10-Q
Table of Contents
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2015
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 001-35433
 
BAZAARVOICE, INC.
(Exact name of registrant as specified in its charter)
 
State of Delaware
 
20-2908277
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
3900 N. Capital of Texas Highway, Suite 300
Austin, Texas
 
78746-3211
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (512) 551-6000

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
 
 
 
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  ý    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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
ý
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of the registrant’s common stock outstanding as of December 2, 2015 was 81,323,084.

 
Table of Contents

Bazaarvoice, Inc.
Table of Contents
 
 
 
Page
Part I.
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 6.
 

Table of Contents



Bazaarvoice, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share data)
(unaudited)
 
 
October 31,
2015
 
April 30,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
58,072

 
$
54,041

Short-term investments
51,942

 
52,730

Accounts receivable, net of allowance for doubtful accounts of $3,738 and $3,992 as of October 31, 2015 and April 30, 2015, respectively
37,529

 
49,532

Prepaid expenses and other current assets
7,595

 
12,977

Total current assets
155,138

 
169,280

Property, equipment and capitalized internal-use software development costs, net
25,330

 
19,054

Goodwill
139,155

 
139,155

Acquired intangible assets, net
10,552

 
11,498

Other non-current assets
4,784

 
3,974

Total assets
$
334,959

 
$
342,961

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
7,543

 
$
3,539

Accrued expenses and other current liabilities
21,304

 
27,397

Deferred revenue
56,735

 
60,400

Total current liabilities
85,582

 
91,336

Long-term liabilities:
 
 
 
Revolving line of credit
57,000

 
57,000

Deferred revenue less current portion
2,346

 
2,530

Other liabilities, long-term
3,693

 
712

Total liabilities
148,621

 
151,578

Commitments and contingencies (Note 9)

 

Stockholders’ equity:
 
 
 
Common stock – $0.0001 par value; 150,000,000 shares authorized, 81,523,084 shares issued and 81,323,084 shares outstanding as of October 31, 2015; 150,000,000 shares authorized, 80,346,488 shares issued and 80,146,488 shares outstanding at April 30, 2015
8

 
8

Treasury stock, at cost – 200,000 shares as of October 31, 2015 and April 30, 2015
—

 
—

Additional paid-in capital
428,632

 
418,509

Accumulated other comprehensive loss
(710
)
 
(638
)
Accumulated deficit
(241,592
)
 
(226,496
)
Total stockholders’ equity
186,338

 
191,383

Total liabilities and stockholders’ equity
$
334,959

 
$
342,961


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Table of Contents

Bazaarvoice, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except net loss per share data)
(unaudited)
 
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Revenue
$
49,926

 
$
47,325

 
$
98,802

 
$
93,302

Cost of revenue
19,146

 
17,414

 
38,694

 
33,770

Gross profit
30,780

 
29,911

 
60,108

 
59,532

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
16,502

 
18,931

 
35,668

 
39,926

Research and development
10,354

 
9,306

 
20,887

 
19,036

General and administrative
7,643

 
8,100

 
15,881

 
15,993

Acquisition-related and other
224

 
2,326

 
926

 
2,818

Amortization of acquired intangible assets
310

 
310

 
619

 
619

Total operating expenses
35,033

 
38,973

 
73,981

 
78,392

Operating loss
(4,253
)
 
(9,062
)
 
(13,873
)
 
(18,860
)
Other income (expense), net:
 
 
 
 
 
 
 
Interest income
74

 
10

 
151

 
16

Interest expense
(461
)
 
(250
)
 
(1,032
)
 
(482
)
Other expense
(88
)
 
(348
)
 
(306
)
 
(620
)
Total other expense, net
(475
)
 
(588
)
 
(1,187
)
 
(1,086
)
Loss from continuing operations before income taxes
(4,728
)
 
(9,650
)
 
(15,060
)
 
(19,946
)
Income tax expense
124

 
258

 
36

 
270

Net loss from continuing operations
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(20,216
)
Loss from discontinued operations, net of tax
—

 
—

 
—

 
(1,257
)
Net loss applicable to common stockholders
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(21,473
)
Net loss per share applicable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
(0.06
)
 
$
(0.13
)
 
$
(0.19
)
 
$
(0.26
)
Discontinued operations
—

 
—

 
—

 
(0.02
)
Basic and diluted loss per share:
$
(0.06
)
 
$
(0.13
)
 
$
(0.19
)
 
$
(0.28
)
Basic and diluted weighted average number of shares outstanding
80,678

 
78,280

 
80,426

 
78,023


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Table of Contents

Bazaarvoice, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Net loss
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(21,473
)
Other comprehensive gain (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(103
)
 
(456
)
 
(73
)
 
(458
)
Unrealized gain (loss) on investments
(29
)
 
(29
)
 
1

 
18

Total other comprehensive loss, net of tax
(132
)
 
(485
)
 
(72
)
 
(440
)
Comprehensive loss
$
(4,984
)
 
$
(10,393
)
 
$
(15,168
)
 
$
(21,913
)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents

Bazaarvoice, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(in thousands)
(unaudited)
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Amount
 
Number of
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Equity (Deficit)
Balance at April 30, 2015
80,346

 
$
8

 
(200
)
 
$
—

 
$
418,509

 
$
(638
)
 
$
(226,496
)
 
$
191,383

Stock-based expense
—

 
—

 
—

 
—

 
7,958

 
—

 
—

 
7,958

Issuance of restricted stock awards
242

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of stock options and vested restricted stock units
638

 
—

 
—

 
—

 
867

 
—

 
—

 
867

Shares issued under employee stock plans
297

 
—

 
—

 
—

 
1,298

 
—

 
—

 
1,298

Change in foreign currency translation adjustment
—

 
—

 
—

 
—

 
—

 
(73
)
 
—

 
(73
)
Change in unrealized gain on investments
—

 
—

 
—

 
—

 
—

 
1

 
—

 
1

Net loss applicable to common stockholders
—

 
—

 
—

 
—

 
—

 
—

 
(15,096
)
 
(15,096
)
Balance at October 31, 2015
81,523

 
$
8

 
(200
)
 
$
—

 
$
428,632

 
$
(710
)
 
$
(241,592
)
 
$
186,338


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Table of Contents

Bazaarvoice, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Six Months Ended October 31,
 
2015
 
2014
Operating activities:
 
 
 
Net loss
$
(15,096
)
 
$
(21,473
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization expense
6,978

 
6,050

Loss on disposal of discontinued operations, net of tax
—

 
1,537

Stock-based expense
7,958

 
6,589

Bad debt expense
61

 
1,223

Excess tax benefit related to stock-based expense
—

 
(1
)
Amortization of deferred financing costs
118

 
—

Other non-cash expense
45

 
229

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
11,942

 
(2,156
)
Prepaid expenses and other current assets
977

 
(508
)
Other non-current assets
(930
)
 
(205
)
Accounts payable
2,149

 
455

Accrued expenses and other current liabilities
(6,008
)
 
(1,355
)
Deferred revenue
(3,850
)
 
(1,794
)
Other liabilities, long-term
2,960

 
(736
)
Net cash provided by (used in) operating activities
7,304

 
(12,145
)
Investing activities:
 
 
 
Proceeds from sale of discontinued operations
4,501

 
25,500

Purchases of property, equipment and capitalized internal-use software development costs
(10,455
)
 
(6,238
)
Decrease in restricted cash
—

 
(500
)
Purchases of short-term investments
(39,855
)
 
(41,047
)
Proceeds from maturities of short-term investments
40,517

 
28,015

Proceeds from sale of short-term investments
—

 
5,012

Net cash provided by (used in) investing activities
(5,292
)
 
10,742

Financing activities:
 
 
 
Proceeds from employee stock compensation plans
2,113

 
2,799

Excess tax benefit related to stock-based expense
—

 
1

Net cash provided by financing activities
2,113

 
2,800

Effect of exchange rate fluctuations on cash and cash equivalents
(94
)
 
(476
)
Net change in cash and cash equivalents
4,031

 
921

Cash and cash equivalents at beginning of period
54,041

 
31,934

Cash and cash equivalents at end of period
$
58,072

 
$
32,855

Supplemental disclosure of other cash flow information:
 
 
 
Cash paid for income taxes, net of refunds
$
515

 
$
717

Cash paid for interest
$
1,075

 
$
451

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Purchase of fixed assets recorded in accounts payable
$
1,859

 
$
—


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
These Condensed Consolidated Statement of Cash Flows include combined cash flows from continuing operations along with discontinued operations.
5
Table of Contents

Bazaarvoice, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Nature of Operations
Bazaarvoice, Inc. (“Bazaarvoice” or the “Company”) is a network that connects brands and retailers to the authentic voices of people where they shop. Bazaarvoice was founded on the premise that the collective voice of the marketplace is the most powerful marketing tool in the world because of its influence on purchasing decisions, both online and offline. The Company’s technology platform collects, curates, and displays consumer-generated content including ratings and reviews, questions and answers, customer stories, and social posts, photos, and videos. This content is amplified across marketing channels, including category/product pages, search, brand sites, mobile applications, in-store displays, and paid and earned media, where it helps clients generate more revenue, market share, and brand affinity. The Company also helps clients leverage insights derived from consumer-generated content to improve marketing effectiveness, increase success of new product launches, improve existing products and services, effectively scale customer support, decrease product returns, and enable retailers to launch and manage on-site advertising solutions and site monetization strategies.

2. Summary of Significant Accounting Policies
Fiscal Year
The Company’s fiscal year end is April 30. References to fiscal year 2016, for example, refer to the fiscal year ending April 30, 2016.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2015, filed on June 25, 2015. There have been no significant changes to the Company’s accounting policies since April 30, 2015.
The condensed consolidated balance sheet data as of April 30, 2015 was derived from the audited consolidated financial statements included in the Company’s Annual Report on form 10-K for the fiscal year ended April 30, 2015.
On July 2, 2014, the Company completed the sale of its PowerReviews business. The operating results of this business have been presented as discontinued operations for the six month period ended October 31, 2014. The statement of cash flows is reported on a combined basis without separately presenting cash flows from discontinued operations. All other disclosures and amounts in the notes to the condensed consolidated financial statements relate to the Company’s continuing operations, unless otherwise indicated.
Prior Period Financial Statements Presentation
The Statement of Comprehensive Loss included in the financial statements in the Quarterly Report on Form10-Q filed for the period ended October 31, 2014 incorrectly excluded the loss from discontinued operations in Comprehensive Loss for the six month period ended October 31, 2014. The Company has revised the Statement of Comprehensive Loss for the period included in this financial statement. Management concluded these errors were not material to the previously issued financial statements.
Use of Estimates
The preparation of 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 liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, income taxes, stock-based expense, accrued liabilities, useful lives of property, equipment and capitalized software development costs, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates made by management with respect to these items.

6
Table of Contents

Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and the accounts of the Company’s wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with GAAP, as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. 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’ equity and cash flows. The results of operations for the three and six months ended October 31, 2015 are not necessarily indicative of results that may be expected for the fiscal year ending April 30, 2016 or any other period.
Foreign Currency Translation
The U.S. dollar is the reporting currency for all periods presented. The functional currency of the Company’s foreign subsidiaries is generally the local currency. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average rate during the period. Equity transactions are translated using historical exchange rates. Adjustments resulting from translating foreign currency financial statements into U.S. dollars are included in other expenses, net. Foreign currency transaction gains and losses are included in net loss for the period.
Derivative Financial Instruments
As a result of the Company’s international operations, it is exposed to various market risks, such as fluctuations in currency exchange rates, which may affect its consolidated results of operations, cash flows and financial position. The Company’s primary foreign currency exposures are in Euros and British Pound Sterling. The Company faces exposure to adverse movements in currency exchange rates as the financial results of certain of its operations are translated from local currency into U.S. dollars upon consolidation. Additionally, foreign exchange rate fluctuations on transactions denominated in currencies other than the functional currency result in gains and losses that are reflected in income.
The Company may enter into derivative instruments to hedge certain net exposures of non-U.S. dollar-denominated assets and liabilities, even though it does not elect to apply hedge accounting or hedge accounting does not apply. Gains and losses resulting from a change in fair value of these derivatives are reflected in income in the period in which the change occurs and are recognized on the condensed consolidated statement of operations in other income (expense). Cash flows from these contracts are classified within net cash used in operating activities on the condensed consolidated statements of cash flows.
The Company does not use financial instruments for trading or speculative purposes. The Company recognizes all derivative instruments on the balance sheet at fair value, and its derivative instruments are generally short-term in duration.
Derivative contracts were not material to our operations or net income for the three and six month periods ended October 31, 2015 and 2014. The Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their respective fair values due to their short-term nature.
The Company applies the authoritative guidance on fair value measurements for financial assets and liabilities. The guidance defines fair value and increases disclosures surrounding fair value calculations. The guidance establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:
Level 1: Unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company.
Level 2: Inputs that are observable in the marketplace other than those inputs classified as Level 1.
Level 3: Inputs that are unobservable in the marketplace which require the Company to develop its own assumptions.
The valuation techniques used to determine the fair value of our financial instruments having Level 2 inputs are valued using unadjusted, non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models. Our procedures include controls to ensure that appropriate fair values are recorded by a review of the valuation methods and assumptions. The Company did not hold any cash equivalents, restricted cash or short-term investments categorized as Level 3 as of October 31, 2015 or April 30, 2015.

7
Table of Contents

Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and account receivables. The Company’s cash and cash equivalents are placed with high-credit-quality financial institutions and issuers, and at times may exceed federally insured limits. The Company has not experienced any loss relating to cash and cash equivalents in these accounts to date. The Company maintains an allowance for doubtful accounts receivable balances, performs periodic credit evaluations of its clients and generally does not require collateral of its clients.
No single client accounted for 10% or more of accounts receivable as of October 31, 2015 or April 30, 2015. No single client accounted for 10% or more of total revenue for the three and six months ended October 31, 2015 or 2014.
Revenue Recognition
In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the client, (iii) the fee is fixed or determinable and (iv) collectability is reasonably assured.
The Company generates revenue primarily from sales of the following services:
Software as a Service (“SaaS”)
The Company generates SaaS revenue from two sources: 1) various subscription products; and 2) professional services. Subscription revenue includes subscription fees from clients accessing the Company’s cloud-based social commerce platform and application services pursuant to service agreements that are generally one year in length. Professional services consist of fees associated with providing expert services that educate and assist clients on the best use of the Company’s solutions as well as assist in the implementation of the solutions. Professional services are not required for clients to utilize the Company’s solutions. The client does not have the right to take possession of the software supporting the application service at any time, nor do the arrangements contain general rights of return.
Multiple Deliverable Arrangements
Typically, revenue from new clients consists of agreements with multiple elements, comprised of subscription fees for the Company’s products and professional services. The Company evaluates each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company’s control. Various subscription-based products have standalone value because they are routinely sold separately by the Company. In determining whether professional services can be accounted for separately from subscription services, the Company considered the availability of the professional services from other vendors, the nature of the Company’s professional services and whether the Company sells its applications to new clients without professional services. The majority of the Company’s professional services contracts are offered on a time and material basis. When these services are not combined with subscription and support revenue in a multiple-element arrangement, services revenue is recognized as the services are rendered.
If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables over the respective service period. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the final deliverable within the arrangement and treated as a single unit of accounting. Revenue for arrangements treated as a single unit of accounting is generally recognized over the period commencing upon delivery of the final deliverable and over the remaining term of the subscription contract.
The Company allocates revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or best estimated selling price (“BESP”), if neither VSOE nor TPE is available. Because the Company has been unable to establish VSOE or TPE for the elements of our arrangements, the Company allocates the arrangement fee to the separate units of accounting based on the Company’s best estimate of selling price. The Company determines BESP price for its deliverables based on the Company’s overall pricing objectives, discounting practices, the size and volume of the Company’s transactions, the client demographic, the Company’s price lists, the Company’s go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is made through consultation with and approval by management, taking into consideration the go-to-market strategy. As the Company’s go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.
Subscription revenue is recognized ratably over the term of the related agreement, commencing upon the later of the agreement start date or when all revenue recognition criteria have been met. 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.

8
Table of Contents

Advertising
Advertising revenue (formerly referred to as media revenue) consists primarily of fees charged to advertisers when their advertisements are displayed on websites owned by various third-parties (“Publishers”). The Company has revenue sharing agreements with these Publishers. The Company receives a fee from the advertisers and pays the Publishers based on their contractual revenue-share. Advertising revenues earned from the advertisers are recognized on a net basis as the Company has determined that it is acting as an agent in these transactions.
Deferred Revenue
Deferred revenue consists of billings or payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The Company invoices clients in a variety of installments and, consequently, the deferred revenue balance does not represent the total contract value of its non-cancelable subscription agreements. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current deferred revenue.
Recent Accounting Pronouncements
Intangibles – Goodwill and Other – Internal Use Software
In April 2015, the FASB issued accounting Standards Update 2015-05, “Intangible-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” (“ASU 2015-05”) which provides guidance to customers with cloud computing arrangements that include a software license. If a cloud computing arrangement includes a software license, the customer is required to account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 does not change the accounting for a customer’s accounting for service contracts. As a result of the ASU 2015-05, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The updated guidance will be effective for annual periods beginning after December 15, 2015 with early adoption permitted. The updated guidance will be effective for the fiscal year ending April 30, 2017 and the Company is currently evaluating the impact of this standards update on the Company’s consolidated financial statements.
Revenue
In May 2014, the FASB issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”) which provides updated, comprehensive revenue recognition guidance for contracts with customers, including a new principles-based five step framework that eliminates much of the industry-specific guidance in current accounting literature. Under ASU 2014-09, revenue recognition is based on a core principle that companies recognize revenue in an amount consistent with the consideration it expects to be entitled to in exchange for the transfer of goods or services. The standards update also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of recognized revenue. In August 2015, The FASB issued Accounting Standards Update 2015-14, "Revenue from Contracts with Customers," ("ASU 2015-14") which defers the effective date of ASU 2014-09 by one year. The updated guidance will be effective for annual periods beginning after December 15, 2017 and may be applied on either a full or modified retrospective basis. Early adoption is permitted for annual periods beginning after December 15, 2016, the original effective date of ASU 2014-09. The updated guidance will be effective for the fiscal year ending April 30, 2019 and the Company is currently evaluating the impact of this standards update on the Company’s consolidated financial statements.

3. Discontinued Operations
On June 4, 2014, the Company entered into a definitive agreement to divest the assets of PowerReviews, Inc. (“PowerReviews”), pursuant to a Joint Stipulation with the Department of Justice and Order to the U.S. District Court for the Northern District of California, San Francisco Division, for $30.0 million in cash, $4.5 million of which was held in escrow as a partial security for the Company’s indemnification obligations under the definitive agreement. As a result, PowerReviews revenues, related expenses and loss on disposal, net of tax, are components of “loss from discontinued operations, net of tax” in the condensed consolidated statements of operations. Any reduction in proceeds of the escrow related to the divestiture agreement would be recorded as an additional loss. The statement of cash flows is reported on a combined basis without separately presenting cash flows from discontinued operations for all periods presented.

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Results from discontinued operations were as follows (in thousands):
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Revenues from discontinued operations
$
—

 
$
—

 
$
—

 
$
2,535

Income from discontinued operations before income taxes
$
—

 
$
—

 
$
—

 
$
303

Income tax expense
—

 
—

 
—

 
23

Net income from discontinued operations
—

 
—

 
—

 
280

Loss on disposal of discontinued operations, net of tax
—

 
—

 
—

 
(1,537
)
Loss from discontinued operations, net of tax
$
—

 
$
—

 
$
—

 
$
(1,257
)
The Company recorded a loss on the disposal of discontinued operations of $1.5 million, net of tax, in the six months ended October 31, 2014 which was calculated as follows (in thousands):
Cash consideration
$
30,000

Less:
 
Basis in net assets as of July 2, 2014
39,972

Costs incurred directly attributable to the transaction
1,039

Loss before income taxes
(11,011
)
Income tax benefit
(282
)
Loss on disposal of discontinued operations, net of taxes
(10,729
)
Loss on disposal of discontinued operations, net of taxes, previously recognized
9,192

Loss on disposal of discontinued operations, net of tax, recognized in current  period
$
(1,537
)
As of October 31, 2015 there were no ‘assets held for sale’ as the divestiture of the PowerReviews business was completed on July 2, 2014. The $4.5 million held in escrow was released during the six months ended October 31, 2015, and the Company received no claims for indemnification under the definitive agreement.

4. Fair Value of Financial Assets and Liabilities
The following table summarizes the Company’s cash and cash equivalents as of October 31, 2015 and April 30, 2015 (in thousands):
 
October 31,
2015
 
April 30,
2015
Demand deposit accounts
$
49,830

 
$
49,977

Money market funds
4,312

 
2,831

Municipal debt securities
256

 
102

Commercial paper
750

 
875

U.S. government agency debt securities
2,924

 
—

Corporate debt securities
—

 
256

Total cash and cash equivalents
$
58,072

 
$
54,041


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The following table summarizes the Company’s short-term investments as of October 31, 2015 (in thousands):
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-sale securities:
 
 
 
 
 
 
 
Certificates of deposit
$
9,060

 
$
—

 
$
(2
)
 
$
9,058

Municipal debt securities
395

 
—

 
—

 
395

Commercial paper
3,588

 
—

 
—

 
3,588

U.S. Treasury securities
8,774

 
—

 
(5
)
 
8,769

U.S. government agency debt securities
21,192

 
1

 
(8
)
 
21,185

Corporate debt securities
8,957

 
—

 
(10
)
 
8,947

Total short-term investments
$
51,966

 
$
1

 
$
(25
)
 
$
51,942

The following table summarizes the Company’s short-term investments as of April 30, 2015 (in thousands):
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-sale securities:
 
 
 
 
 
 
 
Certificates of deposit
$
4,000

 
$
4

 
$
—

 
$
4,004

Municipal debt securities
4,564

 
17

 
(16
)
 
4,565

Commercial paper
6,269

 
4

 
—

 
6,273

U.S. Treasury securities
11,814

 
—

 
(11
)
 
11,803

U.S. government agency debt securities
17,007

 
1

 
(3
)
 
17,005

Corporate debt securities
9,104

 
4

 
(28
)
 
9,080

Total short-term investments
$
52,758

 
$
30

 
$
(58
)
 
$
52,730

Realized and unrealized gains and losses on short-term investments were not material for the three and six months ended October 31, 2015 and 2014. An impairment charge is recorded in the consolidated statements of operations for declines in fair value below the cost of an individual investment that are deemed to be other-than-temporary. The Company assesses whether a decline in value is temporary based on the length of time that the fair market value has been below cost, the severity of the decline, as well as the intent and ability to hold, or plans to sell, the investment. There have been no impairment charges recognized related to short-term investments for the three and six months ended October 31, 2015 and 2014.
Contractual maturities of available-for-sale securities at October 31, 2015, are as follows (in thousands):
 
Estimated Fair Value
Due in one year or less
$
43,496

Due in 1-2 years
8,446

Total Investments in debt securities
$
51,942

Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties. We may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisitions, even if they have not yet reached maturity. As a result, we classify our investments, including securities with maturities beyond twelve months as current assets in the accompanying condensed consolidated balance sheets.

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The following table summarizes the fair value of the Company’s financial assets and liabilities that were measured on a recurring basis as of October 31, 2015 and April 30, 2015 (in thousands):
 
Fair Value Measurements at October 31, 2015
 
Fair Value Measurements at April 30, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
4,312

 
$
—

 
$
—

 
$
4,312

 
$
2,831

 
$
—

 
$
—

 
$
2,831

Municipal bonds
—

 
256

 
—

 
256

 
—

 
102

 
—

 
102

Commercial paper
—

 
750

 
—

 
750

 
—

 
875

 
—

 
875

U.S. government agency securities
—

 
2,924

 
—

 
2,924

 
—

 
—

 
—

 
—

Corporate securities
—

 
—

 
—

 
—

 
—

 
256

 
—

 
256

Total cash equivalents
4,312

 
3,930

 
—

 
8,242

 
2,831

 
1,233

 
—

 
4,064

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
—

 
9,058

 
—

 
9,058

 
—

 
4,004

 
—

 
4,004

Municipal bonds
—

 
395

 
—

 
395

 
—

 
4,565

 
—

 
4,565

Commercial paper
—

 
3,588

 
—

 
3,588

 
—

 
6,273

 
—

 
6,273

U.S. Treasury securities
8,769

 
—

 
—

 
8,769

 
11,803

 
—

 
—

 
11,803

U.S. government agency securities
—

 
21,185

 
—

 
21,185

 
17,005

 
—

 
—

 
17,005

Corporate securities
—

 
8,947

 
—

 
8,947

 
—

 
9,080

 
—

 
9,080

Total short-term investments
8,769

 
43,173

 
—

 
51,942

 
28,808

 
23,922

 
—

 
52,730

Total assets
$
13,081

 
$
47,103

 
$
—

 
$
60,184

 
$
31,639

 
$
25,155

 
$
—

 
$
56,794

The Company measures certain assets, including property and equipment, goodwill and intangible assets, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be impaired. The Company evaluates transfers between levels at the end of the fiscal year and assumes that any identified transfers are deemed to have occurred at the end of the reporting year. There were no transfers between levels in any of the periods presented.

5. Acquired Intangible Assets, net
Acquired intangible assets, net, as of October 31, 2015 and April 30, 2015 for continuing operations are as follows (in thousands):
 
October 31,
2015
 
April 30,
2015
 
Gross Fair
Value
 
Accumulated
Amortization
 
Net Book
Value
 
Gross Fair
Value
 
Accumulated
Amortization
 
Net Book
Value
Customer relationships
$
11,835

 
$
(3,540
)
 
$
8,295

 
$
11,835

 
$
(2,921
)
 
$
8,914

Developed technology
3,265

 
(1,008
)
 
2,257

 
3,265

 
(681
)
 
2,584

Total
$
15,100

 
$
(4,548
)
 
$
10,552

 
$
15,100

 
$
(3,602
)
 
$
11,498

The amortization of customer relationships is recorded as amortization expense and the amortization for developed technology is amortized to cost of revenue.
The following table presents our estimate of future amortization expense for definite-lived intangible assets (in thousands):
Fiscal period:
Amount
Remaining six months of Fiscal year 2016
$
944

Fiscal year 2017
1,890

Fiscal year 2018
1,890

Fiscal year 2019
1,856

Fiscal year 2020
1,130

Thereafter
2,842

Total
$
10,552


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6. Income Taxes
The Company computes its interim provision for income taxes by applying the estimated annual effective tax rate to income from operations and adjusts the provision for discrete tax items occurring in the period. For continuing operations, the Company’s effective tax rate for the three months ended October 31, 2015 was an expense of 2.6 percent compared to an expense of 2.7 percent for the three months ended October 31, 2014. For continuing operations, the Company’s effective tax rate for the six months ended October 31, 2015 was an expense of 0.2 percent compared to an expense of 1.4 percent for the six months ended October 31, 2014. The tax expense for the three and six months ended October 31, 2015 were primarily attributable to foreign and state income tax expense, with an offset from the income tax benefit from the Texas research and development credit. The tax expense for the three and six months ended October 31, 2014 were primarily attributable to estimated foreign and state income tax expense compared to a consolidated pre-tax book loss.

7. Debt
Credit Facility
On July 18, 2007, the Company entered into a loan and security agreement with Comerica Bank which was most recently amended and restated on November 21, 2014. The Amended and Restated Credit Facility (the “Credit Facility”) provides for a secured, revolving line of credit of up to $70.0 million, with a sublimit of $3.0 million for the incurrence of swingline loans and a sublimit of $15.0 million for the issuance of letters of credit. Borrowings under the Credit Facility are collateralized by substantially all assets of the Company and of its U.S. subsidiaries. The revolving line of credit bears interest at the adjusted LIBOR rate plus 3.5%. Availability under the Credit Facility was $3.7 million as of October 31, 2015 and April 30, 2015. The Company had letters of credit outstanding of $9.3 million as of October 31, 2015. The Credit Facility expires on November 21, 2017 with all advances immediately due and payable. The Company was in compliance with all covenants contained in the Credit Facility as of October 31, 2015.
The Company incurred $0.7 million of fees in connection with the Amended and Restated Credit Facility which were capitalized and are being amortized to interest expense using the straight-line method, which approximates the effective interest method, over the life of the Credit Facility. The Company incurred amortization expense on deferred financing costs of $0.1 million and $0.1 million, respectively, for the three and six months ended October 31, 2015. There were no deferred financing cost amortization for the three and six months ended October 31, 2014.

8. Net Loss Per Share Applicable to Common Stockholders
The following table sets forth the computations of net loss per share applicable to common stockholders for the three and six months ended October 31, 2015 and 2014, respectively (in thousands, except net loss per share data):
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Net loss from continuing operations
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(20,216
)
Net loss from discontinued operations, net of tax
—

 
—

 
—

 
(1,257
)
Net loss applicable to common stockholders
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(21,473
)
Basic and diluted loss per share
 
 
 
 
 
 
 
Continuing operations
$
(0.06
)
 
$
(0.13
)
 
$
(0.19
)
 
$
(0.26
)
Discontinued operations
—

 
—

 
—

 
(0.02
)
Basic and diluted loss per share:
$
(0.06
)
 
$
(0.13
)
 
$
(0.19
)
 
$
(0.28
)
Basic and diluted weighted average number of shares outstanding
80,678

 
78,280

 
80,426

 
78,023

Potentially dilutive securities (1):
 
 
 
 
 
 
 
Outstanding stock options
212

 
813

 
266

 
864

Restricted shares
11

 
301

 
38

 
243

(1)
The impact of potentially dilutive securities on earnings per share is anti-dilutive in a period of net loss.

9. Commitments and Contingencies
In the ordinary course of business, the Company may be subject to various legal proceedings and claims including alleged infringement of third-party patents and other intellectual property rights. The Company reviews the status of each matter and records a provision for a liability when it is considered both probable that a liability has been incurred and that the amount of the

13
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loss can be reasonably estimated. Legal fees incurred in connection with loss contingencies are recognized as incurred when the legal services are provided, and therefore are not recognized as a part of a loss contingency accrual. These provisions are reviewed quarterly and adjusted as additional information becomes available. We are not presently a party to any legal proceedings that in the opinion of our management would have a material adverse effect on our business, financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
The Company is subject to audit in various jurisdictions, and such jurisdictions may assess additional income and sales tax liabilities against us.  Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from our historical income and sales tax provisions and accruals.  Developments in an audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. As of October 31, 2015, the Company was in the process of assessing the sales tax status of the Bazaarvoice enterprise service offering with sales tax agencies in certain states in which it operates.  In addition, certain state tax returns are currently under audit by state tax authorities. As of October 31, 2015, the Company has accrued tax liabilities of $0.8 million, representing the best estimate of sales tax obligations it believes is probable to be incurred as a result of these assessments and audits.
On November 13, 2014, the Company entered into a lease (the “Lease”), pursuant to which the Company will lease approximately 137,615 square feet of office space in Austin, Texas. This will serve as the new headquarters of the Company and will be used for general office purposes. The term of the Lease commences on January 1, 2016 unless otherwise modified (“Commencement Date”) and terminates approximately ten years and six months after the Commencement Date. The Company has the option to extend the term of the Lease for up to two successive periods of five years each and the Company was required to obtain a stand by letter of credit of $8.0 million as a security deposit for the Lease. The expected lease payments for the original term are estimated to be approximately $0.3 million for fiscal year ended April 30, 2016, $3.8 million for fiscal year ended April 30, 2017, $3.8 million for fiscal year ended April 30, 2018, $3.9 million for fiscal year ended April 30, 2019, $4.0 million for the fiscal year ended April 30, 2020 and $25.9 million for the fiscal years ended April 30th thereafter.
During the three month period ended October 31, 2015, the Company made the decision to cease sales and marketing operations in its Australia and Singapore offices. As a result, the Company accrued $0.2 million in severance costs for the three and six month periods ended October 31, 2015 and in future periods expects to incur an additional $0.3 million related to retention bonuses that will be recognized ratably over the retained employees' future service periods and $0.1 million in relocation costs.



14
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the fiscal year ended April 30, 2015, filed on June 25, 2015. In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. Statements that contain these words should be read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other forward-looking information. Factors that can cause actual results to differ materially from those reflected in the forward-looking statements include, among others, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended April 30, 2015 and this Quarterly Report on Form 10-Q. We urge you not to place undue reliance on these forward looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable securities laws and regulations. Historical results are not necessarily indicative of the results expected for any future period.
Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not limited to:
•
our ability to develop and launch new products and the market's acceptance of such new products;
•
our ability to retain clients and satisfy their obligations and needs and upsell to existing clients;
•
our ability to maintain pricing for our products and services;
•
our ability to attract new clients and launch without delays;
•
our ability to increase adoption of our platforms by our clients’ internal and external users;
•
our ability to protect our users’ information and adequately address security and privacy concerns;
•
our ability to maintain an adequate rate of growth;
•
our ability to effectively execute and adapt our business model in a dynamic market;
•
our future expenses;
•
our ability to expand our network;
•
our ability to integrate clients, employees and operations of acquired companies into our business;
•
our ability to earn revenue based on ads that are served on our network;
•
our ability to timely and effectively scale and adapt our existing technology and network infrastructure;
•
our plan to continue investing in long-term growth and research and development, enhancing our platforms and pursuing strategic acquisitions of complementary businesses and technologies to drive future growth;
•
our ability to increase engagement of our solutions by our clients, partners and professional organizations and launch those solutions without delay;
•
our anticipated trends of our operating metrics and financial and operating results;
•
the effects of increased competition and commoditization of products we offer, including pricing pressure, reduced profitability or loss of market share;
•
our ability to effectively manage our growth and control expenses as we seek to achieve profitability;
•
our ability to successfully enter new markets and manage our international expansion and sell our products internationally;
•
our ability to maintain, protect and enhance our brand and intellectual property;
•
the impact of the Department of Justice stipulation regarding PowerReviews on our business;
•
the attraction and retention of qualified employees and key personnel;
•
our expectations regarding the outcome of litigation proceedings; and
•
other risk factors included under “Risk Factors” in this Quarterly Report on Form 10-Q.



15
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The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements, including those factors discussed in Part II, Item 1A: “Risk Factors” of this Quarterly Report on Form 10-Q and other risks and uncertainties detailed in this and our other reports and filings with the SEC. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview
We power a network that connects brands and retailers to the authentic voices of people where they shop. Bazaarvoice was founded on the premise that the collective voice of the marketplace is the most powerful marketing tool in the world because of its influence on purchasing decisions, both online and offline. Our technology platform collects, curates, and displays consumer-generated content including ratings and reviews, questions and answers, customer stories, and social posts, photos, and videos. This content is amplified across marketing channels, including category/product pages, search, brand sites, mobile applications, in-store displays, and paid and earned media, where it helps clients generate more revenue, market share, and brand affinity. We also help clients leverage insights derived from consumer-generated content to improve marketing effectiveness, increase success of new product launches, improve existing products and services, effectively scale customer support, decrease product returns, and enable retailers to launch and manage on-site advertising solutions and site monetization strategies.
For the three and six months ended October 31, 2015, through the continued enhancement and expansion of our social commerce platform, we achieved continued growth in the number of active clients as compared to the three and six months ended October 31, 2014. Our revenue from continuing operations was $49.9 million and $98.8 million for the three and six months ended October 31, 2015, which represents a 5.5% and a 5.9% increase from the three and six months ended October 31, 2014, respectively.
As of October 31, 2015, we had 855 full-time employees compared to 814 full-time employees as of the same date last year.
For the remainder of fiscal year 2016, we plan to continue to invest for long-term growth. We expect to continue the enhancement of our platforms by developing new solutions, adding new features and functionality and expanding the potential applications of our existing solutions. We also plan to continue our investments in research and development and may pursue strategic acquisitions of complementary businesses and technologies that will enable us to continue to drive growth in the future.
Business Model
Our business model focuses on adding new clients and maximizing the lifetime value of such client relationships. We make significant investments in acquiring new clients and believe that we will be able to achieve a favorable return on these investments by growing our relationships over time and ensuring that we have a high level of client retention.
In connection with the acquisition of new clients, we incur and recognize significant upfront costs. These costs include sales and marketing costs associated with generating client agreements, such as sales commission expenses that are recognized fully in the period in which we execute a client contract. In addition, we incur implementation costs which are generally recognized in periods prior to recognizing revenue. However, we recognize revenue ratably over the entire term of those contracts, which commences when the client is able to begin using our solution. Although we expect each client to be profitable for us over the duration of our relationship, the costs we incur with respect to any client relationship may exceed revenue in earlier periods because we recognize those costs in advance of the recognition of revenue. As a result, an increase in the mix of new clients as a percentage of total clients will initially have a negative impact on our operating results. On the other hand, we expect that a decrease in the mix of new clients as a percentage of total clients will initially have a positive impact on our operating results. Additionally, some clients pay in advance of the recognition of revenue and, as a result, our cash flow from these clients may exceed the amount of revenue recognized for those clients in earlier periods of our relationship. As we depend on third-party Internet-hosting providers to operate our business, increased computing and storage consumption by some of our customers can increase our hosting costs and impact our gross margins.

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Table of Contents

Key Business Metrics
In addition to macroeconomic trends affecting the demand for our solutions, management regularly reviews a number of key financial and operating metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies and evaluate forward-looking projections and trends affecting our business. The following table summarizes our key business metrics for continuing operations:
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except number of clients and client retention rate)
Revenue:
 
 
 
 
 
 
 
SaaS
$
47,671

 
$
45,199

 
$
94,501

 
$
89,523

Advertising (previously referred to as media)
2,255

 
2,126

 
4,301

 
3,779

Total revenue
$
49,926

 
$
47,325

 
$
98,802

 
$
93,302

Cash flow provided by (used in) operations (1)
$
13,566

 
$
(8,733
)
 
$
7,304

 
$
(12,145
)
Number of active clients (period end) (2)
1,360

 
1,243

 
1,360

 
1,243

SaaS revenue per active client (3)
$
35.4

 
$
37.2

 
$
70.2

 
$
76.5

Active client retention rate (4)
94.0
%
 
95.9
%
 
89.0
%
 
93.0
%
Total revenue per employee (5)
$
59.1

 
$
59.1

 
$
117.6

 
$
117.4

SaaS impressions served (in millions)
71,784

 
64,037

 
142,803

 
125,297

(1)
Cash flow provided by (used in) operations includes combined cash flows from continuing operations along with discontinued operations.
(2)
Beginning as of our first fiscal quarter of 2016, we define an active client as an organization from which we have a committed contractual obligation and are recognizing revenue as of the last day of the quarter, and we count organizations that are closely related as one client, even if they have signed separate contractual agreements. All periods prior to the first quarter of fiscal 2016 have been revised to conform to this definition of an active client from continuing operations.
(3)
Calculated based on the average number of active clients for the three and six month period from continuing operations.
(4)
Calculated based on active client retention over a three and six month period from continuing operations.
(5)
Calculated based on the average number of full-time employees for the three and six month period.
Revenue
SaaS revenue consists primarily of fees from the sale of subscriptions to our hosted social commerce solutions, and we generally recognize revenue ratably over the related subscription period, which is typically one year. We regularly review our revenue and revenue growth rate to measure our success. We believe that trends in revenue are important to understanding the overall health of our marketplace, and we use these trends in order to formulate financial projections and make strategic business decisions.
Advertising revenue (previously referred to as media revenue) consists primarily of fees charged to advertisers when their advertisements are displayed on our publishers’ websites and is net of amounts due to such publishers.
Cash Flow Provided By (Used in) Operations
Cash flow provided by (used in) operations is the cash that we use through the normal course of business and is measured prior to the impact of investing or financing activities. Due to the fact that we incur a significant amount of upfront costs associated with the acquisition of new clients with revenue recognized over an extended period, we consider cash flow provided by (used in) operations to be a key measure of our operating performance.
Number of Active Clients
Beginning as of our first quarter of 2016, we define an active client as an organization from which we have a committed contractual obligation and are recognizing revenue as of the last day of the quarter, and we count organizations that are closely related as one active client, even if they have signed separate contractual agreements. All periods prior to the first quarter of fiscal 2016 have been revised to conform to this definition of an active client from continuing operations.

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SaaS Revenue per Active Client
SaaS revenue per active client is calculated as SaaS revenue recognized during the period divided by the average number of active clients for the period. Since some of our new clients are added at initial pricing that is lower than our average pricing, our SaaS revenue per client could decline in the future. SaaS revenue per active client has been revised for all prior periods as a result of the change in the definition of active client as defined above.
Active Client Retention Rate
Active client retention rate is calculated based on the number of active clients at period end that were also active clients at the start of the period divided by the number of active clients at the start of the period. We believe that our ability to retain our active clients and expand their use of our solutions over time is a leading indicator of the stability of our revenue base and the long-term value of our client relationships.
All prior periods have been revised to conform to the current period definition of an active client as defined above.
Total Revenue per Employee
Revenue per employee is calculated as revenue recognized during the period divided by the average number of full-time employees for the period. We believe revenue per employee is a leading indicator of our productivity and operating leverage. The growth of our business is dependent on our ability to hire the talented people we require to effectively capitalize on our market opportunity and scale with growth while maintaining a high level of client service.
SaaS Impressions
We define an impression as a single instance of online word of mouth delivered to an end user’s web browser. We believe that in combination with our active client base, impressions delivered is an indicator of the reach of our network.
Key Components of Our Condensed Consolidated Statements of Operations
Revenue
We generate revenue principally from fixed commitment subscription contracts under which we provide clients with various services, including access to our hosted software platforms. For agreements with multiple elements, we evaluate each element in the arrangement to determine whether it represents a separate unit of accounting and recognize the allocated revenue for each unit of accounting over the respective service period. We sell these services under contractual agreements for service terms that are generally one year in length. Clients typically commit to fixed rate fees for the service term. Any revenue that does not meet the revenue recognition criteria is recorded as deferred revenue on our balance sheet. We invoice clients on varying billing cycles, including annually, quarterly and monthly; therefore, our deferred revenue balance does not represent the total contract value of our non-cancelable subscription agreements. Fees payable under these agreements are due in full within 30 to 90 days of invoicing and are non-refundable regardless of the actual use of the services and contain no general rights of return. No single client accounted for more than 10% of our revenue for the three and six months ended October 31, 2015 and 2014.
To date our revenue growth has been primarily driven by the sale of our core ratings and reviews solutions. We currently expect that our revenue growth rate during fiscal year 2016 will be lower than our recent growth rates. This is due to inconsistent sales performance and an increase in competitive pressure that has led to intensified price-based competition, which could result in lower prices and margins.
Cost of Revenue
Cost of revenue consists primarily of personnel costs and related expenses associated with employees and contractors who provide our subscription services, our implementation team, our content moderation teams and other support services provided as part of the fixed commitment subscription contracts. Cost of revenue also includes professional fees, including third-party implementation support, travel-related expenses and an allocation of general overhead costs. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation and, as such, general overhead expenses, including depreciation and facilities costs, are reflected in our cost of revenue. Personnel costs include salaries, benefits, bonuses and stock-based expense. We generally invest in increasing our capacity, particularly in the areas of implementation and support, ahead of the growth in revenue, which can result in lower margins in a given investment period.
Cost of revenue also includes hosting costs, the amortization of capitalized internal-use software development costs incurred in connection with our hosted software platforms and third-party service costs to support and retain our clients.
We intend to continue to invest additional resources in our client services teams and in the capacity of our hosting service infrastructure due to increases in the volume of impressions and, as we continue to invest in technology innovation through our research and development organization, we will likely see an increase in the amortization expense associated with capitalized

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internal-use software development. The level and timing of investment in these areas could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue in the future.
Operating Expenses
We classify our operating expenses into five categories: sales and marketing; research and development; general and administrative; acquisition-related and other; and amortization of acquired intangible assets. In each category, our operating expenses consist primarily of personnel costs, program expenses, professional fees, travel-related expenses and an allocation of our general overhead expenses, as applicable.
Sales and marketing. Sales and marketing expenses consist primarily of personnel costs for our sales, marketing and business development employees and executives, including salaries, benefits, stock-based expense, bonuses and commissions earned by our sales personnel. Sales and marketing also includes non-personnel costs such as professional fees, an allocation of our general overhead expenses and the costs of our marketing and brand awareness programs. Our marketing programs include our Social Summits, regional user groups, corporate communications, public relations and other brand building and product marketing expenses. We expense sales commissions when a client contract is executed because we believe our obligation to pay a sales commission arises at that time. We plan to continue investing in sales and marketing by focusing our marketing efforts on direct sales support and pipeline generation, which we believe will enable us to add new clients and increase penetration within our existing client base. We expect that for the foreseeable future, sales and marketing will continue to be our largest operating cost. We accrued $0.2 million in severance costs for the three and six month periods ended October 31, 2015 related to the cessation of our sales activities in Australia and Singapore. In future periods we expect to incur an additional $0.3 million related to retention bonuses that will be recognized ratably over the retained employees' future service periods and $0.1 million in relocation costs.
Research and development. Research and development expenses consist primarily of personnel costs for our product development employees and executives, including salaries, benefits, stock-based expense and bonuses. Also included are non-personnel costs such as professional fees payable to third-party development resources and an allocation of our general overhead expenses. A substantial portion of our research and development efforts are focused on enhancing our software architecture and adding new features and functionality to our platforms to address social and business trends as they evolve. We are also incurring an increasing amount of expenses in connection with our efforts to leverage data that we and our clients collect and manage through the use of our solutions. We expect that in the future, research and development expenses will increase as we continue to innovate and invest in new products and solutions.
General and administrative. General and administrative expenses consist primarily of personnel costs, including salaries, benefits, stock-based expense and bonuses for our administrative, legal, human resources, finance, accounting and information technology employees and executives. Also included are non-personnel costs, such as travel-related expenses, professional fees and other corporate expenses, along with an allocation of our general overhead expenses. We will continue to incur incremental costs to meet the increased compliance requirements associated with being a public company. Those costs include increases in our accounting and legal personnel, additional consulting, legal, audit and tax fees, insurance costs, board of directors’ compensation and the costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act. However, we expect our general and administrative expenses to decrease as a percentage of revenue over time due to the economies of scale.
Acquisition-related and other. Acquisition-related and other expenses consist of ongoing costs to comply with our obligations resulting from the divestiture of the PowerReviews business and costs incurred related to the acquisition of FeedMagnet. Legal and advisory expenses related to the divestiture of PowerReviews have been included as a component of “loss from discontinued operations, net of tax.” Included in “acquisition-related and other expenses” for all prior periods presented are legal and advisory fees for the U.S. Department of Justice suit related to our acquisition of PowerReviews.
Amortization of acquired intangible assets. The amortization of acquired intangible assets represents amortization of acquired customer relationship intangible assets from FeedMagnet and Longboard Media.
Other Income (Expense), Net
Other expense consists primarily of interest income, interest expense related to our revolving line of credit, foreign exchange gains and losses and the resulting gain or loss from foreign exchange contracts. Interest income represents interest received on our cash and short-term investments. Foreign exchange gains and losses arise from revaluations of foreign currency denominated monetary assets and liabilities and are partially offset by the change in market value of our foreign exchange contracts.
Income Tax Expense
As a result of our current net operating loss position in the United States, income tax expense consists primarily of corporate income taxes resulting from profits generated in foreign jurisdictions by wholly-owned subsidiaries, along with state income taxes payable in the United States. We expect our income tax expense to increase in the future if we become profitable both in the United States and in foreign jurisdictions.


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Results of Operations
The following tables set forth our results of operations for the specified periods. The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods.
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
 
(in thousands)
Revenue
$
49,926

 
$
47,325

 
$
98,802

 
$
93,302

Cost of revenue (1)
19,146

 
17,414

 
38,694

 
33,770

Gross profit
30,780

 
29,911

 
60,108

 
59,532

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing (1)
16,502

 
18,931

 
35,668

 
39,926

Research and development (1)
10,354

 
9,306

 
20,887

 
19,036

General and administrative (1)
7,643

 
8,100

 
15,881

 
15,993

Acquisition-related and other
224

 
2,326

 
926

 
2,818

Amortization of acquired intangible assets
310

 
310

 
619

 
619

Total operating expenses
35,033

 
38,973

 
73,981

 
78,392

Operating loss
(4,253
)
 
(9,062
)
 
(13,873
)
 
(18,860
)
Total other expense, net
(475
)
 
(588
)
 
(1,187
)
 
(1,086
)
Loss from continuing operations before income taxes
(4,728
)
 
(9,650
)
 
(15,060
)
 
(19,946
)
Income tax expense
124

 
258

 
36

 
270

Net loss from continuing operations
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(20,216
)
Other Financial Data:
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations (2)
$
1,135

 
$
(1,795
)
 
$
(2,134
)
 
$
(7,075
)
(1)
      Includes stock-based expense as follows:
 
 
 
 
 
 
 
Cost of revenue
$
607

 
$
458

 
$
1,079

 
$
772

Sales and marketing
643

 
1,162

 
1,727

 
2,106

Research and development
920

 
522

 
1,677

 
1,169

General and administrative
1,739

 
1,201

 
3,475

 
2,418

 
(2)
We define Adjusted EBITDA from continuing operations (“Adjusted EBITDA”) as generally accepted accounting principles (“GAAP”) net loss from continuing operations adjusted for stock-based expense, contingent considerations related to acquisitions, adjusted depreciation and amortization (which excludes amortization of capitalized internal-use software development costs), integration and other costs related to acquisitions, other non-business costs and benefits, income tax expense and other (income) expense, net. Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP.
Adjusted EBITDA should not be considered as an alternative to net loss, operating loss or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner. We prepare Adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate.
We believe Adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:
 
•
Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items, such as stock-based expense, adjusted depreciation and amortization, acquisition costs, income tax expense and other income, net, that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;
•
Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, including the preparation of our annual operating budget, as a measure of operating performance and the effectiveness of our business strategies and in communications with our board of directors concerning our financial performance;

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•
Adjusted EBITDA provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP operating results; and
•
Our investor and analyst presentations include Adjusted EBITDA as a supplemental measure to evaluate our overall operating performance.
We understand that although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. These limitations include:
 
•
Adjusted depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future; Adjusted EBITDA does not reflect any cash requirements for these replacements;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;
•
Adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income; and
•
Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
The following table presents a reconciliation of net loss from continuing operations, the most comparable GAAP measure, to Adjusted EBITDA from continuing operations for each of the periods indicated:
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
 
(in thousands)
GAAP net loss from continuing operations
$
(4,852
)
 
$
(9,908
)
 
$
(15,096
)
 
$
(20,216
)
Stock-based expense
3,909

 
3,343

 
7,958

 
6,465

Adjusted depreciation and amortization (1)
1,255

 
1,598

 
2,855

 
2,932

Acquisition-related and other expense
224

 
2,326

 
926

 
2,818

Other stock-related benefit (2)
—

 
—

 
—

 
(430
)
Income tax expense
124

 
258

 
36

 
270

Total other expense, net
475

 
588

 
1,187

 
1,086

Adjusted EBITDA from continuing operations
$
1,135

 
$
(1,795
)
 
$
(2,134
)
 
$
(7,075
)

(1)
Adjusted depreciation and amortization excludes amortization of capitalized internal-use software, which was $2.1 million and $1.6 million for the three month periods ended October 31, 2015 and 2014, respectively, and $4.1 million and $3.6 million for the six month periods ended October 31, 2015 and 2014, respectively.

(2)
Other stock-related expense represents an estimated liability for taxes and related items in connection with the Company’s treatment of certain stock option grants. Since the estimated liability directly relates to stock option grants and as stock-based expenses are consistently excluded from our non-GAAP financial measures, the Company excluded this estimated liability. During the six months ended October 31, 2014, the Company recorded a benefit of $0.4 million due to a reduction of this estimated liability.

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The following table sets forth our results of operations for the specified periods as a percentage of revenue. The period-to-period comparisons of results are not necessarily indicative of results for future periods.
Consolidated Statements of Operations Data:
 
Three Months Ended October 31,
 
Six Months Ended October 31,
 
2015
 
2014
 
2015
 
2014
Revenue
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenue
38.3

 
36.8

 
39.2

 
36.2

Gross profit
61.7

 
63.2

 
60.8

 
63.8

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
33.1

 
40.0

 
36.1

 
42.8

Research and development
20.7

 
19.7

 
21.1

 
20.4

General and administrative
15.3

 
17.1

 
16.1

 
17.1

Acquisition-related and other
0.5

 
4.9

 
1.0

 
3.0

Amortization of acquired intangible assets
0.6

 
0.7

 
0.6

 
0.7

Total operating expenses
70.2

 
82.4

 
74.9

 
84.0

Operating loss
(8.5
)
 
(19.2
)
 
(14.1
)
 
(20.2
)
Total other expense, net
(1.0
)
 
(1.2
)
 
(1.2
)
 
(1.2
)
Loss from continuing operations before income taxes
(9.5
)
 
(20.4
)
 
(15.3
)
 
(21.4
)
Income tax expense
0.2

 
0.5

 
0.0

 
0.3

Net loss from continuing operations
(9.7
)%
 
(20.9
)%
 
(15.3
)%
 
(21.7
)%
Other Financial Data:
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations (1)
2.3
 %
 
(3.8
)%
 
(2.2
)%
 
(7.6
)%
(1) Includes stock-based expense as follows:
 
 
 
 
 
 
 
Cost of revenue
1.2
 %
 
1.0
 %
 
1.1
 %
 
0.8
 %
Sales and marketing
1.3
 %
 
2.5
 %
 
1.7
 %
 
2.3
 %
Research and development
1.8
 %
 
1.1
 %
 
1.7
 %
 
1.3
 %
General and administrative
3.5
 %
 
2.5
 %
 
3.5
 %
 
2.6
 %
(1)
We define Adjusted EBITDA from continuing operations as GAAP net loss from continuing operations adjusted for stock-based expense, contingent considerations related to acquisition, adjusted depreciation and amortization (which excludes amortization of capitalized internal-use software development costs), integration and other costs related to acquisitions, other non-business costs and benefits, income tax expense and other income (expense), net. See Note (2) to the Consolidated Statement of Operations Data on page 20 of this Quarterly Report on Form 10-Q for a reconciliation of net loss to Adjusted EBITDA from continuing operations.
Comparison of the Three Months Ended October 31, 2015 and 2014
Revenue
 
Three Months Ended October 31,
 
2015
 
2014
 
% Change
 
(dollars in thousands)
Revenue
$
49,926

 
$
47,325

 
5.5
%
Our revenue increased $2.6 million, or 5.5%, for the three months ended October 31, 2015 compared to the three months ended October 31, 2014. The increase in revenue consisted of a $2.5 million increase in SaaS revenue and a $0.1 million increase in Advertising revenue. The $2.5 million increase in SaaS revenue, consisted primarily of a $3.8 million increase in revenue generated from new launches of active clients utilizing our platform and solutions since the prior year period, partially offset by a $1.3 million decrease in revenue from the existing active client base compared to the three months ended October 31, 2014. The decrease in revenue from the existing active client base was primarily a result of lower revenue per existing active client and client turnover due to increased competitive pressure that has led to intensified price-based competition. For the three months ended October 31, 2015, net new active client additions were 23 and our active client retention rate was 94.0% compared to net new active client additions of 54 and active client retention rate of 95.9% for the three months ended October 31, 2014. In addition to the competitive environment discussed above, our client retention rates can be impacted due to a variety of reasons including, but not limited to, non-renewals and the cyclical and discretionary nature of marketing and advertising spending. SaaS revenue per

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active client (in thousands) was $35.4 for the three months ended October 31, 2015, compared to SaaS revenue per active client (in thousands) of $37.2 for the three months ended October 31, 2014.
In addition, during the three month period ended October 31, 2015, the Company made the decision to cease sales and marketing operations in its Australia and Singapore offices. This is not anticipated to have a significant impact on revenues in fiscal year 2016.

Cost of Revenue and Gross Profit Percentage
 
Three Months Ended October 31,
 
2015
 
2014
 
% Change
 
(dollars in thousands)
Cost of revenue
$
19,146

 
$
17,414

 
9.9
%
Gross profit
30,780

 
29,911

 
2.9

Gross profit percentage
61.7
%
 
63.2
%
 
 
Cost of revenue increased $1.7 million, or 9.9%, for the three months ended October 31, 2015 compared to the three months ended October 31, 2014. The increase in cost of revenue was primarily due to an increase of $1.1 million in personnel–related expenses as a result of increased headcount needed to support implementation of our new and existing product offerings along with the addition of new clients. Cost of revenue also increased for the three months ended October 31, 2015 as a result of a $0.5 million increase in costs associated with hosting services due to an increase in the volume of impressions and a $0.4 million increase in amortization expense related to certain internally developed software projects that were put in service during fiscal 2016 and the later part of fiscal 2015. These increases were partially offset by a $0.3 million decrease in corporate bonus expense.
Operating Expenses
 
Three Months Ended October 31,
 
 
 
2015
 
2014
 
 
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
%
Change
 
(dollars in thousands)
Sales and marketing
$
16,502

 
33.1
%
 
$
18,931

 
40.0
%
 
(12.8
)%
Research and development
10,354

 
20.7

 
9,306

 
19.7

 
11.3

General and administrative
7,643

 
15.3

 
8,100

 
17.1

 
(5.6
)
Acquisition-related and other
224

 
0.5

 
2,326

 
4.9

 
(90.4
)
Amortization of acquired intangible assets
310

 
0.6

 
310

 
0.7

 
—

Total operating expenses
$
35,033

 
70.2
%
 
$
38,973

 
82.4
%
 
(10.1
)%
Sales and marketing. Sales and marketing expenses decreased by $2.4 million, or 12.8%, for the three months ended October 31, 2015 compared to the three months ended October 31, 2014. The decrease in sales and marketing expenses included a decrease in personnel-related expenses of $1.1 million primarily due to reduced stock-based compensation related to the resignation of our Chief Revenue Officer, a decrease in headcount and a decrease in corporate bonus expense. Sales and marketing expenses also decreased for the three months ended October 31, 2015 as a result of a $0.7 million reduction in costs related to professional services due to decreased use of third-party contractor resources, a $0.4 million reduction in marketing expenses related to customer event related expenditures and a $0.4 reduction in other expenses including software and license expenses, rent expense, and other items. This decrease in sales and marketing expense was offset by a $0.2 million increase in severance expense related to the discontinuation of sales and marketing activities in Australia and Singapore.
Research and development. Research and development expenses increased by $1.0 million, or 11.3%, for the three months ended October 31, 2015 compared to the three months ended October 31, 2014, primarily as a result of a $1.0 million increase in personnel-related expenses for the three months ended October 31, 2015 as a result of increased headcount as the company continues to develop new product offerings.
General and administrative. General and administrative expenses decreased $0.5 million, or 5.6%, for the three months ended October 31, 2015 compared to the three months ended October 31, 2014. The decrease in general and administrative expenses was primarily related to decreased bad debt expense of $0.7 million due to improved receivables collections and decreased professional fees paid to third party consultants of $0.5 million for the three months ended October 31, 2015. This decrease was partially offset by an increase in personnel-related expenses of $0.7 million for the three months ended October 31, 2015 consisting of $1.1 million primarily related to an increase in headcount and an increase in stock based compensation related to new grants, partially offset by a $0.4 million decrease in corporate bonus expense.

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Acquisition-related and other. Acquisition-related and other expenses decreased $2.1 million, or 90.4%, for the three months ended October 31, 2015 compared to the three months ended October 31, 2014. The decrease in acquisition-related and other expenses was primarily related to lower legal and other advisory costs incurred to comply with our ongoing obligations from the divestiture of the PowerReviews business compared to the three months ended October 31, 2014.
Amortization of acquired intangibles. Amortization for acquired intangible assets stayed relatively constant at $0.3 million in the three months ended October 31, 2015 and 2014. Amortization of acquired intangible assets represents amortization of acquired customer relationship intangible assets from FeedMagnet and Longboard Media.
Other Expense, Net
 
Three Months Ended October 31,
 
2015
 
2014
 
 
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
%
Change
 
(dollars in thousands)
Interest income
$
74

 
0.1
 %
 
$
10

 
—
 %
 
640.0
 %
Interest expense
(461
)
 
(0.9
)
 
(250
)
 
(0.5
)
 
84.4

Other expense
(88
)
 
(0.2
)
 
(348
)
 
(0.7
)
 
(74.7
)
Total other expense, net
$
(475
)
 
(1.0
)%
 
$
(588
)
 
(1.2
)%
 
(19.2
)%
Total other expense, net, decreased by $0.1 million for the three months ended October 31, 2015 compared to the three months ended October 31, 2014 primarily due to a decrease in foreign currency exchange rate losses of $0.3 million offset by an increase in interest expense on our revolving line of credit of $0.2 million for the three months ended October 31, 2015.
Income Tax Expense
 
Three Months Ended October 31,
 
2015
 
2014
 
 
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
%
Change
 
(dollars in thousands)
Income tax expense
$
124

 
0.2
%
 
$
258

 
0.5
%
 
(51.9
)%
Income tax expense decreased by $0.1 million for the three months ended October 31, 2015 compared to the three months ended October 31, 2014. The decrease in tax benefit for the three months ended October 31, 2015 was primarily attributable to estimated foreign and state income tax.

Comparison of the Six Months Ended October 31, 2015 and 2014
Revenue
 
 
Six Months Ended October 31,
 
2015
 
2014
 
% Change
 
(dollars in thousands)
Revenue
$
98,802

 
$
93,302

 
5.9
%
Our revenue increased by $5.5 million, or 5.9%, for the six months ended October 31, 2015 compared to the six months ended October 31, 2014. Included in this increase in revenue were an increase in SaaS revenue of $5.0 million and an increase in Advertising revenue of $0.5 million. The $5.0 million increase in SaaS revenue consisted of $8.1 million generated from new launches of active clients utilizing our platform and solutions since the prior year period, partially offset by a $3.1 million decrease in revenue from the existing active client base compared to the six months ended October 31, 2014. The decrease in revenue from the existing active client base was primarily a result of lower revenue per existing active client and client turnover due to increased competitive pressure that has led to intensified price-based competition. For the six months ended October 31, 2015, net new active client additions were 29 and our active client retention rate was 89.0% compared to net new active client additions of 147 and active client retention rate of 93.0% for the six months ended October 31, 2014. In addition to the competitive environment discussed above, our client retention rates can be impacted due to a variety of reasons including, but not limited to, non-renewals and the cyclical and discretionary nature of marketing and advertising spending. SaaS revenue per active client (in thousands) was

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$70.2 for the six months ended October 31, 2015 compared to SaaS revenue per active client (in thousands) of $76.5 for the six months ended October 31, 2014.
In addition, during the six month period ended October 31, 2015, the Company made the decision to cease sales and marketing operations in its Australia and Singapore offices. This is not anticipated to have a significant impact on revenues in fiscal year 2016.
Cost of Revenue and Gross Profit Percentage
 
Six Months Ended October 31,
 
2015
 
2014
 
% Change
 
(dollars in thousands)
Cost of revenue
$
38,694

 
$
33,770

 
14.6
%
Gross profit
60,108

 
59,532

 
1.0

Gross profit percentage
60.8
%
 
63.8
%
 
 
Cost of revenue increased $4.9 million, or 14.6%, for the six months ended October 31, 2015 compared to the six months ended October 31, 2014. The increase in cost of revenue was primarily due to an increase of $2.5 million in personnel-related expenses as a result of increased headcount needed to support implementation of our new and existing product offerings as well as the addition of new clients. Cost of revenue also increased for the six months ended October 31, 2015 as a result of a $1.0 million increase in amortization expense related to certain internally developed software products that were put in service during fiscal 2015, a $0.9 million increase in costs associated with hosting services due to an increase in the volume of impressions, a $0.3 million increase in professional fees due to increased use of third-party contractor resources and a $0.2 million increase in OEM expense for contracts to use third party content in our products.
Operating Expenses
 
Six Months Ended October 31,
 
2015
 
2014
 
 
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
%
Change
 
(dollars in thousands)
Sales and marketing
35,668

 
36.1
%
 
39,926

 
42.8
%
 
(10.7
)%
Research and development
20,887

 
21.1
%
 
19,036

 
20.4
%
 
9.7

General and administrative
15,881

 
16.1
%
 
15,993

 
17.1
%
 
(0.7
)
Acquisition-related and other
926

 
1.0
%
 
2,818

 
3.0
%
 
(67.1
)
Amortization of acquired intangible assets
619

 
0.6
%
 
619

 
0.7
%
 
—

Total operating expenses
$
73,981

 
74.9
%
 
$
78,392

 
84.0
%
 
(5.6
)%
Sales and marketing. Sales and marketing expenses decreased by $4.3 million, or 10.7%, for the six months ended October 31, 2015 compared to the six months ended October 31, 2014. For the six months ended October 31, 2015, personnel-related expenses decreased by $1.3 million due to a decrease in headcount, a decrease in corporate bonus expense and a decrease in stock-based compensation primarily related to the resignation of our Chief Revenue Officer. In addition, professional fees decreased $1.5 million as result of the termination of outsourced professional service contracts related to customer renewal services and other contract labor expenses, marketing related expenses decreased $1.1 million due primarily to a reduction in customer event related expenses and facility related expenses decreased $0.4 million.
Research and development. Research and development expenses increased by $1.9 million, or 9.7%, for the six months ended October 31, 2015 primarily as a result of an increase of $2.1 million in personnel-related expenses primarily due to an increase in headcount and a decrease in capitalized research and development labor as the result of large capitalized projects reaching completion at the end of fiscal 2015, partially offset by a decrease of $0.2 million in professional service fees and facility related expenses for the six months ended October 31, 2015
General and administrative. General and administrative expenses decreased $0.1 million, or 0.7%, for the six months ended October 31, 2015 compared to the six months ended October 31, 2014. The decrease in general and administrative expenses was primarily related to a $1.2 million decrease in bad debt expense due to improved receivables collections and a $0.7 million decrease in professional services due to decreased use of third-party contractor resources, partially offset by increased personnel-related expenses of $1.0 million related to increased headcount and increased stock based compensation as a result of new grants, a $0.4

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million benefit recorded during the six months ended October 31, 2014 representing a reduction in our estimated liability for taxes and other items in connection with the treatment of certain stock option grants and a $0.4 million increase in other expenses.
Acquisition-related and other. Acquisition-related and other expenses decreased $1.9 million, or 67.1%, for the six months ended October 31, 2015 compared to the six months ended October 31, 2014. The decrease in acquisition-related and other expenses was primarily related to lower legal and other advisory costs incurred to comply with our ongoing obligations from the divestiture of the PowerReviews business compared to the six months ended October 31, 2014.
Amortization of acquired intangibles. Amortization for acquired intangible assets stayed relatively constant at $0.6 million in the six months ended October 31, 2015 and 2014. Amortization of acquired intangible assets represents amortization of acquired customer relationship intangible assets from FeedMagnet and Longboard Media.
Other Expense, Net
 
Six Months Ended October 31,
 
2015
 
2014
 
 
 
Amount
 
% of
Revenue
 
Amount
 
% of
Revenue
 
%
Change
 
(dollars in thousands)
Interest income
$
151

 
0.1
 %
 
$
16

 
—
 %
 
843.8
 %
Interest expense