(1,490

)

 

 

(810

)

Other non-cash charges

 

 

76

 

 

 

8

 

Change in fair value of preferred stock warrant liability

 

 

 

 

 

(248

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,764

)

 

 

(22,873

)

Inventory

 

 

(2,003

)

 

 

2,238

 

Prepaid expenses and other current assets

 

 

(5,241

)

 

 

(389

)

Deferred product costs

 

 

(194

)

 

 

1,481

 

Restricted cash

 

 

1,044

 

 

 

 

Other assets

 

 

(3,566

)

 

 

(57

)

Accounts payable

 

 

(11,533

)

 

 

13,424

 

Accrued liabilities

 

 

1,790

 

 

 

2,318

 

Deferred revenue

 

 

211

 

 

 

(153

)

Other long-term liabilities

 

 

356

 

 

 

406

 

Net cash provided by operating activities

 

 

15,904

 

 

 

11,899

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,608

)

 

 

(6,221

)

Purchases of marketable securities

 

 

(116,652

)

 

 

 

Sales and maturities of marketable securities

 

 

38,900

 

 

 

 

Deposits

 

 

 

 

 

(11

)

Net cash used in investing activities

 

 

(83,360

)

 

 

(6,232

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of capital lease obligation

 

 

 

 

 

(24

)

Deferred financing costs

 

 

 

 

 

(8

)

Payment of public offering costs

 

 

(188

)

 

 

(479

)

Proceeds from the issuance of common stock under stock-based compensation plans

 

 

883

 

 

 

118

 

Net cash provided by (used in) financing activities

 

 

695

 

 

 

(393

)

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

 

 

 

6

 

Net (decrease) increase in cash and cash equivalents

 

 

(66,761

)

 

 

5,280

 

Cash and cash equivalents—Beginning of period

 

 

206,402

 

 

 

27,610

 

Cash and cash equivalents—End of period

 

$

139,641

 

 

$

32,890

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

(Refunds received) cash paid for income taxes, net

 

$

(134

)

 

$

2,240

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Capital expenditures incurred but not yet paid

 

$

1,147

 

 

$

639

 

Public offering costs incurred but not yet paid

 

$

13

 

 

$

324

 

Accretion of redemption value on redeemable convertible preferred stock

 

$

 

 

$

1,066

 

Accretion of redeemable convertible preferred stock issuance costs

 

$

 

 

$

20

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

Acacia Communications, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. NATURE OF THE BUSINESS AND OPERATIONS

 

Acacia Communications, Inc. was incorporated on June 2, 2009, as a Delaware corporation. Acacia Communications, Inc. and its wholly-owned subsidiaries (the “Subsidiaries”) are collectively referred to as the Company. The Company is a leading provider of high-speed coherent interconnect products that are designed to improve the capacity, performance, intelligence and cost of communications networks relied upon by cloud infrastructure operators and content and communications service providers. The Company’s products include a series of low-power coherent digital signal processors and silicon photonic integrated circuits integrated into families of optical interconnect modules with transmission speeds ranging from 100 to 400 gigabits per second for use in long-haul, metro and inter-data center markets. The Company is also developing optical interconnect modules that will enable transmission speeds of one terabit (1,000 gigabits) per second and above.

The Company is headquartered in Maynard, Massachusetts, and has established wholly-owned subsidiaries in North America, Europe and Asia as part of the Company’s global expansion.

On May 18, 2016, the Company closed its initial public offering (“IPO”), in which the Company issued and sold 4,570,184 shares of common stock and certain selling stockholders sold an additional 604,816 shares, inclusive of the underwriters’ option to purchase additional shares that was exercised in full.  The price per share to the public was $23.00.  The Company received aggregate proceeds of approximately $97.8 million from the IPO, net of underwriters’ discounts and commissions, before deduction of offering expenses of approximately $4.3 million. The Company received no proceeds from the sale of shares by the selling stockholders.  Upon the closing of the IPO, all shares of the Company’s outstanding redeemable convertible preferred stock (the “preferred stock”) automatically converted into 24,177,495 shares of common stock.  

On October 13, 2016, the Company closed a follow-on public offering in which the Company issued and sold 1,210,302 shares of common stock and certain selling stockholders sold an additional 3,289,698 shares.  The underwriters’ option to purchase up to an additional 675,000 shares from certain of the selling stockholders was not exercised.  The price per share to the public was $100.00.  The Company received aggregate proceeds of $116.8 million from the follow-on offering, net of underwriters’ discounts and commissions, before deduction of offering expenses of approximately $1.2 million.  The Company received no proceeds from the sale of shares by the selling stockholders.

 

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements include the accounts of Acacia Communications, Inc., and Subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements.  For further information, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 23, 2017. There have been no significant changes in the Company’s accounting policies from those disclosed in the Annual Report on Form 10-K that have had a material impact on the Company’s condensed consolidated financial statements.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2016, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2017, its results of operations for the three months ended March 31, 2017 and 2016, its statements of comprehensive income for the three months ended March 31, 2017 and 2016, its statements of redeemable convertible preferred stock and stockholders’ equity for the three months ended March 31, 2017 and 2016, and its cash flows for the three months ended March 31, 2017 and 2016. All intercompany balances and transactions have been eliminated in consolidation.  The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to these three-month periods are also unaudited. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

7


 

liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”).  ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium to the earliest call date in order to reduce diversity in practice and provide more decision-useful information. The amendments in ASU 2017-08 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, and is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 320): Restricted Cash (“ASU 2016-18”).  ASU 2016-18 will require amounts generally described as restricted cash or restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  The amendments in ASU 2016-18 are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and must be applied using a retrospective approach with earlier adoption permitted. The Company expects its condensed consolidated statements of cash flows to be impacted by the amount of restricted cash held by the Company in each period.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”).  ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The amendments in ASU 2016-16 are effective for fiscal years beginning after December 15, 2017, and must be applied using a modified retrospective approach with earlier adoption permitted for annual reporting periods for which financial statements have not yet been issued. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.  The main provisions include presenting financial assets measured at amortized cost at the amount expected to be collected, which is net of an allowance for credit losses, and recording credit losses related to available-for-sale securities through an allowance for credit losses.  The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, and must be applied using a modified retrospective approach with earlier adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize a right-of-use asset and lease liability on the balance sheet for virtually all leases. For the income statement, ASU 2016-02 retains a dual model requiring leases to be classified as either operating or financing leases. Operating leases will result in straight-line expense, and financing leases will have a front-loaded expense pattern with an interest expense component. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, and must be applied using a modified retrospective approach with earlier adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the currently effective guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application.  ASU 2014-09 was initially to be effective for annual periods beginning after December 15, 2016, including interim periods within that period. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which delays the effective date of ASU 2014-09 by one year and allows for early adoption as of the original effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies certain principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue

8


 

from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain guidance related to identifying performance obligations and licensing.  In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses improvements to the guidance on collectability, noncash consideration and completed contracts at transition.  In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which addresses clarifications and corrections in various areas, including contract costs and disclosures.  The Company has commenced its evaluation of the impact this guidance may have on its condensed consolidated financial statements, including evaluation of the disclosure requirements under the new standard.  Although its assessment is ongoing, the Company does not anticipate that the adoption of this standard will have a significant impact on its condensed consolidated financial statements.  The Company plans to adopt this guidance on January 1, 2018.  The Company has not yet determined whether it will utilize the full retrospective or the modified retrospective adoption method.

 

3. FINANCIAL INSTRUMENTS

 

The following tables set forth the Company’s cash, cash equivalents and short- and long-term marketable securities as of March 31, 2017 and December 31, 2016 (in thousands):

 

 

 

As of March 31, 2017

 

 

 

 

 

 

 

Gross Unrealized

 

 

Estimated

 

 

Cash and Cash

 

 

Marketable

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses(1)

 

 

Fair Value

 

 

Equivalents

 

 

Securities

 

Cash

 

$

83,889

 

 

$

 

 

$

 

 

$

83,889

 

 

$

83,889

 

 

$

 

Money market funds

 

 

47,855

 

 

 

 

 

 

 

 

 

47,855

 

 

 

47,855

 

 

 

 

U.S. treasury bonds

 

 

15,006

 

 

 

 

 

 

(5

)

 

 

15,001

 

 

 

 

 

 

15,001

 

Commercial paper

 

 

49,912

 

 

 

 

 

 

(2

)

 

 

49,910

 

 

 

5,999

 

 

 

43,911

 

Certificates of deposit

 

 

11,048

 

 

 

3

 

 

 

(1

)

 

 

11,050

 

 

 

 

 

 

11,050

 

Asset-backed securities

 

 

11,669

 

 

 

1

 

 

 

(2

)

 

 

11,668

 

 

 

 

 

 

11,668

 

Corporate debt securities

 

 

101,984

 

 

 

7

 

 

 

(79

)

 

 

101,912

 

 

 

1,898

 

 

 

100,014

 

Total

 

$

321,363

 

 

$

11

 

 

$

(89

)

 

$

321,285

 

 

$

139,641

 

 

$

181,644

 

 

 

(1)

 Losses represent marketable securities that were in loss positions for less than one year.

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

Gross Unrealized

 

 

Estimated

 

 

Cash and Cash

 

 

Marketable

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses(1)

 

 

Fair Value

 

 

Equivalents

 

 

Securities

 

Cash

 

$

81,230

 

 

$

 

 

$

 

 

$

81,230

 

 

$

81,230

 

 

$

 

Money market funds

 

 

118,174

 

 

 

 

 

 

 

 

 

118,174

 

 

 

118,174

 

 

 

 

U.S. treasury bonds

 

 

15,017

 

 

 

 

 

 

(2

)

 

 

15,015

 

 

 

 

 

 

15,015

 

Commercial paper

 

 

49,673

 

 

 

 

 

 

 

 

 

49,673

 

 

 

5,997

 

 

 

43,676

 

Corporate debt securities

 

 

46,339

 

 

 

2

 

 

 

(27

)

 

 

46,314

 

 

 

1,001

 

 

 

45,313

 

Total

 

$

310,433

 

 

$

2

 

 

$

(29

)

 

$

310,406

 

 

$

206,402

 

 

$

104,004

 

 

 

(1)

Losses represent marketable securities that were in loss positions for less than one year.

 

The proceeds from the sales and maturities of marketable securities, which were primarily reinvested and resulted in realized gains and losses, were as follows (in thousands):

 

 

 

Three Months Ended March 31, 2017

 

Proceeds from the sales and maturities of marketable securities

 

$

38,900

 

Realized gains

 

$

1

 

Realized losses

 

$

 

 

The contractual maturities of short-term and long-term marketable securities held at March 31, 2017 and December 31, 2016 are as follows (in thousands):

 

9


 

 

 

As of March 31, 2017

 

 

As of December 31, 2016

 

 

 

Amortized Cost Basis

 

 

Aggregate Fair Value

 

 

Amortized Cost Basis

 

 

Aggregate Fair Value

 

Due within one year

 

$

131,735

 

 

$

131,684

 

 

$

104,031

 

 

$

104,004

 

Due after 1 year through 2 years

 

 

49,987

 

 

 

49,960