UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2020
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: 001-35429
(Exact name of registrant as specified in its charter)
| |
| |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(888 ) 882-1880
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading |
Name of each exchange | ||
| |
|
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes No
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).☒
☐
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 |
☐ |
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☒ | |||
| Non-accelerated filer |
☐ |
Smaller reporting company |
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| |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule Yes ☒
12b-2
of the Exchange Act). ☐
No As of July 39,414,408 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
20
, 2020 there were BRIGHTCOVE INC.
Table of Contents
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q
that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Such forward-looking statements include any expectation of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to adding employees; statements related to potential benefits of acquisitions; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Item 1A of Part I of this Quarterly Report on Form 10-Q,
and the risks discussed in our other Securities and Exchange Commission, or SEC, filings. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Forward-looking statements in this Quarterly Report on Form 10-Q
may include statements about: • |
our ability to achieve profitability; |
• |
our competitive position and the effect of competition in our industry; |
• |
our ability to retain and attract new customers; |
• |
our ability to penetrate existing markets and develop new markets for our services; |
• |
our ability to retain or hire qualified accounting and other personnel; |
• |
our ability to successfully integrate acquired businesses, including the online video platform assets of Ooyala, Inc. and certain of its subsidiaries that we acquired during 2019; |
• |
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; |
• |
our ability to maintain the security and reliability of our systems; |
• |
our estimates with regard to our future performance and total potential market opportunity; |
• |
our expectations regarding the potential impact of the COVID-19 pandemic on our business, operations, and the markets in which we and our partners and customers operate; |
• |
our estimates regarding our anticipated results of operations, future revenue, bookings growth, capital requirements and our needs for additional financing; and |
• |
our goals and strategies, including those related to revenue and bookings growth. |
3
PART I. FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL STATEMENTS |
Brightcove Inc.
Condensed Consolidated Balance Sheets
(unaudited)
| June 30, 2020 |
December 31, 2019 |
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| (in thousands, except share and per share data) |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | |
$ | |
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| Accounts receivable, net of allowance of $ |
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| Prepaid expenses |
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| Other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Operating lease right-of-use asset |
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| Intangible assets, net |
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| Goodwill |
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| Other assets |
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| Total assets |
$ | |
$ | |
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| Liabilities and stockholders’ equity |
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| Current liabilities: |
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| Accounts payable |
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| Accrued expenses |
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| Operating lease liability |
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| Deferred revenue |
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| Total current liabilities |
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| Operating lease liability, net of current portion |
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| Debt |
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— |
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| Other liabilities |
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| Total liabilities |
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| Commitments and contingencies (Note 10) |
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| Stockholders’ equity: |
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| Undesignated preferred stock, $ |
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| Common stock, $ |
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| Additional paid-in capital |
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| Treasury stock, at cost; |
( |
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| Accumulated other comprehensive loss |
( |
) | ( |
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| Accumulated deficit |
( |
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ | |
$ | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Brightcove Inc.
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2020 |
2019 |
2020 |
2019 |
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| (in thousands, except share and per share data) |
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| Revenue: |
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| Subscription and support revenue |
$ | |
$ | |
$ | |
$ | |
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| Professional services and other revenue |
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$ | |
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| Total revenue |
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| Cost of revenue: |
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| Cost of subscription and support revenue |
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| Cost of professional services and other revenue |
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| Total cost of revenue |
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| Gross profit |
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| Operating expenses: |
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| Research and development |
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| Sales and marketing |
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| General and administrative |
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| Merger-related |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
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| Other (expense) income, net |
( |
) | |
( |
) | ( |
) | |||||||||
| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average number of common shares used in computing net loss per share |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Brightcove Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2020 |
2019 |
2020 |
2019 |
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| (in thousands) |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income: |
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| Foreign currency translation adjustments |
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( |
) |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Brightcove Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share data)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2020 |
2019 |
2020 |
2019 |
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| (in thousands, except share data) |
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| Shares of common stock issued |
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| Balance, beginning of period |
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| Common stock issued upon acquisition |
— |
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— |
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| Issuance of common stock upon exercise of stock options and pursuant to restricted stock units |
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| Balance, end of period |
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| Shares of treasury stock |
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| Balance, beginning of period |
( |
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| Balance, end of period |
( |
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) | ( |
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| Par value of common stock issued |
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| Balance, beginning of period |
$ | |
$ | |
$ | |
$ | |
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| Common stock issued upon acquisition |
— |
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— |
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| Issuance of common stock upon exercise of stock options and pursuant to restricted stock units |
|
— |
— |
— |
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| Balance, end of period |
$ | |
$ | |
$ | |
$ | |
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| Value of treasury stock |
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| Balance, beginning of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Balance, end of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Additional paid-in capital |
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| Balance, beginning of period |
$ | |
$ | |
$ | |
$ | |
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| Common stock issued upon acquisition |
— |
|
— |
|
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| Withholding tax on restricted stock units vesting |
( |
) | — |
( |
) | — |
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| Issuance of common stock upon exercise of stock options and pursuant to restricted stock units |
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| Stock-based compensation expense |
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| Balance, end of period |
$ | |
$ | |
$ | |
$ | |
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| Accumulated deficit |
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| Balance, beginning of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Balance, end of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Accumulated other comprehensive loss |
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| Balance, beginning of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Foreign currency translation adjustment |
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|
( |
) | |
|||||||||||
| Balance, end of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Total stockholders’ equity |
$ | |
$ | |
$ | |
$ | |
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Brightcove Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Six Months Ended June 30, |
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| 2020 |
2019 |
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| (in thousands) |
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| Operating activities |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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| Depreciation and amortization |
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| Stock-based compensation |
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| Provision for reserves on accounts receivable |
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| Changes in assets and liabilities: |
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| Accounts receivable |
|
( |
) | |||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable |
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| Accrued expenses |
( |
) | |
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| Operating leases |
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( |
) | |||||
| Deferred revenue |
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| Net cash provided by (used in) operating activities |
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( |
) | |||||
| Investing activities |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Cash paid for acquisition, net of cash acquired |
— |
( |
) | |||||
| Capitalized internal-use software costs |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing activities |
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| Proceeds from exercise of stock options |
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| Proceeds from debt |
|
— |
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| Debt paydown |
( |
) | — |
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| Other financing activities |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| Effect of exchange rate changes on cash and cash equivalents |
( |
) | |
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| Net increase (decrease) in cash and cash equivalents |
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( |
) | |||||
| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ |
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$ | |
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| Supplemental disclosure of non-cash investing activities |
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| Fair value of shares issued for acquisition of a business |
$ | — |
$ | |
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| Supplemental disclosure of cash flow information |
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| Cash paid for operating lease liabilities |
$ | |
$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Brightcove Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data, unless otherwise noted)
1. Business Description and Basis of Presentation
Business Description
Brightcove Inc. (the Company) is a leading global provider of cloud services for video which enable its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner.
Basis of Presentation
The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2019.The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, other than the changes to accounting for credit losses as described in Note 13, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2019 contained in the Company’s Annual Report on Form
10-K
and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year. The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than those disclosed in this Report on Form
10-Q.
As described in Note 13, the Company implemented a significant accounting policy upon the adoption of Accounting Standards Update (“ASU”) (“ASC 326”). As of June 30, 2020, other than the changes to the accounting for credit losses, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form
2016-13,
Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
10-K
for the year ended December 31, 2019, have not changed.2. Revenue from Contracts with Customers
The Company primarily derives revenue from the sale of its online video platform, which enables its customers to publish and distribute video to Internet-connected devices quickly, easily and in a cost-effective and high-quality manner. Revenue is derived from three primary sources: (1) the subscription to its technology and related support; (2) hosting, bandwidth and encoding services; and (3) professional services, which include initiation,
set-up
and customization services.The following summarizes the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers.
| Accounts Receivable, net |
Contract Assets (current) |
Deferred Revenue (current) |
Deferred Revenue (non-current) |
Total Deferred Revenue |
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| Balance at December 31, 2019 |
$ | |
$ | |
$ | |
$ | |
$ | |
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| Balance at June 30, 2020 |
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9
Revenue recognized during the three and six months ended June 30, 2020 from amounts included in deferred revenue at the beginning of the period was approximately $13.7 million and $38.9 million, respectively. During the three and six months ended June 30, 2020, the Company did not recognize a material amount of revenue from performance obligations satisfied or partially satisfied in previous periods.
The assets recognized for costs to obtain a contract were $7.4 million as of June 30, 2020 and $5.9 million as of December 31, 2019. Amortization expense recognized during the three and six months ended June 30, 2020 related to costs to obtain a contract was $1.8 million and $3.4 million, respectively. Amortization expense recognized during the three and six months ended June 30, 2019 related to costs to obtain a contract was $1.8 million and $3.7 million, respecti
v
ely. Transaction Price Allocated to Future Performance Obligations
As of June 30, 2020, the total aggregate transaction price allocated to the unsatisfied performance obligations for subscription and support contracts was approximately $136.9 million, of which approximately $108.8 million is expected to be recognized over the next 12 months. The Company expects to recognize substantially all of the remaining unsatisfied performance obligations by December 2024.
3. Concentration of Credit Risk
The Company has no significant
off-balance
sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, trade accounts receivable and unbilled trade accounts receivable.The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit standing. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.
Please
see
Note 13 for more detail on how the Company assesses credit risk for trade accounts receivable and unbilled trade accounts receivable under ASC 326. 4. Concentration of Other Risks
The Company is dependent on certain content delivery network providers who provide digital media delivery functionality enabling the Company’s
on-demand
application service to function as intended for the Company’s customers and ultimate end-users.
The disruption of these services could have a material adverse effect on the Company’s business, financial position, and results of operations.5. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Management determines the appropriate classification of investments at the time of purchase, andno 5.0 million under an existing line of credit, as described in Note 11.
re-evaluates
such determination at each balance sheet date. The Company did , net of repayment
$s
,Cash and cash equivalents primarily consist of cash on deposit with banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.
Cash and cash equivalents as of June 30, 2020 consist of the following:
| June 30, 2020 |
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| Description |
Contracted Maturity |
Cost |
Fair Market Value |
Balance Per Balance Sheet |
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| Cash |
Demand |
$ | |
$ | |
$ | |
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| Money market funds |
Demand |
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|
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| Total cash and cash equivalents |
$ | |
$ | |
$ | |
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10
Cash and cash equivalents as of December 31, 2019 consist of the following:
December 31, 2019 |
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Description |
Contracted Maturity |
Cost |
Fair Market Value |
Balance Per Balance Sheet |
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Cash |
Demand |
$ | $ | $ | ||||||||||||
Money market funds |
Demand |
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Total cash and cash equivalents |
$ | $ | $ | |||||||||||||
6. Net Loss per Share
The Company calculates basic and diluted net loss per common share by dividing the net loss by the number of common shares outstanding during the period. The Company has excluded other potentially dilutive shares, which include warrants to purchase common stock and outstanding common stock options and unvested restricted stock units, from the number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses incurred. The following outstanding common shares have been excluded from the computation of dilutive net loss per share as of June 30, 2020 and 2019.
Three Months Ended June 30, |
Six Months Ended June 30, |
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2020 |
2019 |
2020 |
2019 |
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Options outstanding |
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Restricted stock units outstanding |
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7. Fair Value of Financial Instruments
The Company’s financial instruments carried at fair value were less than $0.1
.
8. Stock-based Compensation
The weighted-average fair value of options granted during the three months ended June 30, 2020 and 2019 was $3.76 and $4.53 per share, respectively. The weighted-average fair value of options granted during the six months ended June 30, 2020 and 2019 was $3.48 and $4.36 per share, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2020 |
2019 |
2020 |
2019 |
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Expected life in years |
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Risk-free interest rate |
% | % | % | % | ||||||||||||
Volatility |
% | % | % | % | ||||||||||||
Dividend yield |
— |
— |
— |
— |
||||||||||||
As of June 30, 2020, there was $20.7 million of unrecognized stock-based compensation expense related to stock-based awards that is expected to be recognized over a weighted-average period of 2.08 years. The following table summarizes stock-based compensation expense as included in the consolidated statement of operations for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2020 |
2019 |
2020 |
2019 |
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Stock-based compensation: |
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Cost of subscription and support revenue |
$ | $ | $ | $ | ||||||||||||
Cost of professional services and other revenue |
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Research and development |
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Sales and marketing |
||||||||||||||||
General and administrative |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
1
1
The following is a summary of the stock option activity during the six months ended June 30, 2020.
Number of Shares |
Weighted-Average Exercise Price |
Weighted-Average Remaining Contractual Term (In Years) |
Aggregate Intrinsic Value (1) |
|||||||||||||
Outstanding at December 31, 2019 |
$ | |||||||||||||||
Granted |
||||||||||||||||
Exercised |
( |
) | $ | |||||||||||||
Canceled |
( |
) | ||||||||||||||
Outstanding at June 30, 2020 |
$ | $ | ||||||||||||||
Exercisable at June 30, 2020 |
$ | $ | ||||||||||||||
| (1) | The aggregate intrinsic value was calculated based on the positive difference between the fair value of the Company’s common stock on June 30, 2020 of $ |
The following table summarizes the restricted stock unit activity during the six months ended June 30, 2020:
Shares |
Weighted Average Grant Date Fair Value |
|||||||
Unvested at December 31, 2019 |
$ | |||||||
Granted |
||||||||
Vested and issued |
( |
) | ||||||
Canceled |
( |
) | ||||||
Unvested at June 30, 2020 |
$ | |||||||
The aggregate fair value of vested and issued RSUs for the six months ended June 30, 2020 was $4.2 million.
9. Income Taxes
For the three months ended June 30, 2020 and 2019, the Company recorded income tax expense of $115 and $175 , respectively. For the six months ended June 30, 2020 and 2019, the Company recorded income tax expense of $443 and $350 , respectively. The income tax expense relates principally to the Company’s foreign operations.
The Company is required to compute income tax expense in each jurisdiction in which it operates. This process requires the Company to project its current tax liability and estimate its deferred tax assets and liabilities, including net operating loss (“NOL”) and tax credit carry-forwards. In assessing the ability to realize the net deferred tax assets, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized.
The Company has provided a valuation allowance against its remaining U.S. net deferred tax assets as of June 30, 2020 and December 31, 2019, based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences.
10. Commitments and Contingencies
Legal Matters
The Company, from time to time, is party to litigation arising in the ordinary course of business. Management does not believe that the outcome of these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company based on the status of proceedings at this time.
1
2
Guarantees and Indemnification Obligations
The Company typically enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses and costs incurred by the indemnified party, generally the Company’s customers, in connection with patent, copyright, trade secret, or other intellectual property or personal right infringement claims by third parties with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. Based on when customers first subscribe for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited, however, more recently the Company has typically limited the maximum potential value of such potential future payments in relation to the value of the contract. Based on historical experience and information known as of June 30, 2020, the Company has not incurred any costs for the above guarantees and indemnities. The Company has received requests for indemnification from customers in connection with patent infringement suits brought against the customer by a third party. To date, the Company has not agreed that the requested indemnification is required by the Company’s contract with any such customer.
In certain circumstances, the Company warrants that its products and services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the licensed products and services to the customer for the warranty period of the product or service. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.
11. Debt
On December 14, 2018 , the Company entered into an amended and restated loan and security agreement with a lender (the “Loan Agreement”) providing for up to a $30.0 million asset based line of credit (the “Line of Credit”). Under the Line of Credit, the Company can borrow up to $30.0 million. Borrowings under the Line of Credit are secured by substantially all of the Company’s assets, excluding its intellectual property. Outstanding amounts under the Line of Credit accrue interest at a rate as follows: (i) for prime rate advances, the greater of (A) the prime rate and (B) 4%, and (ii) for LIBOR advances, the greater of (A) the LIBOR rate plus 225 basis points and (B) 4 %. Under the Loan Agreement, the Company must comply with certain financial covenants, including maintaining a minimum asset coverage ratio. If the outstanding principal during any month is at least $15.0 million, the Company must also maintain a minimum net income threshold based on Failure to comply with these covenants, or the occurrence of an event of default, could permit the lenders under the Line of Credit to declare all amounts borrowed under the Line of Credit, together with accrued interest and fees, to be immediately due and payable. The Company was in compliance with all covenants under the Line of Credit as of June 30, 2020.
non-GAAP
operating measures.In March 2020, the Company borrowed $10.0 million on the Line of Credit in anticipation of any operating cash needs in light of4
COVID-19.
In June 2020 the Company 5.0 million on the Line of Credit
re
paid $.
The effective interest rate for the amounts borrowed on the Line of Credit was
% for the six months ended June 30, 2020. The Line of Credit matures in
. The fair value of these borrowings,
net of amounts paid,
which are classified as Level 2, approximates their carrying value at June 30, 2020 as the instrument carries a variable rate of interest which reflects current market rates.12. Segment Information
Geographic Data
Total revenue from unaffiliated customers by geographic area, based on the location of the customer, was as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Revenue: |
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North America |
$ | $ | $ | $ | ||||||||||||
Europe |
||||||||||||||||
Japan |
||||||||||||||||
Asia Pacific |
||||||||||||||||
Other |
||||||||||||||||
Total revenue |
$ | $ | $ | $ | ||||||||||||
North America is comprised of revenue from the United States, Canada and Mexico. Revenue from customers located in the United States was $23,992 and $23,966 during the three months ended June 30, 2020 and 2019, respectively. Revenue from customers
1
3
located in the United States was $46,962 and $44,372 during the six months ended June 30, 2020 and 2019, respectively. Other than the United States and Japan, no other country contributed more than 10
As of June 30, 2020 and December 31, 2019, property and equipment at locations outside the U.S. was not material.
13. Recently Issued and Adopted Accounting Standards
In June 2016, the FASB issued ASU No.
2016-13,
which requires measurement and recognition of expected credit losses for financial assets held. Effective January 1, 2019, the Company adopted ASC 326 using the transition method introduced by ASU 2016-13.
The adoption of ASC 326 did not result in an adjustment to the estimated allowance as of December 31, 2019.Under ASC 326, the Company changed its policy for assessing credit losses to include consideration of a broader range of information to estimate credit losses over the life of its financial assets. As of June 30, 2020, the financial assets of the Company within the scope of the assessment comprised trade accounts receivable (“AR”) and unbilled trade accounts receivable. Unbilled trade accounts receivable (“UAR”) is reflected in Other Current Assets on the Company’s Condensed Consolidated Balance Sheets and was $2.0
The Company uses the aging method to estimate its expected credit losses on AR and UAR. In order to estimate expected credit losses, the Company assessed recent historical experience, current economic conditions and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the aging method into risk pools. Historical credit loss for each risk pool is then applied to the current period aging as presented in the identified risk pools to determine the needed reserve allowance. In the absence of current economic conditions and/or forecasts that may affect future credit losses, the Company has determined that recent historical experience provides the best basis for estimating credit losses. As of June 30, 2020, the Company estimates the life of its AR as
5
days. This estimate is based on the Company’s historical experience for days sales outstanding (“DSO”).0
-60
The information obtained from assessing historical experience, current economic conditions and reasonable and supportable forecasts were used to identify risk characteristics that can affect future credit loss experience. The historical analysis yielded one material risk factor, the geographical location of the customer. Specifically, historical experience showed that AR that was due from customers in the Asia Pacific region had experienced more credit losses than the other geographic areas listed in
Note
12. Europe and Japan had significantly less credit loss experience when compared to Asia Pacific while North America’s credit loss experience was commensurate with the proportion of total AR that North America’s AR comprised. There were no other significant risk characteristics identified in the review of historical experience. The Company’s assessment of current economic conditions and reasonable and supportable forecasts included an assessment of customer industries affected by0.2 million increase in the provision for credit losses due to
COVID-19.
Based on available information, the Company identified the following customer industries as being significantly affected by COVID-19,
in no particular order: restaurants, hospitality, tourism, sports, travel and consumer goods. The Company assessed the relevant and supportable information available and estimated and recorded approximately $ COVID-19.
The Company will continue to assess the COVID-19
risk to its AR for the duration of the pandemic. The following details the changes in the Company’s reserve allowance for estimated credit losses for AR for the period: