UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36331
Quotient Technology Inc .
(Exact name of registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
400 Logue Avenue
Mountain View, CA
(Address of principal executive offices)
77-0485123
(I.R.S. Employer
Identification No.)
94043
(Zip Code)
Registrant’s telephone number, including area code: (650) 605-4600
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________________________
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.00001 par value per share
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨
NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ¨
NO x
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 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 x
NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition
of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a small reporting company)
Accelerated filer
Small reporting company
x
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨
NO x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, as of June 30, 2015, the last business day of the
registrant’s most recently completed second fiscal quarter, based on the closing price of $10.79 per share of the Registrant’s common stock as reported by the New York Stock
Exchange on June 30, 2015, was $404.8 million. Shares of common stock held by each executive officer, director, and their affiliated holders and by each entity or person that,
to the Registrant’s knowledge, owned 5% or more of the Registrant’s outstanding common stock as of June 30, 2015, have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of registrant’s Common Stock outstanding as of March 1, 2016 was 82,268,024.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form
10-K where indicated. Such definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year
ended December 31, 2015.
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Page
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11
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35
35
36
37
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41
57
58
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89
Unless the context otherwise requires, the terms “Quotient,” “Coupons,” the “Company,” “we,” “us” and “our” in this Annual Report on Form
10-K refer to Quotient Technology Inc. and its consolidated subsidiaries.
The Quotient logo, Coupons logo and our other registered or common law trademarks, service marks or trade names appearing in this Annual
Report on Form 10-K are the property of Quotient. Other trademarks and trade names referred to in this Annual Report on Form 10-K are the
property of their respective owners.
1
SPECIAL NOTE REGARDING FORWARD ‑‑LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,”
“believe,” “continue,” “could,” “seek,” “might,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “approximately,” “project,” “should,”
“will,” “would” or the negative or plural of these words or similar expressions, as they relate to our company, business and management, are
intended to identify forward-looking statements. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not
limited to, statements about:
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our financial performance, including our revenues, margins, costs, expenditures, growth rates and operating expenses, and our ability
to generate positive cash flow and become profitable;
the amount and timing of digital promotions by CPGs, which are affected by budget cycles, economic conditions and other factors;
the growth of demand for digital coupons;
our ability to adapt to changing market conditions;
our ability to grow and scale Retailer iQ;
our ability to retain and expand our business with existing CPGs and retailers;
our ability to maintain and expand the use by consumers of digital promotions on our platforms;
our ability to grow our media business;
our ability to attract and retain third-party advertising agencies, performance marketing networks and other intermediaries;
our ability to effectively manage our growth;
the effects of increased competition in our markets and our ability to compete effectively;
our ability to grow the use by consumers of our mobile solutions;
our ability to effectively grow and train our sales team;
our ability to obtain new CPGs and retailers and to do so efficiently;
our ability to maintain, protect and enhance our brand and intellectual property;
our strategies relating to the growth of our platform and our business;
our strategies relating to, and outcomes of, and costs associated with defending, intellectual property infringement and other claims;
our expectations with respect to the benefits associated with the acquisition of Shopmium;
our ability to successfully enter new markets;
our ability to successfully integrate our newly acquired companies into our business;
our expectations regarding Quotient Insights;
our significant operating leverage in our business;
our ability to develop and launch new services and features; and
our ability to attract and retain qualified employees and key personnel.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
2
We have based these forward-looking statements on our current expectations and projections about future events and financial trends
affecting our business. Forward-looking st atements should not be read as guarantees of future performance or results, and will not necessarily be
accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information
ava ilable to our management at the date of this Annual Report on Form 10-K and our management’s good faith belief as of such date with respect
to future events, and are subject to risks and uncertainties that could cause actual performance or results to diffe r materially from those expressed
in or suggested by the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements to be materiall y different from any future results, performance or achievements
expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Item 1A: Risk Factors” and elsewhere in this
Annual Report on Form10-K. Forward-looking s tatements speak only as of the date of this Annual Report on Form10-K. We caution you that the
foregoing list of important factors may not contain all of the material factors that are important to you. Except as required by law, we assume no
obligation to publicly update or revise any forward-looking statement to reflect actual results, changes in assumptions based on new information,
future events or otherwise. If we update one or more forward-looking statements, no inference should be drawn that we will m ake additional updates
with respect to those or other forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements.
Item 1.
Business.
Overview
PART I
Quotient Technology Inc., formerly known as Coupons.com Incorporated, is a provider of digital promotions and media solutions driven by
consumer-shopping insights. We connect consumer packaged goods (CPG) brands and retailers with shoppers by delivering digital promotions and
media to shoppers through mobile, web and social channels. Leading brands, as well as leading retailers in the grocery, drug, dollar, club and mass
merchandise channels, use our platform to engage shoppers at the critical moments when they are choosing what products to buy and where to
shop. Our new corporate name, which became effective October 20, 2015, is designed to better reflect the breadth and sophistication of our
business offerings, along with our deepening relationships with Fortune 500 CPGs and retailers.
Our core promotions and media solutions, which we refer to as Quotient Promotions and Quotient Media, respectively, reach millions of
shoppers every day through our extensive network. That network includes our flagship site and mobile app, Coupons.com, our publishing network of
over 30,000 registered partner sites, which have distributed or may distribute our offers and media, as well the web and mobile properties of our
CPG and retailer partners. We refer to our emerging solutions around our data and analytic capabilities as Quotient Insights.
Our network is made up of three constituencies:
·
·
·
Over 2,000 brands from approximately 700 CPGs;
Retailers across multiple classes of trade such as grocery, drug, dollar, club, and mass merchandise channels; and
Consumers visiting our web, mobile properties, social channels, as well as those of our CPGs and retailers.
The relationship between our CPGs, retailers, publishers and consumers, has resulted in a network effect, which we believe gives us a
significant competitive advantage. We believe that as our shopper audience increases, our platform becomes more valuable to CPGs and retailers,
which, in turn, rely more heavily on our platform for their digital promotions and media. In addition, the breadth of content offered from these leading
brands enables us to attract and retain more retailers, publishers and shoppers. As our network expands, we generate more shopper insights, which
improves our ability to create more relevant and personalized consumer experiences.
Our CPG customers include many of the leading food, beverage, drug, personal and household product manufacturers. We primarily generate
revenue from CPGs by offering promotions and media content to consumers across our network. Our retailers include leading grocery, drug, dollar,
club and mass merchandise channel retailers. We also service a broad range of specialty retailers, including clothing, electronics, home
improvement and many others, through which we generate revenue primarily from offering coupon codes through our platform.
3
Historically, the vast majority of promotional and media budgets from CPGs and retailers have been spent in offline channels such as free
standing inserts in Sunday newspapers, direct mail and promoti onal trade. The effectiveness of these traditional channels has declined, particularly
with the decline in newspaper readership. In contrast to traditional promotions, digital coupons are redeemed at higher rates and are more effective.
According to an ann ual industry report by NCH, in 2014, digital coupons (including digital print and paperless coupons) represented less than 1% of
total U.S. CPG coupon distribution volume, but accounted for over 10% of total U.S. CPG coupon redemptions. This illustrates th e effectiveness of
digital coupons. We believe that the simplicity of digital coupons is broadening the demographic reach and driving usage of digital coupons. Further,
by shifting traditional offline promotional and media budgets to our digital platform, CPGs are able to use data-driven metrics to better optimize and
reach consumers when and how they want to be reached.
We generate promotion revenues from digital transactions on our network. Each time a consumer activates a digital coupon on our platform
by eith er printing it for physical redemption at a retailer or saving it to a retailer loyalty account for automatic digital redemption, or redeeming a
coupon using a mobile device for cash back after taking a picture of a retailer receipt with the appropriate purchase, we are generally paid a fee. As
our business evolves, we will continue to experiment with different pricing models and fee arrangements with CPGs and retailers which may impact
how we monetize transactions. For coupon codes, we are generally paid a fee when a consumer makes a purchase using a coupon code from our
platform. We generally pay a distribution fee to retailers or publishers when a consumer activates a digital promotion on their website or mobile
app. These distribution fees are included in our cost of revenues. We also generate media revenue through the placement of online advertisements
from CPGs and retailers that are displayed on our websites and mobile apps, as well as those of our publishers, retailers and other third parties. See
Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Non-GAAP Financial Measure and Key Operating
Metrics” for more information.
During 2015, we generated revenues of $237.3 million, representing 7% growth over 2014, and a net loss of $26.7 million as compared to
$23.4 million in 2014. See our Consolidated Financial Statements and accompanying notes for more information.
Growth Strategy
We intend to grow our platform and our business through the following key strategies:
Increase
revenues
from
CPGs
already
on
our
platform
. Based on our experience to date, we believe we have opportunities to continue
increasing revenues from our existing CPG customer base through:
●
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●
increasing our share of CPG spending on overall coupons and trade promotions;
increasing the number of brands that are using our platform within each CPG;
increasing media and advertising spending on our platform;
leveraging our data to provide more targeting and insights; and
● maximizing lifetime value of consumers across all products.
Expand
our
network
through
Retailer
iQ,
our
digital
paperless
platform.
By using our platform to aggregate and optimize data, CPGs and
retailers are able to offer a personalized and targeted consumer experiences to more effectively engage consumers and drive sales. By bringing
retailers onto Retailer iQ, we are able to grow our digital paperless offering and distribution reach, and further leverage consumer insights from the
platform. We believe as we continue to expand our network through Retailer iQ, the value we provide to CPGs and retailers increases, as well as the
opportunity to increase our share of CPG spending from promotions, trade spend and media budgets. We intend to continue to invest in
technologies and product offerings that further integrate digital promotions and media into the retailer channel, and specifically within our Retailer iQ
platform.
Grow
our
current
customer
base
and
add
new
industry
segments.
We believe we have the opportunity to grow the number of brands and
retailers that we serve, thereby increasing the value of our platform to all constituents. In addition, we intend to continue growing our business with
other manufacturers and retailers in new industry segments such as convenience and specialty/franchise retail, restaurants and entertainment
venues.
4
Continue
to
grow
consumer
adoption
and
engagement
of
our
digital
offerings.
We plan to continue to innovate and invest in Retailer iQ,
mobile solutions and digital promo tion offerings for specialty/franchise retail, including coupon codes. We believe that CPG spending on digital
promotions and marketing will continue to grow as point of sale, mobile channels and social media offer new opportunities to engage consumers fro
m intent to purchase of their products. We also plan to leverage our reach to consumers and the strength of our platform to broaden the selection
and use of coupon codes by consumers.
Grow
international
operations
. Many CPGs and retailers on our platform have global operations and we believe that we can
opportunistically grow our operations and offerings in existing international markets and partner with our existing clients to enter new geographies in
which they operate. We also plan to leverage our existing presence in France, through our acquisition of Shopmium, a receipt-scanning, cash-back
mobile application program, to broaden our international opportunity beginning with the United Kingdom.
Expand
and
grow
Quotient
Insights,
our
emerging
products
around
data
and
analytics.
As our network, content pool and shopper audience
expands, resulting in greater data and insights, we believe that our platform will become more valuable. Today, we offer real-time shopper insights
that are valuable to our CPGs and retailer partners. Our targeted promotion offering is just one example of how we intend to use the platform to drive
more value across the network. We also have the growing capability to directly link digital campaigns and media to in-store purchase data. We
believe we are in a unique position to deliver new products around data and analytics, and the opportunity to grow Quotient Insights increases as we
continue to expand.
Selectively
pursue
strategic
acquisitions.
We intend to continue pursuing selective acquisition and partnership opportunities that we believe
can expand our business.
Customers
Our CPG customers include many of the leading food, beverage, drug, personal and household product manufacturers. Our retailers include
leading grocery, drug, dollar, club and mass market retailers which distribute and accept our coupons. Our retailers also include a broad range of
specialty stores, including clothing, electronics, home improvement and many others which offer coupon codes through our platform. For the years
ended December 31, 2015 and 2014, total revenue from The Procter and Gamble Company accounted for more than 10% of our total revenues. For
the year ended December 31, 2013, no single customer represented more than 10% of our total revenues.
Our Platform and Solutions
We offer a digital promotion, media, data and analytics platform to connect CPGs and retailers with consumers. Our platform distributes
personalized and targeted content at scale across multiple channels enabling CPGs and retailers to deliver promotions and media to consumers at
the point when they are most engaged and likely to make a purchasing decision. We distribute digital coupons, which includes both coupons and
coupon codes. Our digital coupons can be distributed through digital print and/or digital paperless channels and redeemed at any retailer accepting
coupons. Our coupon codes are discounts generally offered by retailers that consumers can use in connection with an online or mobile purchase.
We also offer a breadth of media advertising offerings that leverages our data insights and extensive, highly valued consumer audience across our
network.
Quotient Promotions
We
offer
digital
print
and
digital
paperless
promotions
through
our
Quotient
Promotions
Network
(also
known
as
our
Digital
Free
Standing
Insert
Network)
. With digital print, shoppers select coupons and print them from their desktop or mobile device to redeem in store. With digital
paperless, shoppers save coupons directly to retailer loyalty accounts for automatic digital redemption, or by redeeming coupons using a mobile
device for cash back after taking a picture of a retailer receipt with the appropriate purchase.
Through our platform, CPGs and retailers are able to reach shoppers on the web and on mobile devices by offering digital coupons through
our extensive network which includes:
●
●
●
the Coupons.com website and our Coupons.com, Grocery iQ and Shopmium a receipt-scanning, cash-back mobile application
platform;
CPG and retailer websites and mobile applications, either hosted by us or hosted by them using our APIs; and
the websites and mobile applications of over 30,000 registered partner sites included in our publisher network.
5
We have designed and engineered o ur platform to support personalization, targeting and optimization in the delivery of digital coupons. We
start with demographic and geography based personalization techniques to ensure that consumers see and can easily access the most relevant
content. We personalize content based on which offers the consumer has clicked on and what searches the consumer may conduct on our network
as well as the coupons that the consumer previously activated, and redeemed. We also offer targeted promotions based on the cri teria listed above,
combined with data from our Retailer iQ integrations with retailers. We offer, through our new Shopmium a receipt-scanning, cash-back mobile
application platform , coupons for direct cash back upon taking a picture of a retailer receipt with the appropriate purchase.
Retailer iQ. Retailer iQ allows retailers to integrate our digital promotions with their loyalty programs and point of sale systems. Retailer iQ
provides a unique consumer experience using personalized and targeted offers to help retailers and brands drive loyalty and engagement with their
shoppers. By integrating with the retailer point-of-sale system, our solution leverages data available across various touchpoints including web,
mobile and customer channels such as email, and point of sale purchase data. Using data, the platform provides real-time recommendations of
digital coupons and products, real-time reporting, targeting and analytics, targeted media, and digital receipts, all of which help retailers and brands
communicate with and influence their shoppers, primarily through their mobile phones.
Mobile
. Our promotions and media solutions are designed for mobile channels to further drive consumer adoption and engagement across
our platform. Retailer iQ, for instance, powers retailer mobile applications and websites to enable consumers to download coupons, create shopping
lists, and search for offers while on the go. CPGs can target Retailer iQ consumers to personalize brand engagement or provide brand information.
In addition, our Grocery iQ mobile application is a leading grocery shopping list application that automatically finds relevant coupon offers for
consumers based on their grocery lists. Our Coupons.com mobile application allows consumers to access our digital coupons and coupon codes,
and is designed to provide personalized and location-based content. Our Shopmium receipt-scanning, cash-back mobile application platform allows
consumers to use a CPG promotion by taking a picture of a receipt and uploading it to Quotient, where we validate the purchase against the
promotion, and pay the consumer directly to a bank or PayPal account.
Quotient Media
We offer media and advertising solutions that provide CPGs, retailers and other advertisers access to our audience. Brands buy media with
us to reach shoppers before, during and after their shopping cycles. Furthermore, we allow CPGs and retailers to augment their digital promotion
campaigns, and take advantage of special promotional opportunities to highlight their brands including special media and advertising placements on
the site, promoted positions within our coupon galleries and premium placement in our marketing efforts.
We use shopper data and insights flowing through our platform to understand consumer intent and shopping behavior and intent, and use
those insights for targeted advertising. Our data processing systems are able to provide consumer intent signals to various advertising networks to
extend our reach, which effectively increases advertising sales. Our media solutions can reach shoppers throughout our network, including Retailer
iQ, and across web, mobile and social channels. For example, we can target consumers on Facebook who have used a particular category of
coupon with advertising for that category of product. The quality and real-time nature of our data network enables us to offer relevant and targeted
media campaigns. As our platform, network and audience expands, the value of our data and analytics increases.
Publishing Channels
Our platform includes numerous tools we and our CPGs, retailers and publishers use to enhance the effectiveness of their promotions and
ability to monetize the use of our platform.
Brandcaster.
Our Brandcaster technology powers our affiliate program by enabling third-party publishers to easily display our promotions
and media to visitors on their sites. Brandcaster’s easy-to-use self-service platform allows publishers to produce a look and feel customized to their
brand and earn revenues for the coupons that are activated on their site and for media impressions.
CLIP
. Our Content Layout and Integration Platform, or CLIP, is a set of proprietary web services designed for publishers who want greater
control and flexibility managing the presentation and application flow of coupons and content in their own website environment. CLIP provides more
customization options than our Brandcaster program, and is designed to provide greater flexibility in developing rich and seamless user experiences
that meet the growing needs of publisher web sites. We generally provide additional consulting and implementation services for publishers who use
CLIP.
6
Emails
. We send emails to consumers, including registered users on our Coupons.com site and those of our Retailer iQ retailers, including
coupon offers that can be customized based upon the user’s interaction with our site.
Social
. We enable CPGs to distribute coupons on their Facebook pages in a seamless and fully customizable solution through an API on
our platform. They then can manage the look and feel of the experience for consumers. Typically, CPGs will use coupons as an incentive for
consumers to “like” their Facebook pages and brands and our application handles the process and tracking.
Bricks.
Our Bricks services include coupons that operate just like the digital coupons that we distribute on Coupons.com and across the
Quotient Promotions Network, but the CPG is responsible for setting up and driving distribution. For example, our Bricks service may enable a CPG
to make available a specific coupon on their website. CPGs are able to leverage our technology to facilitate the printing and tracking of coupons in a
secure manner, but the CPG distributes the coupon through its own distribution process such as an email campaign or as part of a special promotion
on their site.
Security
Our platform includes a proprietary digital distribution management system to enable CPGs and retailers to securely control the number of
coupons distributed by device. We have controls in place to limit the number of digital coupons that can be printed. Similar controls are in place for
downloading coupons to loyalty cards and other paperless solutions, which allows us to limit the number of coupons distributed and activated. In
addition, each printed coupon carries a unique ID that is encrypted, enabling us to trace each coupon from print to redemption. All of our digital print
coupons can be authenticated and validated using this unique code. This unique ID also can be used to detect counterfeit or altered coupons. Our
platform allows us to systematically identify and respond to fraudulent and prohibited activities by restricting a device from printing coupons.
Sales and Marketing
We have a team of dedicated, skilled specialists focused on CPGs and retailers. Based on our 17 years of execution for some of the world’s
largest CPGs and retailers, we believe that our sales, integration, promotions management and customer support capabilities are difficult to replicate
and a key reason for the growth of our business. Much of our sales activity is focused on expanding the number of brands within our existing CPG
customers that offer digital promotions and media through our platform as well as expanding the volume of offers made by the brands currently using
our platform. In addition to seeking new CPG and retailer customers, we are focused on continuing to increase the size and breadth of our publisher
network. We are also seeking to partner with CPGs and other manufacturers and retailers in new industry segments such as convenience and
specialty/franchise retail, restaurants and entertainment venues.
In addition to sales support during the campaign planning process, our sales representatives provide additional support to CPGs and retailers
to ensure that their campaigns are launched and delivered within specified timeframes. Representatives assigned to specific customers review
performance metrics and share feedback with the advertiser.
We are focused on managing our brand, increasing market awareness and generating new advertiser leads. In doing so, we often present at
industry conferences, create custom events and invest in public relations. In addition, our marketing team advertises online, in print and in other
forms of media, creates case studies, sponsors research, publishes marketing collateral and undertakes customer research studies.
Technology and Infrastructure
Since inception, we have made significant investments and will continue to invest in developing our differentiated and proprietary solution,
aimed at solving the problems of CPGs and retailers in ways that traditional solutions cannot. We are focused on offering a solution that provides
measurable results. We have assembled a team of highly skilled engineers and computer scientists with deep expertise across a broad range of
relevant disciplines. Key focus areas of our engineering team include :
●
Scalable
infrastructure
. We use a combination of proprietary and open-source software to achieve a horizontally scalable, global,
distributed and fault-tolerant architecture, with the goal of enabling us to ensure the continuity of our business, regardless of local
disruptions. Our computational infrastructure currently processes millions of events per day and is designed in a way that enables us to
add significant capacity to our platform as we scale our business without requiring any material design or architecture modifications.
Our
7
●
●
●
private cloud technology infrastructure is hosted across four data centers in co-location facilities in California, Nevada, and Virginia.
Two data centers support ou r current platform and two data centers support Retailer iQ.
Redundancy
. Our production infrastructure utilizes a hot failover configuration which allows us to switch server loads, be it a single
server or an entire data center, to the other data center within minutes. Data is continuously replicated between sites, and multiple
copies at each site provide fast recovery whenever it is requested. Each data center has been designed to handle more than our entire
server needs, which enables us to perform platform maintenance, business resumption and disaster recovery without any customer
impact.
Reporting
. Our user interface provides flexible reporting and interactive visualization of the key drivers of success for each media
campaign. We use these reporting and visualization products internally to manage campaigns and provide advertisers with campaign
insights.
Security
. Our security policy adheres to established policies to ensure that all data, code, and production infrastructure are secure
and protected. Our data centers are SSAE 16 Type II certified and we are PCI DSS compliant where required. We use our internal
team and third parties to test, audit, and review our entire production environment to protect it.
Our research and development expenses were $48.4 million, $49.6 million and $40.1 million during 2015, 2014 and 2013, respectively. We
capitalized internal-use software development costs of $1.5 million, $3.6 million and $6.9 million during 2015, 2014, and 2013, respectively .
Competition
We compete against a variety of different businesses with respect to different aspects of our business, including :
●
●
●
●
●
●
traditional offline coupon and discount services, as well as newspapers, magazines and other traditional media companies that provide
coupon promotions and discounts on products and services in free standing inserts or other forms, including Valassis Communications,
Inc., News America Marketing Interactive, Inc. and Catalina Marketing Corporation;
providers of digital coupons such as Valassis’ Redplum.com, Catalina Marketing Corporation’s Cellfire, News America Marketing’s
SmartSource, and companies that offer coupon codes such as RetailMeNot, Inc., Groupon Inc., Exponential Interactive Inc.’s
TechBargains, Savings.com, Inc. and Ebates Performance Marketing, Inc., companies that offer cash back solutions such as iBotta,
Inc., and companies providing other e-commerce based services that allow consumers to obtain direct or indirect discounts on
purchases;
internet sites that are focused on specific communities or interests that offer coupons or discount arrangements related to such
communities or interests;
companies offering online and marketing services to retailers and CPGs, such as MyWebGrocer, Inc. and Flipp Corporation;
companies offering media services, such as Triad Media Inc. and RichRelevance, Inc.; and
retailers marketing and offering their own digital coupons directly to consumers using their own websites, email newsletters and alerts,
mobile applications and social media channels.
We believe the principal factors that generally determine a company’s competitive advantage in our market include the following:
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scale and effectiveness of reach in connecting CPGs and retailers to consumers in a digital manner, through web, mobile and other
online properties;
ability to attract consumers to use digital coupons;
platform security, scalability, reliability and availability;
number of channels by which a company engages with consumers;
integration of products and solutions;
rapid deployment of products and services for customers;
breadth, quality and relevance of the company’s digital coupons;
ability to deliver digital coupons that are widely available and easy to use in consumers’ preferred form;
integration with retailer applications;
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brand recognition;
quality of tools, reporting and analytics for planning, development and optimization of promotions; and
breadth and expertise of the company’s sales organization.
While we believe we compete effectively with respect to the factors identified above, we may face increasing competition from larger or more
established companies that seek to enter our market or from smaller companies that launch new products and services that we do not offer and that
could gain market acceptance.
Culture and Employees
We are proud of our company culture and consider it to be one of our competitive strengths. Our culture helps drive our business and
compete for talented employees in a highly competitive market. We seek to offer an environment that allows our employees to thrive and grow. We
are proud to have been named one of the Top Work Places in the Bay Area for 2012, 2013 and 2014 by the Bay Area News Group.
As of December 31, 2015, we had 618 full-time employees, consisting of 533 employees in the United States and 85 employees
internationally.
Intellectual Property
We rely on federal, state, common law and international rights, as well as contractual restrictions, to protect our intellectual property. We
control access to our proprietary technology and algorithms by entering into confidentiality and invention assignment agreements with our employees
and contractors, and confidentiality agreements with third parties.
In addition to these contractual arrangements, we also rely on a combination of trade secrets, copyrights, trademarks, service marks and
domain names to protect our intellectual property. We pursue the registration of our copyrights, trademarks, service marks and domain names in the
United States and in certain locations outside the United States. As of December 31, 2015, we hold or have exclusive rights to 23 issued patents in
the United States and 10 patents that have been issued outside of the United States with terms expiring between 2016 and 2031. Additionally, we
have 46 patent applications pending in the United States and as well as additional patent applications pending in Europe and other international
jurisdictions.
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection
may not be available in the United States or other countries in which we operate. Also, the efforts we have taken to protect our proprietary rights may
not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also,
protecting our intellectual property rights is costly and time- consuming. Any unauthorized disclosure or use of our intellectual property could make it
more expensive to do business and harm our operating results.
Companies in Internet-related industries may own large numbers of patents, copyrights and trademarks and may frequently request license
agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We have
been subject to in the past, and expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents and other
intellectual property rights of third parties, including our competitors and non-practicing entities. As we face increasing competition and as our
business grows, we will likely face more claims of infringement.
Corporate Information
We were incorporated in California in May 1998 and reincorporated in Delaware in June 2009. We changed our name to Quotient Technology
Inc. on October 20, 2015. Our principal executive offices are located at 400 Logue Avenue, Mountain View, California 94043, and our telephone
number is (650) 605-4600. Our corporate website address is www.quotient.com. Information contained on, or that can be accessed through, our
website does not constitute part of this report and inclusions of our website address in this report are inactive textual references only. The Quotient
logo, Coupons.com logo and our other registered or common law trademarks, service marks or trade names appearing in this prospectus are the
property of Quotient or its subsidiaries. Other trademarks and trade names referred to in this prospectus are the property of their respective owners .
9
Available Information
We file annual, quarterly and other reports, proxy statements and other information with the Securities and Exchange Commission (SEC)
under the Exchange Act. We also make available, free of charge on the investor relations portion of our website at investors.quotient.com, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are filed electronically with the SEC. You can
inspect and copy our reports, proxy statements and other information filed with the SEC at the offices of the SEC’s Public Reference Room located
at 100 F Street, NE, Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of Public Reference
Rooms. The SEC also maintains an Internet website at http://www.sec.gov/ where you can obtain most of our SEC filings. You can also obtain paper
copies of these reports, without charge, by contacting Investor Relations at (650) 605-4600 (option 7).
Webcasts of our earnings calls and certain events we participate in or host with members of the investment community are available on our
investor relations website. Additionally, we announce investor information, including news and commentary about our business and financial
performance, SEC filings, notices of investor events, and our press and earnings releases, on our investor relations website, as well as through
press releases, SEC filings, public conference calls, our corporate blog and social media in order to achieve broad, non-exclusionary distribution of
information to the public. We encourage our investors and others to review the information we make public in these locations as such information
could be deemed to be material information. Please note that this list may be updated from time to time. Investors and others can receive
notifications of new information posted on our investor relations website in real time by signing up for email alerts. Further corporate governance
information, including our corporate governance guidelines, board committee charters, and code of conduct, is also available on our investor
relations website under the heading “Governance.” The contents of our websites, blog, press releases, public conference calls and social media are
not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC (and the contents of
other SEC filings are not incorporated by reference into this Annual Report on Form 10-K or any other report or document we file with the SEC
except as required by law or to the extent we expressly incorporate such SEC filing into this Annual Form 10-K or other report or document we file
with the SEC), and any references to our websites are intended to be inactive textual references only.
10
Item 1A.
R isk Factors.
Our
operations
and
financial results
are
subject
to
various
risks
and
uncertainties,
including
those
described
below,
which
could
adversely
affect
our
business,
results
of
operations,
cash
flows,
financial
conditions,
and
the
trading
price
of
our
common
stock.
Risks Related to Our Business
We have incurred net losses since inception and we may not be able to generate sufficient revenues to achieve or subsequently maintain
profitability.
We have incurred net losses of $26.7 million, $23.4 million and $11.2 million in 2015, 2014 and 2013, respectively. We have an accumulated
deficit of $218.9 million as of December 31, 2015. We anticipate that our costs and expenses will increase in the foreseeable future as we continue
to invest in:
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sales and marketing;
research and development, including new product development;
our technology infrastructure;
general administration, including legal and accounting expenses related to our growth and continued expenses with respect to being a
public company;
efforts to expand into new markets; and
strategic opportunities, including commercial relationships and acquisitions.
For example, we have incurred and expect to continue to incur expenses developing, improving, integrating, marketing, rolling out and
maintaining Retailer iQ, which we launched in the early part of 2014. These efforts may prove more expensive than we currently anticipate, and we
may not succeed in increasing our revenues sufficiently to offset these expenses, which could impact the recoverability of prepaid non-refundable
payments of $7.5 million and $8.2 million as of December 31, 2015 and 2014, respectively, with some of our Retailer iQ partners. If we are unable to
gain efficiencies in our operating costs, our business could be adversely impacted. We cannot be certain that we will be able to attain or maintain
profitability on a quarterly or annual basis. If we are unable to effectively manage these risks and difficulties as we encounter them, our business,
financial condition and results of operations may suffer.
We may not achieve revenue growth.
We may not be able to achieve revenue growth, and we may not be able to generate sufficient revenues to achieve profitability. In addition,
historically the growth rate of our business, and as a result, our revenue growth, has varied from quarter-to-quarter and year-to-year, and we expect
that variability to continue. For example, our revenues may fluctuate due to changes in promotional spending budgets of CPGs and retailers and the
timing of their promotional spending and we may not always be able to anticipate such fluctuations. Decisions by major CPGs or retailers to delay or
reduce their promotional spending or divert spending away from digital promotions, or changes in our fee arrangements with CPGs and retailers,
could slow our revenue growth or reduce our revenues. For example, if a greater number of our arrangements with CPGs required us to receive fees
upon the actual redemption of digital coupons on our platform rather than activation as is generally done, our revenue growth and revenues could be
harmed.
We believe that our continued revenue growth will depend on our ability to:
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increase our share of CPG spending on overall coupon and trade promotions, increase the number of brands that are using our
platform within each CPG, increase media and advertising spending on our platform, increase our share of retailer spending on coupon
codes and maximize the lifetime value of our consumers across all of our products;
adapt to changes in promotional spending budgets of CPGs and retailers and the timing of their promotional spending;
further integrate our digital promotions and media solutions into retailers’ in-store and point of sale systems and consumer channels;
support retailers in the continued marketing and rollout of Retailer iQ;
grow the number of CPGs and retailers in our current customer base and add new industry segments such as convenience,
specialty/franchise retail, restaurants and entertainment;
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expand the use by consumers of our newest digital promotion and media offerings and broaden the selection and use of digital
coupons;
obtain and increase the number of high quality coupons;
grow the number of transactions across our platform;
expand the number, variety and relevance of digital coupons available on our web, mobile and social channels, as well as those of our
CPGs, retailers and network of publishers;
provide compelling mobile solutions to consumers;
increase the awareness of our brand, and earn and preserve our reputation;
hire, integrate and retain talented personnel;
effectively manage growth in our personnel and operations; and
successfully compete with existing and new competitors.
However, we cannot assure you that we will successfully accomplish any of these actions. Failure to do so could harm our business and
cause our operating results to suffer.
If we are unable to successfully respond to changes in the digital promotions market and continue to grow the market, our business could
be harmed.
As consumer demand for digital coupons has increased, promotion spending has shifted from traditional coupons through traditional channels,
such as newspapers and direct mail, to digital coupons. However, it is difficult to predict whether the pace of transition from traditional to digital
coupons will continue at the same rate and whether the growth of the digital promotions market will continue. In order to expand our business, we
must appeal to and attract consumers who historically have used traditional promotions to purchase goods or may prefer alternatives to our
offerings, such as those of our competitors. If the demand for digital coupons, does not continue to grow as we expect, or if we fail to successfully
address this demand, our business will be harmed. For example, the growth of our revenues will require increasing the number of brands that are
using our platform within each CPG and further integrating such digital promotions with Retailer iQ. If our projections regarding the adoption and
usage of Retailer iQ by retailers, CPGs and consumers, do not occur or are slower than expected, our business, financial condition, results of
operations and prospects will be harmed. A variety of factors could slow the adoption of Retailer iQ generally, including insufficient time, resources or
funds committed by retailers to the implementation and promotion of Retailer iQ, a retailer’s decision to delay or forego launching or marketing
Retailer iQ, our inability to monetize enhanced Retailer iQ functionality, and our inability to efficiently integrate Retailer iQ with a retailer’s system. We
expect that the market will evolve in ways which may be difficult to predict. It is also possible that digital coupon offerings generally could lose favor
with CPGs, retailers or consumers. In the event of these or any other changes to the market, our continued success will depend on our ability to
successfully adjust our strategy to meet the changing market dynamics. In addition, we will need to continue to grow demand for our digital
promotions platform by CPGs, retailers and consumers. Also, if our continued innovation and implementation of new initiatives associated with the
digital print coupons, including our new mobile print solution, does not grow as we expect, our business may be harmed. If we are unable to grow or
successfully respond to changes in the digital promotions market, our business could be harmed and our results of operations could be negatively
impacted.
We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to
predict our future performance.
Historically, our revenue growth has varied from quarter-to-quarter and year-to-year, and we expect that variability to continue. In addition, our
operating costs and expenses have fluctuated in the past, and we anticipate that our costs and expenses will increase over time as we continue to
invest in growing our business and incur additional costs of being a public company.
12
Our operating results could vary significantly from quarter-to-quarter and year-to-year as a result of these and other factors, many of which a
re outside of our control, and as a result we have a limited ability to forecast the amount of future revenues and expenses, which may adversely
affect our ability to predict financial results accurately, and our operating results may vary from quarter-to- quarter and may fall below our estimates
or the expectations of public market analysts and investors. Fluctuations in our quarterly operating results may lead analysts to change their long-
term models for valuing our common stock, cause us to face short-te rm liquidity issues, impact our ability to retain or attract key personnel or cause
other unanticipated issues, all of which could cause our stock price to decline. As a result of the potential variations in our quarterly revenues and
operating results, we believe that quarter-to-quarter comparisons of our revenues and operating results may not be meaningful and the results of any
one quarter or historical patterns should not be considered indicative of our future sales activity, expenditure levels or perfo rmance.
In addition to other factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:
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our ability to grow our revenues by increasing our share of CPG spending and the number of brands using our platform, including
Retailer iQ, increasing media and advertising spending on our platform, further integrating with our retailers and increasing the use of
retailer coupon codes by consumers, adding new CPGs and retailers to our network and growing our current consumer base and
expanding into new industry segments such as convenience, specialty/franchise retail, restaurants and entertainment;
our ability to successfully respond to changes in the digital promotions and media market and continue to grow the market and demand
for our platform;
our ability to grow consumer selection and use of our digital promotion offerings and attract new consumers to our platform;
the amount and timing of digital promotions and marketing campaigns by CPGs, which are affected by budget cycles, economic
conditions, seasonality and other factors;
the impact of global business or macroeconomic conditions, including the resulting effects on the level of coupon and trade promotion
spending by CPGs and spending by consumers;
the impact of competitors or competitive products and services, and our ability to compete in the digital promotions market;
our ability to obtain and increase the number of high quality coupons;
changes in consumer behavior with respect to digital promotions and how consumers access digital coupons and our ability to develop
applications that are widely accepted and generate revenues;
the costs of investing, maintaining and enhancing our technology infrastructure;
the costs of developing new products and solutions and enhancements to our platform;
our ability to manage our growth;
the success of our sales and marketing efforts;
the costs of acquiring new companies which we anticipate will help us grow our business;
the costs of successfully integrating the acquired company and employees into our operations;
government regulation of e-commerce and m-commerce and requirements to comply with security and privacy laws and regulations
affecting our business, and changes in government regulation affecting our business or our becoming subject to new government
regulation;
our ability to deal effectively with fraudulent transactions or customer disputes;
the attraction and retention of qualified employees and key personnel;
the effectiveness of our internal controls; and
changes in accounting rules, tax laws or interpretations thereof.
13
The effects of these factors individually or in combination could cause our quarterly and annual operating results to fluctuate, and affect our
ability to forecast thos e results and our ability to achieve those forecasts. As a result, comparing our operating results on a period-to-period basis
may not be meaningful. You should not rely on our past results as an indication of our future performance. This variability and u npredictability could
also result in our failing to meet the expectations of our investors or financial analysts for any period. We may release guidance in our quarterly
earnings conference calls, quarterly earnings releases, or otherwise, based on predict ions of our management, which are necessarily uncertain in
nature. Our guidance may vary materially from actual results. For example, on October 22, 2015, we issued a press release announcing our
preliminary results for the third quarter ended September 30 , 2015, which were below consensus estimates for the quarter. If our revenue or
operating results, or the rate of growth of our revenue or operating results, fall below the expectations of our investors or financial analysts, or below
any forecasts or guid ance we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or
investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met our own or
other publicly stated revenue or earnings forecasts. Our failure to meet our own or other publicly stated revenue or earnings forecasts, or even when
we meet our own forecasts but fall short of analyst or investor expectations, could cause our stoc k price to decline and expose us to costly lawsuits,
including securities class action suits. Such litigation against us could impose substantial costs and divert our management’s attention and
resources.
If we fail to attract and retain CPGs, retailers and publishers and expand our relationships with them, our revenues and business will be
harmed.
The success of our business depends in part on our ability to increase our share of CPG spending on overall coupons and trade promotions,
increase media and advertising spending on our platform, increase the number of brands that are using our platform within each CPG, increase our
share of retailer spending on coupon codes, maximize the lifetime value of our consumers across all of our products, and increase adoption and
scale of Retailer iQ. It also depends on our ability to further integrate our digital promotions and media solutions into retailers’ in-store and point of
sale systems and consumer channels. In addition, we must acquire new CPGs and retailers in our current customer base and add new industry
segments such as convenience, specialty/franchise retail, restaurants and entertainment venues. If CPGs and retailers do not find that offering
digital promotions and media and advertising on our platform enables them to reach consumers and sufficiently increase sales with the scale and
effectiveness that is compelling to them, CPGs and retailers may not increase their distribution of digital promotions on our platform and media, or
they may decrease them or stop offering them altogether, and new CPGs and retailers may decide not to use our platform.
For example, if CPGs decide that utilizing our platform provides a less effective means of connecting with consumers, we may not be able to
increase our prices or CPGs may pay us less. Likewise if retailers decide that our platform is less effective at increasing sales to and loyalty of
existing and new consumers, retailers may demand a higher percentage of the total proceeds from each digital promotion that is activated or
redeemed or demand minimum guaranteed payments .
Furthermore, if existing and new retailers using Retailer iQ do not find that it increases
consumer engagement and loyalty, our overall success may be harmed. In addition, we expect to face increased competition, and competitors may
accept lower payments from CPGs to attract and acquire new CPGs, or provide retailers and publishers a higher distribution fee than we currently
offer to attract and acquire new retailers and publishers. In addition, we may experience attrition in our CPGs, retailers and publishers in the ordinary
course of business resulting from several factors, including losses to competitors, changes in CPG budgets, and decisions by CPGs, retailers and
publishers to offer digital coupons through their own websites or other channels without using a third-party platform such as ours. If we are unable to
retain and expand our relationships with existing CPGs, retailers and publishers or if we fail to attract new CPGs, retailers and publishers to the
extent sufficient to grow our business, or if too many CPGs, retailers and publishers are unwilling to offer digital coupons and media with compelling
terms through our platform, we may not increase the number of high quality coupons and marketing campaigns on our platform and our revenues,
gross margin and operating results will be adversely affected.
If the distribution fees that we pay as a percentage of our revenues increase, our gross profit and business will be harmed.
When we deliver a digital coupon on a retailer’s website or mobile app or through its loyalty program, or the website or mobile app of a
publisher, or through our Retailer iQ platform, we pay a distribution fee to the retailer or publisher, which, in some cases may be prepaid prior to
being incurred. Such fees have increased as a percentage of our revenues in recent periods. If such fees as a percentage of our revenues continue
to increase, our cost of revenues as a percentage of revenues could increase and our operating results would be adversely affected. Additionally, if
the adoption and usage of Retailer iQ does not meet projections, there is a risk that certain prepaid distribution fees with some of the retailers may
not be recoverable. At December 31, 2015 and 2014, we had $7.5 million and $8.2 million, respectively, of prepaid non-refundable payments with
some of our Retailer iQ partners.
14
If we fail to maintain and expand the use by consumers of digital coupons on our platform, our revenues and busines s will be harmed.
We must continue to maintain and expand the use by consumers of digital coupons in order to increase the attractiveness of our platform to
CPGs and retailers and to increase revenues and achieve profitability. If consumers do not perceive that we offer a broad selection of personalized
and high quality digital coupons, or that the usage of digital coupons is easy and convenient through our platform, we may not be able to attract or
retain consumers on our platform. Further, if there is increased competition for the trade promotions and marketing budgets of CPGs and retailers,
the result could be increased pricing pressure. If we are unable to maintain and expand the use by consumers of digital coupons on our platform,
including through our new mobile print solution and Shopmium cash back application, and do so to a greater extent than our competitors, CPGs may
find that offering digital promotions on our platform does not reach consumers with the scale and effectiveness that is compelling to them. Likewise if
retailers find that using our platform, including Retailer iQ, does not increase sales of the promoted products and consumer loyalty to the retailer to
the extent they expect, then the revenues we generate may not increase to the extent we expect or may decrease. Any of these would adversely
affect our operating results.
We depend in part on third-party advertising agencies as intermediaries, and if we fail to maintain these relationships, our business may
be harmed.
A portion of our business is conducted indirectly with third-party advertising agencies acting on behalf of CPGs and retailers. Third-party
advertising agencies are instrumental in assisting CPGs and retailers to plan and purchase advertising and promotions, and each third-party
advertising agency generally allocates advertising and promotion spend from CPGs and retailers across numerous channels. We do not have
exclusive relationships with third-party advertising agencies and we depend in part on third-party agencies to work with us as they embark on
marketing campaigns for CPGs and retailers. While in most cases we have developed relationships directly with CPGs and retailers, we
nevertheless depend in part on third-party advertising agencies to present to their CPG and retailer clients the merits of our platform. Inaccurate
descriptions of our platform by third-party advertising agencies, over whom we have no control, negative recommendations regarding use of our
service offerings or failure to mention our platform at all could hurt our business. In addition, if a third-party advertising agency is disappointed with
our platform on a particular campaign or generally, we risk losing the business of the CPG or retailer for whom the campaign was run, and of other
CPGs and retailers represented by that agency. Since many third-party advertising agencies are affiliated with other third-party agencies in a larger
corporate structure, if we fail to maintain good relations with one third-party advertising agency in such an organization, we may lose business from
the affiliated third-party advertising agencies as well.
Our sales could be adversely impacted by industry changes relating to the use of third-party advertising agencies. For example, if CPGs or
retailers seek to bring their campaigns in-house rather than using an agency, we would need to develop direct relationships with the CPGs or
retailers, which we might not be able to do and which could increase our sales and marketing expenses. Moreover, to the extent that we do not have
a direct relationship with CPGs or retailers, the value we provide to CPGs and retailers may be attributed to the third-party advertising agency rather
than to us, further limiting our ability to develop long-term relationships directly with CPG and retailers. CPGs and retailers may move from one third-
party advertising agency to another, and we may lose the underlying business. The presence of third-party advertising agencies as intermediaries
between us and the CPGs and retailers thus creates a challenge to building our own brand awareness and affinity with the CPGs and retailers that
are the ultimate source of our revenues. In addition, third-party advertising agencies conducting business with us may offer their own digital
promotion solutions. As such, these third-party advertising agencies are, or may become, our competitors. If they further develop their own
capabilities they may be more likely to offer their own solutions to advertisers, and our ability to compete effectively could be significantly
compromised and our business, financial condition and operating results could be adversely affected.
The loss of any significant customer could materially and adversely affect our results of operations and financial condition.
Our business is exposed to risks related to customer concentration, particularly among CPGs. For the years ended December 31, 2015 and
2014, total revenue from The Procter and Gamble Company accounted for more than 10% of our total revenues. For the year ended December 31,
2013, no single customer represented more than 10% of our total revenues. The loss of any of our significant customers or deterioration in our
relations with any of them could materially and adversely affect our results of operations and financial condition.
15
Competition presents an ongoing threat to the success of our business.
We expect competition in digital promotions to continue to increase. The market for digital promotions is competitive, fragmented and rapidly
changing. We compete against a variety of companies with respect to different aspects of our business, including:
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traditional offline coupon and discount services, as well as newspapers, magazines and other traditional media companies that provide
coupon promotions and discounts on products and services in free standing inserts or other forms, including Valassis Communications,
Inc., News America Marketing Interactive, Inc. and Catalina Marketing Corporation;
providers of digital coupons such as Valassis’ Redplum.com, Catalina Marketing Corporation’s Cellfire, News America Marketing’s
SmartSource., and companies that offer coupon codes such as RetailMeNot, Inc., Groupon, Inc., Exponential Interactive, Inc.’s
TechBargains.com, Savings.com, Inc and Ebates Performance Marketing, Inc., companies that offer cash back solutions such as
iBotta, Inc., and companies providing other e-commerce based services that allow consumers to obtain direct or indirect discounts on
purchases;
Internet sites that are focused on specific communities or interests that offer coupons or discount arrangements related to such
communities or interests;
companies offering online and marketing services to retailers and CPGs, such as MyWebGrocer, Inc. and Flipp Corp.; and
companies offering media services, such as Triad Media Inc. and Rich Relevance, Inc.
We believe the principal factors that generally determine a company’s competitive advantage in our market include the following:
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scale and effectiveness of reach in connecting CPGs and retailers to consumers in a digital manner, through web, mobile and other
online properties;
ability to attract consumers to use digital coupons delivered by it;
platform security, scalability, reliability and availability;
number of channels by which a company engages with consumers;
integration of products and solutions;
rapid deployment of products and services for customers;
breadth, quality and relevance of the company’s digital coupons;
ability to deliver high quality and increasing number of digital coupons that are widely available and easy to use in consumers’
preferred form;
integration with retailer applications and point of sales systems;
brand recognition;
quality of tools, reporting and analytics for planning, development and optimization of promotions; and
breadth and expertise of the company’s sales organization.
We are subject to potential competition from large, well-established companies which have significantly greater financial, marketing and other
resources than we do and have current offerings that may compete with our platform or may choose to offer digital promotions as an add-on to their
core business on their own or in partnership with one of our competitors that would directly compete with ours. Many of our larger potential
competitors may have the resources to significantly change the nature of the digital promotions industry to their advantage, which could materially
disadvantage us. For example, Google, Yahoo!, Microsoft and Facebook and online retailers such as Amazon have highly trafficked industry
platforms which they could leverage to distribute digital coupons or other digital promotions that could negatively affect our business. In addition,
these potential competitors may be able to respond more quickly than we can to new or emerging technologies and changes in consumer habits.
These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt
more aggressive pricing policies, which may allow them to attract more consumers and, as a result, more CPGs and retailers, or generate revenues
more effectively than we do. Our competitors may offer digital coupons that are similar to the digital coupons we offer or that achieve greater market
acceptance than those we offer. We are also subject to potential competition from smaller companies that launch new products and services that we
do not offer and that could gain market acceptance.
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Our success depends on the effectiveness of our platform in connecting CPGs and retailers with consumers and with attracting consumer use
of the digital coupons delivered through our platform. To the extent we fail to provide digital coupons for high quality, relevant products, or otherwise
fail to successfully reach consumers on their mobile device or elsewhere , consumers may become dissatisfied with our platform and decide not to
use our digital coupons and elect to use the digital coupons distributed by one of our competitors. As a result of these factors, our CPGs and
retailers may not receive the benefits they expect, and CPGs may use the offerings of one of our competitors and retailers may elect to handle
coupon codes themselves or exclude us from integrating with their in-store and point of sale systems or consumer channels, and our operating
results would be adversely affected.
We also face significant competition for trade promotion and marketing spending. We compete against online and mobile businesses,
including those referenced above, and traditional advertising outlets, such as television, radio and print, for trade promotion and marketing spending.
In order to grow our revenues and improve our operating results, we must increase our share of CPG spending on digital coupons and media
relative to traditional sources and relative to our competitors, many of whom are larger companies that offer more traditional and widely accepted
media products.
We also directly and indirectly compete with retailers for consumer traffic. Many retailers market and offer their own digital coupons directly to
consumers using their own websites, email newsletters and alerts, mobile applications and social media channels. Our retailers could be more
successful than we are at marketing their own digital coupons or could decide to terminate their relationship with us.
We may face competition from companies we do not yet know about. If existing or new companies develop, market or offer competitive digital
coupon solutions, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively
could be significantly compromised and our operating results could be harmed.
If we fail to effectively manage our growth, our business and financial performance may suffer.
We have significantly expanded our operations and anticipate expanding further to pursue our growth strategy. Such expansion increases the
complexity of our business and places significant demands on our management, operations, technical performance, financial resources and internal
control over financial reporting functions. Continued growth could strain our ability to deliver digital coupons on our platform, develop and improve
our operational, financial, legal and management controls, and enhance our reporting systems and procedures. For example, our revenue growth
was adversely affected in the third quarter of 2015 as compared to the same period in the prior year due in part to an increasing number of
consumers wanting to print from their mobile device. Although we have recently attempted to address this concern with the implementation of a
solution enabling mobile users to print directly from their devices in the fourth quarter of 2015, there is no guarantee that this will result in increased
revenue. Failure to manage our expansion may limit our growth, damage our reputation and negatively affect our financial performance and harm
our business.
To effectively manage this growth, we will need to continue to improve our operational, financial and management controls, and our reporting
systems and procedures. If we do not effectively manage the growth of our business and operations, the quality and scalability of our platform could
suffer.
Our current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage our future
operations. We may not be able to hire, train, retain, motivate and manage required personnel. As we continue to grow, we must effectively
integrate, develop and motivate a large number of new employees. We intend to continue to expand our research and development, sales and
marketing, and general and administrative organizations, and over time, expand our international operations. To attract top talent, we have had to
offer, and believe we will need to continue to offer, highly competitive compensation packages before we can validate the productivity of those
employees. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts
and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.
17
Providing our products and services to our CPGs, retailers and consumers is costly and we expect our expenses to continue to increase in the
future a s we grow our business with existing and new CPGs and retailers and develop new products and services that require enhancements to our
technology infrastructure. In addition, our operating expenses, such as our sales, marketing and engineering expenses are expected to continue to
grow to support our anticipated future growth. As a result of the requirements of being a public company we incur significant legal, accounting and
other expenses. Our expenses may grow faster than our revenues, and our expenses ma y be greater than we anticipate. Managing our growth will
require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our
organization as it grows, our business, operating res ults and financial condition would be harmed.
If we do not effectively grow and train our sales team, we may be unable to add new CPGs and retailers or increase sales to our existing
CPGs and retailers and our business will be adversely affected.
We continue to be dependent on our sales team to obtain new CPGs and retailers and to drive sales from our existing CPGs and retailers. We
believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve
significant revenue growth will depend, in large part, on our success in recruiting, training, integrating and retaining sufficient numbers of sales
personnel to support our growth. New hires require significant training and it may take time before they achieve full productivity. Our recent hires and
planned hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals
in the markets where we do business or plan to do business. In addition, if we continue to grow rapidly, a large percentage of our sales team will be
new to the company and our solution. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are
not successful in obtaining new CPGs and retailers or increasing sales to our existing CPGs and retailers, our business will be adversely affected.
Our sales cycle with new CPGs and retailers is long and unpredictable and may require us to incur expenses before executing a customer
agreement, which makes it difficult to project when, if at all, we will obtain new CPGs and retailers and when we will generate additional
revenues from those customers.
We market our services and products directly to CPGs and retailers. New CPG and retailer relationships typically take time to obtain and
finalize. A significant time period may pass between selection of our services and products by key decision-makers and the signing of a contract.
The length of time between the initial sales call and the realization of a final contract is difficult to predict. As a result, it is difficult to predict when we
will obtain new CPGs and retailers and when performance and delivery of services will be initiated with these potential CPGs and retailers. As part of
our sales cycle, we may incur significant expenses before executing a definitive agreement with a prospective CPG or retailer and before we are
able to generate any revenues from such agreement. If conditions in the marketplace generally or with a specific prospective CPG or retailer change
negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any expenses incurred before a definitive
agreement is executed, which would in turn have an adverse effect on our business, financial condition and results of operations.
The success and scale of Retailer iQ depends, in part, on the level of commitment and support by retailers.
If retailers do not commit sufficient time, resources and funds towards the marketing of their digital promotions and programs on Retailer iQ,
the growth and scale of Retailer iQ and its penetration into the consumer market will be adversely affected. Further, the successful implementation of
Retailer iQ requires integration with a retailer’s point of sales system, loyalty programs and consumer channels. These integration efforts require
time and effort from both the retailer and ourselves, which also involves our working with third-party systems and solutions, some of whom may be
our competitors. We may not be able to integrate and launch Retailer iQ with a retailer’s systems in a timely and efficient manner. If we are unable to
successfully implement Retailer iQ, which includes increased consumer adoption of Retailer iQ, or it is not adopted, marketed and supported with
sufficient resources by retailers, the success and scale of Retailer iQ will be adversely affected, impacting the recoverability of certain prepaid non-
refundable payments with some of our retail partners and our revenues and business may suffer.
18
Our business depends on our ability to maintain and scale the network infrastructure necessary to operate our platform, including our
websites, mobile applications and Retailer iQ platform, and any signif icant disruption in service could result in a loss of CPGs, retailers
and consumers.
We deliver digital coupons via our platform, including over our websites and mobile applications, as well as through those of our CPGs and
retailers and our publishers and other third parties. Our reputation and ability to acquire, retain and serve CPGs and retailers, as well as consumers
who use digital coupons or view media on our platform are dependent upon the reliable performance of our platform. As the number of our CPG
customers, retailers and consumers and the number of digital promotions and information shared through our platform continue to grow, we will need
an increasing amount of network capacity and computing power. Our technology infrastructure is hosted across two data centers in co-location
facilities in California and Nevada. In addition, we use two other co-location facilities in California and Virginia to host our Retailer iQ platform. We
have spent and expect to continue to spend substantial amounts in our data centers and equipment and related network infrastructure to handle the
traffic on our platform. The operation of these systems is expensive and complex and could result in operational failures. In the event that the
number of transactions or the amount of traffic on our platform grows more quickly than anticipated, we may be required to incur significant
additional costs. Interruptions in these systems or service disruptions, whether due to system failures, computer viruses or physical or electronic
break-ins, could affect the security or availability of our websites and platform, and prevent CPGs, retailers or consumers from accessing our
platform. A substantial portion of our network infrastructure is hosted by third-party providers. Any disruption in these services or any failure of these
providers to handle existing or increased traffic could significantly harm our business. Any financial or other difficulties these providers face may
adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they
provide. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures, we could lose current and
potential CPGs and retailers and consumers, which could harm our operating results and financial condition.
If we are not successful in responding to changes in consumer behavior and do not develop products and solutions that are widely
accepted and generate revenues, our results of operations and business could be adversely affected.
The methods by which consumers access digital coupons are varied and evolving. Our platform has been designed to engage consumers at
the critical moments when they are choosing the products they will buy and where they will shop. Consumers can select our digital coupons both
online through web, mobile and in-store. In order for us to maintain and increase our revenues, we must be a leading provider of digital coupons in
each of the forms by which consumers access them. As consumer behavior in accessing digital coupons changes and new distribution channels
emerge, if we do not successfully respond and do not develop products or solutions that are widely accepted and generate revenues we may be
unable to retain consumers or attract new consumers and as a result, CPGs and retailers, and our business may suffer. For example, our revenue
growth was adversely affected in the third quarter of 2015 as compared to the same period in the prior year due in part an increasing number of
consumers wanting to print from their mobile device. Although we have recently attempted to address one of these desired features with the
implementation of a solution enabling mobile users to print directly from their devices in the fourth quarter of 2015, and we intend to continue
developing new features for mobile devices, there is no guarantee that our solutions will be successful in responding to the changing needs of
consumers or that we will be able to develop features or products that will make our mobile platform attractive to, and drive engagement by,
consumers.
Consumers are increasingly using mobile devices to access our content, and if we are unsuccessful in expanding the capabilities of our
digital coupon solutions for our mobile platforms to allow us to generate net revenues as effectively as our website platforms, our net
revenues could decline.
Web usage and the consumption of digital content are increasingly shifting to mobile platforms such as smartphones and other connected
devices. The growth of our business depends in part on our ability to drive engagement, activation and shopping behavior for our retailers and CPGs
through these new mobile channels. Our success on mobile platforms will be dependent on our interoperability with popular mobile operating
systems that we do not control, such as Android, iOS and Windows Mobile, and any changes in such systems that degrade our functionality, ease of
convenience or that give preferential treatment to competitive services could adversely affect usage of our services through mobile devices.
19
Further, to deliver high quality mobile offerings, it is important that our platform integrates with a range of other mobile technologies, systems,
networks and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or
in developing products that operate effectively with these technologies, systems, networks or standards. For example, we have recen tly rolled out a
solution enabling mobile users to print directly from their device, however there is no guarantee that this will result in increased engagement. If we
fail to achieve success with our mobile applications and mobile website, or if we otherw ise fail to deliver effective solutions to CPGs and retailers for
mobile platforms and other emerging platforms, our ability to monetize these growth opportunities will be constrained, and our business, financial
condition and operating results would be ad versely affected.
Our success on mobile platforms will also be dependent on our ability to develop features or products that will make our mobile platform
attractive to, and drive engagement by, consumers. If we fail to develop such features or products after investing in their development, our ability to
monetize these growth opportunities will be constrained, and our business, financial condition and operating results would be adversely affected.
If our websites or those of our publishers fail to rank prominently in unpaid search results from search engines like Google, Yahoo! and
Bing, traffic to our websites could decline and our business would be adversely affected.
Our success depends in part on our ability to attract consumers through unpaid Internet search results on search engines like Google, Yahoo!
and Bing. The number of consumers we attract to our websites from search engines is due in large part to how and where our websites rank in
unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change
frequently. For example, major search engines frequently modify their ranking algorithms, methodologies or design layouts. As a result, links to our
websites may not be prominent enough to drive traffic to our websites or we may receive less favorable placement which could reduce traffic to our
website, and we may not know how or otherwise be in a position to influence the results. In some instances, search engine companies may change
these rankings in order to promote their own competing products or services or the products or services of one or more of our competitors. Our
websites have experienced fluctuations in search result rankings in the past, and we anticipate fluctuations in the future. In addition, websites must
comply with search engine guidelines and policies. These guidelines and policies are complex and may change at any time. If we fail to follow such
guidelines and policies properly, search engines may rank our content lower in search results or could remove our content altogether from their
index. Any reduction in the number of consumers directed to our websites could reduce the effectiveness of our coupon codes for specialty retailers
and digital promotions for CPGs and retailers and could adversely impact our business and results of operations.
Factors adversely affecting performance marketing programs and our relationships with performance marketing networks, or the
termination of these relationships, may adversely affect our ability to attract and retain merchants and our coupon codes business.
A portion of our business is based upon consumers using coupon codes in connection with the purchase of goods or services. The
commissions we earn for coupon codes accessed through our platform are tracked by performance marketing networks. Third-party performance
marketing networks provide publishers with affiliate tracking links that allow for revenues to be attributed to publishers. When a consumer executes a
purchase on a publisher’s website as a result of a performance marketing program, most performance marketing conversion tracking tools credit the
most recent link or ad clicked by the consumer prior to that purchase. This practice is generally known as “last-click attribution.” We generate
revenues through transactions for which we receive last-click attribution. Risks that may adversely affect our performance marketing programs and
our relationships with performance marketing networks include the following, some of which are outside our control:
●
●
●
●
we may not be able to adapt to changes in the way in which CPGs and merchants attribute credit to us in their performance marketing
programs, whether it be “first-click attribution” or “multichannel attribution,” which applies weighted values to each of a retailer’s
advertisements and tracks how each of those advertisements contributed to a purchase, or otherwise;
we may not receive revenue if consumers make purchases from their mobile devices as many retailers currently do not recognize
affiliate tracking links on their mobile-optimized websites or applications, and tracking mechanisms on mobile websites or applications
may not function to allow retailers to properly attribute sales to us;
we may not generate revenue if consumers use mobile devices for shopping research but make purchases using coupon codes found
on our sites in ways where we do not get credit;
refund rates for products delivered on merchant sites may be greater than we estimate;
20
●
●
●
●
●
performance marketing ne tworks may not provide accurate and timely reporting on which we rely, we could fail to properly recognize
and report revenues and misstate financial reports, projections and budgets and misdirect our advertising, marketing and other
operating efforts for a portion of our business;
we primarily rely on a small number of performance marketing networks in non-exclusive arrangements, the loss of which could
adversely affect our coupon codes business;
we primarily rely, in connection with our search engine marketing business, on a small number of brand partners which work with us in
non-exclusive arrangements, the loss of which could adversely affect our coupon codes business;
industry changes relating to the use of performance marketing networks could adversely impact our commission revenues;
to the extent performance marketing networks serve as intermediaries between us and merchants, it may create challenges to building
our own brand awareness and affinity with merchants, and the termination of our relationship with the performance marketing networks
would terminate our ability to receive payments from merchants we service through that network; and
●
performance marketing networks may compete with us.
If we fail to continue to obtain and increase the number of high quality coupons through our platform, our revenue growth or our revenues
may be harmed.
We generally generate revenues as consumers select, or activate, a digital coupon through our platform. Our business model depends upon
the availability of high quality and increasing number of digital coupons. CPGs and retailers have a variety of channels through which to promote
their products and services. If CPGs and retailers elect to distribute their digital coupons through other channels or not to promote digital coupons at
all, or if our competitors are willing to accept lower prices than we are, our ability to obtain high quality digital coupons available on our platform may
be impeded and our business, financial condition and operating results will be adversely affected. If we cannot maintain sufficient digital coupons
inventory to offer through our platform, consumers may perceive our service as less relevant, consumer traffic to our websites and those of our
publishers will decline and, as a result, CPGs and retailers may decrease their use of our platform to deliver digital coupons and our revenue growth
or revenues may be harmed.
Our business relies in part on electronic messaging, including emails and SMS text messages, and any technical, legal or other
restrictions on the sending of electronic messages or an inability to timely deliver such communications could harm our business.
Our business is in part dependent upon electronic messaging. We provide emails, mobile alerts and other messages to consumers informing
them of the digital coupons on our websites, and we believe these communications help generate a significant portion of our revenues. Because
electronic messaging services are important to our business, if we are unable to successfully deliver electronic messages to consumers, if there are
legal restrictions on delivering these messages to consumers, or if consumers do not or cannot open our messages, our revenues and profitability
could be adversely affected. Changes in how webmail applications or other email management tools organize and prioritize email may result in our
emails being delivered or routed to a less prominent location in a consumer’s inbox or viewed as “spam” by consumers and may reduce the
likelihood of that consumer opening our emails. Actions taken by third parties that block, impose restrictions on or charge for the delivery of
electronic messages could also harm our business. From time to time, Internet service providers or other third parties may block bulk email
transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails or other messages to consumers.
Changes
in
laws
or
regulations,
or
changes
in
interpretations
of
existing
laws
or
regulations,
including
the
Telephone
Consumer
Protection
Act,
or
TCPA,
in
the
United
States
and
laws
regarding
commercial
electronic
messaging
in
other
jurisdictions,
that
would
limit
our
ability
to
send
such
communications
or
impose
additional
requirements
upon
us
in
connection
with
sending
such
communications
could
also
adversely
impact
our
business.
For
example,
the
Federal
Communications
Commission
amended
certain
of
its
regulations
under
the
TCPA
in
recent
years
in
a
manner
that
could
increase
our
exposure
to
liability
for
certain
types
of
telephonic
communication
with
customers,
including
but
not
limited
to
text
messages
to
mobile
phones.
Under
the
TCPA,
plaintiffs
may
seek
actual
monetary
loss
or
statutory
damages
of
$500
per
violation,
whichever
is
greater,
and
courts
may
treble
the
damage
award
for
willful
or
knowing
violations.
Given
the
enormous
number
of
communications
we
send
to
consumers,
a
determination
that
there
have
been
violations
of
the
TCPA
or
other
communications-based
statutes
could
expose
us
to
significant
damage
awards
that
could,
individually
or
in
the
aggregate,
materially
harm
our
business.
21
We rely on a third-party service for the delivery of daily emails and other forms of electronic communication, and delay or errors in the delivery
of such emails or other messaging we send may occur and be beyond our control, which could damage our reputation or harm our business,
financial condition and operating results. If we were unable to use our current electronic messaging services, alternate services are available;
however, we believe our sales could be impacted for some period as we transition to a new provider, and the new provider may be unable to provide
equivalent or satisfactory electronic messaging service. Any disruption or restriction on the distribution of our electronic messages, termination or
disruption of our relationship with our messaging service providers, including our third-party service that delivers our daily emails, or any increase in
our costs associated with our email and other messaging activities could harm our business.
We are dependent on technology systems and electronic communications networks that are supplied and managed by third parties,
which could result in our inability to prevent or respond to disruptions in our services.
Our ability to provide services to consumers depends on our ability to communicate with CPGs, retailers and customers through the public
Internet and electronic networks that are owned and operated by third parties. Our products and services also depend on the ability of our users to
access the public Internet. In addition, in order to provide services promptly, our computer equipment and network servers must be functional 24
hours per day, which requires access to telecommunications facilities managed by third parties and the availability of electricity, which we do not
control. A severe disruption of one or more of these networks, including as a result of utility or third-party system interruptions, could impair our ability
to process information, which could impede our ability to provide digital promotions to consumers, harm our reputation, result in a loss of customers
or CPGs and retailers and adversely affect our business and operating results.
If our security measures are compromised, or if our platform is subject to attacks that degrade or deny the ability of consumers to access
our content, CPGs, retailers and consumers may curtail or stop using our platform.
We deliver digital coupons via our platform and we collect and maintain data about consumers, including personally identifiable information, as
well as other confidential or proprietary information. Like all businesses that use computer systems and the Internet, our security measures, and
those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious
software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security
of information stored in or transmitted by our systems or solutions or that we or our third-party service providers otherwise maintain, including
payment systems, any of which could lead to interruptions, delays, or website shutdowns, causing loss of critical data or the unauthorized disclosure
or use of personally identifiable or other confidential information, or subject us to fines or higher transaction fees or limit or result in the termination of
our access to certain payment methods. If we experience compromises to our security that result in performance or availability problems, the
complete shutdown of one or more of our websites or the loss or unauthorized disclosure of confidential information, CPGs, retailers, and consumers
may lose trust and confidence in us and decrease their use of our platform or stop using our platform entirely.
Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, often are
not recognized until launched against a target and may originate from less regulated or remote areas around the world, we may be unable to
proactively address these techniques or to implement adequate preventative measures. In addition, consumer information including email addresses
and data on consumer usage of our websites could be hacked, hijacked, altered or otherwise claimed or controlled by unauthorized persons.
Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons
with whom we have commercial relationships. Any or all of these issues could negatively impact our reputation and our ability to attract and retain
CPGs and retailers as well as consumers or could reduce the frequency with which our platform is used, cause existing or potential CPG or retailer
customers to cancel their contracts or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby harming our results of
operations.
Failure to deal effectively with fraudulent transactions could harm our business.
Digital coupons are issued in the form of redeemable coupons or coupon codes with unique identifiers. It is possible that third parties may
seek to create counterfeit digital coupons or coupon codes or exceed print or use limits in order to fraudulently claim discounts or credits for
redemption. While we use advanced anti-fraud technologies, it is possible that individuals will attempt to circumvent our anti-fraud systems using
increasingly sophisticated methods or methods that our anti-fraud systems are not prepared to counteract. In addition, our service could be subject
to employee fraud or other internal security breaches, and we may be required to reimburse CPGs and retailers for any funds stolen or revenues lost
as a result of such breaches. Our CPGs and retailers could also request reimbursement, or stop using digital coupons, if they are affected by buyer
fraud or other types of fraud. We may incur significant losses from fraud and counterfeit digital coupons. If our anti-fraud measures do not succeed,
our business will suffer.
22
We are a defendant in a purported class action lawsuit arising out of ou r initial public offering (“IPO”) and we may be involved in
additional litigation in the future.
On March 11, 2015, a purported class action lawsuit alleging violations of federal securities laws was filed in the Superior Court of the State of
California, naming us as defendants and certain of our executive officers and directors. Plaintiffs also named as defendants the underwriters in our
IPO. Since then, several other actions making substantially the same allegations have been filed, and these actions have since been consolidated.
The plaintiffs in these cases generally allege that our registration statements related to our IPO contained material misstatements and omissions.
The outcomes of litigation are difficult to predict. Plaintiffs may seek recovery of a substantial amount of cash. The monetary and other impact
of this action may remain unknown for substantial periods of time. The cost to defend, settle or otherwise resolve this matter may be significant and
divert management's attention. We cannot assure you that we will prevail in this lawsuit. If we are ultimately unsuccessful in this matter, we could be
required to pay substantial amounts of cash to the other parties. The amount and timing of any of these payments could materially adversely affect
our business, operating results and financial condition.
Our business is subject to complex and evolving laws, regulations and industry standards, and unfavorable interpretations of, or changes
in, or failure by us to comply with these laws, regulations and industry standards could substantially harm our business and results of
operations.
We are subject to a variety of federal, state, local and municipal laws, regulations and industry standards that relate to privacy, electronic
communications, data protection, intellectual property, e-commerce, competition, price discrimination, consumer protection, taxation, and the use of
promotions. Many of these laws, regulations, and standards are still evolving and being tested in courts and industry standards are still developing.
Our business, including our ability to operate and expand, could be adversely affected if legislation, regulations or industry standards are adopted,
interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices or the
design of our platform. Existing and future laws, regulations and industry standards could restrict our operations, and our ability to retain or increase
our CPGs and retailers and consumers’ use of digital promotions delivered on our platform may be adversely affected and we may not be able to
maintain or grow our revenues as anticipated.
If the use of third-party cookies is rejected by Internet users, restricted by third parties outside of our control, or otherwise subject to
unfavorable regulation, our performance could decline and we could lose customers and revenue.
We use small text files (referred to as "cookies"), placed through an Internet browser on an Internet user's computer and correspond to a data
set that we keep on our servers, to gather important data to help deliver our solution. Certain of our cookies, including those that we predominantly
use in delivering our solution, are known as "third-party" cookies because they are delivered where we do not have a direct relationship with the
Internet user. Our cookies collect anonymous information, such as when an Internet user views an advertisement, clicks on an advertisement, or
visits one of our advertisers' websites. On mobile devices, we may also obtain location based information about the user's device through our
cookies. We use these cookies to achieve our customers' campaign goals, to ensure that the same Internet user does not unintentionally see the
same media too frequently, to report aggregate information to our customers regarding the performance of their digital promotions and marketing
campaigns, and to detect and prevent fraudulent activity throughout our network. We also use data from cookies to help us decide whether and how
much to bid on an opportunity to place an advertisement in a certain Internet location and at a given time in front of a particular Internet user. A lack
of data associated with or obtained from cookies may significantly detract from our ability to make decisions about which inventory to purchase for an
advertiser's campaign and may undermine the effectiveness of our solution and harm our business.
23
Cookies may easily be deleted or blocked by Internet users. All of the most commonly used Internet browsers (including Chrome, Firefox,
Internet Explorer, and Safari) allow Internet users to pre vent cookies from being accepted by their browsers. Internet users can also delete cookies
from their computers at any time. Some Internet users also download "ad blocking" software that prevents cookies from being stored on a user's
computer. If more Inte rnet users adopt these settings or delete their cookies more frequently than they currently do, our business could be harmed.
In addition, the Safari browser blocks third-party cookies by default, the developers of the Firefox browser have announced that a future version of
the Firefox browser will also block third-party cookies by default, and other browsers may do so in the future. Unless such default settings in
browsers were altered by Internet users to permit the placement of third-party cookies, we wo uld be able to set fewer of our cookies in users’
browsers, which could adversely affect our business. In addition, companies such as Google have publicly disclosed their intention to move away
from cookies to another form of persistent unique identifier, or ID, to identify individual Internet users or Internet-connected devices in the bidding
process on advertising exchanges. If companies do not use shared IDs across the entire ecosystem, this could have a negative impact on our ability
to find the same an onymous user across different web properties, and reduce the effectiveness of our solution.
In addition, in the European Union, or EU, Directive 2009/136/EC, commonly referred to as the "Cookie Directive," directs EU member states
to ensure that accessing information on an Internet user's computer, such as through a cookie, is allowed only if the Internet user has appropriately
given his or her consent. We may experience
challenges
in
obtaining
appropriate
consent
to
our
use
of
cookies
from
consumers
within
the
EU,
which
may
affect
our
operating
results
and
business
in
European
markets,
and
we
may not be able to develop or implement additional tools that
compensate for the lack of data associated with cookies. Moreover, even if we are able to do so, such additional tools may be subject to further
regulation, time consuming to develop or costly to obtain, and less effective than our current use of cookies.
Failure to comply with federal, state and international privacy, data protection, marketing and consumer protection laws, regulations and
industry standards, or the expansion of current or the enactment or adoption of new privacy, data protection, marketing and consumer
protection laws, regulations or industry standards, could adversely affect our business.
We are subject to a variety of federal, state and international laws, regulations and industry standards regarding privacy, data protection, data
security, marketing and consumer protection, which address the collection, storing, sharing, using, processing, disclosure and protection of data
relating to individuals, as well as the tracking of consumer behavior and other consumer data. Many of these laws, regulations and industry
standards are changing and may be subject to differing interpretations, costly to comply with or inconsistent among countries and jurisdictions. For
example, the Federal Trade Commission, or the FTC, expects companies like ours to comply with guidelines issued under the Federal Trade
Commission Act that govern the collection, use, disclosure, and storage of consumer information, and establish principles relating to notice, consent,
access and data integrity and security. The laws and regulations in many foreign countries relating to privacy, data protection, data security,
marketing and consumer protection often are more restrictive than in the United States, and may in some cases be interpreted to have a greater
scope. Additionally, the laws, regulations and industry standards, both foreign and domestic, relating to privacy, data protection, data security,
marketing and consumer protection are dynamic and may be expanded or replaced by new laws, regulations or industry standards. We believe our
policies and practices comply in all material respects with applicable privacy, data protection, data security, marketing and consumer protection
guidelines, laws and regulations. However, if our belief is incorrect, or if these guidelines, laws or regulations or their interpretation change or new
legislation or regulations are enacted, we may be compelled to provide additional disclosures to our consumers, obtain additional consents from our
consumers before collecting, using, or disclosing their information or implement new safeguards to help our consumers manage our use of their
information, among other changes.
Various industry standards on privacy have been developed and are expected to continue to develop, which may be adopted by industry
participants at any time. We are subject to the terms of our privacy policies and obligations to third parties relating to privacy, data protection and
data security (including voluntary third-party certification bodies such as TRUSTe), including contractual obligations relating to privacy rights, data
protection, data use and data security measures. Certain of our solutions, including Retailer iQ and Quotient Insights, depend in part on our ability to
use data that we obtain in connection with our offerings, and our ability to use this data may be subject to restrictions in our commercial agreements
and subject to the privacy policies of the entities which provide us with this data. Our failure to adhere to these third-party restrictions on data use
may result in claims, proceedings or actions against us by our business counterparties or other parties, or other liabilities, including loss of business,
reputational damage, and remediation costs, which could adversely affect our business. We also may be unable to obtain all rights necessary to use
data in desired manners in our business, either on commercially reasonable terms or at all. This could limit our ability to provide new offerings or
functionality, which also could have an adverse effect on our business.
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We strive to comply with applicable laws, policies, contractual and other legal obligations and c ertain applicable industry standards of conduct
relating to privacy, data security, data protection, marketing and consumer protection. However, these obligations and standards of conduct often are
complex and difficult to comply with fully, and it is poss ible that these obligations and standards of conduct may be interpreted and applied in new
ways and/or in a manner that is inconsistent with each other or that new laws, regulations or other obligations may be enacted. It is possible that our
practices may be argued or held to conflict with applicable laws, policies, contractual or other legal obligations, or applicable industry standards of
conduct relating to privacy, data security, data protection, marketing or consumer protection. Any failure, or percei ved failure, by us to comply with
our posted privacy policies or with any data-related consent orders, FTC, other regulatory requirements or orders or other federal, state or, as we
continue to expand internationally, international privacy, data security, data protection, marketing or consumer protection-related laws, regulations,
contractual obligations or self-regulatory principles or other industry standards could result in claims, proceedings or actions against us by
governmental entities or others or o ther liabilities or could result in a loss of consumers using our digital coupons or loss of CPGs and retailers. Any
of these circumstances could adversely affect our business. Further, if third parties we work with violate applicable laws, our policies o r other
privacy-related obligations, such violations may also put our consumers’ information at risk and could in turn have an adverse effect on our business.
With respect to personal data transfers from the European Economic Area, or EEA, we have in the past relied on adherence to the U.S.
Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks as agreed to
and set forth by the U.S. Department of Commerce, and the EU and Switzerland, which established a means for legitimizing the transfer of PII by
U.S. companies doing business in Europe from the EEA to the U.S. As a result of an October 2015 decision of the European Union Court of Justice,
or ECJ, , the U.S.-EU Safe Harbor Framework is now deemed to be an invalid method of compliance with restrictions set forth in the Data Protection
Directive (and member states’ implementations thereof) regarding the transfer of data outside of the EEA. U.S. and EU authorities reached a political
agreement on February 2, 2016 regarding a new potential means for legitimizing personal data transfers from the EEA to the U.S., the EU-U.S.
Privacy Shield, but it is unclear whether the EU-U.S. Privacy Shield will be formally implemented and whether the EU-U.S. Privacy Shield will serve
as an appropriate means for us to legitimize personal data transfers from the EEA to the U.S We have engaged in certain actions in an effort to
legitimize our transfers of personal data from the EEA to the U.S., and we anticipate engaging in additional activities in an effort to do so going
forward. We may continue to be unsuccessful in establishing legitimate means of transferring all personal data from the EEA, we may experience
reluctance or refusal by European consumers, retailers or CPGs to continue to use our solutions due to the potential risk exposure to such
individuals and organizations as a result of the ECJ ruling, and we and our CPG and retailer partners are at risk of enforcement actions taken by an
EU data protection authority until we ensure that all applicable data transfers to us from the EEA are legitimized. In addition, legislators in the EU
have reached political agreement on the General Data Protection Regulation, or GDPR, a new regulation that would supersede the 1995 EU Data
Protection Directive, which, when finalized and in effect, is anticipated to include more stringent operational requirements for processors and
controllers of personally identifiable information, including payment card information, and impose significant penalties for non-compliance. We may
incur liabilities, expenses, costs, and other operational losses if and when the GDPR is effective and we take measures necessary to comply with it.
We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and
information security in the United States and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards
may have on our business. Future laws, regulations, standards and other obligations could, for example, impair our ability to collect or use
information that we utilize to provide targeted digital promotions and media to consumers, CPGs and retailers, thereby impairing our ability to
maintain and grow our total customers and increase revenues. Future restrictions on the collection, use, sharing or disclosure of our users’ data or
additional requirements for express or implied consent of users for the use and disclosure of such information could require us to modify our
solutions, possibly in a material manner, and could limit our ability to develop new solutions and features. Any such new laws, regulations, other
legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur
additional costs and restrict our business operations. If our measures fail to comply with current or future laws, regulations, policies, legal obligations
or industry standards relating to privacy, data protection, data security, marketing or consumer protection, we may be subject to litigation, regulatory
investigations, fines or other liabilities, as well as negative publicity and a potential loss of business. Moreover, if future laws, regulations, other legal
obligations or industry standards, or any changed interpretations of the foregoing limit our users’ or CPGs’ or retailers’ ability to use and share
personally identifiable information or our ability to store, process and share personally identifiable information or other data, demand for our solutions
could decrease, our costs could increase and our business, financial condition and operating results could be harmed.
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We may not be able to adequately protect our intell ectual property rights or may be accused of infringing intellectual property rights of
third parties.
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology and similar intellectual
property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection and confidentiality and/or license
agreements with our employees and others to protect our proprietary rights. Effective intellectual property protection may not be available in every
country in which we offer digital promotions. We also may not be able to acquire or maintain appropriate domain names or trademarks in all
countries in which we do business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights.
We may be unable to prevent third parties from acquiring and using domain names that are similar to, infringe upon or diminish the value of our
trademarks and other proprietary rights. We may be unable to prevent third parties from using and registering our trademarks, or trademarks that are
similar to, or diminish the value of, our trademark in some countries.
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Third parties that license our
proprietary rights also may take actions that diminish the value of our proprietary rights or reputation. The protection of our intellectual property may
require the expenditure of significant financial and managerial resources. For example, from time to time we have identified and shut down websites
that have attempted to misappropriate our brand and proprietary rights and sell fraudulent digital coupons. Moreover, the steps we take to protect
our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights. We
are currently involved in litigation and disputes related to our intellectual property and service offerings. We may in the future be subject to additional
litigation and disputes. The costs of supporting such litigation and disputes are considerable, and there can be no assurances that favorable
outcomes will be obtained.
In the past, we have been subject to third-party claims of infringement and we expect to be subject to infringement claims in the future. Such
claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against us or the
payment of damages by us. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may
not be available on terms acceptable to us or at all. These risks have been amplified by the increase in third parties whose sole or primary business
is to assert such claims.
Failure to protect or enforce our intellectual property rights could harm our business and results of operations.
We regard the protection of our trade secrets, copyrights, trademarks and domain names as critical to our success. In particular, we must
maintain, protect and enhance our brands. We pursue the registration of our domain names, trademarks, and service marks in the United States and
in certain jurisdictions abroad. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as
contractual restrictions. We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and
confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary
information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the
misappropriation or disclosure of our proprietary information nor deter independent development of similar technologies by others.
Effective trade secret, copyright, trademark and domain name protection is expensive to develop and maintain, both in terms of initial and
ongoing registration requirements and expenses and the costs of defending our rights. We are seeking to protect our trademarks and domain names
in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location.
Litigation may be necessary to enforce our intellectual property rights, protect our respective trade secrets or determine the validity and scope of
proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of
management and technical resources, any of which could adversely affect our business and operating results. We may incur significant costs in
enforcing our trademarks against those who attempt to imitate our Coupons.com and Quotient Technology brand. If we fail to maintain, protect and
enhance our intellectual property rights, our business and operating results may be harmed.
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Our business depends on strong brands, and if we are not able to maintain and enhance our brands, or if we receive unfavorable media
coverage, our ability to retain and expand our number of CPGs, retailers and consumers will be impaired and our business an d operating
results will be harmed.
We believe that the brand identity that we have developed has significantly contributed to the success of our business. We also believe that
maintaining and enhancing our brands are critical to expanding our base of CPGs, retailers and consumers. Maintaining and enhancing our brands
may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain our brands, or if we
incur excessive expenses in this effort, our business would be harmed. We anticipate that, as our market becomes increasingly competitive,
maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend on our
ability to continue to provide sufficient quantities of reliable, trustworthy and high quality digital coupons, which we may not do successfully.
Unfavorable publicity or consumer perception of our websites, platform, practices or service offerings, or the offerings of our CPGs and
retailers, could adversely affect our reputation, resulting in difficulties in recruiting, decreased revenues and a negative impact on the number of
CPGs and retailers we feature and our user base, the loyalty of our consumers and the number and variety of digital coupons we offer. As a result,
our business could be harmed.
We may be unable to continue to use the domain names that we use in our business, or prevent third parties from acquiring and using
domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks.
We have registered domain names for our websites that we use in our business, such as Quotient.com and Coupons.com. If we lose the
ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to
market our products under new domain names, which could cause us substantial harm, or to incur significant expense in order to purchase rights to
the domain names in question. In addition, our competitors and others could attempt to capitalize on our brand recognition by using domain names
similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties
from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service
marks. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of
management’s attention and harm our business.
Some of our solutions contain open source software, which may pose particular risks to our proprietary software and solutions.
We use open source software in our solutions and will use open source software in the future. From time to time, we may face claims from
third parties claiming ownership of, or demanding release of, the open source software and/or derivative works that we developed using such
software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These
claims could result in litigation and could require us to purchase a costly license or cease offering the implicated solutions unless and until we can re-
engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources. In
addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial
software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to
eliminate or manage, and, if not addressed, could have a negative effect on our business and operating results.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other
losses.
Our agreements with CPGs, retailers and other third parties may include indemnification provisions under which we agree to indemnify them
for losses suffered or incurred as a result of claims of intellectual property infringement or other liabilities relating to or arising from our products,
services or other contractual obligations. The term of these indemnity provisions generally survives termination or expiration of the applicable
agreement. Large indemnity payments could harm our business.
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Acquisitions, joint ventur es and strategic investments could result in operating difficulties, dilution and other harmful consequences.
We expect to evaluate and consider a wide array of potential strategic transactions, including acquisitions and dispositions of businesses, joint
ventures, technologies, services, products and other assets and strategic investments. At any given time, we may be engaged in discussions or
negotiations with respect to one or more of these types of transactions. Any of these transactions could be material to our financial condition and
results of operations. We have limited experience managing acquisitions and integrating acquired businesses and our ability to successfully integrate
acquisitions is unproven. The process of integrating any acquired business may create unforeseen operating difficulties and expenditures and is
itself risky. The areas where we may face difficulties include:
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expected and unexpected costs incurred in identifying and pursuing strategic transactions and performing due diligence regarding potential strategic
transactions that may or may not be successful;
failure of an acquired company to achieve anticipated revenue, earnings, cash flows or other desired technological and business goals;
diversion of management time, as well as a shift of focus from operating the businesses to issues related to integration and
administration;
the need to integrate the acquired company’s accounting, management, information, human resource and other administrative systems
to permit effective management, and the lack of control if such integration is delayed or not implemented;
retention of key employees from the acquired company and cultural challenges associated with integrating employees from the
acquired company into our organization;
the need to implement or improve controls, procedures and policies appropriate for a public company at companies that prior to
acquisition had lacked such controls, procedures and policies;
in some cases, the need to transition operations and customers onto our existing platforms;
liability for activities of the acquired company before the acquisition, including violations of laws, rules and regulations, commercial
disputes, tax liabilities and other known and unknown liabilities;
write-offs or charges; and
litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former
stockholders or other third parties and intellectual property infringement claims.
For example, we have acquired businesses whose technologies are new to us and with which we did not have significant experience. We
have made and are making investments of resources to support such acquisitions, which will result in ongoing operating expenses and may divert
resources and management attention from other areas of our business. We cannot assure you that these investments and the integration of these
acquisitions will be successful. If we fail to successfully integrate the companies we acquire, we may not realize the benefits expected from the
transaction and our business may be harmed.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could
cause us to fail to realize the anticipated benefits of any or all of our acquisitions or joint ventures, or we may not realize them in the time frame
expected or cause us to incur unanticipated liabilities, and harm our business. Future acquisitions or joint ventures may require us to issue dilutive
additional equity securities, spend a substantial portion of our available cash, incur debt or contingent liabilities, amortize expenses related to
intangible assets or incur incremental operating expenses or write-offs of goodwill or impaired acquired intangible assets, which could adversely
affect our results of operations and harm our business.
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If we fail to expand effectively in international markets, our revenues and our business may be harmed.
We currently generate almost all of our revenues from the United States. We also operate to a limited extent in the United Kingdom, France
and other countries in Europe. Many CPGs and retailers on our platform have global operations and we plan to grow our operations and offerings
through expansion in existing international markets and by partnering with our CPGs and retailers to enter new geographies that are important to
them. Further expansion into international markets will require management attention and resources and we have limited experience entering new
geographic markets. Entering new foreign markets will require us to localize our services to conform to a wide variety of local cultures, business
practices, laws and policies. The different commercial and Internet infrastructure in other countries may make it more difficult for us to replicate our
business model. In some countries, we will compete with local companies that understand the local market better than we do, and we may not
benefit from first-to-market advantages. We may not be successful in expanding into particular international markets or in generating revenues from
foreign operations. As we expand internationally, we will be subject to risks of doing business internationally, including the following:
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competition with strong local competitors and preference for local providers, or foreign companies entering the same markets;
the cost and resources required to localize our platform;
burdens of complying with a wide variety of different laws and regulations, including intellectual property laws and regulation of digital
coupon terms, Internet services, privacy and data protection, marketing and consumer protection laws, anti-competition regulations and
different liability standards, which may limit or prevent us from offering of our solutions in some jurisdictions or limit our ability to enforce
contractual obligations;
differences in how trade promotion spending is allocated;
differences in the way digital coupons and advertising are delivered and how consumers access and use digital coupons;
technology compatibility;
difficulties in recruiting and retaining qualified employees and managing foreign operations;
different employee/employer relationships and the existence of workers’ councils and labor unions;
shorter payment cycles, different accounting practices and greater problems in collecting accounts receivable;
higher product return rates;
seasonal reductions in business activity;
adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash; and
political and economic instability.
Changes in the U.S. taxation of international activities may increase our worldwide effective tax rate and harm our financial condition and
results of operations. The taxing authorities of the jurisdictions in which we plan to operate may challenge our methodologies for valuing developed
technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business does not
achieve the intended tax consequences, which could increase our worldwide effective tax rate and harm our financial position and results of
operations. Significant judgment will be required in evaluating our tax positions and determining our provision for income taxes. During the ordinary
course of business, there will be many transactions and calculations for which the ultimate tax determination is uncertain. As we expand our
business to operate in numerous taxing jurisdictions, the application of tax laws may be subject to diverging and sometimes conflicting
interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views. In
addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In particular,
there is uncertainty in relation to the U.S. tax legislation in terms of the future corporate tax rate but also in terms of the U.S. tax consequences of
income derived from intellectual property earned overseas in low tax jurisdictions.
Our planned corporate structure and intercompany arrangements will be implemented in a manner we believe is in compliance with current
prevailing tax laws. However, the tax benefits which we intend to eventually derive could be undermined if we are unable to adapt the manner in
which we operate our business and due to changing tax laws.
Our failure to manage these risks and challenges successfully could materially and adversely affect our business, financial condition and
results of operations.
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The loss of one or more key members of our management team, or our failure to attract, integrate and retain other highly qualified
personnel in the future, could harm our business.
We currently depend on the continued services and performance of the key members of our management team, including Steven R. Boal, our
Chief Executive Officer. Mr. Boal is one of our founders and his leadership has played an integral role in our growth. Key institutional knowledge
remains with a small group of long-term employees and directors whom we may not be able to retain. The loss of key personnel, including key
members of management as well as our marketing, sales, product development and technology personnel, could disrupt our operations and have an
adverse effect on our ability to grow our business. Moreover, some of our management are new to our team.
As we become a more mature company, we may find our recruiting and retention efforts more challenging. We are seeking to continue to hire
a significant number of personnel, including certain key management personnel. If we do not succeed in attracting, hiring and integrating excellent
personnel, or retaining and motivating existing personnel, we may be unable to grow effectively.
We are currently or could be exposed in the future to fluctuations in currency exchange rates and interest rates.
To date, we have generated almost all of our revenues from within the United States. As a result, we currently do not have significant
revenues or expenses in our international operations and we do not hedge our foreign currency exchange risk. However, we plan to grow our
operations and offerings through expansion in existing international markets and by partnering with our existing CPGs and retailers to enter new
geographies that are important to them. For example, we opened a research and development facility in Bangalore, India and acquired Shopmium
S.A., which has research and development operations in Paris, France. As we expand our business outside the United States we will face exposure
to adverse movements in currency exchange rates. We will be exposed to foreign exchange rate fluctuations as the financial results are translated
from the local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against foreign currencies, the translation of these foreign
currency denominated transactions will result in increased revenues, operating expenses and net income. Similarly, if the U.S. dollar strengthens
against foreign currencies, the translation of these foreign currency denominated transaction will result in decreased revenues, operating expenses
and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations. Our risks
related to currency fluctuations will increase as our international operations become an increasing portion of our business. In addition, we face
exposure to fluctuations in interest rates which may impact our investment income unfavorably.
Our use of and reliance on international research and development resources and operations may expose us to unanticipated costs or
events
We opened a research and development center in India in the first quarter of 2015, and in the future expect to increase our headcount,
development and operations activity at this facility, and we acquired Shopmium S.A., which has research and development activity and operations in
Paris, France . There is no assurance that our reliance upon international research and development resources an d operations will enable us to
achieve our research and development and operational goals or greater resource efficiency. Further, our international research and development
and operations efforts involve significant risks, including:
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difficulty hiring and retaining appropriate personnel due to intense competition for such resources and resulting wage inflation in the
cities where our research and development activities and operations are located;
the knowledge transfer related to our technology and resulting exposure to misappropriation of intellectual property or information that
is proprietary to us, our customers and other third parties;
heightened exposure to change in the economic, security and political conditions in the countries where our research and development
activities and operations are located;
fluctuations in currency exchange rates and regulatory compliance in the countries where our research and development activities and
operations are located;
delays and inefficiencies caused by geographical separation of our international research and development activities and operations;
and
interruptions to our operations in the countries where our research and development activities and operations are located as a result of
floods and other natural catastrophic events as well as manmade problems such as power disruptions or terrorism.
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Difficulties resulting from the factors above could increase our research and development or operational expenses, delay the introduction of
new products, or impact our product quality, the occurrence of which could adversely affect our business and operating results .
Our business is subject to interruptions, delays or failures resulting from earthquakes, other natural catastrophic events or terrorism.
Our headquarters is located in Mountain View, California. Our current technology infrastructure is hosted across two data centers in co-
location facilities in California and Nevada. In addition, we use two other co-location facilities in California and Virginia to host our in-development
new point of sale solution. Our services, operations and the data centers from which we provide our services are vulnerable to damage or
interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and
similar events. A significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, financial
condition and results of operations and our insurance coverage may be insufficient to compensate us for losses that may occur. Acts of terrorism
could cause disruptions to the Internet, our business or the economy as a whole. We may not have sufficient protection or recovery plans in certain
circumstances, such as natural disasters affecting areas where data centers upon which we rely are located, and our business interruption insurance
may be insufficient to compensate us for losses that may occur. Such disruptions could negatively impact our ability to run our websites, which could
harm our business.
Our management team has limited experience managing a public company, and regulatory compliance may divert its attention from the
day-to-day management of our business.
Our management team has limited experience managing a publicly-traded company and limited experience complying with the increasingly
complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public
company that will be subject to significant regulatory oversight and reporting obligations under the federal securities laws. In particular, these new
obligations will require substantial attention from our senior management and could divert their attention away from the day-to-day management of
our business, which could adversely impact our business operations.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.
We may in the future be required to raise capital through public or private financing or other arrangements. Such financing may not be
available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute
the interests of our stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot
raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and similar state law provisions, a
corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to
offset future taxable income. If our existing NOLs are subject to limitations arising from ownership changes, our ability to utilize NOLs could be
limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, also could result in an
ownership change under Section 382 of the Code. There is also a risk that our NOLs could expire, or otherwise be unavailable to offset future
income tax liabilities due to changes in the law, including regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons.
For these reasons, we may not be able to utilize all of our NOLs, even if we attain profitability.
State and foreign laws regulating money transmission could be expanded to include our mobile shopping and receipt scanning cash-back
application platform.
Many states and certain foreign jurisdictions impose license and registration obligations on those companies engaged in the business of
money transmission, with varying definitions of what constitutes money transmission. We do not currently believe we are a money transmitter given
our role and the terms of our mobile shopping and receipt scanning cash-back application platform. However, a successful challenge to our position
or expansion of state or foreign laws could subject us to increased compliance costs and delay our ability to offer this product in certain jurisdictions
pending receipt of any necessary licenses or registrations.
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Risks Related to Ownership of our Common Stock
The trading prices of the securities of technology companies have been highly volatile. Accordingly, the market price of our common
stock has been, and is likely to continue to be, subject to wide fluctuations and could subject us to litigation.
The price of our stock may change in response to variations in our operating results and also may change in response to other factors,
including factors specific to technology companies, many of which are beyond our control. As a result, our stock price may experience significant
volatility. Among other factors that could affect our stock price are:
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the financial projections that we or analysts may choose to provide to the public, any changes in these projections or our failure for any
reason to meet these projections;
actual or anticipated changes or fluctuations in our results of operations;
whether our results of operations meet the expectations of securities analysts or investors;
the development and sustainability of an active trading market for our common stock;
price and volume fluctuations in the overall stock market from time to time;
fluctuations in the trading volume of our shares or the size of our public float;
success of competitive products or services;
the public’s response to press releases or other public announcements by us or others, including our filings with the Securities and
Exchange Commission, or SEC;
announcements relating to litigation;
speculation about our business in the press or the investment community;
future sales of our common stock by our significant stockholders, officers and directors;
changes in our capital structure, such as future issuances of debt or equity securities;
our entry into new markets;
regulatory developments in the United States or foreign countries;
strategic actions by us or our competitors, such as acquisitions or restructurings; and
changes in accounting principles.
In addition, the stock market in general has experienced substantial price and volume volatility that is often seemingly unrelated to the
operating results of any particular companies. Moreover, if the market for technology stocks or the stock market in general experiences uneven
investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial
condition. The market price for our stock might also decline in reaction to events that affect other companies within, or outside, our industry, even if
these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been subject of
securities litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of management’s attention and
resources.
Substantial future sales of shares by our stockholders could negatively affect our stock price.
Sales of a substantial number of shares of our common stock in the public market could depress the market price of our common stock and
could impair our ability to raise capital through the sale of additional equity securities. We have approximately 81,995,286 shares of common stock
outstanding as of December 31, 2015, assuming no exercise of our outstanding options or vesting of our outstanding RSUs.
All of the shares of common stock sold in our IPO are freely tradable without restrictions or further registration under the Securities Act, except
for any shares held by our affiliates as defined in Rule 144 under the Securities Act.
Our equity incentive plans allow us to issue, among other things, stock options, restricted stock and restricted stock units and we have filed a
registration statement under the Securities Act to cover the issuance of shares upon the exercise or vesting of awards granted under those plans.
32
The concentration of our common stock ownership with our executive officers, directors and affiliates will limit your ability to influe nce
corporate matters.
Our executive officers, directors and owners of 5% or more of our outstanding common stock together own approximately 71.2% of our
outstanding common stock, based on the number of shares outstanding as of December 31, 2015. These stockholders therefore have significant
influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant
corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control limits your
ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. This ownership could
affect the value of your shares of common stock.
Our stock repurchase program could affect the price of our common stock and increase volatility and may be suspended or terminated at
any time, which may result in a decrease in the trading price of our common stock.
In February of 2015, our board of directors approved a share repurchase program pursuant to which we are authorized to repurchase shares
of our stock having an aggregate value of up to $50.0 million. Through December 31, 2015, we have repurchased $23.5 million in stock under our
total authorized amount of $50.0 million. In February of 2016 our board of directors approved a new share purchase program with a one-year term
on terms substantially similar to the program approved in February of 2015. The timing and actual number of shares repurchased will depend on a
variety of factors including the timing of open trading windows, price, corporate and regulatory requirements, an assessment by management and
our board of directors of cash availability and other market conditions. The st ock repurchase program may be suspended or discontinued at any
time without prior notice. Repurchases pursuant to our stock repurchase program could affect the price of our common stock and increase its
volatility. The existence of our stock repurchase pro gram could also cause the price of our common stock to be higher than it would be in the
absence of such a program and could potentially reduce the market liquidity for our common stock. Additionally, repurchases under our stock
repurchase program will diminish our cash reserves, which could impact our ability to further develop our technology, access and/or retrofit additional
facilities and service our indebtedness. There can be no assurance that any stock repurchases will enhance stockholder value because the market
price of our common stock may decline below the levels at which we repurchased such shares. Any failure to repurchase shares after we have
announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our stock price.
Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the
program’s effectiveness.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely
and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and
regulations of the New York Stock Exchange, or the NYSE. We expect that the requirements of these rules and regulations will continue to increase
our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on
our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over
financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and
communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In
order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have
expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management
oversight. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic
management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal
control over financial reporting that we will be required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-
Oxley Act. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act, that our internal control over
financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose
confidence in our operating results and our stock price could decline.
33
Our current controls and any new controls that we develop may become inadequate because of ch anges in conditions in our business.
Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop
or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to
fail to meet our reporting obligations and could result in a restatement of our financial statements for prior periods. Any failure to implement and
maintain effective int ernal control over financial reporting also could adversely affect the results of management evaluations and independent
registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to includ e in our periodic
reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause
investors to lose confidence in our reported financial and other information, which wou ld likely have a negative effect on the trading price of our
common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until
after we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. At such
time, our independent registered public accounting firm may issue a report that is adverse in the event it concludes that our internal control over
financial reporting is not effective.
Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on
our business and operating results, and cause a decline in the price of our common stock.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make
our common stock less attractive to investors.
We are an “emerging growth company”, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of
holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. We may take
advantage of these provisions for up to five years or such earlier time that we are no longer an “emerging growth company.” We would cease to be
an “emerging growth company” upon the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual
revenues; the date we are deemed a “large accelerated filer” as defined in the Exchange Act; and the last day of the fiscal year ending after the fifth
anniversary of our IPO. We may choose to take advantage of some but not all of these reduced reporting burdens. If we take advantage of any of
these reduced reporting burdens in future filings, the information that we provide our security holders may be different than you might get from other
public companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive because we may rely
on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
If securities analysts do not publish research or if securities analysts or other third parties publish inaccurate or unfavorable research
about us, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that securities analysts and other third parties choose to
publish about us. We do not control these analysts or other third parties. The price of our common stock could decline if one or more securities
analysts downgrade our common stock or if one or more securities analysts or other third parties publish inaccurate or unfavorable research about
us or cease publishing reports about us.
We do not intend to pay dividends for the foreseeable future.
We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business and do not anticipate
paying cash dividends on our common stock. As a result, you can expect to receive a return on your investment in our common stock only if the
market price of the stock increases.
34
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions in our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our
management. Amongst other things, these provisions:
●
●
●
●
●
●
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover
attempt;
establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected
to serve from the time of election and qualification until the third annual meeting following their election;
require that directors only be removed from office for cause and only upon a supermajority stockholder vote;
provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors
then in office rather than by stockholders;
prevent stockholders from calling special meetings; and
prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware
corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date
on which the stockholder becomes an “interested” stockholder.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
Our principal executive offices are located in Mountain View, California, and include four buildings totaling approximately 110,000 square feet
under leases expiring from October to December, 2020. We maintain additional leased spaces in Marina Del Rey, California as well as Cincinnati,
Ohio, New York, New York, Bangalore, India, Paris, France, London, the United Kingdom. We believe our properties are generally suitable to meet
our needs for the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be readily available
on commercially reasonable terms.
Item 3.
Legal Proceedings.
On March 11, 2015, a putative stockholder class action lawsuit was filed against us, the members of our board of directors, certain of our
executive officers and the underwriters of our IPO: Nguyen
v.
Coupons.com
Incorporated,
Case No. CGC-15-544654 (California Superior Court, San
Francisco County). The complaint asserts claims under the Securities Act and seeks unspecified damages and other relief on behalf of a putative
class of persons and entities who purchased stock pursuant or traceable to the registration statement and prospectus for our IPO. Plaintiff Nguyen
requested and obtained a dismissal without prejudice of his San Francisco action and filed another complaint with substantially the same allegations
in the Santa Clara County Superior Court, Nguyen
v.
Coupons.com
Incorporated
, Case No. 1-15-CV-278777 (California Superior Court, Santa Clara
County) (Mar. 30, 2015). Three other complaints with substantially the same allegations have also been filed: O’Donnell
v.
Coupons.com
Incorporated
, Case No. 1-15-CV-278399 (California Superior Court, Santa Clara County) (Mar. 20, 2015); So
v.
Coupons.com
Incorporated
, Case
No. 1-15-CV-278774 (California Superior Court, Santa Clara County) (Mar. 30, 2015); and Silverberg
v.
Coupons.com
Incorporated
, Case No. 1-15-
CV-278891 (California Superior Court, Santa Clara County) (Apr. 2, 2015). On May 7, 2015, the Santa Clara court consolidated the Nguyen,
So
and
Silverberg
actions with the O’Donnell
action. The Court sustained defendants’ demurrer to the consolidated complaint with leave to amend. On
December 14, 2015, plaintiffs filed an amended consolidated complaint. On January 28, 2016, defendants filed a demurrer to the amended
consolidated complaint. We intend to defend the litigation vigorously. Based on information currently available, we believe that the potential for
liability for the above claims is remote.
35
In addition, we ar e a party to litigation and subject to claims incident to the ordinary course of business. Although the results of litigation and
claims cannot be predicted with certainty, we currently believe that the final outcome of these matters will not have a materi al adverse effect on our
business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on our business because of
defense and settlement costs, diversion of management resources and other factors.
Item 4.
Mine Safety Disclosures.
None.
36
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock, $0.00001 par value, began trading on the New York Stock Exchange under the symbol “COUP” on March 7, 2014, the
date of our IPO. We changed our name to Quotient Technology Inc. on October 20, 2015. Our common stock began trading on the New York stock
Exchange under the symbol “QUOT” on October 21, 2015.
The following table sets forth for the indicated periods from the date our common stock commenced trading in connection with our IPO, the
high and low closing sales prices of our common stock as reported on the New York Stock Exchange.
Year ended December 31, 2015
Fourth quarter
Third quarter
Second quarter
First quarter
Year ended December 31, 2014
Fourth quarter
Third quarter
Second quarter
First quarter (from March 7, 2014)
Holders
High
Low
$
$
$
$
$
$
$
$
9.39 $
11.41 $
14.00 $
19.65 $
17.76 $
25.28 $
30.17 $
30.00 $
5.54
8.60
10.79
9.49
12.00
11.96
16.46
23.01
As of March 1, 2016, there were 109 holders of record of our common stock. Because most of our shares of common stock are held by
brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these
record holders.
Dividend Policy
We have never declared or paid any dividends on our common stock and do not anticipate that we will pay any dividends to holders of our
common stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Any future
determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition, results of
operations and capital requirements as well as other factors deemed relevant by our board of directors.
Issuer Purchases of Equity Securities
Period
October 1, 2015 to October 31, 2015
November 1, 2015 to November 30, 2015
December 1, 2015 to December 31, 2015
Total Number of
Shares Purchased
Average Price
Paid Per Share
610,370 $
768,130
751,754
2,130,254 $
6.80
6.52
6.77
6.69
Total Number of
Shares Purchased Under
Publicly Announced Program (1)
Approximate Dollar Value of
Shares That May Yet Be
Purchased Under the Program
(1)
610,370 $
768,130
751,754
2,130,254 $
36,611,000
31,599,000
26,508,000
26,508,000
(1)
In February 2015, the Company’s Board of Directors approved a stock repurchase program, authorizing the Company to repurchase up to
$50.0 million of the Company’s common stock during the period commencing February 20, 2015 and ending February 20, 2016. Stock
repurchases may be made from time-to-time in open market transactions or privately negotiated transactions. The timing of any repurchases
and the actual number of shares repurchased will depend on a variety of factors. The Company may suspend, modify or terminate this
repurchase program at any time without prior notice. Through the end of fourth quarter ended December 31, 2015, the Company had
repurchased 3,095,189 shares of its common stock for an aggregate of $23.5 million.
37
In February 2016, the Company’s Board of Directors approved a new repurchase program, authorizing the Company to repurchase up to
$50.0 million of the Company’s common stock through February 201 7.
Performance Graph
The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other
filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.
This chart compares the cumulative total return on our common stock with that of the Russell 2000, the Russell 3000 and the S&P North
American Technology Internet Index. The chart assumes $100 was invested at the close of market on March 7, 2014, in our common stock, the
Russell 2000, the Russell 3000 and the S&P North American Technology Internet Index, and assumes the reinvestment of any dividends. The stock
price performance on the following graph is not necessarily indicative of future stock price performance.
In the fiscal year 2015, the Company changed from the Russell 3000 to the Russell 2000 index because the companies which comprise the
Russell 2000 index better reflect the Company’s current size and business. For the fiscal year 2015, the Company has presented both the old and
new indices for comparison purposes.
Company / Index
Quotient Technology Inc.
Russell 2000 Index
Russell 3000 Index
S&P North American Technology
Internet Index
Base
Period
3/7/2014 3/31/2014 6/30/2014 9/30/2014 12/31/2014 3/31/2015
88 $
$
99 $
$
104 $
$
INDEXED RETURNS
Quarter Ending
40 $
92 $
104 $
59 $
100 $
110 $
100 $
100 $
100 $
82 $
97 $
99 $
39 $
104 $
110 $
6/30/2015
9/30/2015
36 $
104 $
109 $
12/31/2015
23
94
107
30 $
91 $
101 $
$
100 $
93 $
95 $
97 $
96 $
103 $
105 $
103 $
113
Unregistered Sales of Equity Securities
On October 30, 2015, the Company issued 278,639 shares of common stock to the equity holders of Shopmium S.A. in partial consideration
of the shares and options held by such holders in connection with the acquisition of Shopmium S.A., a company organized under the laws of France.
The issuances of such shares of common stock were deemed to be exempt from registration under the Securities Act, in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering or Regulation S promulgated under the Securities Act.
38
Use of Proceeds from Public Offering of Common Stock
In March 2014, the Company completed its IPO pursuant to a registration statement on Form S-1 (File No. 333-193692) 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.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on
March 7, 2014 pursuant to Rule 424(b) under the Securities Act. Pending the uses described, we maintain the cash received in cash, cash
equivalents and short-term investments.
Item 6.
Selected Financial Data.
Revenues
Costs and expenses:
Cost of revenues (1)
Sales and marketing (1)
Research and development (1)
General and administrative (1)
Change in fair value of contingent consideration
Total costs and expenses
Loss from operations
Interest expense
Gain on sale of a right to use a web domain name
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Deemed dividend to investors in relation to tender offer
Net loss attributable to common stockholders
Net loss per share attributable to common stockholders,
basic and diluted
Weighted-average number of common shares used in
computing net loss per share attributable to common
stockholders, basic and diluted
(1) The stock-based compensation expense included above was as
follows:
Cost of revenues
Sales and marketing
Research and development
General and administrative
Total stock-based compensation
2015
$
237,309 $
Year Ended December 31,
2012
2013
2014
(in thousands, except per share data)
221,761 $
167,892 $
112,127 $
92,203
92,454
48,367
34,833
1,231
269,088
(31,779)
(290)
4,800
(22)
(27,291)
(561)
(26,730) $
—
(26,730) $
86,186
78,865
49,583
33,392
(5,741)
242,285
(20,524)
(922)
—
(72)
(21,518)
1,926
(23,444) $
—
(23,444) $
52,080
61,793
40,102
24,232
—
178,207
(10,315)
(953)
—
19
(11,249)
—
(11,249) $
—
(11,249) $
41,745
63,526
40,236
25,999
—
171,506
(59,379)
(212)
—
92
(59,499)
(265)
(59,234) $
—
(59,234) $
2011
91,325
27,841
44,834
21,824
18,996
—
113,495
(22,170)
(698)
—
(220)
(23,088)
(118)
(22,970)
6,933
(29,903)
(0.32) $
(0.35) $
(0.57) $
(3.72) $
(2.14)
82,807
67,828
19,626
15,927
13,944
2015
2014
Year Ended December 31,
2013
(in thousands)
2012
2011
1,728 $
10,658
9,680
10,280
32,346 $
3,086 $
9,464
11,536
11,424
35,510 $
300 $
1,492
1,015
2,374
5,181 $
378 $
1,880
1,532
1,778
5,568 $
295
849
962
2,464
4,570
39
$
$
$
$
$
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments
Working capital
Property and equipment, net
Total assets
Deferred revenues
Total liabilities
Debt obligations
Redeemable convertible preferred stock
Total stockholder's equity (deficit)
2015
2014
2013
2012
2011
Year Ended December 31,
(in thousands)
$
$
159,947 $
177,547
25,128
321,071
7,342
55,581
—
—
265,490 $
201,075 $
204,837
25,399
331,807
6,219
54,919
7,500
—
276,888 $
38,972 $
21,420
29,942
134,236
6,751
66,220
23,077
270,262
(202,246) $
58,395 $
45,423
27,282
131,892
7,406
62,012
14,743
270,262
(200,382) $
100,462
97,108
12,370
148,748
4,870
28,125
—
270,262
(149,639)
40
Item 7.
M anagement’s Discussion and Analysis of Financial Condition and Results of Operations.
You
should
read
the
following
discussion
and
analysis
of
our
financial
condition
and
results
of
operations
in
conjunction
with
the
consolidated
financial
statements
and
the
related
notes
to
consolidated
financial
statements
included
elsewhere
in
this
annual
report
on
Form
10-K.
In
addition
to
historical
financial
information,
the
following
discussion
contains
forward-looking
statements
that
reflect
our
plans,
estimates,
beliefs
and
expectations
that
involve
risks
and
uncertainties.
Our
actual
results
and
the
timing
of
events
could
differ
materially
from
those
discussed
in
these
forward-looking
statements.
Factors
that
could
cause
or
contribute
to
these
differences
include
those
discussed
below
and
elsewhere
in
this
prospectus,
particularly
in
“Risk
Factors”
and
“Special
Note
Regarding
Forward-Looking
Statements.”
Overview
Quotient Technology Inc., formerly known as Coupons.com Incorporated, is a provider of digital promotions and media solutions driven by
consumer-shopping data. We connect consumer packaged goods (CPG) brands and retailers with shoppers by delivering digital promotions and
media to shoppers through mobile, web and social channels. Leading brands, as well as leading retailers in the grocery, drug, dollar, club and mass
merchandise channels, use our platform to engage shoppers at the critical moments when they are choosing what products to buy and where to
shop. Our new corporate name, which became effective October 20, 2015, is designed to better reflect the breadth and sophistication of our
business offerings, along with our deepening relationships with Fortune 500 CPGs and retailers.
Our core promotions and media solutions, which we refer to as Quotient Promotions and Quotient Media, respectively, reach millions of
shoppers every day through our extensive network. That network includes our flagship site and mobile app, Coupons.com, our publishing network of
over 30,000 registered partner sites, which have distributed or may distribute our offers and media, as well the web and mobile properties of our
CPG and retailer partners. We refer to our emerging solutions around our data and analytic capabilities as Quotient Insights. Our network is made up
of three constituencies: over 2,000 brands from approximately 700 CPGs; retailers across multiple classes of trade such as grocery, drug, dollar,
club, and mass merchandise channels; and consumers visiting our web, mobile properties, social channels, as well as those of our CPGs and
retailers.
Our CPG customers include many of the leading food, beverage, drug, personal and household product manufacturers. We primarily generate
revenue from CPGs by offering promotions and media content to consumers across our network. Our retailers include leading grocery, drug, dollar
channel, club and mass merchandise retailers. We also service a broad range of specialty retailers, including clothing, electronics, home
improvement and many others, through which we generate revenue primarily from offering coupon codes through our platform.
We generate promotion revenues from digital transactions on our network. Each time a consumer activates a digital coupon on our platform
by eith er printing it for physical redemption at a retailer or saving it to a retailer loyalty account for automatic digital redemption, or redeems a
coupon using a mobile device for cash back after taking a picture of a retailer receipt with the appropriate purchase, we are generally paid a fee. As
our business evolves, we will continue to experiment with different pricing models and fee arrangements with CPGs and retailers which may impact
how we monetize transactions. For coupon codes, we are generally paid a fee when a consumer makes a purchase using a coupon code from our
platform. We generally pay a distribution fee to retailers or publishers when a consumer activates a digital promotion on their website or mobile
app. These distribution fees are included in our cost of revenues. We also generate media revenue through the placement of online advertisements
from CPGs and retailers that are displayed on our websites and mobile apps, as well as those of our publishers, retailers and other third parties. See
Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Non-GAAP Financial Measure and Key Operating
Metrics” for more information.
Our operating expenses may increase in the future as we continue to invest in research and development to enhance our platform and in
sales and marketing to acquire new CPG and retailer customers and increase revenues from our existing customers.
For 2015, 2014 and 2013, our revenues were $237.3 million, $221.8 million and $167.9 million, respectively. Our net loss for 2015, 2014 and
2013 was $26.7 million, $23.4 million and $11.2 million, respectively.
41
Non- GAAP Financial Measure and Key Operating Metrics
Adjusted EBITDA, a non-GAAP financial measure, is a key metric used by our management and board of directors to understand and
evaluate our core operating performance and trends, to prepare and approve our annual budget, to develop short and long-term operational plans,
and to determine bonus payouts. In particular, we believe that the exclusion of the expenses eliminated in calculating Adjusted EBITDA can provide
a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial metric used by the
compensation committee of our board of directors in connection with the determination of compensation for our executive officers. Accordingly, we
believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same
manner as our management and board of directors.
We define a “transaction” as any action that generates revenue, directly or indirectly, including per item transaction fees, set up fees, volume-
based fixed fees and revenue sharing. Transactions continue to exclude retailer offers that generate no direct revenue . Transactions indirectly
generate revenue when the action is not paid for on a per item basis, but is part of an agreement which generates revenue for offer services; for
example, transactions after a fixed fee cap has been reached would be included in our definition. This definition of transaction does not impact the
number of transactions reported in prior filings. While the number of transactions on our platform has been an important indicator of our ability to
grow our revenues, as our business continues to evolve and we experiment with different pricing models to monetize transactions, we believe
transaction volume on our platform may become a less predictive indicator of future operating performance.
Adjusted EBITDA and number of transactions for each of the periods presented were as follows:
Adjusted EBITDA
Transactions
2015
Year Ended December 31,
2014
(in thousands)
2013
$
18,298 $
1,657,039
23,982 $
1,608,082
1,725
1,311,973
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of
our results as reported under GAAP. Some of these limitations are:
·
·
·
·
·
·
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in
the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital
expenditure requirements;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation;
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
Adjusted EBITDA also does not include the effects of interest, income taxes, gain on sale of a right to use a web domain name, other
income (expense), net and change in fair value of contingent consideration; and
other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a
comparative measure.
42
A reconciliation of Adjusted EBITDA to net los s, the most directly comparable GAAP financial measure, for each of the periods presented is
as follows:
Net loss
Adjustments:
Stock-based compensation
Depreciation and amortization
Change in fair value of contingent consideration
Interest expense
Other income (expense), net
Provision for (benefit from) income taxes
Gain on sale of a right to use a web domain name
Total adjustments
Adjusted EBITDA
2015
Year Ended December 31,
2014
(in thousands)
2013
$
(26,730) $
(23,444) $
(11,249)
32,346
16,500
1,231
290
22
(561)
(4,800)
45,028 $
35,510
14,737
(5,741)
922
72
1,926
—
47,426 $
5,181
6,859
—
953
(19)
—
—
12,974
18,298
$
23,982
$
1,725
$
$
This non-GAAP financial measure is not intended to be considered in isolation from, as substitute for, or as superior to, the corresponding
financial measure prepared in accordance with GAAP. Because of these and other limitations, Adjusted EBITDA should be considered along with
other GAAP based financial performance measures, including various cash flow metrics, net loss, and our other GAAP financial results .
Factors Affecting Our Performance
Obtain
high
quality
coupons
and
increase
the
number
of
CPG-authorized
activations.
Our ability to grow revenue will depend upon our
ability to continue to obtain high quality coupons and increase the number of CPG-authorized activations available through our platform. If we are
unable to obtain high quality coupons and increase the number of CPG-authorized activations, we will not be able to increase the number of
transactions and the growth in our revenue will be adversely affected.
Increasing
revenue
from
CPGs
on
our
platform.
Our ability to grow our revenue in the future depends upon our ability to continue to
increase revenues from existing CPGs on our platform. This includes increasing our share of CPG spending on overall coupons, media and trade
promotions; increasing the number of brands that are using our platform within each CPG; increasing media and advertising spending on our
platform; increase our share of retailer spending on coupon codes; and maximizing lifetime value of consumers across all platforms.
Variability
in
promotional
spend
by
CPGs
. Our revenues may fluctuate due to changes in promotional spending budgets of CPGs and
retailers and the timing of their promotional spending. Decisions by major CPGs or retailers to delay or reduce their promotional and media
spending, move campaigns, or divert spending away from digital promotions or media could slow our revenue growth or reduce our revenues.
Ability
to
scale
Retailer
iQ
and
further
integrate
with
Retailers.
Our ability to grow our revenues will depend upon our ability to successfully
implement and scale Retailer iQ among retailers. If we are unable to successfully implement Retailer iQ, if the implementation or marketing of
Retailer iQ is delayed or it is not adopted and supported with sufficient resources by retailers, the growth in our revenues will be adversely affected,
which in turn could impact the recoverability of prepaid non-refundable payments with some of our Retailer iQ partners. Our ability to grow our
revenue in the future is also dependent upon our ability to further integrate digital promotions and media into retailers’ loyalty or point of sale systems
and other channels so that CPGs and retailers can more effectively engage consumers and drive their own sales.
Growth
of
our
consumer
selection
and
digital
offerings.
Our ability to grow our revenue in the future will depend on our ability to innovate
and invest in promotion and media solutions, including Retailer iQ, mobile solutions for consumers, including digital print, mobile solutions and digital
promotion offerings for specialty/franchise retail, including coupon codes, and leverage our reach to consumers and the strength of our platform to
broaden the selection and use of coupon codes by consumers.
43
International
Growth
and
Acquisitions
. Our ability to grow our revenues will also depend on our ability to grow our operations and offerings
in existing international markets and expand our business through selective acquisitions, including our acquisition of Shopmium, and their integration
with the core business of the company.
Increase
in
software
amortization
expense.
During the years ended December 31, 2015, 2014 and 2013, we capitalized $1.5 million, $3.6
million and $6.9 million, respectively, of development costs related to promotions and media technologies, including Retailer iQ. We recognized $9.4
million and $7.7 million of amortization expense in cost of revenues related to Retailer iQ during the years ended December 31, 2015 and 2014,
respectively. There was no similar amortization expense for the years ended December 31, 2013 as Retailer iQ was still in development in 2013.
The unamortized capitalized development and enhancement costs related to Retailer iQ were $11.1 million as of December 31, 2015. We expect to
amortize the costs over their remaining estimated useful life of thirteen months.
Stock-based
compensation
expense.
We have granted restricted stock units, or RSUs, to certain of our employees and directors. The fair
value of these RSUs equals the market value of our common stock on the date of grant. RSUs granted prior to our 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 was satisfied on the date of
effectiveness of our IPO in March 2014, therefore, we recognized a cumulative stock-based compensation expense for the portion of the RSUs that
had met the service condition as of the date of our IPO. We recognized stock-based compensation expense of $27.7 million and $29.5 million,
associated with RSUs, during the years ended December 31, 2015 and 2014, respectively. There was no stock-based compensation expense
associated with RSUs during the year ended December 31, 2013.
RSUs granted on or after our IPO have similar terms as the RSUs granted prior to the 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.
Components of Our Results of Operations
Revenues
We generate revenues by delivering digital coupons, including coupons and coupon codes, and digital media through our platform. CPGs and
retailers choose one or more of our offerings and are charged a fee for each selected offering. Our customers generally submit insertion orders that
outline the terms and conditions of a campaign, including the channels through which the campaign will be run, the offerings for each selected
channel, the type of content to be delivered, the timeframe of the campaign, the number of authorized activations and the pricing of the campaign.
Substantially all of our revenues are generated from sales in the United States.
Coupons.
We generate revenues, as consumers select, activate, or redeem a coupon through our platform by either printing it for physical
redemption at a retailer or saving it to a retailer loyalty account for automatic digital redemption. In the case of the setup fees, we recognize revenues
proportionally, on a per activation basis, using the number of authorized activations per insertion order, commencing on the date of the first coupon
activation. For coupons, the pricing is generally determined on a per unit activation basis. Setup fees charged to customers represent charges for the
creation of digital coupons and related activation, tracking and security features. Upfront insertion orders generally include a limit on the number of
activations, or times consumers may select a coupon.
Coupon
Codes
. We generally generate revenues when a consumer makes a purchase using a coupon code from our platform and
completion of the order is reported to us. In the same period that we recognize revenues for the delivery of coupon codes, we also estimate and
record a reserve, based upon historical experience, to provide for end-user cancelations or product returns which may not be reported until a
subsequent date.
Digital
Media
. Our media services enable CPGs and retailers to distribute digital media to promote their brands and products on our
websites, and mobile apps, and through a network of our publishers and non-publisher third parties that display our media offerings on their websites
or mobile apps. We charge a fee for these media campaigns, the pricing of which is based on the advertisement size and position. Related fees are
generally billed monthly, based on a per-campaign, per-impressions or per-click basis.
44
Cost of Revenues
Cost of revenues includes the costs resulting from distribution fees. If we deliver a digital coupon or media on a retailer’s website or mobile
apps or through its loyalty program, or the website or mobile apps of a publisher, we generally pay a distribution fee to the retailer or publisher which
is included in our cost of revenues. These costs are expensed as incurred. We generally do not pay a distribution fee for a coupon or code which is
offered through the website of the CPG or retailer that is offering the coupon or coupon code. From time to time, we have entered into arrangements
pursuant to which we have agreed to the payment of minimum distribution or other service fees that are included in our cost of revenues. Such
minimum commitments are less than the amounts we expect to actually pay, and as a result, we do not expect them to have a material impact on
our results of operations. Distribution fees as a percent of total revenues were 16%, 15% and 15% during the years ended December 31, 2015, 2014
and 2013, respectively. Cost of revenues also includes personnel costs, depreciation and amortization expense of equipment, software and acquired
intangible assets incurred on revenue producing technologies, data center costs and third-party service fees. Personnel costs related to costs of
revenues include salaries, bonuses, stock-based compensation and employee benefits. These costs are primarily attributable to individuals
maintaining our data centers and members of our network operations group, which initiates, sets up and delivers digital promotion and media
campaigns. Cost of revenues also includes third-party data center costs. We capitalize costs related to software that is developed or obtained for
internal use, including Retailer iQ. Costs incurred in connection with internal software development for revenue producing technologies are
capitalized and are amortized in cost of revenues over the internal use software’s useful life. The amortization of these costs begins when the
internally developed software is ready for its intended use. We expect our cost of revenues to increase in absolute dollars in future periods as we
incur additional related costs required to manage and operate Retailer iQ. We began to incur these expenses in the first half of 2014 prior to the
recognition of material corresponding revenue.
Although our cost of revenues will increase in absolute dollars as our total revenue increases, we anticipate our cost of revenues other than
distribution fees will generally increase at a rate lower than our rate of revenue growth.
Operating Expenses
We classify our operating expenses into three categories: sales and marketing, research and development and general and administrative.
Our operating expenses consist primarily of personnel costs and, to a lesser extent, professional fees and facilities expense. Personnel costs for
each category of operating expenses generally include salaries, bonuses, stock-based compensation and employee benefits.
Sales
and
marketing
. Our sales and marketing expenses consist primarily of personnel costs (including commissions), brand marketing,
and, to a lesser extent, costs associated with professional services, travel, trade shows and marketing materials. We expect sales and marketing
expenses to increase in absolute dollars as we hire additional personnel and continue to expand our marketing related programs designed to
increase our revenues.
Research
and
development
. Our research and development expenses consist primarily of personnel and related headcount costs and
costs of professional services associated with the ongoing development of our technology. Personnel costs include salaries, bonuses, stock-based
compensation expense and employee benefit costs. Our developers reside in our Mountain View, California headquarters, Paris, France, which was
acquired as part of our acquisition of Shopmium and our research and development center in Bangalore, India which we opened in January 2015.
We anticipate growing employees in India in 2016.
We believe that continued investment in technology is critical to attaining our strategic objectives, and, as a result, we expect research and
development expenses to increase in absolute dollars in future periods.
General
and
administrative
. Our general and administrative expenses consist primarily of personnel costs associated with our executive,
finance, legal, human resources, compliance and other administrative personnel, as well as accounting and legal professional services fees and
other corporate expenses. We expect general and administrative expenses to increase in absolute dollars in future periods as we continue to invest
in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and accounting costs,
investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley Act.
45
Change
in
fair
value
of
contingent
consideration
. The change in fair value of contingent consideration is result of our re-measurement of the
contingent consideration liability from the acquisition of the assets of Eckim, in August 2014 and from the acq uisition of Shopmium, in October 2015.
As contingent consideration relates to Eckim, the earnout period has ended for measuring the shares issuable based on Eckim achieving certain
revenue and profit milestones. Accordingly, the Company remeasured the Ecki m liability based on the number of shares issuable as of December
31, 2015.
Interest expense
Interest expense is primarily related to our debt obligations related to an outstanding credit agreement. All debt was repaid in the third quarter
of 2015 and the credit agreement was terminated.
Other Income (Expense), Net
Other income (expense), net, includes interest income and foreign exchange gains and losses.
Provision for (Benefit from) Income Taxes
The Company recorded a benefit from income taxes of $0.6 million for the year ended December 31, 2015, and a provision for income taxes
of $1.9 million and $0 for the years ended December 31 2014, and 2013, respectively. The benefit from income taxes of $0.6 million for the year
ended December 31, 2015 was primarily attributable to a decrease in deferred tax liabilities that arose from a loss the Company recorded from a
change in the fair value of contingent consideration related to the Eckim acquisition and net foreign tax benefit, partially offset by state income taxes.
The provision for income taxes of $1.9 million for the year ended December 31, 2014 was primarily attributable to the recognition of deferred tax
liabilities that arose from the gain the Company recorded from a change in the fair value of contingent consideration related to the Eckim acquisition.
There was no provision or benefit recorded for the year ended December 31, 2013 due to the valuation allowance recorded against substantially all
of our deferred tax assets.
Results of Operations
The following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenues
for the periods presented .
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Change in fair value of contingent consideration
Total operating expenses
Loss from operations
Interest expense
Gain on sale of a right to use a web domain name
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Year Ended December 31,
2014
(in thousands, except percentages)
100.0% $
38.9%
61.1%
38.9%
20.4%
14.7%
0.5%
74.5%
(13.4)%
(0.1)%
2.0%
(—)%
(11.5)%
(0.2)%
(11.3)% $
221,761
86,186
135,575
78,865
49,583
33,392
(5,741)
156,099
(20,524)
(922)
—
(72)
(21,518)
1,926
(23,444)
100.0% $
38.9%
61.1%
35.6%
22.4%
15.1%
(2.6)%
70.5%
(9.4)%
(0.4)%
(—)%
—%
(9.8)%
0.9%
(10.7)% $
2013
167,892
52,080
115,812
61,793
40,102
24,232
—
126,127
(10,315)
(953)
—
19
(11,249)
—
(11,249)
100.0%
31.0%
69.0%
36.8%
23.9%
14.4%
—%
75.1%
(6.1)%
(0.6)%
(—)%
(—)%
(6.7)%
—%
(6.7)%
$
$
2015
237,309
92,203
145,106
92,454
48,367
34,833
1,231
176,885
(31,779)
(290)
4,800
(22)
(27,291)
(561)
(26,730)
46
Revenues
(in
thousands,
except
percentages)
Revenues
2015
Compared
to
2014
Year Ended December 31,
2014
$ 221,761
2015
$ 237,309
2013
$ 167,892
2014 to 2015
2013 to 2014
$ Change
15,548
$
% Change
$ Change
53,869
7% $
% Change
32%
Revenues increased by $15.5 million, or 7%, during 2015, as compared to 2014. This increase was primarily attributable to an increase in the
number of transactions on our platform during 2015 to 1.7 billion from 1.6 billion during 2014. Revenues generated from our digital media campaigns
represented 54% of the 7% year over year increase, with the balance of the increase driven by our revenues from digital promotion transactions.
During 2015, revenues from digital promotion transactions and digital media were 74% and 26% of total revenues, respectively, as compared to 76%
and 24% of total revenues, respectively, for 2014.
We expect to see effects of variability on our business from quarter over quarter in the future as we integrate our digital promotions and media
solutions into retailers’ in-store and point of sale systems and consumer channels, as well as digital print trends.
2014
Compared
to
2013
Revenues increased by $53.9 million, or 32%, during 2014 , as compared to 2013. This increase was primarily attributable to an increase in
the number of transactions on our platform during 2014 to 1.6 billion from 1.3 billion during 2013 and to a lesser extent from increases in the number
of insertion orders for coupons that also included media placements. The increase in revenue was also driven by an increase in activity from
consumers making a purchase using a coupon code from our platform. During 2014, revenues from digital promotion transactions and digital media
were 76% and 24% of total revenues, respectively, as compared to 81% and 19% of total revenues, respectively, for 2013.
Cost of Revenues and Gross Profit
(in
thousands,
except
percentages)
Cost of revenues
Gross profit
Gross
margin
2015
Compared
to
2014
Year Ended December 31,
2014
$
86,186
$ 135,575
2015
$
92,203
$ 145,106
2013
$
52,080
$ 115,812
61%
61%
$ Change
6,017
$
9,531
$
69%
2014 to 2015
2013 to 2014
% Change
$ Change
34,106
19,763
7% $
7% $
% Change
65%
17%
Cost of revenues increased by $6.0 million, or 7%, during 2015 , as compared to 2014. The increase was primarily due to higher distribution
fees and increased costs associated with the deployment of Retailer iQ, partially offset by a decrease in costs for third-party support services and a
reduction in stock-based compensation expense. The increase in distribution fees were primarily related to an increase in the number of transactions
completed through our platform that are subject to fees on third-party sites. The increased amortization expense was as a result of the deployment of
Retailer iQ in the first quarter of 2014 and our ongoing development of new features and functionality of the platform. The decrease in third-party
support services was primarily due to a decrease in our use of third-party support services facilitated by the investment we are making in our
business operational service infrastructure, including our operational center in Bangalore, India.
For the year ended December 31, 2015, distributions and third-party service fees increased approximately $6.6 million, costs associated with
the deployment of Retailer iQ increased approximately $1.7 million, partially offset by a decrease in third-party support services and stock-based
compensation of $3.0 million and $1.4 million, respectively, as compared to the same period in 2014.
Gross margin for the year ended December 31, 2015 remained flat at 61%, as compared to 2014, resulting from the effect from the benefit of
decreased headcount related expenses and expense leverage from fixed costs that was mainly offset by the impact from the increase in distribution
and third-party service fees, and costs associated with the deployment of Retailer iQ.
47
We expect the costs associated with Retailer iQ to continue to increase in the future in absolute dolla rs as we continue to deploy and scale
Retailer iQ across retailers in the first half of 2016. We also expect the costs associated with distribution and third-party service fees, and expenses
related to amortization of intangibles to continue to increase in the future as we continue to expand and scale our distribution network and reach, and
to pursue opportunities to expand our business through selective acquisitions.
2014
Compared
to
2013
Cost of revenues increased by $34.1 million, or 65%, during 2014 , as compared to 2013. The increase was primarily due to higher distribution
fees and third-party service fees, increased costs associated with the deployment of Retailer iQ, and to a lesser extent higher headcount and related
expenses. The increases in distribution fees and third-party service fees were related to the increased number of transactions subject to fees
completed through our platform. The increases in cost related to Retailer iQ were primarily related to amortization expense and service and support
costs incurred as a result of the deployment of Retailer iQ in the first quarter of 2014. The increases in headcount and related costs were primarily
due to higher stock-based compensation expenses and to a lesser extent, higher salaries and related costs, partly driven by our IPO. For the year
ended December 31, 2014, distribution and third-party service fees increased $13.1 million, costs associated with the deployment of Retailer iQ
accounted for an additional $15.5 million, and headcount and related expenses increased $3.8 million, respectively, as compared to 2013.
Gross margin for the year ended December 31, 2014 decreased to 61% from 69% in the same period in 2013. This decrease was primarily
due to the combined impact from increased costs from Retailer iQ and increased stock-based compensation expenses, partially offset by expense
leverage from fixed costs and increases in media revenues.
Sales and Marketing
(in
thousands,
except
percentages)
Sales and marketing
Percent
of
revenues
$
2015
Compared
to
2014
Year Ended December 31,
2014
78,865
2015
92,454
$
39%
$
36%
2014 to 2015
2013 to 2014
2013
61,793
$ Change
13,589
$
37%
% Change
$ Change
17,072
% Change
28%
17% $
Sales and marketing expenses increased $13.6 million, or 17%, during 2015 , as compared to 2014. The increase was primarily due to
combined increases in promotional and advertising expenses, headcount related expenses and third-party consultation services. The increases in
our promotional and advertising costs were required to support our business objectives and revenue base. The increase in headcount and related
expenses were primarily related to increased expenses for stock-based compensation and to a lesser extent, higher salaries and expenses related
to hiring additional employees to support our growth and business objectives, including deployments of Retailer iQ across our network. The increase
in expenses related to third-party consultation services were a result of our efforts to improve the effectiveness of our distribution channels, including
consumer awareness of our brand. For the year ended December 31, 2015, promotional and advertising costs increased $6.0 million, headcount
and related expenses increased approximately $4.2 million which included increased stock-based compensation expenses of $1.2 million, and third-
party consultation services increased $1.8 million, as compared to 2014.
We expect sales and marketing expenses to increase in absolute dollars in future periods as we continue to incur costs to support our growth
and business objectives.
2014
Compared
to
2013
Sales and marketing expenses increased $17.1 million, or 28%, during 2014 , as compared to 2013. The increase was primarily due to
headcount and related costs and promotional and advertising costs. The increases in our promotional and advertising costs were required to support
our business objectives and the growth in revenues. The increases in our headcount related costs were primarily related to increases in stock-based
compensation expenses and to a lesser extent, increased salaries and new hire costs required to support our growth and business objectives,
including the initial roll-out of Retailer iQ. For the year ended December 31, 2014, headcount and related costs increased $8.7 million compared to
2013, and promotional and advertising costs increased $7.2 million, as compared to 2013.
48
Research and Development
(in
thousands,
except
percentages)
Research and development
Percent
of
revenues
$
2015
Compared
to
2014
Year Ended December 31,
2014
49,583
2015
48,367
$
20%
$
22%
2014 to 2015
2013 to 2014
2013
40,102
$ Change
(1,216)
$
24%
% Change
$ Change
9,481
% Change
24%
(2)% $
Research and development expenses decreased $1.2 million, or 2%, during 2015, as compared to 2014. The decrease was primarily related
to decreases in costs for third party research and development consultation and support services and net effect from decreases in headcount related
costs, partially offset by increases in costs for our research and development center in Bangalore, India. The decrease in third party research and
development consultation and support services was primarily related to a decrease in our use of third party services facilitated by the investment we
are making in our internal business technology infrastructure including the ongoing investment in our research and development center in Bangalore,
India. The decrease in headcount related expenses was primarily as a result of the net effect from a decrease in stock-based compensation expense
partially offset by higher salaries and related costs. For the year ended December 31, 2015, third-party research and development consultation and
support services decreased $1.6 million and net headcount related costs decreased $0.5 million, including decreased stock-based compensation of
$1.9 million, was partially offset by a $1.2 million increase in costs related to our research and development center in Bangalore, India, as compared
to 2014.
During the year ended December 31, 2015, we capitalized internal use software development costs related to Retailer iQ of $1.5 million, as
compared to $3.6 million during 2014.
We believe that continued investment in technology is critical to attaining our strategic objectives, and, as a result, we expect research and
development expenses to increase in absolute dollars in future periods. As a result, we expect our research and development costs to increase as
we continue to invest in our business technology objectives.
2014
Compared
to
2013
Research and development expenses increased $9.5 million, or 24%, during 2014 compared to 2013. The increase was primarily related to
the increased headcount and related costs partially offset by a decrease in research and development support services costs. The increases in
headcount related expenses were primarily driven by increased stock-based compensation expenses and to a lesser extent higher salaries. For the
year ended December 31, 2014, headcount and related costs increased $12.4 million, including increased stock-based compensation of $10.5
million, were partially offset by a decrease in the costs of our research and development consultation and support services of approximately $2.9
million, as compared to 2013.
During the year ended December 31, 2014, we capitalized internal use software development costs related to Retailer iQ of $3.6 million, as
compared to $6.8 million during 2013.
General and Administrative
(in
thousands,
except
percentages)
General and administrative
Percent of revenues
$
Year Ended December 31,
2014
33,392
2015
34,833
$
15%
$
15%
2014 to 2015
2013 to 2014
2013
24,232
$ Change
1,441
$
14%
% Change
$ Change
9,160
4% $
% Change
38%
49
2015
Compared
to
2014
General and administrative expenses increased $1.4 million, or 4%, during 2015 as compared to 2014. The increase was primarily due to an
increase in third party consultation services, an increase in bad debt provision and a net increase in headcount related costs. The increase in the
bad debt provision relates to a reserve, based on historical experience, taken on our increase in accounts receivable balance. The increases in
headcount related costs and consultation services were required to support our growth as well as to support our transition from a private to a public
company. For the year ended December 31, 2015, third party consultation services increased $0.7 million, bad debt expense increased $0.5 million
and net headcount cost increased $0.1 million, including decreased stock based compensation expense of $1.2 million, as compared to 2014.
As a public company, we have incurred and expect to continue to incur significant legal, accounting, regulatory compliance and other costs
that we did not incur in the periods prior to our IPO in March 2014. We expect general and administrative expenses to increase in absolute dollars in
future periods as we continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including
increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the
Sarbanes-Oxley Act.
2014
Compared
to
2013
General and administrative expenses increased $9.2 million, or 38%, during 2014 as compared to 2013. The increase was primarily due to
headcount and related costs primarily from higher stock-based compensation expenses and to a lesser extent from higher salaries and new hire
costs. The increases in stock-based compensation expenses were primarily related to RSUs. The increases in salaries and new hire costs were
required to support our growth as well as to support our activities as we transitioned from a private to a public company. For the year ended
December 31, 2014, headcount and related costs increased $12.8 million, including increased stock-based compensation of $9.1 million, and
increases in salaries of $2.2 million, as compared to 2013.
Change in Fair Value of Contingent Consideration
(in
thousands,
except
percentages)
Change in fair value of contingent
consideration
Percent of revenues
2015
Compared
to
2014
Year Ended December 31,
2014
2015
2013
$ Change
% Change
$ Change
% Change
2014 to 2015
2013 to 2014
$
1,231
$
1%
(5,741)
$
(3)%
—
$
—%
6,972
(121)% $
(5,741)
(100)%
During the year ended December 31, 2015, the Company recorded a loss of $1.2 million primarily resulting from the change in fair value of the
contingent consideration from the Eckim acquisition. The change in fair value of the contingent consideration was primarily driven by Eckim
achieving certain post-acquisition contractual revenue and profit milestones, partially offset by a decrease in our stock price. T he Company
remeasured the Eckim liability based on the number of shares issuable as of December 31, 2015. See Note 3 (Fair
Value
Measurements)
and Note
6 (Acquisition)
.
2014
Compared
to
2013
During the year ended December 31, 2014, the Company recorded a gain of $5.7 million resulting from the change in fair value of the
contingent consideration from the Eckim acquisition. The change in the fair value of the contingent consideration was primarily driven by the
decrease in the likelihood of achieving certain revenue and profit milestones .
Interest Expense and Other Income (Expense), Net
(in
thousands,
except
percentages)
Interest expense
Gain on sale of a right to use a web
domain name
Other income (expense), net
$
$
Year Ended December 31,
2014
2015
2013
(290)
$
(922)
$
(953)
2014 to 2015
2013 to 2014
$ Change
632
$
% Change
$ Change
31
(69)% $
4,800
(22)
4,488
$
—
(72)
(994)
$
50
—
19
(934)
$
4,800
50
5,482
100%
(69)%
(552)% $
—
(91)
(60)
% Change
(3)%
—%
(479)%
6%
2015
Compared
to
2014
The decreases in interest expense for the year ended December 31, 2015, as compared to 2014, were primarily due to the net effect from
lower interest expense associated with the early retirement of $15.0 million in borrowings in the third quarter of 2014 and the repayment of $7.5
million in borrowings in the third quarter of 2015. The gain on sale of a right to use a web domain name, during the year ended December 31, 2015,
was the result of a $4.8 million gain realized from the sale of a right to use a web domain name through a competitive public auction process .
2014
Compared
to
2013
The increase in interest expense and other income (expense), net for the year ended December 31, 2014 was primarily due to the net effect
from lower interest expense in 2014 associated with the early retirement of $15.0 million in borrowings in the third quarter of 2014, offset by
increased expenses from charitable contributions.
Provision for (benefit from) Income Taxes
(in
thousands,
except
percentages)
Provision for (benefit from) income taxes
2015
Compared
to
2014
Year Ended December 31,
2014
2013
2015
$
(561)
$
1,926
$
2014 to 2015
2013 to 2014
$ Change
(2,487)
$
—
% Change
$ Change
1,926
% Change
100%
(129)% $
The benefit from income taxes of $0.6 million during 2015 was primarily attributable to a decrease in deferred tax liabilities that arose from a
loss the Company recorded from a change in the fair value of contingent consideration related to the Eckim acquisition and net foreign tax benefit,
partially offset by state income taxes.
2014
Compared
to
2013
We recorded a provision for income taxes during 2014 as compared with no tax provision for or benefit from income taxes in 2013. Our
provision for income taxes during 2014 primarily attributable to the recognition of deferred tax liabilities that arose from the gain the Company
recorded from a change in fair value of contingent consideration related to the Eckim acquisition.
Liquidity and Capital Resources
As of December 31, 2015, our principal source of liquidity were cash and cash equivalents, marketable securities and short-term investments
totaling $159.9 million, which were held for working capital purposes.
In the near term, although we intend to continue to manage our operating expenses in line with our existing cash and available financial
resources, we anticipate we will incur increased spending in future periods in order to execute our long-term business plan and to support our growth
and the costs associated with being a public company. As a public company, we have incurred and expect to continue to incur significant legal,
accounting, regulatory compliance and other costs that we did not incur in the periods prior to our IPO with a higher increases in future periods as we
continue to invest in corporate infrastructure and incur additional expenses associated with being a public company, including increased legal and
accounting costs, investor relations costs, higher insurance premiums and compliance costs associated with Section 404 of the Sarbanes-Oxley
Act. In addition, we may use cash to fund acquisitions or invest in other businesses, leasehold improvements or technologies.
Prior to our IPO, we financed our operations and capital expenditures through private sales of preferred stock, term debt financing, exercise of
stock options and cash flows from operations. In March 2014, we completed our IPO in which we issued and sold 12,075,000 shares of common
stock at a public offering price of $16.00 per share for which we received proceeds of $179.7 million, which is net of underwriting discounts and
commissions of $13.5 million, but before deducting offering expenses of $5.4 million .
During the year ended December 31, 2015, we terminated our revolving line of credit facility with a commercial bank, and paid in full, all of
$7.5 million outstanding under the facility. As of December 31, 2015, there were no amounts outstanding or available under the line of credit.
51
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Cash flows provided by (used in) operating activities
Cash flows used in investing activities
Cash flows provided by financing activities
Effects of exchange rates on cash
Increase (decrease) in cash and cash equivalents
Operating
Activities
Year Ended December 31,
2015
2014
2013
$
$
9,231 $
(50,812)
(24,577)
30
(66,128) $
11,458 $
(23,032)
173,662
15
162,103 $
(14,158)
(14,485)
9,222
(2)
(19,423)
Cash provided by (used in) operating activities is primarily influenced by the amount of cash we invest in personnel and infrastructure to
support the anticipated growth of our business and the increase in our revenues. Cash provided by (used in) operating activities has typically been
due to our net losses and by changes in our operating assets and liabilities, particularly accounts receivable and accrued liabilities, adjusted for non-
cash expense items such as depreciation, amortization and stock-based compensation, change in fair value of contingent consideration and gain on
sale of a right to use a web domain name.
During 2015, cash provided by operating activities was approximately $9.2 million, reflecting our net loss of $26.7 million, offset by net non-
cash expenses of $45.7 million, which included depreciation and amortization, stock-based compensation, amortization of debt issuance costs, and
change in the fair value of the contingent consideration, offset by a gain on sale of a right to use a web domain name which is a reclassification of
cash flows to investing activities, deferred income taxes, recoveries of allowances for doubtful accounts and loss on disposal of property and
equipment. The non-cash expenses increased primarily due to capital expenditures and headcount growth, primarily related to continued investment
in our business. The remaining use of cash was from the net change in working capital items, most notably an increase in accounts receivable of
$12.8 million due to an increase in billing for media campaigns as well as timing of payments and an increase in prepaid expenses and other assets
of $1.2 million related to the timing of payments, offset by an increase in accounts payable and other current liabilities of $3.0 million and increase in
deferred revenues of $1.2 million and accrued compensation and benefits of $0.1 million.
During 2014, cash provided by operating activities amounted to $11.5 million, reflecting our net loss of $23.4 million, offset by net non-cash
expenses of $46.8 million, which included depreciation, amortization, stock-based compensation, deferred income taxes, allowance for doubtful
accounts, accretion of debt discount, amortization of debt issuance costs and loss on disposal of property and equipment, partially offset by the
change in the fair value of the contingent consideration from the Eckim acquisition. The non-cash expenses increased primarily due to capital
expenditures and headcount growth, primarily related to continued investment in our business. The remaining use of cash was from the net change
in working capital items, most notably an increase in accounts receivable of $8.9 million due to an increase in billings for media campaigns as well as
timing of payments, an increase in prepaid expenses and other current assets of $4.1 million primarily as a result of our prepayment of distribution
fees, partially offset by increases in accounts payable and other current liabilities and accrued compensation and benefits of $2.3 million related to
the timing of payments.
During 2013, cash used in operating activities amounted to $14.2 million, reflecting our net loss of $11.2 million, offset by non-cash expenses
of $12.4 million, which included depreciation, amortization, stock-based compensation, provision for allowance for doubtful accounts, accretion of
debt discount and loss on disposal of property and equipment. These non-cash expenses increased primarily due to capital expenditures and
headcount growth, primarily related to continued investment in our business. The remaining use of funds was from the net change in working capital
items, most notably a decrease in accounts payable and other current liabilities of $0.8 million related to the timing of payments, an increase in
accounts receivable of $13.1 million due to an increase in billings for media campaigns as well as timing of payments, an increase in prepaid
expenses and other current assets of $3.8 million primarily as a result of our prepayment of distribution fees and offset by an increase in accrued
compensation and benefits of $2.4 million related to the timing of compensation payments.
52
Investing
Activities
During 2015, net cash used in investing activities was $50.8 million, reflecting a $25.0 million purchase of a certificate of deposit investment,
$16.8 million acquisition of Shopmium, $13.2 million in purchases of property and equipment, offset by proceeds of $4.8 million from the sale of a
right to use a web domain name. Purchases of property and equipment includes technology hardware and software, and leasehold improvements to
support our growth as well as capitalized development and enhancement costs related to Retailer iQ. Purchases of property and equipment may
vary from period-to-period due to the timing of the expansion of our operations, the addition of headcount and the development cycles of Retailer iQ.
We expect to continue to invest in property and equipment and in the further development and enhancement of our software platform for the
foreseeable future. In addition, from time to time, we may consider potential acquisitions that would complement our existing service offerings,
enhance our technical capabilities or expand our marketing and sales presence. Any future transaction of this nature could require potentially
significant amounts of capital or could require us to issue our stock and dilute existing stockholders.
During 2014, cash used in investing activities consisted primarily of purchases of property and equipment, including technology hardware and
software to support our growth as well as capitalized internal-use software development costs and the net impact from our acquisitions, which
included our Eckim acquisition.
During 2013, cash used in investing activities consisted primarily of purchases of property and equipment, including technology hardware and
software to support our growth as well as capitalized internal-use software development costs.
Financing
Activities
Historically our financing activities have consisted primarily of net proceeds from the issuance of preferred stock, net borrowings under term
debt and a line of credit, and the issuance of shares of common stock upon the exercise of stock options. In March 2014, we completed our IPO in
which we issued and sold 12,075,000 shares of common stock at a public offering price of $16.00 per share for which we received proceeds of
$179.7 million which is net of underwriting discounts and commissions paid of $13.5 million, but before deducting estimated offering expenses of
$5.4 million.
During 2015, $24.6 million of net cash used in financing activities reflects $22.7 million in repurchases of our common stock and $7.5 million
used to terminate and pay off the total debt outstanding on our line of credit, partially offset by $5.7 million of proceeds received from exercises of
stock options.
During 2014, cash provided by financing activities consisted primarily of $176.5 million in proceeds from our IPO net of payments of offering
costs of $3.2 million, proceeds from issuance of common stock of $10.6 million and exercise of a warrant of $1.6 million, partially offset by our
repayment of debt obligations from a related party of $15.0 million.
During 2013, cash provided by financing activities amounted to $9.2 million, consisting primarily of $4.2 million in proceeds from the exercise
of stock options and warrants, and $7.5 million in net borrowings under our revolving line of credit, partially offset by $2.2 million in cash used for
deferred offering costs.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2015.
53
Contractual Obligations
The following table summarizes our future minimum payments under contractual commitments as of December 31, 2015 (in thousands):
Capital leases
Operating leases (1)
Purchase Obligations (2)
Total
Payments Due by Period
Total
Less Than
1 Year
$
$
93 $
9,778
10,820
20,691 $
52 $
3,717
2,600
6,369 $
1 - 3 Years
3 - 5 Years
More Than
5 Years
40 $
3,249
2,100
5,389 $
1 $
2,812
700
3,513 $
—
—
5,420
5,420
(1) We lease various office facilities, including our corporate headquarters in Mountain View, California and various sales offices, under operating
lease agreements that expire through December 2020. The terms of the lease agreements provide for rental payments on a graduated basis.
We recognize rent expense on a straight-line basis over the lease periods.
(2) We have an unconditional purchase commitment for the years 2016 to 2034 in the amount of $7.2 million for marketing arrangements relating
to the purchase of a 20-year suite license for a professional sports team which we use for sales and marketing purposes.
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations
under contracts that we can cancel without a significant penalty are not included in the table above.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of
these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from
these estimates.
We believe that the assumptions and estimates associated with internal-use software development costs, revenue recognition, stock-based
compensation and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our
critical accounting policies and estimates. For further information on all of our significant accounting policies, see the notes to our consolidated
financial statements.
Internal-Use Software Development Costs
In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are
successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the
software will be used as intended. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally
estimated to be three years. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as
incurred and recorded in research and development expense on our consolidated statements of operations. Costs incurred for enhancements that
are expected to result in additional features or functionality are capitalized and expensed over the estimated useful life of the enhancements,
generally three years.
Revenue Recognition
We recognize revenues primarily from the set-up and activation of coupons and coupons codes, and digital media services when all four of
the following criteria are met:
·
·
·
·
Persuasive evidence of an arrangement exists;
Delivery has occurred or a service has been provided;
Customer fees are fixed or determinable; and
Collection is reasonably assured.
54
Coupons.
We generate revenues, as consumers select, activate, or redeem a coupon through our platform by either printing it for physical
redemption at a retailer or saving i t to a retailer loyalty account for automatic digital redemption. In the case of the setup fees, we recognize
revenues proportionally, on a per activation basis, using the number of authorized activations per insertion order, commencing on the date of the first
coupon activation. For coupons, the pricing is generally determined on a per unit activation basis. Setup fees charged to customers represent
charges for the creation of digital coupons and related activation, tracking and security features. Upfront insertion orders generally include a limit on
the number of activations, or times consumers may select a coupon.
Coupon
Codes
. We generally generate revenues when a consumer makes a purchase using a coupon code from our platform and
completion of the order is reported to us. In the same period that we recognize revenues for the delivery of coupon codes, we also estimate and
record a reserve, based upon historical experience, to provide for end-user cancelations or product returns which may not be reported until a
subsequent date.
Digital
Media
. Our media services enable CPGs and retailers to distribute digital media and advertising to promote their brands and
products on our websites, and mobile apps, and through those of our affiliate publishers and non-publisher third parties. We charge a fee for these
media campaigns, the pricing of which is based on the advertisement size and position. Related fees are generally billed monthly, based on per
campaign, per impressions or a per click basis.
We do not offer rights of refund of previously paid or delivered amounts, rebates, rights of return or price protection. In all instances, we limit
the amount of revenue recognized to the amounts for which we have the right to bill our customers.
Gross versus Net Revenue Reporting
In the normal course of business and through our distribution network, we deliver digital coupons and media on retailers’ websites, through
retailers’ loyalty programs, and on the websites of digital publishers. In these situations, we generally pay a distribution fee to the retailers or digital
publishers which is included in our cost of revenues. The determination of whether revenues should be reported on a gross or net basis is based on
our assessment of whether we are the principal or an agent in the transaction. In determining whether we are the principal or an agent, we follow the
accounting guidance for principal-agent considerations. Because we are the primary obligor and are responsible for (i) fulfilling the digital coupon
and media delivery, (ii) establishing the selling prices for delivery of the digital coupons and media, and (iii) performing all billing and collection
activities including retaining credit risk, we have concluded that we are the principal in these arrangements, and therefore report revenues and cost
of revenues on a gross basis.
Multiple-element Arrangements
For arrangements with multiple-deliverables, we determine whether each of the individual deliverables qualify as a separate unit of
accounting. In order to treat deliverables in a multiple element arrangement as a separate unit of accounting, the deliverable must have standalone
value upon delivery.
We allocate the arrangement fee to all the deliverables (separate units of accounting) using the relative selling price method in accordance
with the selling price hierarchy, which includes vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”), if VSOE is not
available and best estimate of selling price (“BESP”), if neither VSOE nor TPE is available. VSOE and TPE do currently not exist for any of our
deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, we allocate the
arrangement fee to the separate units of accounting based on BESP. We determine BESP for deliverables by considering multiple factors, including,
but not limited to, prices we charge for similar offerings, market conditions, competitive landscape and pricing practices. We limit the amount of
allocable arrangement consideration to amounts that are fixed or determinable and that are not contingent on future performance or future
deliverables.
Stock-based Compensation
We account for stock-based compensation using the fair value method, which requires us to measure the stock-based compensation based
on the grant-date fair value of the awards and recognize the compensation expense over the requisite service period. We recognize compensation
expense, net of estimated forfeitures. Equity awards issued to nonemployees are recorded at fair value on their measurement date and are subject
to adjustment each period as the awards vest.
55
The fair value of each stock option award is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of RSUs
equals the market value of our common stock on the date of grant. Our option-pricing model requires the input of highly subjective assumptions, the
expected term of the option, the expected volatility of the price of our common stock, r isk-free interest rates, and the expected dividend yield of our
common stock.
Income Taxes
We account for our income taxes using the liability method. Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect
for the year the differences are expected to reverse. In evaluating our ability to recover our deferred tax assets we consider all available positive and
negative evidence including our past operating results, the existence of cumulative losses in past fiscal years, and our forecast of future taxable
income in the jurisdictions.
We have placed a valuation allowance on the U.S. deferred tax assets and certain non-U.S. deferred tax assets, because realization of these
tax benefits through future taxable income does not meet the more-likely-than-not threshold.
We account for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is
to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position
will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon settlement.
Recently Issued and Adopted Accounting Pronouncements
Accounting
Pronouncements
Not
Yet
Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09— Revenue
from
Contracts
with
Customers
(Topic
606),
and in August 2015, the FASB issued ASU
2015-14
–
Revenue
from
Contracts
with
Customers
(Topic
606):
Deferral
of
the
Effective
Date
which
defers
the
effective
date
of
ASU
2014-09
amended the existing accounting standards to achieve consistent
application of 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. Additionally, the standard requires reporting companies to also disclose the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. In July 2015, the FASB agreed to delay the effective date of this amendment by one year, accordingly,
the Company is required to adopt the amendments in the first quarter of 2018. 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. Early adoption is permitted, but not before the
original effective date of the amendment, which is the first quarter of 2017. The Company is currently evaluating its impact on the consolidated
financial statements.
In September 2015, the FASB issued ASU 2015-16, Business
Combinations
(Topic
805):
Simplifying
the
Accounting
for
Measurement-Period
Adjustments.
ASU 2015-16 eliminates the requirement for an acquirer to retrospectively adjust provisional amounts recorded in a business
combination to reflect new information about the facts and circumstances that existed as of the acquisition date and that, if known, would have
affected measurement or recognition of amounts initially recognized. As an alternative, the amendment requires that an acquirer recognize
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are
determined. The amendments require that the acquirer record, in the financial statements of the period in which adjustments to provisional amounts
are determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the
provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective prospectively for fiscal
years beginning after December 15, 2015, including interim periods within those fiscal years, accordingly, the Company is required to adopt the
amendment in the first quarter of 2016. The Company does not expect a material impact on our consolidated financial statements when adopting this
amendment.
56
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02— Leases
(Topic
842).
The guidance requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner
similar to today’s accounting. Less ees initially recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the
right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the l ease term.
The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial
direct costs. The standard is effective for public business entities for annual periods beginnin g after 15 December 2018, and interim periods within
those years, which would be the first quarter of 2018 for Quotient Technology. Early adoption is permitted for all entities. The Company is currently
evaluating its impact on the consolidated financial s tatements.
Accounting
Pronouncements
Adopted
In November 2015, the FASB issued ASU 2015-17, Income
Taxes
(Topic
740):
Balance
Sheet
Classification
of
Deferred
Taxes
. This update
simplifies the presentation of current and noncurrent deferred tax liabilities and assets. Under this update, the deferred tax liabilities and assets are
classified as noncurrent on the balance sheet. The update does not impact the current requirement that deferred tax liabilities and assets be offset
and presented as a single amount. This update is effective for the Company in the first quarter of 2018 and may be applied either prospectively or
retrospectively. Early adoption is permitted for unissued financial statements at the date of issuance, and the standard may be applied either
retrospectively or on a prospective basis to all deferred tax assets and liabilities. We early adopted ASU 2015-17 during our fourth quarter of 2015 on
a prospective basis. Accordingly, we reclassified the current deferred taxes to noncurrent on our December 31, 2015 consolidated balance sheet.
Prior period balances were not retrospectively adjusted.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our
business. These risks include primarily interest rate, foreign exchange risks and inflation. We do not hold or issue financial instruments for trading
purposes.
Interest Rate Fluctuation Risk
Our cash and cash equivalents consist of cash and money market funds. Our borrowings under capital lease obligations are generally at fixed
interest rates.
The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk.
Because our cash and cash equivalents have a relatively short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. We
do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial
condition. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.
Foreign Currency Exchange Risk
We have limited foreign currency risks related to our revenues and operating expenses denominated in currencies other than the U.S. dollar,
principally the British Pound Sterling and the Euro. The volatility of exchange rates depends on many factors that we cannot forecast with reliable
accuracy. Although we have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains
(losses) related to revaluing certain cash balances, trade accounts receivable balances and intercompany balances that are denominated in
currencies other than the U.S. dollar, we believe such a change will not have a material impact on our results of operations. In the event our foreign
sales and expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we
do business. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign
currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to
become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or
failure to do so could harm our business, financial condition and results of operations.
57
Item 8.
Financial Statements and Supplementary Data.
Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
58
59
60
61
62
63
64
65
Rep ort of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Quotient Technology Inc.
We have audited the accompanying consolidated balance sheets of Quotient Technology Inc. (formerly Coupons.com Incorporated) as of
December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock
and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Quotient
Technology Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
San Jose, California
March 11, 2016
59
QUOTIENT TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $833 and $408
at December 31, 2015 and 2014, respectively
Deferred tax assets
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued compensation and benefits
Other current liabilities
Deferred revenues
Debt obligations
Total current liabilities
Other non-current liabilities
Deferred rent
Contingent consideration related to acquisitions
Deferred tax liabilities
Total liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity (deficit):
Preferred stock, $0.00001 par value—10,000,000 shares authorized and no shares issued or
outstanding at December 31, 2015 and 2014
Common stock, $0.00001 par value—250,000,000 shares authorized, 89,935,381 shares
issued and 81,995,286 outstanding at December 31, 2015; 250,000,000 shares authorized,
86,224,920 shares issued and 81,380,014 outstanding at December 31, 2014
Additional paid-in capital
Treasury stock, at cost
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
See Accompanying Notes to Consolidated Financial Statements
60
December 31,
2015
2014
$
134,947 $
25,000
201,075
—
63,239
—
5,297
228,483
25,128
14,880
43,895
8,685
321,071 $
8,187 $
15,237
20,170
7,342
—
50,936
5
701
1,407
2,532
55,581
51,061
457
3,712
256,305
25,399
11,818
29,277
9,008
331,807
6,358
14,861
16,530
6,219
7,500
51,468
89
738
—
2,624
54,919
—
—
1
570,588
(85,427)
(747)
(218,925)
265,490
321,071 $
1
531,018
(61,935)
(1)
(192,195)
276,888
331,807
$
$
$
QUOTIENT TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenues
Costs and expenses:
Cost of revenues
Sales and marketing
Research and development
General and administrative
Change in fair value of contingent consideration
Total costs and expenses
Loss from operations
Interest expense
Gain on sale of a right to use a web domain name
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Net loss per share attributable to common stockholders, basic and diluted
Weighted-average number of common shares used in computing net loss
per share attributable to common stockholders, basic and diluted
2015
Year Ended December 31,
2014
2013
$
237,309 $
221,761 $
167,892
92,203
92,454
48,367
34,833
1,231
269,088
(31,779)
(290)
4,800
(22)
(27,291)
(561)
(26,730) $
86,186
78,865
49,583
33,392
(5,741)
242,285
(20,524)
(922)
—
(72)
(21,518)
1,926
(23,444) $
52,080
61,793
40,102
24,232
—
178,207
(10,315)
(953)
—
19
(11,249)
—
(11,249)
(0.32) $
(0.35) $
(0.57)
82,807
67,828
19,626
$
$
See Accompanying Notes to Consolidated Financial Statements
61
QUOTIENT TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss
Other comprehensive loss:
Foreign currency translation adjustments
Comprehensive loss
2015
Year Ended December 31,
2014
2013
(26,730) $
(23,444) $
(11,249)
(746)
(27,476) $
(38)
(23,482) $
(3)
(11,252)
$
$
See Accompanying Notes to Consolidated Financial Statements
62
Balance as of
December 31, 2012
Exercise of
employee stock
options
Vesting of early
exercised stock
options
Stock-based
compensation
Exercise of warrant
Other
comprehensive loss
Net loss
Balance as of
December 31, 2013
Exercise of
employee stock
options
Vesting of restricted
stock units
Issuance of common
stock, stock
purchase plan
Exercise of warrant
Issuance of common
stock, acquisition
Issuance of common
stock from initial
public offering, net
of offering costs
Conversion of
preferred stock to
common
stock
Stock-based
compensation
Other
comprehensive loss
Net loss
Balance as of
December 31, 2014
Exercise of
employee stock
options
Vesting of restricted
stock units
Issuance of common
stock, stock
purchase plan
Issuance of common
stock, acquisition
Stock-based
compensation
Repurchases of
common stock
Other
comprehensive loss
Net loss
Balance as of
December 31, 2015
QUOTIENT TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Redeemable
Convertible
Preferred Stock
Common Stock
Additional
Paid-In
Accumulated
Other
Treasury Stock
Comprehensive Accumulated
Shares
Amount Shares
Amount Capital
Shares Amount Income (Loss)
Deficit
Total
Stockholders'
Equity
(Deficit)
41,529,721 $ 270,262 18,463,526 $
— $
19,015 4,844,906 $ (61,935 ) $
40 $
(157,502 ) $
(200,382 )
—
— 2,328,229
—
3,661
—
—
—
—
3,661
—
—
—
—
—
—
—
—
—
—
—
—
297,545
—
—
—
—
—
—
—
48
5,181
498
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3)
—
—
—
—
48
5,181
498
—
(11,249 )
(3)
(11,249 )
41,529,721 $ 270,262 21,089,300 $
— $
28,403 4,844,906 $ (61,935 ) $
37 $
(168,751 ) $
(202,246 )
—
—
—
—
—
— 3,149,166
—
8,244
— 1,913,724
—
—
—
—
172,277
400,000
—
—
2,343
1,610
— 1,000,040
—
10,050
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,244
-
2,343
1,610
10,050
—
— 12,075,000
— 174,305
—
—
—
—
174,305
(41,529,721 ) (270,262 ) 41,580,507
—
—
—
—
—
—
—
—
—
1 270,261
—
35,802
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(38)
—
—
270,262
—
35,802
—
(23,444 )
(38)
(23,444 )
— $
— 81,380,014 $
1 $ 531,018 4,844,906 $ (61,935 ) $
(1) $
(192,195 ) $
276,888
—
—
—
—
—
—
—
—
— 1,232,184
—
4,081
— 2,006,143
—
—
—
193,495
—
1,599
—
278,639
—
1,544
—
—
—
32,346
—
—
—
—
—
—
—
—
—
—
— 3,095,189
(23,492 )
— (3,095,189 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,081
—
1,599
1,544
32,346
—
(23,492 )
—
—
—
—
—
—
(746)
—
—
(26,730 )
(746)
(26,730 )
— $
— 81,995,286 $
1 $ 570,588 7,940,095 $ (85,427 ) $
(747) $
(218,925 ) $
265,490
See Accompanying Notes to Consolidated Financial Statements
63
QUOTIENT TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
2015
Year Ended December 31,
2014
2013
$
(26,730 )
$
(23,444 )
$
(11,249 )
Depreciation and amortization
Stock-based compensation
Accretion of debt discount
Amortization of debt issuance cost
Gain on sale of a right to use a web domain name
Loss on disposal of property and equipment
Allowance for doubtful accounts
Deferred income taxes
Change in fair value of contingent consideration
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Accounts payable and other current liabilities
Accrued compensation and benefits
Deferred revenues
Other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of intangible assets
Proceeds from sale of a right to use a web domain name
Acquisitions, net of cash acquired
Purchases of short-term investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Proceeds from initial public offering, net of offering costs
Exercise of warrant
Net (repayment) borrowings under revolving line of credit
Payment of deferred offering costs
Repurchases of common stock
Repayment of debt obligations, related party
Principal payments on capital lease obligations
Other
Net cash provided by (used in) financing activities
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information
Cash paid for interest
Supplemental disclosures of noncash investing and financing activities
Vesting of early exercised stock options
Repurchase of common stock not settled
Issuance of common stock, acquisition
Property and equipment acquired under capital leases
Property and equipment in accounts payable and accrued liabilities
16,500
32,346
—
134
(4,800)
146
680
(561)
1,231
(12,792 )
(1,231)
2,967
146
1,189
6
9,231
(13,170 )
(636)
4,800
(16,806 )
(25,000 )
(50,812 )
5,680
—
—
(7,500)
—
(22,695 )
—
(62)
—
(24,577 )
30
(66,128 )
201,075
134,947
$
14,737
35,510
173
77
—
9
136
1,923
(5,741)
(8,863)
(4,086)
1,155
1,104
(490)
(742)
11,458
(9,580)
(111)
—
(13,341 )
—
(23,032 )
10,585
176,525
1,610
—
—
—
(15,000 )
(58)
—
173,662
15
162,103
38,972
201,075
$
196
$
1,448
$
—
797
1,544
—
1,365 $
—
—
10,050
97
1,657 $
6,859
5,181
228
19
—
1
155
—
—
(13,129 )
(3,780)
(790)
2,402
(680)
625
(14,158 )
(14,474 )
(11)
—
—
—
(14,485 )
3,661
—
498
7,500
(2,220)
—
—
(40)
(177)
9,222
(2)
(19,423 )
58,395
38,972
56
48
—
—
91
3,298
$
$
$
See Accompanying Notes to Consolidated Financial Statements
64
QUOTIENT TECHNOLOGY INC.
Notes to Consolidated Financial Statements
1. Background
Description of Business
Quotient Technology Inc., formerly known as Coupons.com Incorporated, is a provider of digital promotions and media solutions driven by
consumer-shopping data. The Company connects consumer packaged goods (CPG) brands and retailers with shoppers by delivering digital
promotions and media to shoppers through mobile, web and social channels. Leading brands, as well as leading retailers in the grocery, drug, dollar,
club and mass merchandise channels, use its platform to engage shoppers at the critical moments when they are choosing what products to buy and
where to shop. The Company’s new corporate name, which became effective October 20, 2015, is designed to better reflect the breadth and
sophistication of its business offerings, along with its deepening relationships with Fortune 500 CPGs and retailers.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”). The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
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 consolidated financial statements.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash
equivalents. The Company’s short-term investments consists of certificates of deposits with original maturities of greater than three months and
remaining maturities less than one year as of the balance sheet date.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at invoiced amounts and do not bear interest. The Company generally does not require collateral and
performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company maintains an allowance for
doubtful accounts based upon the expected collectability of its accounts receivable. The allowance is determined based upon specific account
identification and historical experience of uncollectable accounts. The expectation of collectability is based on the Company’s review of credit profiles
of customers, contractual terms and conditions, current economic trends, and historical payment experience. When the Company determines that
the amounts are uncollectible, the Company writes them off against the allowance for doubtful accounts.
Property and Equipment, net
Property and equipment, net, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the assets, which are three years for computer equipment and software and five
years for all other asset categories except leasehold improvements, which are amortized over the shorter of the lease term or the expected useful
life of the improvements. Equipment leased under capital leases is amortized over the shorter of the lease term or the asset’s estimated useful life.
65
Internal-Use Software Development Costs
C osts incurred for computer software developed or obtained for internal use, the Company begins to capitalize its costs to develop software
when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable
that the project will be completed and the software will be used as intended. These costs are amortized to cost of revenues over the estimated useful
life of the related asset, generally estimated to be three years. Costs incurred prior to meeting these criteria together with costs incurred for training
and maintenance are expensed as incurred and recorded in research and development expense on the Company’s consolidated statements of
operations.
Leases
Leases meeting certain criteria are accounted for as capital leases. The imputed interest is included in interest expense in the accompanying
consolidated statements of operations, and the capitalized value is amortized as part of the Company’s property and equipment, net. Obligations
under capital leases are reduced by lease payments, net of imputed interest. All other leases are accounted for as operating leases. When an
operating lease contains a predetermined fixed escalation of the minimum rent, or if tenant allowances have been received, the related rent expense
is recognized on a straight-line basis over the term of the lease, with the difference between the recognized rent expense and amounts payable
under the lease recorded as deferred rent liability.
Business Combinations
The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business
combinations. Under the acquisition method of accounting, the total consideration is allocated to the tangible and identifiable intangible assets
acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the consideration transferred over those
fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may
record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Acquisition related costs are not
considered part of the consideration, and are expensed as general and administrative expense as incurred.
Goodwill and Intangible Assets, net
Intangible assets with a finite life are amortized over their estimated useful lives. Goodwill is tested for impairment at least annually, and more
frequently upon the occurrence of certain events. The Company completes its annual impairment test during the fourth quarter of each year. There
was no impairment of goodwill for the years ended December 31, 2015, 2014 and 2013.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, an impairment loss would be
recognized when the carrying amount of the asset exceeds the fair value of the asset. The Company has not recognized any impairment of long-
lived assets for the years ended December 31, 2015, 2014 and 2013.
Fair Value of Financial Instruments
The carrying values of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable, accrued
compensation and benefits, and other current liabilities, approximate fair value due to their short-term nature. Debt obligations are stated at the
carrying value as the stated interest rates approximate market rates available to the Company. The Company records money market funds, short-
term investments and contingent consideration at fair value. See Note 3 (Fair
Value
Measurements)
.
Revenue Recognition
The Company derives revenues primarily from the set-up and activation of coupons and coupons codes, and digital media services.
66
The Company recognizes revenue when all four of the following criteria are met:
·
·
·
·
Persuasive evidence of an arrangement exists;
Delivery has occurred or a service has been provided;
Customer fees are fixed or determinable; and
Collection is reasonably assured.
Coupons.
The Company generates revenues, as consumers select, activate, or redeem a coupon through our platform by either printing it
for physical redemption at a retailer or saving it to a retailer loyalty account for automatic digital redemption. In the case of the setup fees, it
recognizes revenues proportionally, on a per activation basis, using the number of authorized activations per insertion order, commencing on the
date of the first coupon activation. For coupons, the pricing is generally determined on a per unit activation basis. Setup fees charged to customers
represent charges for the creation of digital coupons and related activation, tracking and security features. Upfront insertion orders generally include
a limit on the number of activations, or times consumers may select a coupon.
Coupon
Codes
. The Company generally generates revenues when a consumer makes a purchase using a coupon code from its platform
and completion of the order is reported to the Company. In the same period that the Company recognize revenues for the delivery of coupon codes,
it also estimates and record a reserve, based upon historical experience, to provide for end-user cancelations or product returns which may not be
reported until a subsequent date.
Digital
Media
-
The Company’s media services enable CPGs and retailers to deliver digital media and advertising to promote their brands and
products on the Company’s websites and mobile apps, and through the Company’s affiliate publishers and non-publisher third parties. The Company
charges a fee for these media campaigns, the pricing of which is based on the advertisement size and position. Related fees are generally billed
monthly, based on a per-campaign, per-impression or per-click basis.
The Company does not offer rights of refund of previously paid or delivered amounts, rebates, rights of return or price protection. In all
instances, the Company limits the amount of revenue recognized to the amounts for which it have the right to bill its’ customers.
Gross versus Net Revenue Reporting
In the normal course of business and through its distribution network, the Company delivers digital coupons and media on retailers’ websites,
through retailers’ loyalty programs, and on the websites of digital publishers. In these situations, the Company generally pays a distribution fee to the
retailers or publishers which is included in the Company’s cost of revenues. The determination of whether revenues should be reported on a gross or
net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. In determining whether the
Company is the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Because the Company is the
primary obligor and is responsible for (i) fulfilling the digital coupon and media delivery, (ii) establishing the selling prices for delivery of the digital
coupons and media, and (iii) performing all billing and collection activities including retaining credit risk, the Company has concluded that it is the
principal in these arrangements and therefore the Company reports revenues and cost of revenues on a gross basis.
Multiple-element Arrangements
For arrangements with multiple-deliverables, the Company determines whether each of the individual deliverables qualify as a separate unit of
accounting. In order to treat deliverables in a multiple element arrangement as a separate unit of accounting, the deliverable must have standalone
value upon delivery.
67
The Company a llocates the arrangement fee to all the deliverables (separate units of accounting) using the relative selling price method in
accordance with the selling price hierarchy, which includes vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if
VSOE is not available and best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. VSOE and TPE do currently not exist for any
of the Company’s deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, the
Company allocates the arrangement fee to the separate units of accounting based on BESP. The Company determines BESP for deliverables by
considering multiple factors, including, but not limited to, prices it charges for similar offerings, market conditions, competitive landscape and pricing
practices. The Company limits the amount of allocable arrangement consideration to amounts that are fixed or determinable and that are not
contingent on futu re performance or future deliverables.
Deferred Revenues
Deferred revenues consist of coupon setup fees and activation fees that are expected to be recognized upon coupon activations, which
generally occurs within the next twelve months.
Cost of Revenues
Cost of revenues consist primarily of distribution fees, third-party data center costs, personnel costs and depreciation and amortization
expense. Distribution fees consist of payments to partners within the Company’s network for their digital coupon publishing services. Personnel costs
include salaries, bonuses, stock-based awards and employee benefits. The personnel costs are primarily attributable to individuals maintaining the
Company’s data centers and operations, which initiate, sets up and deliver digital coupon media campaigns. Depreciation and amortization expense
includes depreciation of data center equipment and amortization of capitalized internal use software.
Research and Development Expense
The Company expenses the cost of research and development as incurred. Research and development expense consists primarily of
personnel and related headcount costs and costs of professional services associated with the ongoing development of the Company’s technology.
Stock-based Compensation
The Company accounts for stock-based compensation using the fair value method, which requires the Company to measure the stock-based
compensation based on the grant-date fair value of the awards and recognize the compensation expense over the requisite service period. The
Company recognizes compensation expense net of estimated forfeitures. Equity awards issued to nonemployees are recorded at fair value on their
measurement date and are subject to adjustment each period as the awards vest.
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 was satisfied
six months following the Company’s IPO did 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 was 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. The Company recognized stock-based compensation expense associated with RSUs
of $27.7 million and $29.5 million during the years ended December 31, 2015 and 2014, respectively.
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.
68
Advertising Expense
Advertising costs are expensed when incurred and are included in sales and marketing expense on the accompanying consolidated
statements of operations. The Company incurred $1.4 million, $0.8 million and $1.9 million of advertising costs during the years ended
December 31, 2015, 2014 and 2013, respectively. Advertising costs consist primarily of online marketing costs, such as sponsored search,
advertising on social networking sites, e-mail marketing campaigns, loyalty programs, and affiliate programs.
Income Taxes
The Company accounts for income taxes in accordance with authoritative guidance, which requires the use of the liability method. Under this
method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying
amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in
which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not
be realized.
In November 2015, the FASB issued ASU 2015-17, Income
Taxes
(Topic
740):
Balance
Sheet
Classification
of
Deferred
Taxes
. This update
simplifies the presentation of current and noncurrent deferred tax liabilities and assets to non-current deferred tax liabilities and assets on the
balance sheet. The update does not impact the current requirement that deferred tax liabilities and assets be offset and presented as a single
amount. The FASB Standard is effective for the Company in the first quarter of 2018 and early adoption is permitted for unissued financial
statements at the date of issuance. The Company may choose to apply the standard either retrospectively or prospectively to all deferred tax assets
and liabilities. We have chosen to early adopt this standard during our fourth quarter of 2015 on a prospective basis. Accordingly, the Company has
reclassified the current deferred taxes to noncurrent on our December 31, 2015 consolidated balance sheet. Prior period balances were not
retrospectively adjusted.
The Company recognizes liabilities for uncertain tax positions based upon a two-step process. To the extent a tax position does not meet a
more-likely-than-not level of certainty, no benefit is recognized in the consolidated financial statements. If a position meets the more-likely-than-not
level of certainty, it is recognized in the consolidated financial statements at the largest amount that has a greater than 50% likelihood of being
realized upon ultimate settlement. The Company accounts for any applicable interest and penalties as a component of income tax expense.
Foreign Currency
Foreign currency denominated assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated
into U.S. Dollars using the exchange rates in effect at the balance sheet dates, and income and expenses are translated using average exchange
rates during the period. The resulting foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss), a
component of stockholders’ equity.
Gains and losses from foreign currency transactions are included in other income (expense), net in the accompanying consolidated
statements of operations. Foreign currency transaction gains (losses) were immaterial for all the periods presented in the accompanying
consolidated financial statements.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of foreign currency translation adjustments.
Net Loss per Share Attributable to Common Stockholders
The Company computes its basic and diluted net loss per share attributable to common stockholders using the two-class method required for
companies with participating securities. The Company’s basic net loss per share attributable to common stockholders is computed by dividing the
net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less the
weighted average unvested common stock subject to repurchase. The diluted net income per share attributable to common stockholders is
computed by giving effect to all potentially dilutive common shares equivalents outstanding during the period. The effects of options to purchase
common stock, redeemable convertible preferred stock (outstanding prior to the Company’s IPO in March 2014), RSUs, and common stock warrants
are excluded from the computation of diluted net loss per share attributable to common stockholders because their effect is antidilutive.
69
Segments
The Company’s chief operating decision maker, who is the Chief Executive Officer, reviews the Company’s financial information presented on
a consolidated basis for purposes of allocating resources and evaluating our financial performance. There are no segment managers who are held
accountable by the chief operating decision maker, or anyone else, for operations, operating results, and planning for levels or components below
the consolidated unit level. Accordingly, the Company has determined that it operates in a single reporting segment.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-
term investments and accounts receivable. For cash, cash equivalents and short-term investments, the Company is exposed to credit risk in the
event of default by the financial institutions to the extent of the amounts recorded on the accompanying consolidated balance sheets. Credit risk with
respect to accounts receivable is dispersed due to the large number of customers. The Company does not require collateral for accounts receivable.
Recently Issued Accounting Pronouncements
Accounting
Pronouncements
Not
Yet
Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09— Revenue
from
Contracts
with
Customers
(Topic
606),
and in August 2015, the FASB issued ASU
2015-14
–
Revenue
from
Contracts
with
Customers
(Topic
606):
Deferral
of
the
Effective
Date
which
defers
the
effective
date
of
ASU
2014-09
amended the existing accounting standards to achieve consistent
application of 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. Additionally, the standard requires reporting companies to also disclose the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. In July 2015, the FASB agreed to delay the effective date of this amendment by one year, accordingly,
the Company is required to adopt the amendments in the first quarter of 2018. 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. Early adoption is permitted, but not before the
original effective date of the amendment, which is the first quarter of 2017. The Company is currently evaluating its impact on the consolidated
financial statements.
In September 2015, the FASB issued ASU 2015-16, Business
Combinations
(Topic
805):
Simplifying
the
Accounting
for
Measurement-Period
Adjustments.
ASU 2015-16 eliminates the requirement for an acquirer to retrospectively adjust provisional amounts recorded in a business
combination to reflect new information about the facts and circumstances that existed as of the acquisition date and that, if known, would have
affected measurement or recognition of amounts initially recognized. As an alternative, the amendment requires that an acquirer recognize
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are
determined. The amendments require that the acquirer record, in the financial statements of the period in which adjustments to provisional amounts
are determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the
provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective prospectively for fiscal
years beginning after December 15, 2015, including interim periods within those fiscal years, accordingly, the Company is required to adopt the
amendment in the first quarter of 2016. The Company does not expect a material impact on our consolidated financial statements when adopting this
amendment.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02— Leases
(Topic
842).
The guidance requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner
similar to today’s accounting. Lessees initially recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the
right to use the underlying asset for the lease term. The lease liability is measured at the present value of the lease payments over the lease term.
The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial
direct costs. The standard is effective for public business entities for annual periods beginning after 15 December 2018, and interim periods within
those years, which would be the first quarter of 2018 for Quotient Technology. Early adoption is permitted for all entities. The Company is currently
evaluating its impact on the consolidated financial statements.
70
Accounting
Pronouncements
Adopted
In November 2015, the FASB issued ASU 2015-17, Income
Taxes
(Topic
740):
Balance
Sheet
Classification
of
Deferred
Taxes
. This update
simplifies the presentation of current and noncurrent deferred tax liabilities and assets. Under this update, the deferred tax liabilities and assets are
classified as noncurrent on the balance sheet. The update does not impact the current requirement that deferred tax liabilities and assets be offset
and presented as a single amount. This update is effective for the Company in the first quarter of 2018 and may be applied either prospectively or
retrospectively. Early adoption is permitted for unissued financial statements at the date of issuance, and the standard may be applied either
retrospectively or on a prospective basis to all deferred tax assets and liabilities. We early adopted ASU 2015-17 during our fourth quarter of 2015 on
a prospective basis. Accordingly, we reclassified the current deferred taxes to noncurrent on our December 31, 2015 consolidated balance sheet.
Prior period balances were not retrospectively adjusted.
3. Fair Value Measurements
The 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. 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 similar assets or
liabilities in active or 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.
71
The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in
thousands):
Assets:
Money market funds (1)
Certificate of deposits (2)
Total
Liabilities:
Contingent consideration related to Eckim acquisition (3)
Contingent consideration related to Shopmium acquisition
Total
(1) Included in cash and cash equivalents
(2) Included in short-term investments
(3) Included in other current liabilities
Assets:
Money market funds (1)
Total
Liabilities:
Contingent consideration (2)
Total
(1) Included in cash and cash equivalents
(2) Included in other current liabilities
Level 1
Level 2
Level 3
Total
December 31, 2015
19,948 $
—
19,948 $
2,291 $
—
2,291 $
— $
25,000
25,000 $
— $
—
— $
— $
—
— $
— $
1,407
1,407 $
19,948
25,000
44,948
2,291
1,407
3,698
Level 1
Level 2
Level 3
Total
December 31, 2014
14,928 $
14,928 $
— $
— $
— $
— $
— $
— $
— $
— $
1,048 $
1,048 $
14,928
14,928
1,048
1,048
$
$
$
$
$
$
$
$
The valuation technique used to measure the fair value of money market funds included using quoted prices in active markets for identical
assets. The valuation technique used to measure the fair value of certificate of deposits included using quoted prices in active markets for similar
assets.
The fair value of contingent consideration related to Eckim is the result of the earnout period ending for measuring shares issuable based on
Eckim achieving certain revenue and profit milestones as of December 31, 2015. The liability was valued based on 335,891 shares of the
Company’s common stock valued at the closing stock price per share of $6.82 on December 31, 2015.
The fair value of contingent consideration related to Shopmium 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 the Company’s stock price, maximum earn-out
shares, historical and projected financial results of Shopmium, historical volatility of the Company's stock price and risk-free interest rate. See Note 6
(Acquisitions)
.
72
The following table represents the change in the contingent consideration (in thousands):
Balance as of December 31, 2014
Acquisition date fair value measurement
Change in fair value
Foreign currency translation
Transfers out of Level 3
Balance as of December 31, 2015
Eckim
Level 3
Shopmium
Level 3
$
$
1,048 $
—
1,243
—
(2,291)
— $
—
1,462
—
(55)
—
1,407
For the year ended December 31, 2015, the Company recorded a loss of $1.2 million due to the change in fair value of the contingent
consideration related to Eckim. The change in fair value of the contingent consideration during the period was primarily driven by Eckim achieving
certain revenue and profit milestones, partially offset by the decline in the Company’s common stock price per share. Gains and losses as a result of
the changes in the fair value of the contingent consideration are included as a component of operations in the accompanying consolidated
statements of operations.
As the contingent consideration relates to Eckim, the liability’s fair value was remeasured with Level 1 inputs by taking the actual number of
shares issuable, calculated based on actual revenues and profit achievement, by the Company’s common stock price as of December 31, 2015.
Accordingly, the liability was transferred out of Level 3 to Level 1 input category of fair value measurements.
4. Allowance for Doubtful Accounts
The summary of activities in the allowance for doubtful accounts is as follows (in thousands):
Balance at beginning of period
Bad debt expense
Recoveries (write-offs), net
Balance at end of period
5. Balance Sheet Components
Property and Equipment, Net
Property and equipment consist of the following (in thousands):
Software
Computer equipment
Leasehold improvements
Furniture and fixtures
Total
Accumulated depreciation and amortization
Projects in process
Property and equipment, net
2015
Year Ended December 31,
2014
2013
$
$
408
680
(255)
833
$
$
332
136
(60)
408
$
$
270
155
(93)
332
December 31,
2015
2014
$
$
33,139
21,186
4,721
1,670
60,716
(39,124)
3,536
25,128
$
$
30,791
17,325
2,393
1,645
52,154
(28,783)
2,028
25,399
Depreciation and amortization expense of property and equipment was $13.1 million $12.8 million and $5.9 million for the years ended
December 31, 2015, 2014 and 2013, respectively. Total depreciation and amortization expense includes computer and other equipment acquired
under capital leases of $34,000, $80,000 and $65,000 for the years ended December 31, 2015, 2014 and 2013, respectively. During the years
ended December 31, 2015, 2014 and 2013, the Company disposed of equipment with an original cost of $2.9 million, $1.5 million and $0.1 million,
resulting in a loss on disposal of $146,000, $9,000 and $1,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
73
In 2012, the Company commenced the development of Retailer iQ. During the years ended December 31, 2015, 2014 and 2013, the
Company capitalized $1.5 million, $3.6 million, and $6.9 milli on, respectively, of development costs related to the new platform. The Company
recognized $9.4 million and $7.7 million of amortization expense in cost of revenues during the year ended December 31, 2015 and 2014,
respectively. During the year ended Decem ber 31, 2013, there was no amortization expense, as the new software platform was still under
development. The unamortized capitalized development and enhancement costs related to the new platform were $11.1 million and $19.0 million as
of December 31, 201 5 and 2014, respectively.
Accrued Compensation and Benefits
Accrued compensation and benefits consist of the following (in thousands):
Bonus
Commissions
Vacation
Payroll and related expenses
Accrued compensation and benefits
Other Current Liabilities
Other current liabilities consist of the following (in thousands):
Distribution fees
Marketing expenses
Legal and professional fees
Contingent consideration related to acquisition
Accrued property and equipment
Deferred rent
Other
Other current liabilities
6. Acquisitions
December 31,
2015
2014
6,858
3,645
2,118
2,616
15,237
$
$
6,909
3,458
2,427
2,067
14,861
December 31,
2015
2014
8,349
3,336
745
2,291
929
346
4,174
20,170
$
$
5,805
3,415
1,699
1,048
687
536
3,340
16,530
$
$
$
$
On October 30, 2015, the Company acquired all the outstanding shares of Shopmium S.A. (“Shopmium”), a company based in France, and
creator of a mobile app for receipt-scanning and cash-back. The total acquisition consideration of $19.5 million consisted of $16.5 million in cash,
278,639 shares of the Company’s common stock with a fair value of $1.5 million or $5.54 per share, and contingent consideration of up to $4.8
million payable in cash with a fair value of $1.5 million. The contingent consideration payout is based on Shopmium achieving certain revenue and
profit milestones for the years ended December 31, 2016 and 2017. At the date of acquisition, the contingent consideration’s fair value of $1.5 million
was determined using a Monte Carlo simulation. The contingent consideration is payable on or before March 31, 2018.
74
The Company completed the following business comb inations during the year ended December 31, 2014:
·
·
·
On October 10, 2014, the Company entered into an asset purchase agreement with Padopolis, Inc. (“Padopolis”), a digital catalog
publishing company. Total purchase price for Padopolis was $1.7 million in cash .
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 up to $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.
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 acquisitions provide the Company with customer and vendor relationships, developed technologies, domain names, patents, registered
users, trade names and backlog. The fair values of identifiable intangible assets were determined using discounted cash flow models. The excess of
the consideration paid over the fair value of the net tangible assets and identifiable intangible assets acquired is recorded as goodwill. The goodwill
is attributable to expected synergies from combined operations and the acquired companies’ knowhow.
Assets acquired and liabilities assumed were recorded at their fair values as of the respective acquisition dates. The following table
summarizes the consideration paid for each acquisition and the related fair values of the assets acquired and liabilities assumed (in thousands):
Net
Tangible
Assets
Acquired/
(Liabilities
Assumed)
Identifiable
Intangible
Assets
Goodwill
(1,383) $
—
—
(241)
(1,624) $
5,803 $
896
8,636
2,320
17,655 $
15,041
804
10,653
7,971
34,469
Goodwill
Deductible
for Taxes
Not Deductible
Deductible
Deductible(1)
Not Deductible
$
$
Acquisition
Related
Expenses (2)
333
166
288
376
1,163
Acquisition
Consideration
$
19,461 $
1,700
19,289
10,050
50,500 $
Shopmium
Padopolis
Eckim
Yub
(1) Subject to final settlement of the contingent consideration
(2) Expensed as general and administrative
$
The following table sets forth each component of identifiable intangible assets acquired in connection with the acquisitions: (in thousands):
Developed technologies
Customer relationships
Vendor relationships
Domain names
Registered users
Patents
Total identifiable intangible assets
Shopmium
3,343
$
1,696
-
344
420
—
5,803
$
Padopolis
596
184
—
116
—
—
896
$
$
Eckim
2,233
4,752
—
1,651
—
—
8,636
$
$
$
$
Yub
Total
692
176
890
487
—
75
2,320
$
$
6,864
6,808
890
2,598
420
75
17,655
Estimated
Useful Life
(in Years)
5
5
4
5
4
5
75
The financial results of the acquired companies are in cluded in the Company’s 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 operati ons and net loss was not material.
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):
Balance as of December 31, 2013
Acquisitions
Foreign currency translation
Balance as of December 31, 2014
Acquisition
Foreign currency translation
Balance as of December 31, 2015
Intangible assets consist of the following (in thousands):
Goodwill
9,887
19,428
(38)
29,277
15,041
(423)
43,895
$
$
Customer relationships
Developed technologies
Domain names
Patents
Vendor relationships
Registered users
Trade names
December 31,
2015
Gross
Accumulated
Amortization
Foreign
Currency
Translation
December 31,
2015
Net
$
$
8,860
7,460
5,948
1,050
890
420
167
24,795
$
$
(3,345)
(1,709)
(3,419)
(686)
(445)
(18)
(149)
(9,771)
$
$
(36)
(89)
(9)
—
—
(11)
1
(144)
$
$
5,479
5,662
2,520
364
445
391
19
14,880
Weighted
Average
Amortization
Period
(Years)
4
4
3
6
2
3
1
4
As of December 31, 2015, the Company has a domain name with a gross value of $0.4 million with an indefinite useful life that is not subject
to amortization.
December 31,
2014
Gross
Accumulated
Amortization
Foreign
Currency
Translation
December 31,
2014
Net
Customer relationships
Domain names
Developed technologies
Patents
Vendor relationships
Trade names
$
$
7,164
4,968
4,117
1,050
890
167
18,356
$
$
(1,978)
(2,836)
(834)
(570)
(223)
(121)
(6,562)
$
$
76
21
—
—
—
—
3
24
$
$
5,207
2,132
3,283
480
667
49
11,818
Weighted
Average
Amortization
Period
(Years)
4
4
5
6
3
2
4
Amortization expense related to intangible assets subject to amortization was $3.4 million, $2.0 million and $0.9 million for the years ended
December 31, 2015, 2014 and 2013, respectively. Estimated amortization expense related to intangible assets is as follows (in thousands):
2016
2017
2018
2019
2020 and beyond
Total estimated amortization expense
8. Debt Obligations
2013 Credit and Security Agreement
Total
4,033
3,725
3,447
2,344
978
14,527
$
$
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 $25.0 million (which can be increased to
$30.0 million 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. As of December 31, 2014, $7.5 million was outstanding under the revolving line of credit. During the
year ended December 31, 2015, the Company terminated the line of credit and paid off the balance in full. As of December 31, 2015, there were no
amounts outstanding or available under the line of credit.
2012 Note Payable, Related Party
In October 2012, the Company borrowed $15.0 million from one of its stockholders by entering into a subordinated note arrangement. 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 consolidated balance sheets. The note was fully repaid in August 2014.
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 the Company 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. The shares available will be increased at the beginning of each year by lesser of (i) 4% of
outstanding common stock on the last day of the immediately preceding year, or (ii) such number determined by the board of directors. Under the
2013 Plan, both the ISOs and NSOs are granted at a price per share not less than 100% of the fair market value on the effective date of the grant.
The board of directors determines the vesting period for each option award on the grant date, and the options generally expire 10 years from the
grant date or such shorter term as may be determined by the board of directors.
77
Stock Options
The fair value of each option was estimated on the date of grant for the periods presented using the following assumptions:
Expected life (in years)
Risk-free interest rate
Volatility
Dividend yield
1.67% to 1.89%
2015
5.50 to 6.08
55% to 60%
—
Year Ended December 31,
2014
6.08
2.33%
55%
—
1.09% to 1.69%
51% to 53%
2013
6.08
—
The weighted-average grant-date fair value of options granted was $5.50, $8.60 and $3.05 per share during the years ended December 31,
2015, 2014 and 2013, respectively.
Restricted Stock Units
The fair value of RSUs equals the market value of the Company’s common stock on the date of grant. The RSUs are excluded from issued
and outstanding shares until they are vested.
A summary of the Company’s stock option and RSUs award activity under the Plans is as follows:
Balance as of December 31, 2012
Options granted
Options exercised
Options canceled or expired
RSUs granted
RSUs canceled or expired
Balance as of December 31, 2013
Increase in shares authorized
Options granted
Options exercised
Options canceled or expired
RSUs granted
RSUs released
RSUs canceled or expired
Balance as of December 31, 2014
Increase in shares authorized
Options granted
Options exercised
Options canceled or expired
RSUs granted
RSUs released
RSUs canceled or expired
Balance as of December 31, 2015
Vested and expected to vest as of
December 31, 2015
Vested and exercisable as of
December 31, 2015
Shares
Available
for Grant
Number
of
Shares
Options Outstanding
Weighted
Average
Remaining
Contractual
Term (Years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
(in thousands)
6,641,274 12,373,646 $
3,709,567
(3,709,567 )
(2,328,229 )
—
1,119,277
(1,119,277 )
(2,530,542 )
514,840
2,035,282 12,635,707
4,000,000
—
46,875
(46,875 )
(3,149,166 )
—
(38,653 )
38,653
3.20
12.14
4.57
6.03
6.81 $
16,550
9,626
5.87
7.02
68,944
16.00
2.62
6.20
33,704
(4,796,559 )
—
594,611
1,825,112
3,255,200
(328,680 )
—
121,593
(3,673,053 )
—
1,689,129
2,889,301
9,494,763
7.00
6.57
107,913
328,680
(1,232,184 )
(121,593 )
10.05
3.31
9.35
10,246
8,469,666 $
7.62
5.91 $
19,231
8,121,852 $
7.38
5.82 $
19,103
6,650,703 $
6.10
5.32 $
18,656
RSUs Outstanding
Weighted
Average
Grant
Date Fair
Value
Number of
Shares
2,505,489 $
5.59
5.54
5.33
5.59
2,530,542
(514,840 )
4,521,191
4,796,559
(1,913,724 )
(594,611 )
6,809,415
16.49
5.66
10.12
12.66
3,673,053
(2,006,893 )
(1,689,129 )
6,786,446 $
12.43
11.64
12.80
13.14
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 vested during the years ended December 31, 2015, 2014 and 2013 was $3.8 million, $5.7 million and
$5.1 million, respectively.
78
Additional information for options outstanding and exercisable as of December 31, 2015 is as follows:
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
(Years)
Weighted
Average
Exercise
Price
Number of
Shares
1,479,099 $
15,100
3,449,590
2,725,877
800,000 $
8,469,666
2.50 $
3.67
5.56
7.66
7.87 $
0.21
0.38
4.11
11.01
25.00
Options Exercisable
Weighted
Average
Exercise
Price
0.21
0.38
4.10
10.98
25.00
Number of
Shares
1,479,099 $
15,100
3,224,620
1,515,216
416,668 $
6,650,703
Exercise Prices
$ 0.14 - $ 0.28
$ 0.37 - $ 0.46
$ 3.67 - $ 5.74
$ 8.64 - $16.26
$25.00
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 was reserved for future issuance. In addition, ESPP provides for annual increases in the
number of shares available for issuance on the first day of each year equal to the least of (i) 0.5% of the outstanding shares of common stock on the
last day of the immediately preceding year, (ii) 400,000 shares or (iii) such other amount as may be determined by the board of directors. 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 ended 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.
The fair value of the option feature is estimated using the Black-Scholes model for the period presented based on the following assumptions:
Expected life (in years)
Risk-free interest rate
Volatility
Dividend yield
Year Ended December 31,
2015
0.50
0.08% to 0.33%
63% to 72%
—
2014
0.49 to 0.62
0.07% to 0.08%
55% to 70%
—
As of December 2015, a total of 193,495 shares of common stock was issued under the ESPP. As of December 31, 2015, a total of 1,234,228
shares are available for issuance under the ESPP.
Stock-based Compensation Expense
The following table sets forth the total stock-based compensation expense resulting from stock options, RSUs ,and ESPP included in the
Company’s consolidated statements of operations (in thousands):
Cost of revenues
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
2015
Year Ended December 31,
2014
2013
1,728
10,658
9,680
10,280
32,346
$
$
3,086
9,464
11,536
11,424
35,510
$
$
300
1,492
1,015
2,374
5,181
$
$
79
As of December 31, 2015, there was $56.0 million unrecognized stock-based compensation expense (net of estimated forfeitures), of which
$5.4 million is related to stock options and ESPP and $50.6 million is related to RSUs. The total unreco gnized stock-based compensation expense
related to stock options and ESPP as of December 31, 2015 will be amortized over a weighted-average period of 2.2 years. The total unrecognized
stock-based compensation expense related to RSUs as of December 31, 2015 will be amortized over a weighted-average period of 2.8 years.
The amount of stock-based compensation cost capitalized in property and equipment, net on the accompanying consolidated balance sheets
was immaterial for all periods presented.
10. Redeemable Convertible Preferred Stock
Immediately prior to the completion of the Company’s IPO in March 2014, all of the Company’s outstanding redeemable convertible preferred
stock automatically converted into 41,580,507 shares of common stock, therefore no shares of redeemable convertible preferred stock was
outstanding following the closing of the Company’s IPO.
As the deemed liquidation preference was not solely within the control of the Company, the redeemable convertible preferred stock was
presented outside of stockholders’ equity (deficit) on the accompanying consolidated statements of convertible preferred stock and stockholders’
equity (deficit).
11. Stockholders’ Equity (Deficit)
Amended and Restated Certificate of Incorporation
In March 2014, the Company filed an amended and restated certificate of incorporation, which became effective immediately following the
completion of the Company’s IPO. Under the restated certificate of incorporation, the authorized capital stock consists of 250,000,000 shares of
common stock and 10,000,000 shares of preferred stock.
Common
Stock
. The rights, preferences and privileges of the holders of common stock are subject to the rights of the holders of shares of
any series of preferred stock which the Company may issue in the future. Subject to the foregoing, for as long as such stock is outstanding, the
holders of common stock are entitled to receive ratably any dividends as may be declared by the board of directors out of funds legally available for
dividends. Holders of common stock are entitled to one vote per share on any matter to be voted upon by stockholders. The amended and restated
certificate of incorporation establishes a classified board of directors that is divided into three classes with staggered three year terms. Only the
directors in one class will be subject to election at each annual meeting of stockholders, with the directors in other classes continuing for the
remainder of their three year terms. Upon liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s
stockholders would be distributable ratably among the holders of common stock and any participating preferred stock outstanding at that time,
subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on
any outstanding shares of preferred stock.
Preferred
Stock
. The board of directors is authorized to issue undesignated preferred stock in one or more series without stockholder
approval and to determine for each such series of preferred stock the voting powers, designations, preferences, and special rights, qualifications,
limitations, or restrictions as permitted by law, in each case without further vote of action by the stockholders. The board of directors can also
increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding,
without any further vote or action by the stockholders. The board of directors may authorize the issuance of preferred stock with voting or conversion
rights that could adversely affect the voting power or other rights of the holders of common stock.
Amendment
. The amendment of the provisions in the restated certificate requires approval by holders of at least 66 2/3% of the Company’s
outstanding capital stock entitled to vote generally in the election of directors.
Common Stock Subject to Repurchase
The Company’s equity plan allows certain employees to exercise options prior to vesting. The Company has the right to repurchase any
issued but unvested common shares upon termination of service of an employee, at the original purchase price. The consideration received by the
Company upon exercise of an unvested option is considered to be a deposit of the exercise price, and the related dollar amount is recorded as a
liability. This liability is reclassified to stockholders’ equity (deficit) on a ratable basis as the award vests. The Company had no liability at
December 31, 2015, 2014 and 2013 related to unvested exercised options.
80
Common Stock Repurchases
In February 2015, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s common stock
through February 2016, subject to certain limitations. Stock repurchases may be made from time-to-time in open market transactions or privately
negotiated transactions. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The
Company may suspend, modify or terminate this repurchase program at any time without prior notice. During the year ended December 31, 2015, a
total of 3,095,189 shares were repurchased at an aggregate cost of $23.5 million. D uring the year ended December 31, 2014, n o shares of our
common stock were repurchased.
12. Income Taxes
The components of the Company’s loss before provision for (benefit from) income taxes were as follows (in thousands):
Domestic
Foreign
Total
Year Ended December 31,
2014
2013
2015
$
$
25,385 $
1,906
27,291 $
20,753 $
765
21,518 $
9,972
1,277
11,249
The components of the provision for (benefit from) income taxes are as follows (in thousands):
Current:
Federal
State
Foreign
Total current income tax expense (benefit)
Deferred:
Federal
State
Foreign
Total deferred income tax expense (benefit)
Total
Year Ended December 31,
2014
2013
2015
$
$
— $
2
91
93
(317)
(23)
(314)
(654)
(561) $
— $
3
—
3
1,764
159
—
1,923
1,926 $
—
—
—
—
—
—
—
—
—
A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:
Federal tax
State income tax, net of federal tax benefit
Tax credits
Valuation allowance, net
Stock-based compensation
Foreign income taxes at other than U.S. rates
Other
Effective tax rate
2015
Year Ended December 31,
2014
2013
(34.00%)
(0.08%)
(4.60%)
33.22%
0.67%
1.56%
1.17%
(2.06%)
(34.00%)
0.54%
0.00%
36.09%
3.10%
1.21%
2.01%
8.95%
(34.00%)
0.05%
0.00%
18.70%
10.12%
3.86%
1.27%
(0.00%)
81
The Company recorded a benefit from income taxes of $0.6 million for the year ended December 31, 2015 and a provision for income taxes of
$1.9 million and $0 for the years ended December 31, 2014 and 2013, respectively. The benefit from inc ome taxes for the year ended December
31, 2015 was primarily attributable to a decrease in deferred tax liabilities that arose from a gain the Company recorded from the change in the fair
value of contingent consideration related the Eckim acquisition and net foreign tax benefit, partially offset by state income taxes. The provision for
income taxes for the year ended December 31, 2014 was primarily attributable to the recognition of deferred tax liabilities that arose from the gain
the Company recorded fro m a change in the fair value of contingent consideration related to the Eckim acquisition. There was no provision or
benefit recorded for the year ended December 31, 2013 due to the valuation allowance recorded against substantially all of our deferred tax assets.
Undistributed earnings of $0.5 million of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no
provision for federal and state income taxes have been provided thereon. The Company intends to reinvest these earnings indefinitely in its foreign
subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise or if the shares of the relevant foreign
subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to adjustment for foreign tax
credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not
practical.
As a result of meeting certain employment and capital investment actions under Section 10AA of the India Income Tax Act, the Company’s
India subsidiary qualifies for an income tax holiday, for tax years 2014 through 2019. A portion of these tax incentives will expire at the beginning of
2020.
The Company recognizes a benefit from stock-based compensation as additional paid-in capital if an incremental tax benefit is realized by
following the with-and-without approach. In addition, the indirect effects of stock-based compensation deductions are not considered in the income
tax provision for purposes of measuring the excess tax benefit at settlement of awards.
The components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Credits and net operating loss carryforward
Accrued compensation
Deferred revenues
Stock based compensation
Property and equipment
Other deferred tax assets
Total deferred tax assets
Valuation allowance
Deferred tax liabilities:
Basis difference on purchased intangible assets
Other deferred tax liabilities
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Year Ended December 31,
2014
2015
73,012 $
3,197
114
10,317
(1,588)
1,419
86,471
(85,835)
1,526
1,642
3,168
(2,532) $
57,524
3,441
113
9,420
906
1,605
73,009
(67,450)
5,603
2,123
7,726
(2,167)
$
$
Other deferred tax assets and liabilities are primarily comprised of the tax effects of accounts receivable reserves, sales allowances and
change in fair value of contingent consideration. As of December 31, 2015 and 2014, the Company had gross deferred tax assets of $86.5 million
and $73.0 million, respectively. The Company also had deferred tax liabilities of $3.2 million and $7.7 million as of December 31, 2015 and 2014,
respectively. Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of
which is uncertain. Based on the available objective evidence, and historical operating performance, management believes that it is more likely than
not that all U.S. and certain foreign deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been fully offset with a
valuation allowance. The net valuation allowance increased by approximately $18.4 million and $8.6 million for the years ended December 31, 2015
and 2014, respectively.
82
As of December 31, 2015, the Company had federal net operating loss carryforwards of approximately $218.8 million which will begin to
expire in 2018. The Company had state net operating loss carryforwards of approximately $212.2 million which will begin to expire in 2016. Federal
net operating loss carryforwards of $68.0 million and $55.0 million at December 31, 2015 and 2014, respectively, represent deductions from stock-
based compensation for which a benefit would be recorded i n additional paid-in capital when it reduces income taxes payable. As of December 31,
2015, the Company has research credit carryforwards for federal income tax purposes of approximately $9.6 million which will begin to expire in the
year 2031. The Company also had state net research credit carryforwards for income tax purposes of approximately $9.4 million which can be
carried forward indefinitely.
A reconciliation of the gross unrecognized tax benefit is as follows (in thousands):
Unrecognized tax benefit - beginning balance
Increases for tax positions taken in prior years
Increases for tax positions taken in current year
Unrecognized tax benefit - ending balance
Year Ended December 31,
2014
2013
2015
$
$
1,366 $
5,611
1,782
8,759 $
813 $
553
—
1,366 $
285
271
257
813
As of December 31, 2015, the Company has unrecognized tax benefits of $5.5 million if realized would not affect the Company’s effective tax
rate as these tax benefits would be offset by changes in the Company’s valuation allowance. The Company does not believe there will be any
material changes in its unrecognized tax benefits over the next twelve months.
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2015
and 2014, the Company had no accrued interest or penalties related to uncertain tax positions. Due to the Company’s historical loss position, all tax
years from inception through December 31, 2015 remain open due to unutilized net operating losses.
The Company files income tax returns in the United States and various states and foreign jurisdictions and is subject to examination by
various taxing authorities including major jurisdiction like the United States. As such, all its net operating loss and research credit carryforwards that
may be used in future years are subject to adjustment, if and when utilized.
Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the
expiration of net operating losses and credits before their utilization.
13. Net Income (Loss) per Share
Net Loss per Share Attributable to Common Stockholders
The computation of the Company’s basic and diluted net loss per share attributable to common stockholders is as follows (in thousands,
except per share data):
Net loss
Year Ended December 31,
2014
2013
2015
$
(26,730)
$
(23,444)
$
(11,249)
Weighted-average number of common shares used in computing net loss per
share attributable to common stockholders, basic and diluted
82,807
67,828
19,626
Net loss per share attributable to common stockholders, basic and diluted
$
(0.32)
$
(0.35)
$
(0.57)
83
The outstanding common equivalent shares excluded from the computation of the diluted net loss per share attributable to common
stockholders for the per iods presented because including them would have been antidilutive are as follows (in thousands):
Redeemable convertible preferred stock
Warrants
Stock options and ESPP
Restricted stock units
14. Commitments and Contingencies
Leases
Year Ended December 31,
2014
2013
2015
—
—
8,575
6,786
15,361
—
—
9,587
6,809
16,396
41,581
544
11,938
3,680
57,743
The Company leases office space under noncancelable operating leases with lease terms ranging from one to five years. Additionally, the
Company leases certain equipment under noncancelable operating leases at its facilities and its leased data center operations.
Rent expense was $3.1 million, $2.7 million and $2.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Aggregate Future Contractual Obligations and Lease Commitments
As of December 31, 2015, the Company’s unconditional purchase commitments and minimum payments under its noncancelable operating
and capital leases are as follows (in thousands):
Operating Leases
Capital Leases
2016
2017
2018
2019
2020
2021 and thereafter
Total minimum payments
Less: Amount representing interest
Present value of capital lease obligations
Less: Current portion
Capital lease obligation, net of current portion
Other Future Commitments
$
$
3,717
1,665
1,584
1,460
1,352
—
9,778
$
$
$
52
22
18
1
—
—
93
5
88
48
40
The Company has an unconditional purchase commitment for the years 2016 to 2034 in the amount of $7.2 million for marketing
arrangements relating to the purchase of a 20-year suite license for a professional sports team which it uses for sales and marketing purposes.
The Company entered into service agreements under which the Company is obligated to prepay non-refundable revenue share payments up
to $3.4 million over three years or earlier upon achievement of certain milestones. As of December 31, 2015, the Company has a remaining non-
refundable prepayment balance of $7.5 million recorded in other assets on the consolidated balance sheet relating to these service agreements. The
prepayments will be recognized as cost of revenues over the related service period. The unamortized balance are included in other assets on the
accompanying consolidated balance sheets.
84
Indemnification
In the normal course of business, to facilitate transactions related to the Company’s operations, the Company indemnifies certain parties,
including CPGs, advertising agencies and other third parties. The Company has agreed to hold certain parties harmless against losses arising from
claims of intellectual property infringement or other liabilities relating to or arising from our products, services or other contractual infringement. The
term of these indemnity provisions generally survive termination or expiration of the applicable agreement. To date, the Company has not recorded
any liabilities related to these agreements.
Litigation
In the ordinary course of business, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of intellectual
property, commercial, employment, and other matters. The Company will record a provision for these claims when it is both probable that a liability
has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly
and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a
particular case. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a
judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results, or financial condition.
On March 11, 2015, a putative stockholder class action lawsuit was filed against us, the members of our board of directors, certain of our
executive officers and the underwriters of our IPO: Nguyen
v.
Coupons.com
Incorporated,
Case No. CGC-15-544654 (California Superior Court, San
Francisco County). The complaint asserts claims under the Securities Act and seeks unspecified damages and other relief on behalf of a putative
class of persons and entities who purchased stock pursuant or traceable to the registration statement and prospectus for our IPO. Plaintiff Nguyen
requested and obtained a dismissal without prejudice of his San Francisco action and filed another complaint with substantially the same allegations
in the Santa Clara County Superior Court, Nguyen
v.
Coupons.com
Incorporated
, Case No. 1-15-CV-278777 (California Superior Court, Santa Clara
County) (Mar. 30, 2015). Three other complaints with substantially the same allegations have also been filed: O’Donnell
v.
Coupons.com
Incorporated
, Case No. 1-15-CV-278399 (California Superior Court, Santa Clara County) (Mar. 20, 2015); So
v.
Coupons.com
Incorporated
, Case
No. 1-15-CV-278774 (California Superior Court, Santa Clara County) (Mar. 30, 2015); and Silverberg
v.
Coupons.com
Incorporated
, Case No. 1-15-
CV-278891 (California Superior Court, Santa Clara County) (Apr. 2, 2015). On May 7, 2015, the Santa Clara court consolidated the Nguyen,
So
and
Silverberg
actions with the O’Donnell
action. The Court sustained defendants’ demurrer to the consolidated complaint with leave to amend. On
December 14, 2015, plaintiffs filed an amended consolidated complaint. On January 28, 2016, defendants filed a demurrer to the amended
consolidated complaint. We intend to defend the litigation vigorously. Based on information currently available, we believe that the potential for
liability for the above claims is remote.
In addition, in the ordinary course of business, the Company may be involved in lawsuits, claims, investigations, and proceedings consisting of
intellectual property, commercial, employment, and other matters. The Company records a provision for these claims when it is both probable that a
liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed
regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining
to a particular case. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a
judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results, or financial condition.
The Company believes that liabilities associated with any claims are remote, therefore the Company has not recorded any accrual for claims
as of December 31, 2015 and 2014.
15. Employee Benefit Plan
The Company maintains a defined-contribution plan that is intended to qualify under Section 401(k) of the Internal Revenue Code. The 401(k)
plan provides retirement benefits for eligible employees. Eligible employees may elect to contribute to the 401(k) plan. The Company provides a
match of up to the lesser of 3% of each employee’s annual salary or $6,000, which vests fully after four years of continuous employment. The
Company’s matching contribution expense was $1.6 million, $1.5 million and $1.3 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
85
16. Concentrations
Customers with an accounts receivable balance of 10% or greater of the total accounts receivable are as follows:
Customer A
Customers with 10% or more of revenues during the periods presented are as follows:
Customer A
* Less than 10%
17. Information About Geographic Areas
December 31,
2015
2014
13%
19%
2015
December 31,
2014
2013
14%
14%
*
Revenues generated outside of the United States were insignificant for all periods presented. Additionally, as the Company’s assets are
primarily located in the United States, information regarding geographical location is not presented, as such amounts are immaterial to these
consolidated financial statements taken as a whole.
18. Subsequent Events
Stock Repurchase Program
In February 2016, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s common stock
through February 2017. Stock repurchases may be made from time-to-time in open market transactions or privately negotiated transactions. The
timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors. The Company may suspend, modify or
terminate this repurchase program at any time without prior notice.
Supplementary Data
The following tables set forth our quarterly unaudited consolidated statements of operations for each of the eight quarters in the years ended
December 31, 2015 and 2014 (in thousands, except per share data):
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Change in fair value of contingent
consideration
Total operating expenses
Income (loss) from operations
Interest expense
Gain on sale of a right to use a web
domain name
Other income (expense), net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net loss
Net loss per share, basic and diluted
Weighted-average shares used in
computing net loss per share, basic and
diluted
Year Ended December 31, 2015
Year Ended December 31, 2014
$
Q4
69,413 $
25,436
43,977
Q3
56,467 $
22,778
33,689
Q2
55,867 $
22,122
33,745
Q1
55,562 $
21,867
33,695
Q4
60,001 $
21,722
38,279
Q3
58,544 $
23,061
35,483
Q2
51,715 $
20,884
30,831
26,133
11,696
10,093
(253)
47,669
(3,692)
(2)
23,403
11,890
8,382
(238)
43,437
(9,748)
(126)
21,834
11,839
7,867
2,076
43,616
(9,871)
(82)
21,084
12,942
8,491
(354)
42,163
(8,468)
(80)
22,686
10,984
8,085
(2,935)
38,820
(541)
(79)
—
(48)
(3,742)
(173)
(3,569) $
(0.04) $
—
47
(9,827)
(9)
(9,818) $
(0.12) $
—
40
(9,913)
(571)
(9,342) $
(0.11) $
4,800
(61)
(3,809)
192
(4,001) $
(0.05) $
—
16
(604)
1,119
(1,723) $
(0.02) $
$
$
19,047
11,351
7,400
(2,806)
34,992
491
(241)
—
19
269
1,051
(782) $
(0.01) $
17,621
10,981
8,857
—
37,459
(6,628)
(300)
—
31
(6,897)
—
(6,897) $
(0.09) $
Q1
51,501
20,519
30,982
19,511
16,267
9,050
—
44,828
(13,846 )
(302)
—
(138)
(14,286 )
(244)
(14,042 )
(0.41)
82,744
82,831
82,980
82,166
80,543
78,065
77,549
34,535
86
Item 9.
C hanges in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The phrase “disclosure controls and procedures” refers to controls and procedures designed to ensure that information required to be
disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission (SEC). Disclosure controls
and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our CEO and
CFO, as appropriate to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our chief executive officer (CEO) and chief financial officer (CFO),
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e)
under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based upon such evaluation, our CEO and CFO
concluded that as of December 31, 2015, our disclosure controls and procedures were effective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified by the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of our internal control over financial
reporting based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework). Based on the assessment, management has concluded that its internal control over financial reporting
was effective as of December 31, 2015 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with GAAP. Our independent registered public accounting firm, Ernst & Young LLP, is not required to and has not issued
an attestation report as of December 31, 2015 due to a transition period established by the rules of the SEC for newly public companies that have
not lost their “emerging growth company” status as defined in the JOBS Act.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or
15d-15(d) of the Exchange Act during the fourth quarter of 2015 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Item 9B.
Other Information.
None.
87
PART III
Item 10 .
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this item will be set forth in our Proxy Statement for the Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of the fiscal year ended December 31, 2015 and is incorporated herein by reference.
Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including
our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our code of business conduct and
ethics is posted on the investor relations page on our website which is located at http://investor.quotient.com. We will post any amendments to our
code of business conduct and ethics, or waivers of its requirements, on our website.
Item 11.
EXECUTIVE COMPENSATION
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information, if any, required by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
88
Item 15.
Exhibits, Financial Statement Schedules.
Documents filed as part of this report are as follows:
1.
Consolidated Financial Statements
PART IV
Our consolidated financial statements are listed in the “Index To Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on
Form 10-K.
2.
Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or the required information has been provided in the
consolidated financial statements or in the notes thereto of this Annual Report on Form 10-K.
3.
Exhibits
The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this report.
89
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized .
SIGNATURES
Date: March 11, 2016
Quotient Technology Inc.
By:
/s/ Steven R. Boal
Steven R. Boal
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven R. Boal,
Jennifer Ceran and Connie Chen, jointly and severally, his attorney-in-fact, each with the full power of substitution, for such person, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he
might do or could do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Steven R. Boal
Chief Executive Officer and Director (Principal Executive Officer)
March 11, 2016
Steven R. Boal
/s/ Jennifer Ceran
Jennifer Ceran
Chief Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
March 11, 2016
/s/ Steve Horowitz
Director
Steve Horowitz
/s/ Andrew Jody Gessow
Andrew Jody Gessow
Director
/s/ Dawn Lepore
Director
Dawn Lepore
/s/ David E. Siminoff
Director
David E. Siminoff
March 11, 2016
March 11, 2016
March 11, 2016
March 11, 2016
90
Exhibit
Number
Exhibit Description
Form
Exhibit Index
Incorporated by Reference
Filing
Date
Exhibit
File No.
3.1
3.2
4.1
4.2
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10
10.11
10.12
10.13
10.14
Amended and Restated Certificate of Incorporation of the Registrant, as
amended effective October 20, 2015.
Amended and Restated Bylaws of the Registrant.
8-K 001-36331
3.2
10/6/2015
Form of Registrant’s Common Stock certificate.
Eighth Amended and Restated Investors’ Rights Agreement among the
Registrant and certain holders of its capital stock, dated June 1, 2011.
Form of Indemnification Agreement for directors and officers.
2000 Stock Plan, as amended, and forms of agreement thereunder.
2006 Stock Plan, as amended, and forms of agreement thereunder.
2013 Equity Incentive Plan.
2013 Employee Stock Purchase Plan, as amended.
S-1/A
S-1/A
4.2
4.1
S-1
2/25/2014
1/31/2014
333-
193692
333-
193692
333-
193692 10.1 2/14/2014
333-
193692 10.2 1/31/2014
333-
193692 10.3 1/31/2014
333-
193692 10.4 1/31/2014
10-Q 001-36331 10.2 5/14/2015
S-1
S-1
S-1
Employment Offer Letter between the Registrant and Mir Aamir, dated
February 18, 2014.
S-1/A
Employment Offer Letter between the Registrant and Richard Hornstein,
dated February 4, 2014.
S-1/A
333-
193692 10.6 2/25/2014
333-
193692 10.7 2/25/2014
Transition Agreement, by and between the Registrant and Richard
Hornstein, dated January 4, 2016.
Offer Letter dated August 2, 2015 with Jennifer Ceran
10-Q 001-36331 10.1 11/12/2015
Lease Agreement by and between the Registrant and 400 Logue LLC,
successor in interest to MSCP Logue, LLC, successor in interest to Divco
West Real Estate Services, Inc., dated August 11, 2006.
S-1
333-
193692 10.14 1/31/2014
Amendment No. 1 to Lease Agreement by and between the Registrant
and 400 Logue LLC, successor in interest to MSCP Logue, LLC, dated
March 19, 2009.
S-1
333-
193692 10.15
1/31/2014
Amendment No. 2 to Lease Agreement by and between the Registrant
and 400 Logue LLC, dated February 25, 2015.
10-K 001-36331 10.15 3/19/2015
Office Lease Mountain View Technology Park by and between Registrant
and BP MV Technology Park LLC., dated December 22, 2010.
S-1
333-
193692 10.16 1/31/2014
Amendment No. 1 to Office Lease Mountain View Technology Park by
and between Registrant and BP MV Technology Park LLC., dated
May 31, 2012.
10.15†
Executive Bonus Plan
21.1
23.1
24.1
List of Subsidiaries of Registrant.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (Included on the signature page to this report).
91
S-1
333-
193692 10.17
1/31/2014
S-1
333-
193692 10.9
2/25/14
Filed
Herewith
X
X
X
X
X
Exhibit
Number
31.1
31.2
32.1*
32.2*
Exhibit Description
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002.
Form
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Rule 13a014(b) or
Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a014(b) or Rule
15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of
2002.
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Incorporated by Reference
Filing
Date
Exhibit
File No.
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
†
*
Indicates a management contract or compensatory plan or arrangement.
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities
and Exchange Commission and are not to be incorporated by reference into any filing of Quotient under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any
general incorporation language contained in such filing.
92
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COUPONS.COM INCORPORATED
Exhibit 3.1
Coupons.com Incorporated, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), certifies that:
1. The name of the Corporation is Coupons.com Incorporated.
2. This Certificate of Amendment of the Amended and Restated Certificate of Incorporation was duly adopted in accordance with Section 242 of the
General Corporation Law of the State of Delaware and amends the provisions of the Corporation’s Amended and Restated Certificate of Incorporation as filed
March 12, 2014.
3. Article I of the Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows:
“The name of the Corporation is Quotient Technology Inc.”
4. The foregoing amendment to the Amended and Restated Certificate of Incorporation shall be effective on October 20, 2015 and the effective time
shall be 12:01 a.m., Eastern Time.
IN WITNESS WHEREOF , this Certificate of Amendment of Amended and Restated Certificate of Incorporation has been duly executed by an
authorized officer of the Corporation on October 6, 2015.
/s/ Steven R. Boal
Steven R. Boal
Chief Executive Officer
COUPONS.COM INCORPORATED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Coupons.com Incorporated a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the “ General
Corporation
Law
”),
DOES HEREBY CERTIFY :
FIRST : The name of the corporation is Coupons.com Incorporated. The corporation was previously named Coupons.com, Inc. The date of filing
of the corporation’s original Certificate of Incorporation with the Secretary of State was October 31, 2008.
SECOND : That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this
Corporation, declaring said amendment and restatement to be advisable and in the best interests of this Corporation and its stockholders, and authorizing the
appropriate officers of this Corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is
as follows:
RESOLVED , that the Certificate of Incorporation of this Corporation be amended and restated in its entirety as follows (the “ Restated
Certificate
”):
The name of the corporation is Coupons.com Incorporated.
ARTICLE I
ARTICLE II
The address of the registered office of the Corporation in the State of Delaware is 3500 South Dupont Highway, City of Dover, County of Kent, DE 19901.
The name of the registered agent of the corporation at that address is Incorporating Services, Ltd.
The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law.
ARTICLE III
ARTICLE IV
A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is Two Hundred and Sixty Million
(260,000,000) shares consisting of:
Stock
”); and
1. Two Hundred and Fifty Million (250,000,000) shares of Common Stock, with a par value of $0.00001 per share (the “ Common
2. Ten Million (10,000,000) shares of Preferred Stock, with a par value of $0.00001 per share (the “ Preferred
Stock
”).
B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in
series and, by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each
such series, and to fix
the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereon. The number of authorized
s hares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock without a vote of the holders of the Preferr ed Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the certificate or certificates establishing the series of Preferred Stock.
C. The Common Stock shall have the rights, powers, qualifications and limitations, as hereinafter set forth in this ARTICLE IV.
1. Subject to the preferences applicable to any series of Preferred Stock outstanding at any time, the holders of shares of Common Stock
shall be entitled to receive such dividends and other distributions in cash, property or shares of stock of the Corporation as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation legally available therefor.
series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive the assets of the Corporation available for distribution to its
stockholders ratably in proportion to the number of shares held by them.
2. Upon the dissolution, liquidation or winding up of the Corporation, subject to the rights, if any, of the holders of any outstanding
holder on the applicable record date, to one vote in person or by proxy on all matters submitted to a vote of the holders of Common Stock.
3. Except as required by law, each holder of Common Stock shall be entitled, with respect to each share of Common Stock held by such
ARTICLE V
The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called only by the Board of Directors, the Chairman of the Board, or the Chief
Executive Officer.
A. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the total number
of authorized directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for
adoption). The directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the first annual meeting of the stockholders
following the closing date of the first sale of the Corporation’s Common Stock pursuant to a firmly underwritten registered public offering (the “ Effective
ARTICLE VI
Date
”), the term of office of the second class (Class II) to expire at the second annual meeting of stockholders following the Effective Date; the term of office of
the third class (Class III) to expire at the third ann ual meeting of stockholders following the Effective Date; and thereafter for each such term to expire at each third
succeeding annual meeting of stockholders after such election. All directors shall hold office until the expiration of the term for which el ected, and until their
respective successors are elected, except in the case of the death, resignation or removal of any director.
B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, or by the sole remaining director, and
directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been
elected expires, and until their respective successors are elected, except in the case of the death, resignation or removal of any director. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any incumbent director.
C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all of the then
outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
The Board of Directors is expressly empowered to adopt, amend, alter or repeal the Bylaws of the Corporation. The stockholders shall also have
power to adopt, amend, alter or repeal the Bylaws of the Corporation. Any adoption, amendment, alteration or repeal of the Bylaws of the Corporation by the
stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of
the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
ARTICLE VII
ARTICLE VIII
A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then
the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this ARTICLE VIII by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to actions or omissions
occurring prior to, such repeal or modification.
To the fullest extent permitted by law, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative
action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer of the
corporation to the corporation
ARTICLE IX
or the corporation’s stockholders, (iii) any action asserting a claim against the corporation arising pursuant to any provision of the Delaware General Corporation
Law or the corporation’s Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim against the corporation governed by the internal affairs
doctrine.
ARTICLE X
The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in any manner now or hereafter
permitted by the laws of the State of Delaware and all rights of the stockholders of the Corporation are granted subject to this reservation; provided , however , that,
notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this ARTICLE X, ARTICLE V,
ARTICLE VI, ARTICLE VII, ARTICLE VIII or ARTICLE IX.
* * *
THIRD : The foregoing amendment and restatement was approved by the holders of the requisite number of shares of said Corporation in
accordance with Section 228 of the General Corporation Law.
FOURTH : That said Restated Certificate, which restates and integrates and further amends the provisions of this Corporation’s Certificate of
Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, Coupons.com Incorporated has caused this Amended and Restated Certificate of Incorporation to be signed by the
President and Chief Executive Officer of the corporation on this 12th day of March, 2014.
By:
/s/ Steven Boal
Steven Boal
President and Chief Executive Officer
Exhibit 10.8
January 4, 2016
Re:
Transition to Special Advisor & Release of Claims
Richard Hornstein
Dear Rich:
As we’ve discussed, this letter (“Agreement”) confirms the agreement between you and Quotient Technology Inc. (f/k/a Coupons.com
Incorporated) (“Quotient” or the “Company”) concerning the terms of your transition from a full-time employee to an advisory role.
1. Employment Transition : March 31, 2016 will be your last day of employment with the Company (the “Employment End
Date”). Effective immediately following the Employment End Date, you will seamlessly and without interruption continue with the Company
in the role of Special Advisor. The following sets forth the material terms of your role as Special Advisor:
a. Responsibilities/Duties . You will provide advisory services to the Company commensurate with your skills and
background as reasonably requested by the Company’s Chief Executive Officer on an ad
hoc
basis (the “Services”). The Services will be at a
level that may vary each month, but should be no more than 15 hours per month. It is the express intention of the parties that the Services as a
Special Advisor will be as an independent contractor.
b. Term . Your advisory role under this Agreement will have a term of 3 years following the Employment End Date (the
“Term”). This Agreement, and your service relationship with the Company, will terminate upon the completion of the Term. You and the
Company may terminate the Agreement and your Services with 10 business days’ notice. If the Company terminates this Agreement, then
you may be eligible for a termination payment under Section 4.
2. Benefits : Your participation in all benefits and incidents of employment, including, but not limited to, health insurance
(although you can continue it under COBRA), the accrual of bonuses, vacation, and paid time off, will cease as of the Employment End Date.
3. Advisory Compensation : In consideration of your execution of the Initial Signature Page by the 22 nd day after it has been
delivered to you (and it being effective and irrevocable), your execution of the End of Full-Time Employment Signature Page by April 30,
2016 (and it being effective and irrevocable), your performance of the Services and your other promises herein (including your continued
compliance with Sections 5, 6, and 7 of this Agreement), the Company agrees to provide you with the following:
a. Compensation . The Company agrees to pay you an aggregate of $414,000 during the Term. The amounts under this
Section 3.a will be paid in equal monthly installments, subject to your continuing to provide Services during the duration of the Term and
your continued compliance with Sections 5, 6, and 7 of this Agreement.
400 Logue Avenue, Mountain View, CA 94043 O 650.605.4600 F 650.605.4700 W quotient.com
Page 2
b. 2015 Annual Bonus . You will receive your 2015 annual bonus paid out with any individual performance component
at target level and company performance component determined in the same manner as for other executive-level employees of the Company
and at the same time as bonuses are paid to other executive- level employees of the Company .
c. COBRA . Upon your timely election to continue your existing health benefits under COBRA, and consistent with the
terms of COBRA and the Company’s health insurance plan, the Company will reimburse you, based on properly submitted evidence of
payment, the insurance premiums you pay to the Company’s benefits provider (to be detailed in a separate correspondence) to continue your
existing health benefits for 12 months following the Employment End Date.
d. Continued Vesting of Equity Awards . You hold outstanding stock options and restricted stock units awards (“Equity
Awards”) under the Company’s equity compensation plans and individual award agreements (collectively, the “Equity Award Agreements”),
as set forth on Exhibit A . By your signature to this Agreement, you acknowledge and agree that the Equity Awards set forth on Exhibit A
represent all of your outstanding rights to Company equity securities. So long as you continue to provide Services to the Company during the
Term, all of your Equity Awards will continue to vest and remain outstanding. Vesting of the Equity Awards will cease upon the earlier of: (i)
the termination of the Services by the Company if you breach any of Sections 5, 6, and 7; (ii) your termination of the Services or (iii) the
expiration of the Term. If there is a change in control during the Term and the successor company does not assume your Equity Awards, then
they will fully vest immediately prior to the change in control.
4. Termination of Agreement : If the Company terminates the Services under this Agreement, then (other than if you breach any of
Sections 5, 6, and 7) you will be paid a lump sum amount equal to any unpaid portion of the compensation set forth in Section 3.a and any
unvested Equity Awards that would have vested if you provided services through the expiration of the Term will fully vest as set forth in this
Section 4, subject to your delivering to the Company an executed Early Termination Signature Page on or before the 60 th day following the
date your Services are terminated (the “Supplemental Release Deadline”). Any termination payment under this Section 4 will be paid upon
the Supplemental Release Deadline. Any Equity Awards vesting under this Section 4 will fully vest on the Supplemental Release Deadline. If
you terminate the Services under the Agreement, you waive and forfeit any right to any unpaid portion of the compensation set forth in
Section 3.a and to any unvested Equity Awards set forth in Section 3.d.
5. Confidential Information : You have entered into an At-Will Employment, Confidential Information, Invention Assignment and
Arbitration Agreement (the “Confidentiality Agreement”) dated December 15, 2009 (the “Confidentiality Agreement”). The Confidentiality
Agreement will continue to apply during the Term and thereafter by its terms. You hereby reaffirm and agree to observe and abide by the
terms of the Confidentiality Agreement, specifically including the provisions therein regarding nondisclosure of the Company’s trade secrets
and confidential and proprietary information. You acknowledge that as a result of your employment with the Company you have had access
to the Company’s Confidential Information (as defined in the Confidentiality Agreement), that you will hold all Confidential Information in
strictest confidence and that you will not make use of such Proprietary Information on behalf of anyone.
6. Conflicting Obligations : You represent and warrant you have no agreements, relationships, or commitments to any other person
or entity that conflict with the provisions of this Agreement, your obligations to the Company under this Agreement, and/or your ability to
perform the Services. You agree to not enter into any such conflicting agreement during the Term. For the avoidance of doubt, this Agreement
shall not prevent you from accepting other consulting or employment positions during or after
400 Logue Avenue, Mountain View, CA 94043 O 650.605.4600 F 650.605.4700 W quotient.com
Page 3
the Term , provided that you comply with the terms and conditions of this Agreement . During the Term, to the fullest extent permitted under
applicable law, you agree not to directly or indirectly, whether as an officer, director, stockholder, partner, associate, consultant, or other
capacity engage in, prepare to engage in, become financially interested in, or be employed by any business that is competitive with the
Company , unless the Company, in its sole discretion, approves your request (if any) to do so in writing executed by the Company’s Chief
Executive Officer . You further agree that during the Term, you shall not interfere with the Company’s business relationships with the
Company’s business relationships, and in particular shall not influence, or attempt to influence, persuade, or induce any agents, vendors,
suppliers, publishers, partners, manufacturers, software firms, industry associations or retailers of the Company or any of the Company’s
members to forego or not commence a business relationship with the Company or any of the Company’s members . Notwithstanding the
foregoing, you may own, as a passive investor, securities of such businesses so long as your direct holdings in any one such corporation is no
more than 1% of the voting stock of such corporation . Your violation of this Section 6 will be considered a material breach of this Agreement
and will automatically cease payments under Section 3.a of this Agreement . Nothing herein shall be construed so as to limit your efforts to
secure employment with another company .
7. Non-Solicitation: To the fullest extent permitted under applicable law, you further agree that during the Term, you will not,
either directly or indirectly, solicit any of the Company’s employees to leave their employment or attempt to solicit employees of the
Company, either for yourself or for any other person or entity. For the avoidance of doubt, this Section 7 does not prohibit you from hiring or
retaining services from any Company employee who responds to a general advertisement or seeks employment from you without your direct
or indirect solicitation of his or her services. Your violation of this Section 7 will be considered a material breach of this Agreement and will
automatically cease payments under Section 3.a of this Agreement.
8. General Release and Waiver of Claims :
a. In exchange for the consideration provided under Section 3 of this Agreement, to the fullest extent permitted by law,
you hereby release and waive any and all claims arising against the Company and its current and former officers, directors, employees, agents,
investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries,
and predecessor and successor corporations and assigns (collectively the “Releasees”), whether known or unknown, including, but not
limited to, the following: (a) claims arising under the federal or any state constitution; (b) claims arising under the federal or any state statute,
including but not limited to the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act; the Family and
Medical Leave Act (FMLA), the California Family Rights Act (CFRA), the Fair Labor Standards Act (FLSA), the California Labor Code,
Title VII of the 1964 Civil Rights Act, as amended, and the California Fair Employment and Housing Act; (c) claims arising under federal,
state or local laws prohibiting discrimination in employment; (d) claims for wrongful termination, breach of contract, breach of public policy,
physical or mental harm or distress, breach of the covenant of good faith and fair dealing, fraud, negligence, defamation; (e) any claim for
attorneys’ fees and costs; (f) any and all claims relating to, or arising from, your right to purchase, or actual purchase of shares of stock of the
Company; and (g) any and all other claims arising from your employment relationship with the Company or the termination of that
relationship. You agree that you will not file any legal action asserting any such claims. You agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any
obligations incurred under this Agreement. This release does not release claims that cannot be released as a matter of law.
400 Logue Avenue, Mountain View, CA 94043 O 650.605.4600 F 650.605.4700 W quotient.com
Page 4
b. You acknowledge that you have been advised to consult with legal counsel and are familiar with the provisions of
California Civil Code Section 1542, a statute that otherwise prohibits the release of unknown claims. By signing below, you expressly waive
any benefits of Section 1542 of the Civil Code of the State of California, or other state statute or common law principles of similar effect,
which provides as follows:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR.”
limited to claims for indemnity under California Labor Code section 2802.
c. You and the Company do not intend to release claims that you may not release as a matter of law, including but not
9. ADEA Waiver: You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under
the Age Discrimination in Employment Act of 1967 (“ADEA Waiver”). You also acknowledge that the separation compensation given for the
ADEA Waiver is in addition to anything of value to which you were already entitled. You further acknowledge and agree that you have been
advised by this writing, as required by the ADEA, that: (a) your ADEA Waiver does not apply to any rights or claims that arise after the
Effective Date of this Agreement; (b) you should consult with an attorney prior to signing this Agreement; (c) you have twenty-one (21) days
to consider this Agreement (although you may choose to waive the time period allotted for considering this Agreement and voluntarily sign it
sooner); (d) you have seven (7) days following the date you sign this Agreement to revoke the ADEA Waiver (in a written revocation sent to
me); (e) the ADEA Waiver will not be effective until the date upon which the revocation period has expired, which will be the eighth (8 th )
day after you sign this Agreement provided that you have not otherwise exercised your right to revoke the agreement; and (f) nothing in this
Agreement prevents or precludes you from challenging or seeking a determination in good faith of the validity of this ADEA Waiver, nor
does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. The parties agree that
changes, whether material or immaterial, do not restart the running of the 21-day period. Lastly, your general release of claims, except for the
ADEA Waiver, is effective immediately and not revocable.
10. Covenant Not to Sue :
a. To the fullest extent permitted by law, at no time subsequent to the execution of this Agreement will you pursue, or
cause or knowingly permit the prosecution, in any state, federal or foreign court, or before any local, state, federal or foreign administrative
agency, or any other tribunal, any charge, claim or action of any kind, nature and character whatsoever, known or unknown, which you may
now have, have ever had, or may in the future have against Releasees, which is based in whole or in part on any matter covered by this
Agreement. By signing below you represent that you have no lawsuits, claims, or actions pending in your name, or on behalf of any other
person or entity, against the Company or any of the other Releasees.
b. Nothing in this section shall prohibit you from filing a charge or complaint with a government agency such as but not
limited to the Equal Employment Opportunity Commission or the National Labor Relations Board, any other local, state, or federal
administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company .
However, you understand and agree that, by entering into this Agreement, you are releasing any and all individual claims for relief and that
you will not accept any monetary judgment from such a claim. By
400 Logue Avenue, Mountain View, CA 94043 O 650.605.4600 F 650.605.4700 W quotient.com
Page 5
signing below, you represent that you have made no assignment or transfer of any right, claim, complaint, charge, duty, obligation, demand,
cause of action, or other matter waived or released by this Agreement.
11. Nondisparagement : You agree that you will refrain from any disparagement, defamation, libel, or slander of any of the
Releasees or their products, and services. You further agree to refrain from any tortious interference with the contracts and relationships of
any of the Releasees. The Company agrees that it will direct its executive officers to refrain from any disparagement, defamation, libel, or
slander of you. Nothing in this section shall prohibit either of us from providing truthful information in response to a subpoena or other legal
process.
12. Tax Consequences : The Company makes no representations or warranties with respect to the tax consequences of the
payments and any other consideration provided to you or made on your behalf under the terms of this Agreement. You agree and understand
that you are responsible for payment, if any, of local, state, and/or federal taxes on the payments and any other consideration provided
hereunder by the Company and any penalties or assessments thereon. Please note that if you exercise any options that are designated as
incentive stock options more than 3 months after your last day as an employee, they will no longer qualify as incentive stock options.
13. Section 409A : The Company intends that all payments under the Agreement are exempt from, or comply with, the
requirements of Section 409A of the Internal Revenue Code of 1986 as amended and the final Treasury Regulations and official IRS guidance
thereunder (collectively, “Section 409A”). To the extent it is necessary to avoid subjecting you to an additional tax under Section 409A,
payment of all or a portion of the severance-related amounts described in this Agreement and any other separation payments or separation
benefits, that in each case, when considered together are considered deferred compensation for purposes of Section 409A (collectively,
“Deferred Payments”) will be delayed until the date that is six months and one day following your separation from service; provided,
however, that in the event of your death following your separation from service but before the six month anniversary of your separation from
service, then any payments delayed in accordance with this sentence will be payable in a lump sum as soon as administratively practicable
after the date of your death, and any other payments or benefits due will be payable in accordance with the payment schedule applicable to
them. You and the Company agree to work together in good faith to consider amendments to this Agreement and to take such reasonable
actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment
to you under Section 409A. However, the Company does not guarantee that any payments or benefits under this Agreement or otherwise
comply with Section 409A and you are solely responsible for the payment of all taxes owed on account of all such payments and benefits.
14. Return of Company Materials : Upon the termination of this Agreement, or upon the Company’s request, you agree to
immediately deliver to the Company, and will not keep in your possession, recreate, or deliver to anyone else, any and all Company property,
all devices and equipment belonging to the Company, and all electronically-stored information and passwords to access such property.
Notwithstanding the foregoing, you may keep your Company-provided laptop and mobile device after the Company deletes all Company
information from those devices.
15. Entire Agreement : This Agreement, together with the Confidentiality Agreement and your Equity Award Agreements,
constitutes the entire agreement between you and the Company with respect to the subject matter hereof and supersedes all prior negotiations
and agreements, whether written or oral, relating to such subject matter, including your employment letter with the Company dated
January 30, 2014.
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Page 6
16. Severability : The provisions of this Agreement are severable, and if any part of it is found to be invalid or unenforceable, the
other parts shall remain fully valid and enforceable .
17. Modification : It is expressly agreed that this Agreement may not be altered, amended, modified, or otherwise changed in any
respect except by another written agreement that specifically refers to this Agreement, executed by authorized representatives of each of the
parties to this Agreement.
18. Effective Date : You have twenty-one (21) days to consider and execute this Agreement. Both you and the Company will have
seven (7) days after you sign this Agreement to revoke it. This Agreement will become effective on the eighth (8 th ) day after it has been
signed by you (the “Effective Date”), so long as it has also been signed by the Company and has not been revoked before that date.
19. Governing Law : This Agreement shall be governed by and construed in accordance with the laws of the State of California,
without regard for choice-of-law provisions. You consent to personal and exclusive jurisdiction and venue in the State of California.
20. Protected Activity Not Prohibited : You understand that nothing in this Agreement or the Confidentiality Agreement shall in
any way limit or prohibit you from engaging for a lawful purpose in any Protected Activity. For purposes of this Agreement and the
Confidentiality Agreement, “Protected Activity” shall mean filing a charge or complaint, or otherwise communicating, cooperating, or
participating with, any state, federal, or other governmental agency, including the Securities and Exchange Commission, the Equal
Employment Opportunity Commission, and the National Labor Relations Board. Notwithstanding any restrictions set forth in this Agreement
or the Confidentiality Agreement, you understand that you are not required to obtain authorization from the Company prior to disclosing
information to, or communicating with, such agencies, nor are you obligated to advise the Company as to any such disclosures or
communications. Notwithstanding, in making any such disclosures or communications, you agree to take all reasonable precautions to prevent
any unauthorized use or disclosure of any information that may constitute Company Confidential Information under the Confidentiality
Agreement to any parties other than the relevant government agencies. You further understand that “Protected Activity” does not include the
disclosure of any Company attorney-client privileged communications, and that any such disclosure without the Company’s written consent
shall constitute a material breach of this Agreement and the Confidentiality Agreement.
I wish you the best in your future endeavors.
Sincerely,
QUOTIENT TECHNOLOGY INC.
By:
/s/ Steven Boal
Steven Boal
Chief Executive Officer
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Page 7
EXHIBIT A
Equity Award Detail
Grant
Date
Award Type
Exercise Price
(if any)
3/12/2010
4/18/2011
2/07/2012
2/07/2012
2/07/2013
2/07/2013
11/14/2013
11/14/2013
5/01/2014
2/05/2015
NQ
NQ
NQ
ISO
NQ
ISO
NQ
ISO
RSU
RSU
$3.675
$3.675
$5.325
$5.325
$3.700
$3.700
$8.650
$8.650
N/A
N/A
Vested at
December 31,
2015*
431,277
36,715
70,728
25,104
113,332
0
104,166
0
62,500
0
*Assuming continued provision of services through such date.
Vested at
March 31, 2016*
Unvested at
March 31, 2016
431,277
36,715
70,728
29,271
113,332
10,000
116,666
0
125,000
18,750
0
0
0
0
18,971
17,696
74,625
8,708
125,000
56,250
400 Logue Avenue, Mountain View, CA 94043 O 650.605.4600 F 650.605.4700 W quotient.com
Please read the Agreement carefully, it contains a RELEASE of all known and unknown claims.
By my signature below, I represent that:
INITIAL SIGNATURE PAGE
1.
2.
3.
I have had an opportunity to consult with an attorney,
I have carefully read and understand the scope and effect of the provisions of this Agreement, and
I understand that the releases and covenants in Sections 5 through 11 apply to me.
Richard Hornstein
/s/ Richard Hornstein
Quotient Technology Inc.
By:
Its:
/s/ Steven Boal
Chief Executive Officer
Date:
1/4
,2016
Date:
January 4
,2016
Please read the Agreement carefully, it contains a RELEASE of all known and unknown claims.
END OF FULL-TIME EMPLOYMENT SIGNATURE PAGE
By my signature below, I represent that:
1.
2.
3.
I have had an opportunity to consult with an attorney,
I have carefully read and understand the scope and effect of the provisions of this Agreement, and
I understand that the releases and covenants in Sections 5 through 11 apply to me.
Agreed and accepted:
Richard Hornstein
Quotient Technology Inc.
By:
Its:
Chief Executive Officer
Date:
,2016
Date:
,2016
Please read the Agreement carefully, it contains a RELEASE of all known and unknown claims.
EARLY TERMINATION SIGNATURE PAGE
By my signature below, I represent that:
1.
2.
3.
I have had an opportunity to consult with an attorney,
I have carefully read and understand the scope and effect of the provisions of this Agreement, and
I understand that the releases and covenants in Sections 5 through 11 apply to me.
Agreed and accepted:
Richard Hornstein
Date:
Quotient Technology Inc.
By:
Its:
Chief Executive Officer
Date:
SUBSIDIARIES OF QUOTIENT TECHNOLOGY INC.
Name of Subsidiary
State Or Other Jurisdiction of Incorporation or Organization
Exhibit 21.1
Quotient Technology Limited
Shopmium, S.A.
Shopmium, Inc.
Coupons.com India Private Limited
Coupons.com Holdings (BVI) Limited
Coupons, Inc.
Cleo Holding Corporation
Yub LLC
CLiQ Acquisition Company LLC
United Kingdom
France
Delaware
India
British Virgin Islands
California
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
Registration Statement (Form S-8 No. 333-194495) pertaining to the 2013 Equity Incentive Plan, 2013 Employee Stock Purchase Plan, 2006
Stock Plan and 2000 Stock Plan, and
Registration Statement (Form S-8 No. 333-202873) pertaining to the 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan;
of our report dated March 11, 2016, with respect to the consolidated financial statements of Quotient Technology Inc. included in this Annual Report
(Form 10-K) of Quotient Technology Inc. for the year ended December 31, 2015.
/s/ Ernst & Young LLP
San Jose, California
March 11, 2016
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Steven R. Boal, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Quotient Technology Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
(c)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
( d ) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 11, 2016
By: /s/ Steven R. Boal
Steven R. Boal
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Jennifer Ceran, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Quotient Technology Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
(b)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
( c ) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 11, 2016
By: /s/ Jennifer Ceran
Jennifer Ceran
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Quotient Technology Inc. (the “Company”) on Form 10-K for the period ending December 31, 2015 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven R. Boal, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
Date: March 11, 2016
By: /s/ Steven R. Boal
Steven R. Boal
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Quotient Technology Inc. (the “Company”) on Form 10-K for the period ending December 31, 2015 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jennifer Ceran, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
Date: March 11, 2016
By: /s/ Jennifer Ceran
Jennifer Ceran
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)