UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

For the quarterly period ended September 30, 2014

OR

For the transition period from              to             

Commission File Number: 001-36331

 

Coupons.com Incorporated

(Exact Name of Registrant as Specified in Its Charter)

 

 

(650) 605-4600

(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  x    No  ¨

Indicate by checkmark 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 during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files).    Yes  x    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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

As of November 3, 2014, the registrant had 79,943,811 shares of common stock outstanding.

 

 

 

 

 

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COUPONS.COM INCORPORATED

INDEX

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

 

 

 

 

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PART I - FINANCIAL INFORMATION

 

 

COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

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COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

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COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

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COUPONS.COM INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

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COUPONS.COM INCORPORATED

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Description of Business

Coupons.com Incorporated (the “Company”) operates a leading digital promotion platform that connects great brands and retailers with consumers. Many brands from leading consumer packaged goods companies (“CPGs”) and grocery, drug and mass merchandise retailers use the Company’s promotion platform to engage consumers at the critical moments when they are choosing which products they will buy and where they will shop. The Company delivers digital coupons, including coupons and coupon codes, through its platform which includes web, mobile and social channels, as well as those of the Company’s CPGs, retailers and its extensive network of publishers. Consumers select coupons by either printing them for physical redemption at retailers or saving them to retailer online accounts for automatic digital redemption. The Company also delivers integrated advertising through its platform.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. 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. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on March 7, 2014 (“Prospectus”).

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.

There have been no changes to our significant accounting policies described in the Prospectus that have had a material impact on our condensed consolidated financial statements and related notes.

Initial Public Offering

In March 2014, the Company completed its initial public offering (“IPO”) in which it issued and sold 12,075,000 shares of common stock at a public offering price of $16.00 per share. The Company received net proceeds of $179.7 million after deducting underwriting discounts and commissions of $13.5 million, but before deducting offering expenses of $5.4 million. In addition, in connection with the IPO:

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the Company’s estimates, and such differences may be material to the accompanying condensed consolidated financial statements.

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Recently Issued Accounting Pronouncements

In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized 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. The Company is required to adopt the amendments in the first quarter of 2017. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of these amendments.

 

3. Fair Value Measurements

The Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis is as follows (in thousands):

 

 

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Valuation techniques used to measure the fair value of money market funds were derived from quoted prices in active markets for identical assets or liabilities.

The fair value of contingent consideration was estimated using a Monte Carlo simulation and was based on significant inputs not observable in the market, thus classified as a Level 3 instrument. The inputs include Company’s stock price, maximum earn-out shares, historical and projected financial results of Eckim, LLC. (“Eckim”), historical volatility of the Company's stock price and risk-free interest rate. See Note 6 (Acquisitions) for further discussion.

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The following table represents the change in the contingent consideration (in thousands):

 

For the three and nine months ended September 30, 2014, the Company recorded a gain of $2,806,000 due to the change in fair value of the contingent consideration.  The change in fair value of this contingent consideration was primarily driven by changes in the Company's common stock price during the period.  Gains and losses as a result of the change in fair value of the contingent consideration are included as a component of operations in the accompanying condensed consolidated statements of operations.

 

4. Provision for Doubtful Accounts

The summary of activity in the allowance for doubtful accounts is as follows (in thousands):

 

 

 

5. Balance Sheet Components

Property and Equipment, Net

Property and equipment consist of the following (in thousands):

 

 

Depreciation and amortization expense of property and equipment was $3,379,000 and $9,585,000 for the three and nine months ended September 30, 2014, respectively, and $1,493,000 and $4,495,000 for the three and nine months ended September 30, 2013, respectively.

During the nine months ended September 30, 2014, the Company’s internally developed next generation integrated point of sale digital coupon delivery solution was ready for its intended use and, accordingly, $25,166,000 was reclassified from projects in process to software within property and equipment, net on the accompanying condensed consolidated balance sheets. The Company recognized $2,126,000 and $5,517,000 of amortization expense in cost of revenues related to the capitalized new software platform during the three and nine months ended September 30, 2014.

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Accrued Compensation and Benefits

Accrued compensation and benefits consist of the following (in thousands):

 

 

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

 

 

6. Acquisitions  

Eckim, LLC.

 

On August 4, 2014, the Company entered into an asset purchase agreement with Eckim, a company specializing in search engine performance marketing. The total acquisition consideration of $19.3 million consisted of $12.5 million in cash and $6.8 million in contingent consideration.  The contingent consideration consists of shares of the Company’s common stock.  The contingently issuable shares are contingent on Eckim achieving certain revenue and profit milestones by December 31, 2015. The contingent consideration shares are issuable on or before April 30, 2016 and are also subject to earlier issuance under certain event. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation.

 

The acquisition of Eckim provides the Company with customer relationships and developed technologies that apply across our platform. The fair values of identifiable intangible assets were determined using discounted cash flow models. The excess of the consideration paid over the fair values of the identifiable intangible assets acquired was recorded as goodwill, which is deductible for tax purposes, subject to final settlement of the contingent consideration. The goodwill is attributable to expected synergies from combined operations and the acquired company’s knowhow.  Acquisition related costs of $288,000 were expensed as general and administrative expense in the accompanying condensed consolidated statements of operations.

 

The following table summarizes the consideration paid and the fair values of the assets acquired at the acquisition date (in thousands):

 

 

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The Company amortizes intangible assets on a straight-line basis over their respective estimated useful lives. The following table presents the details of the identifiable intangible assets acquired in connection with the Eckim acquisition (in thousands):

 

 

Yub, Inc.

On January 2, 2014, the Company acquired all the outstanding shares of Yub, Inc. (“Yub”), a company that allows consumers to link digital offers and promotions to payment cards for savings when they use the cards for in-store purchases. The total acquisition consideration of $10.1 million, which consisted of 1,000,040 shares of the Company’s common stock, was based on the fair value of the Company’s common stock of $10.05 per share.

The acquisition of Yub provides the Company with developed technologies and enhanced workforce. The fair values of identifiable intangible assets were determined using discounted cash flow models. The excess of the consideration paid over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed was recorded as goodwill, which is not deductible for tax purposes. The goodwill is attributable to expected synergies from combined operations and acquired company’s knowhow.  Acquisition related costs of $376,000 were expensed as general and administrative expense in the accompanying condensed consolidated statements of operations.

 

The following table summarizes the consideration paid and the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

 

 

The Company amortizes intangible assets on a straight-line basis over their respective estimated useful lives. The following table presents the details of the identifiable intangible assets acquired in connection with the Yub acquisition (in thousands):

 

 

The financial results of Eckim and Yub are included in the Company’s condensed consolidated statements of operations from their respective acquisition dates and were insignificant to the Company’s operating results. The pro forma impact of these acquisitions on consolidated revenues, income (loss) from operations and net loss was not material.

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7. Goodwill and Intangible Assets

Goodwill represents the excess of the consideration paid over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The changes in the carrying value of goodwill are as follows (in thousands):

 

 

Intangible assets consist of the following (in thousands):

 

 

 

 

Amortization expense related to intangible assets subject to amortization was $577,000 and $1,193,000 for the three and nine months ended September 30, 2014, respectively, and $182,000 and $568,000 for the three and nine months ended September 30, 2013. Estimated future amortization expense of intangible assets as of September 30, 2014 is as follows (in thousands):

 

 

 

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8. Debt Obligations

2013 Credit and Security Agreement

In September 2013, the Company entered into an agreement with a commercial bank to establish an accounts receivable based revolving line of credit. The maximum amount available for borrowing under the revolving credit facility is the lesser of $25,000,000 (which can be increased to $30,000,000 if certain conditions are met) or an amount equal to 85% of certain eligible accounts, which excludes accounts that are over 60 days outstanding from the original due date. The revolving line of credit has a maturity date of September 30, 2016 and may be repaid and redrawn at any time prior to the maturity date. Interest is charged at a floating interest rate based on the daily three month LIBOR, plus an applicable margin.  In May 2014, the Company entered into an amendment, which revised the applicable margin from 2.75% to 2.00% per annum and the financial reporting intervals from monthly to quarterly reporting.  Interest was 2.25% at September 30, 2014. The Company is also required to pay a commitment fee on the unused portion of the revolving credit facility equal to 0.25% per annum. As of September 30, 2014 and December 31, 2013, $7,500,000 was outstanding under the revolving line of credit. The revolving credit facility is secured by substantially all of the Company’s assets, and is subject to certain financial and non-financial covenants, including financial reporting. As of September 30, 2014, the Company was in compliance with the financial and non-financial covenants under the credit and security agreement.

2012 Note Payable, Related Party

In October 2012, the Company borrowed $15,000,000 from one of its stockholders by entering into a subordinated note arrangement. The note was repaid in August 2014.  The note was subordinated to other senior debt. The note had a stated interest rate of 4.00% per annum, and the principal and accrued interest were due in a lump-sum payment on October 5, 2014.  Accrued interest related to the related party debt obligation was included in debt obligations, related party on the accompanying condensed consolidated balance sheets.

In connection with the note, the Company issued a warrant to purchase 400,000 shares of Company’s common stock at an exercise price of $4.03 per share. In February 2014, the warrant to purchase 400,000 shares of common stock was exercised.

 

9. Stock-based Compensation

2013 Equity Incentive Plan

In October 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which became effective in March 2014 and serves as the successor to the Company’s 2006 Stock Plan (the “2006 Plan”). Pursuant to the 2013 Plan, 4,000,000 shares of common stock were initially reserved for grant, plus (1) any shares that were reserved and available for issuance under the 2006 Plan at the time the 2013 Plan became effective, and (2) any shares that become available upon forfeiture or repurchase by us under the 2006 Plan and 2000 Plan. Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares and units to employees, directors and consultants.

Stock Options

The fair value of each stock option is estimated on the date of grant for the periods presented using the Black-Scholes model based on the following assumptions:

 

 

The weighted-average grant-date fair value of options granted was $8.60 per share during the nine months ended September 30, 2014. The weighted-average grant-date fair value of options granted was $2.71 and $2.19 per share during the three and nine months ended September 30, 2013, respectively.  No options were granted during the three months ended September 30, 2014.

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Restricted Stock Units

The fair value of RSUs equals the market value of the Company’s common stock on the date of grant. RSUs granted prior to the Company’s IPO have a contractual term of seven years and vest upon the satisfaction of both a service condition and a liquidity-event condition. The service condition is satisfied as to 25% of the RSUs on each of the first four anniversaries of the vesting commencement date. The liquidity-event condition is satisfied upon the earlier of (i) six months after the effective date of the IPO or (ii) March 15 of the calendar year following the year in which the IPO was declared effective; and (iii) the time immediately prior to the consummation of a change in control. The vesting condition that will be satisfied six months following the Company’s IPO does not affect the expense attribution period for the RSUs for which the service condition has been met as of the date of the Company’s IPO. This six-month period is not a substantive service condition and, accordingly, beginning on the effectiveness of the Company’s IPO in March 2014, the Company recognized a cumulative stock-based compensation expense for the portion of the RSUs that had met the service condition as of the date of the Company’s IPO.  

RSUs granted on or after the Company’s IPO have similar terms as the RSUs granted prior to the Company’s IPO, but are not subject to a liquidity-event condition in order to vest, and the compensation expense is recognized on a straight-line basis over the applicable service period.  

A summary of the Company’s stock option and RSUs award activity under the Plan is as follows:

 

 

The aggregate intrinsic value disclosed in the table above is based on the difference between the exercise price of the options and the fair value of the Company’s common stock.

The aggregate total fair value of shares which vested during the three and nine months ended September 30, 2014 was $770,000 and $2,629,000, respectively, and during the three and nine months ended September 30, 2013 was $897,000 and $3,885,000, respectively.

Employee Stock Purchase Plan

The Company’s Board of Directors adopted the 2014 Employee Stock Purchase Plan (“ESPP”), which became effective in March 2014, pursuant to which 1,200,000 shares of common stock have been reserved for future issuance. Eligible employees can enroll and elect to contribute up to 15% of their base compensation through payroll withholdings in each offering period, subject to certain limitations. Each offering period is six months in duration, with the exception of the initial offering period which commenced in March 2014 and ends in November 2014. The purchase price of the stock is the lower of 85% of the fair market value on (a) the first day of the offering period or (b) the purchase date.

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The fair value of the option feature is estimated using the Black-Scholes model for the period presented based on the following assumptions:

 

 

Stock-based Compensation Expense

The following table sets forth the total stock-based compensation expense resulting from RSUs, stock options and ESPP included in the Company’s condensed consolidated statements of operations (in thousands):