Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________

FORM 10-Q
___________________________________

(Mark One) 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 2017 
OR 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For transition period from to 
Commission File Number 001-36773 
___________________________________

WORKIVA INC.
(Exact name of registrant as specified in its charter)
___________________________________

Delaware 47-2509828 
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 
2900 University Blvd
Ames, IA 50010
(888) 275-3125 
(Address of principal executive offices and zip code) 
(888) 275-3125 
(Registrant's telephone number, including area code) 
___________________________________ 

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

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 o

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

Large accelerated filer oAccelerated filer ý
Non-accelerated filer o(Do not check if a smaller reporting company) Smaller reporting company o
Emerging growth company ý

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

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

As of August 1, 2017, there were approximately 31,106,464 shares of the registrant's Class A common stock and 10,719,888 shares of the registrant's Class B common stock outstanding. 
 
 
WORKIVA INC.

TABLE OF CONTENTS

 
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34 
  
S-1 
  
E-1 
 
i 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC, as well as in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements.

        Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

        Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after completion of this Quarterly Report on Form 10-Q to conform these statements to actual results or revised expectations.

 
ii 
Part I. Financial Information

 
Item 1. Financial Statements

 
WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 As of June 30, 2017  As of December 31, 2016 
 (unaudited)   
ASSETS    
Current assets    
Cash and cash equivalents $59,986  $51,281 
Marketable securities 12,877  11,435 
Accounts receivable, net of allowance for doubtful accounts of $1,335 and $900 at June 30, 2017 and December 31, 2016, respectively 22,733  22,535 
Deferred commissions 2,021  1,864 
Other receivables 1,573  1,545 
Prepaid expenses 11,416  9,382 
Total current assets 110,606  98,042 
    
Property and equipment, net 41,138  42,590 
Intangible assets, net 1,056  1,012 
Other assets 1,393  1,499 
Total assets $154,193  $143,143 
   

1 
WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share amounts)
As of June 30, 2017  As of December 31, 2016 
(unaudited)   
LIABILITIES AND STOCKHOLDERS’ DEFICIT    
Current liabilities    
Accounts payable $1,191  $849 
Accrued expenses and other current liabilities 17,286  20,695 
Deferred revenue 91,914  76,016 
Deferred government grant obligation 904  1,022 
Current portion of capital lease and financing obligations 1,242  1,285 
Current portion of long-term debt 21  20 
Total current liabilities 112,558  99,887 
    
Deferred revenue 24,342  21,485 
Deferred government grant obligation 405  1,000 
Other long-term liabilities 3,985  4,100 
Capital lease and financing obligations 18,999  19,743 
Long-term debt 32  53 
Total liabilities 160,321  146,268 
    
Stockholders’ deficit    
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 30,939,112 and 30,369,199 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively 31  30 
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 10,843,888 and 10,891,888 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively 11  11 
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding —  — 
Additional paid-in-capital 230,568  217,454 
Accumulated deficit (236,943) (220,911)
Accumulated other comprehensive income 205  291 
Total stockholders’ deficit (6,128) (3,125)
Total liabilities and stockholders’ deficit $154,193  $143,143 

See accompanying notes.

 
2 
WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three months ended June 30, Six months ended June 30, 
 2017  2016  2017  2016 
Revenue        
Subscription and support $40,980  $34,969  $80,520  $68,554 
Professional services 8,411  8,042  20,775  19,008 
Total revenue 49,391  43,011  101,295  87,562 
Cost of revenue        
Subscription and support 7,758  7,039  15,395  13,957 
Professional services 6,528  5,538  13,109  11,726 
Total cost of revenue 14,286  12,577  28,504  25,683 
Gross profit 35,105  30,434  72,791  61,879 
Operating expenses        
Research and development 16,239  14,047  31,775  28,563 
Sales and marketing 19,787  19,828  38,500  39,916 
General and administrative 8,943  7,882  18,364  16,835 
Total operating expenses 44,969  41,757  88,639  85,314 
Loss from operations (9,864) (11,323) (15,848) (23,435)
Interest expense (475) (468) (930) (958)
Other income, net 176  278  788  854 
Loss before provision for income taxes (10,163) (11,513) (15,990) (23,539)
Provision for income taxes 33  12  42  31 
Net loss $(10,196) $(11,525) $(16,032) $(23,570)
Net loss per common share:        
Basic and diluted $(0.25) $(0.28) $(0.39) $(0.58)
Weighted-average common shares outstanding - basic and diluted 41,429,691  40,593,908  41,270,038  40,522,790 

See accompanying notes.
 
3 
WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended June 30,  Six months ended June 30, 
 2017  2016  2017  2016 
Net loss $(10,196) $(11,525) $(16,032) $(23,570)
Other comprehensive (loss) income, net of tax        
Foreign currency translation adjustment, net of income tax benefit of $0 and $21 for the three months ended June 30, 2017 and 2016, respectively, and net of income tax benefit of $2 and $21 for the six months ended June 30, 2017 and 2016, respectively (52) 68  (86) (33)
Unrealized gain on available-for-sale securities, net of income tax (expense) of $0 and ($33) for the three months ended June 30, 2017 and 2016, respectively, and net of income tax (expense) of ($2) and ($33) for the six months ended June 30, 2017 and 2016, respectively (2) (21) —  54 
Other comprehensive (loss) income, net of tax (54) 47  (86) 21 
Comprehensive loss $(10,250) $(11,478) $(16,118) $(23,549)

See accompanying notes.

 
4 
WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended June 30,  Six months ended June 30, 
 2017  2016  2017  2016 
Cash flows from operating activities        
Net loss $(10,196) $(11,525) $(16,032) $(23,570)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities        
Depreciation and amortization 867  975  1,758  1,972 
Stock-based compensation expense 4,397  3,502  8,536  6,892 
Provision for doubtful accounts 146  48  432  170 
Realized gain on sale of available-for-sale securities, net —  (4) —  (6)
Amortization of premiums and discounts on marketable securities, net 28  36  59  75 
Recognition of deferred government grant obligation (198) (230) (736) (663)
Deferred income tax —  (12) —  (12)
Changes in assets and liabilities:        
Accounts receivable (3,228) (1,844) (542) (2,725)
Deferred commissions (149) (117) (151) (129)
Other receivables (865) 142  (25) (82)
Prepaid expenses and other (2,830) (1,327) (2,026) (1,513)
Other assets 36  (323) 13  (386)
Accounts payable (678) 797  339  101 
Deferred revenue 14,398  5,399  18,494  2,184 
Accrued expenses and other liabilities 2,254  447  (3,557) (5,422)
Net cash provided by (used in) operating activities 3,982  (4,036) 6,562  (23,114)
        
Cash flows from investing activities        
Purchase of property and equipment (26) (597) (147) (1,009)
Purchase of marketable securities (2,259) (802) (6,350) (802)
Maturities of marketable securities 1,850  —  4,851  — 
Sale of marketable securities —  2,404  —  7,197 
Purchase of intangible assets (58) (59) (89) (114)
Net cash (used in) provided by investing activities (493) 946  (1,735) 5,272 


5 
WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Three months ended June 30,  Six months ended June 30, 
2017  2016  2017  2016 
Cash flows from financing activities        
Proceeds from option exercises 4,709  236  5,515  520 
Taxes paid related to net share settlements of stock-based compensation awards —  —  (936) (761)
Repayment of other long-term debt (20) (18) (20) (18)
Principal payments on capital lease and financing obligations (490) (476) (787) (908)
Proceeds from government grants 22  —  22  183 
Payments of issuance costs on line of credit (10) (33) (10) (33)
Net cash provided by (used in) financing activities 4,211  (291) 3,784  (1,017)
Effect of foreign exchange rates on cash 82  40  94  (6)
        
Net increase (decrease) in cash and cash equivalents 7,782  (3,341) 8,705  (18,865)
Cash and cash equivalents at beginning of period 52,204  43,226  51,281  58,750 
Cash and cash equivalents at end of period $59,986  $39,885  $59,986  $39,885 
        
Supplemental cash flow disclosure        
Cash paid for interest $448  $470  $747  $792 
Cash paid for income taxes, net of refunds $27  $40  $40  $48 
        
Supplemental disclosure of noncash investing and financing activities        
Allowance for tenant improvements $—  $215  $—  $401 
Purchases of property and equipment, accrued but not paid $—  $82  $—  $82 

See accompanying notes.

 

6 
 
WORKIVA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Organization

        Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries created Wdesk, a collaborative work management platform for organizations to collect, link, report and analyze their business data. Wdesk’s proprietary word processing, spreadsheet and presentation applications are integrated and built upon a data management engine, offering synchronized data, controlled collaboration, granular permissions and a full audit trail. We offer Wdesk solutions for a wide range of use cases in the following markets: finance and accounting, audit and internal controls, risk and compliance, and operations. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, and Canada.

Basis of Presentation and Principles of Consolidation

        The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet data as of December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results expected for the full year ending December 31, 2017. Seasonality has affected our revenue, expenses and cash flow in the first and third quarters. Revenue from professional services has been higher in the first quarter as many of our customers file their Form 10-K in the first calendar quarter. Sales and marketing expense has been higher in the third quarter due to our annual user conference in September. Payment of cash bonuses in the first quarter affects operating cash flow. The condensed consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 23, 2017.

        The unaudited condensed consolidated financial statements include the accounts of Workiva Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

        The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. These estimates include, but are not limited to, the determination
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of the relative selling prices of our services, health insurance claims incurred but not yet reported, collectability of accounts receivable, valuation of available-for-sale marketable securities, useful lives of intangible assets and property and equipment, income taxes and certain assumptions used in the valuation of equity awards. While these estimates are based on our best knowledge of current events and actions that may affect us in the future, actual results may differ materially from these estimates.

Recently Adopted Accounting Pronouncements

        In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under this ASU, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as required by current guidance, or to recognize forfeitures as they occur in addition to other changes. The guidance became effective for interim and annual periods beginning after December 15, 2016. Effective January 1, 2017, we adopted this standard. We elected to recognize forfeitures on share-based payment awards as they occur. The adoption, along with the remaining provisions of ASU 2016-09, did not have a material impact on our consolidated financial statements.

        In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. The new standard must be adopted using a modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. Effective January 1, 2017, we adopted this standard. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

        In May 2014, the Financial Accounting Standards Board (FASB) issued guidance codified in ASC 606, Revenue Recognition - Revenue from Contracts with Customers (ASU 2014-09), which amends the guidance in former ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments and updates to the new revenue standard, including guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how an entity should identify performance obligations. As amended, ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for all entities only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

        We believe the adoption of ASU 2014-09 will require us to recognize revenue from certain of our professional services over time rather than upon completion of the services. We expect this change may result in some acceleration of revenue recognition.

        In addition, under current guidance, the amount that is allocated to, and recognized as revenue related to, a delivered service is limited to the amount that is not contingent on completion of the remaining performance obligations. We expect the removal of this limitation on contingent revenue under ASU 2014-09 to result in revenue being recognized earlier for certain contracts.

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        In addition, ASU 2014-09 requires that all incremental costs of obtaining a contract with a customer be recognized as an asset. We expect this requirement will result in an increase in the costs that we capitalize. The guidance also requires that these costs be deferred over a term that is consistent with the transfer of services related to the asset. Based on our preliminary analysis, we believe this term will be approximately three years compared to one year or less under current guidance.

        Under ASU 2014-09, in addition to recording deferred revenue when the related cash payments are received, we will record deferred revenues when payments are due in advance of our performance, including amounts that are refundable. We expect this change will result in an offsetting increase in accounts receivable and deferred revenue.

        We are still evaluating the ASU for other potential impacts to our consolidated financial statements. We plan to adopt the guidance as of January 1, 2018 and expect to utilize the modified retrospective transition method. We have a project plan in place guiding our transition which includes the necessary changes to accounting processes, procedures, systems and internal controls.

        In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU is effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. The implementation of this standard is not expected to have a significant impact on our consolidated financial statements.
 
2. Supplemental Consolidated Balance Sheet and Statement of Operations Information

Accrued Expenses and Other Current Liabilities

        Accrued expenses and other current liabilities consisted of (in thousands):

 June 30, 2017December 31, 2016
Accrued vacation $5,686  $4,368 
Accrued commissions 2,131  2,382 
Accrued bonuses 5,107  8,927 
Estimated health insurance claims 1,100  1,210 
Accrued other liabilities 3,262  3,808 
 $17,286  $20,695 


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Other Income, net

        Other income, net for the three and six months ended June 30, 2017 and 2016 consisted of (in thousands):

Three months ended June 30,  Six months ended June 30, 
 2017  2016 2017 2016 
Interest income $129  $62  $220  $145 
Income from training reimbursement program 198  230  736  663 
Other (151) (14) (168) 46 
 $176  $278  $788  $854 
 
3. Marketable Securities

        At June 30, 2017, marketable securities consisted of the following (in thousands):

 Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value 
U.S. treasury debt securities $2,701 $— $(6)$2,695 
U.S. corporate debt securities 10,185 2 (5)10,182 
Money market funds 53,903 — — 53,903 
 $66,789 $2 $(11)$66,780 
Included in cash and cash equivalents $53,903  $—  $—  $53,903 
Included in marketable securities $12,886  $2  $(11) $12,877 

        At December 31, 2016, marketable securities consisted of the following (in thousands):

 Amortized Cost  Unrealized Gains  Unrealized Losses  Aggregate Fair Value 
U.S. treasury debt securities $3,503  $—  $(5) $3,498 
U.S. corporate debt securities 7,943  1  (7) 7,937 
Money market funds 43,496  —  —  43,496 
 $54,942  $1  $(12) $54,931 
Included in cash and cash equivalents $43,496  $—  $—  $43,496 
Included in marketable securities $11,446  $1  $(12) $11,435 



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        The following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of June 30, 2017, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

 As of June 30, 2017 
 Less than 12 months  12 months or greater 
 Fair Value  Unrealized Loss  Fair Value  Unrealized Loss 
U.S. treasury debt securities $2,695  $(6) $—  $— 
U.S. corporate debt securities 6,023  (5) —  — 
Total $8,718  $(11) $—  $— 

        We do not believe any of the unrealized losses represented an other-than-temporary impairment based on our evaluation of available evidence, which includes our intent as of June 30, 2017 to hold these investments until the cost basis is recovered.
 
4. Fair Value Measurements

        We determine the fair values of our financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 -  Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 -  Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 -  Inputs are unobservable inputs based on our assumptions.

Financial Assets

         Cash equivalents primarily consist of AAA-rated money market funds with overnight liquidity and no stated maturities. We classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.

        When available, our marketable securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market prices for comparable instruments. We validate, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of our investments against the fair values of the portfolio balances of another third-party professional pricing service. As of June 30, 2017, all of our
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marketable securities were valued using quoted prices for comparable instruments in active markets and are classified as Level 2.

        Based on our valuation of our money market funds and marketable securities, we concluded that they are classified in either Level 1 or Level 2 and we have no financial assets measured using Level 3 inputs. The following table presents information about our assets that are measured at fair value on a recurring basis using the above input categories (in thousands):

Fair Value Measurements as of June 30, 2017 Fair Value Measurements as of December 31, 2016 
Description  Total  Level 1  Level 2  Total  Level 1  Level 2 
Money market funds  $53,903  $53,903  $—  $43,496  $43,496  $— 
U.S. treasury debt securities  2,695  —  2,695  3,498  —  3,498 
U.S. corporate debt securities  10,182  —  10,182  7,937  —  7,937 
  $66,780  $53,903  $12,877  $54,931  $43,496  $11,435 
             
Included in cash and cash equivalents  $53,903      $43,496     
Included in marketable securities  $12,877      $11,435     

Other Fair Value Measurements

        At June 30, 2017, the fair value of our debt obligations approximated the carrying amount of $53,000. The estimated fair value was based in part on our consideration of incremental borrowing rates for similar types of borrowing arrangements. We have classified the fair value of our debt obligations as Level 3 due to the lack of relevant observable market data over fair value inputs.
 
5. Commitments and Contingencies

Lease Commitments

There have been no material changes in our future estimated minimum lease payments under non-cancelable operating, capital and financing leases, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

Litigation

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of any currently pending legal proceedings to which we are a party will not have a material adverse effect on our business, operating results, financial condition 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.

 


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6. Stock-Based Compensation

We grant stock-based incentive awards to attract, motivate and retain qualified employees, non-employee directors and consultants, and to align their financial interests with those of our stockholders. We utilize stock-based compensation in the form of restricted stock awards, restricted stock units and options to purchase Class A common stock.

As of June 30, 2017, awards outstanding under the 2009 Plan consisted of stock options, and awards outstanding under the 2014 Plan consisted of stock options, restricted stock awards and restricted stock units.

As of June 30, 2017, 2,600,554 shares of Class A common stock were available for grant under the 2014 Plan.

Stock-Based Compensation Expense

Stock-based compensation expense for the six months ended June 30, 2017 was $5.3 million, $1.2 million, and $2.0 million for options to purchase Class A common stock, restricted stock awards and restricted stock units, respectively. Stock-based compensation expense for the six months ended June 30, 2016 was $4.5 million, $1.6 million and $0.8 million for options to purchase Class A common stock, restricted stock awards and restricted stock units, respectively.

        Stock-based compensation expense associated with stock options, restricted stock awards, and restricted stock units was recorded in the following cost and expense categories consistent with the respective employee or service provider’s related cash compensation (in thousands):

Three months ended June 30,  Six months ended June 30, 
 2017  2016  2017  2016 
Cost of revenue        
Subscription and support $178  $125  $318  $243 
Professional services 100  93  200  215 
Operating expenses        
Research and development 472  609  965  1,193 
Sales and marketing 694  449  1,353  904 
General and administrative 2,953  2,226  5,700  4,337 
Total $4,397  $3,502  $8,536  $6,892 



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        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the options. The expected term represents the period of time the options are expected to be outstanding and is based on the “simplified method” as defined by SEC Staff Accounting Bulletin No. 110 (Topic 14.D.2). We use the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the options. The risk-free interest rate is based on yields on U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) with a maturity similar to the estimated expected term of the options. The fair value of our stock options was estimated assuming no expected dividends and the following weighted-average assumptions:

 Three months ended June 30,  Six months ended June 30, 
 2017  2016  2017  2016 
Expected term (in years) 6.1  6.1  6.0 - 6.1  6.0 - 6.1 
Risk-free interest rate 1.90% - 2.03%  1.41% - 1.54%  1.90% - 2.14%  1.41% - 1.90% 
Expected volatility 39.3% - 39.6%  44.7% - 45.1%  39.3% - 43.8%  44.7% - 45.3% 

Stock Options

        The following table summarizes the option activity under the Plans for the six months ended June 30, 2017:
 Options  Weighted-Average Exercise Price  Weighted-Average Remaining Contractual Term (Years)  Aggregate Intrinsic Value 
       (in thousands) 
Outstanding at December 31, 2016 7,532,455  $12.22  7.2 $19,988 
Granted 1,415,953  13.94     
Forfeited (242,609) 14.47     
Exercised (566,648) 9.73     
Outstanding at June 30, 2017 8,139,151  $12.64  7.2 $52,205 
        
Exercisable at June 30, 2017 4,520,224  $10.94  6.0 $36,672 

        Options to purchase Class A common stock generally vest over a three- or four-year period and are generally granted for a term of ten years. The total intrinsic value of options exercised during the six months ended June 30, 2017 and 2016 was $4.2 million and $1.5 million, respectively.

        The weighted-average grant-date fair value of options granted during the six months ended June 30, 2017 and 2016 was $6.05 and $6.53, respectively. The total fair value of options vested during the six months ended June 30, 2017 and 2016 was approximately $5.2 million and $4.1 million, respectively. Total unrecognized compensation expense of $20.8 million related to options will be recognized over a weighted-average period of 2.4 years.



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Restricted Stock Awards

        We have granted restricted stock awards to our executive officers that vest in three equal annual installments from the date of grant. The recipient of an award of restricted stock under the Plan may vote and receive dividends on the shares of restricted stock covered by the award. The fair value for restricted stock awards is calculated based on the stock price on the date of grant. The total fair value of restricted stock awards vested during the six months ended June 30, 2017 and 2016 was approximately $2.4 million and $3.3 million, respectively.

        The following table summarizes the restricted stock award activity under the Plan for the six months ended June 30, 2017:

 Number of Shares  Weighted-Average Grant Date Fair Value 
    
Unvested at December 31, 2016 353,335  $13.40 
Granted —  — 
Forfeited —  — 
Vested (176,670) 13.40 
Unvested at June 30, 2017 176,665  $13.40 

        Compensation expense associated with unvested restricted stock awards is recognized on a straight-line basis over the vesting period. At June 30, 2017, there was approximately $1.4 million of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 0.6 years.

Restricted Stock Units

        We have granted restricted stock units to our executive officers that vest in three equal annual installments from the date of grant and to non-employee members of our Board of Directors with one-year cliff vesting from the date of grant. The recipient of a restricted stock unit award under the Plan will have no rights as a stockholder until share certificates are issued by us, but, at the discretion of our Compensation Committee, has the right to receive a dividend equivalent payment in the form of additional restricted stock units. Additionally, until the shares are issued, they have no voting rights and may not be bought or sold. The fair value for restricted stock units is calculated based on the stock price on the date of grant. The total fair value of restricted stock units vested during the six months ended June 30, 2017 was approximately $2.5 million. No restricted stock units vested during the six months ended June 30, 2016.



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        The following table summarizes the restricted stock unit activity under the Plan for the six months ended June 30, 2017:

 Number of Shares  Weighted-Average Grant Date Fair Value 
    
Unvested at December 31, 2016 381,952  $15.11 
Granted 413,792  13.95 
Forfeited —  — 
Vested(1) 
(174,211) 14.58 
Unvested at June 30, 2017 621,533  $14.48 
(1) As of June 30, 2017, recipients of 146,075 shares had elected to defer settlement of the vested restricted stock units in accordance with our Nonqualified Deferred Compensation Plan. 

        Compensation expense associated with unvested restricted stock units is recognized on a straight-line basis over the vesting period. At June 30, 2017, there was approximately $7.5 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted-average period of 2.0 years.

Employee Stock Purchase Plan

        Our Employee Stock Purchase Plan (“ESPP”) became effective on June 13, 2017. Under the ESPP, eligible employees are granted options to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are granted twice yearly on or about July 15 and January 15 and exercisable on or about the succeeding January 14 and July 14, respectively, of each year. As of June 30, 2017, 5,000,000 shares of Class A common stock were available for issuance under the ESPP. No participant may purchase more than $12,500 worth of the Company’s common stock in a six-month offering period. The ESPP's initial offering period began in July 2017. Accordingly, no shares of the Company's common stock had been purchased or distributed pursuant to the ESPP as of June 30, 2017.
 
7. Net Loss Per Share

        Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including our outstanding stock options and stock related to unvested restricted stock awards to the extent dilutive. 

The net loss per share is allocated based on the participation rights of the Class A and Class B common shares as if the loss for the year has been distributed. As the liquidation and dividend rights are identical, the net loss is allocated on a proportionate basis.

        We consider unvested restricted stock awards granted under the 2014 Equity Incentive Plan to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares. In future periods to the extent we are profitable, we will subtract earnings allocated to these participating securities from net income to determine net income attributable to common stockholders.


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