UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
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: 001-38478
CARBON BLACK, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
|
55-0810166 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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1100 Winter Street |
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Waltham, MA |
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02451 |
(Address of principal executive offices) |
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(Zip Code) |
(617) 393-7400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
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|
|
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
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(Do not check if a small reporting company) |
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Small reporting company |
☐ |
Emerging growth company |
☒
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|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 67,833,191 shares of the registrant’s common stock with a par value of $0.001 per share, outstanding as of August 3, 2018.
CARBON BLACK, INC.
FORM 10-Q
For the Quarter Ended June 30, 2018
1
PART I – FINANCIAL INFORMATION
CARBON BLACK, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
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June 30, |
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December 31, |
||
(In thousands, except share and per share amounts) |
|
2018 |
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2017 |
||
Assets |
|
|
|
|
|
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Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
178,497 |
|
$ |
36,073 |
Accounts receivable, net of allowances of $192 and $124 as of June 30, 2018 and December 31, 2017, respectively |
|
|
43,631 |
|
|
60,850 |
Prepaid expenses and other current assets |
|
|
8,488 |
|
|
6,040 |
Deferred commissions |
|
|
10,093 |
|
|
9,551 |
Total current assets |
|
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240,709 |
|
|
112,514 |
Deferred commissions, net of current portion |
|
|
21,825 |
|
|
20,404 |
Property and equipment, net |
|
|
14,514 |
|
|
12,459 |
Intangible assets, net |
|
|
3,310 |
|
|
4,092 |
Goodwill |
|
|
119,656 |
|
|
119,656 |
Other-long term assets |
|
|
395 |
|
|
2,436 |
Total assets |
|
$ |
400,409 |
|
$ |
271,561 |
Liabilities, Redeemable Convertible and Convertible Preferred Stock and Stockholders' Equity (Deficit) |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
4,228 |
|
$ |
2,481 |
Accrued expenses |
|
|
16,073 |
|
|
18,846 |
Deferred revenue |
|
|
129,927 |
|
|
130,165 |
Deferred rent |
|
|
1,147 |
|
|
944 |
Total current liabilities |
|
|
151,375 |
|
|
152,436 |
Deferred revenue, net of current portion |
|
|
39,344 |
|
|
38,535 |
Warrant liability |
|
|
— |
|
|
2,766 |
Deferred rent, net of current portion |
|
|
2,934 |
|
|
3,114 |
Deferred tax liability |
|
|
37 |
|
|
33 |
Other long-term liabilities |
|
|
42 |
|
|
42 |
Total liabilities |
|
|
193,732 |
|
|
196,926 |
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
Redeemable convertible preferred stock (Series B, C, D, E, E-1 and F), $0.001 par value, 94,101,207 authorized, 88,741,194 shares issued and outstanding with aggregate liquidation preference of $272,506 as of December 31, 2017. No shares authorized, issued or outstanding as of June 30, 2018 |
|
|
— |
|
|
333,204 |
Series A convertible preferred stock, $0.001 par value, 8,800,000 shares authorized, 3,851,806 shares issued and outstanding as of December 31, 2017. No shares authorized, issued or outstanding as of June 30, 2018 |
|
|
— |
|
|
1,510 |
Stockholders' equity (deficit): |
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|
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|
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Common stock, $0.001 par value, 500,000,000 shares and 156,650,000 shares authorized as of June 30, 2018 and December 31, 2017; 67,809,071 shares and 11,193,366 shares issued and 67,753,667 and 11,139,690 shares outstanding as of June 30, 2018 and December 31, 2017, respectively |
|
|
68 |
|
|
11 |
Treasury stock, at cost, 55,404 and 53,676 shares as of June 30, 2018 and December 31, 2017, respectively |
|
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(6) |
|
|
(6) |
Additional-paid in capital |
|
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707,945 |
|
|
13,429 |
Accumulated deficit |
|
|
(501,330) |
|
|
(273,513) |
Total stockholders' equity (deficit) |
|
|
206,677 |
|
|
(260,079) |
Total liabilities, redeemable convertible and convertible preferred stock and stockholders' equity (deficit) |
|
$ |
400,409 |
|
$ |
271,561 |
See notes to unaudited condensed consolidated financial statements.
2
CARBON BLACK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
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|
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Three Months Ended June 30, |
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Six Months Ended June 30, |
||||||||
(In thousands, except share and per share amounts) |
|
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2018 |
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2017 |
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2018 |
|
2017 |
||||
Revenue: |
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|
|
|
|
|
|
|
|
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|
|
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Subscription, license and support |
|
|
$ |
47,891 |
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$ |
35,749 |
|
$ |
93,282 |
|
$ |
68,754 |
Services |
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|
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3,101 |
|
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2,942 |
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6,144 |
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|
5,882 |
Total revenue |
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50,992 |
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38,691 |
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99,426 |
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74,636 |
Cost of revenue: |
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Subscription, license and support |
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8,051 |
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5,744 |
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15,263 |
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|
10,575 |
Services |
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3,053 |
|
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2,647 |
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|
6,056 |
|
|
5,417 |
Total cost of revenue |
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|
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11,104 |
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8,391 |
|
|
21,319 |
|
|
15,992 |
Gross profit |
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39,888 |
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|
30,300 |
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|
78,107 |
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|
58,644 |
Operating expenses: |
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|
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|
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Sales and marketing |
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35,161 |
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24,731 |
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65,839 |
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49,090 |
Research and development |
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16,084 |
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12,572 |
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31,006 |
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24,119 |
General and administrative |
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7,850 |
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5,414 |
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18,276 |
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|
10,343 |
Total operating expenses |
|
|
|
59,095 |
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|
42,717 |
|
|
115,121 |
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|
83,552 |
Loss from operations |
|
|
|
(19,207) |
|
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(12,417) |
|
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(37,014) |
|
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(24,908) |
Interest income (expense), net |
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|
|
411 |
|
|
14 |
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|
456 |
|
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(17) |
Change in fair value of warrant liability |
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|
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(5,957) |
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(2) |
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(8,838) |
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|
124 |
Other income (expense), net |
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|
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(494) |
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|
139 |
|
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(374) |
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|
113 |
Loss before income taxes |
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|
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(25,247) |
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(12,266) |
|
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(45,770) |
|
|
(24,688) |
Provision for income taxes |
|
|
|
34 |
|
|
69 |
|
|
105 |
|
|
86 |
Net loss and comprehensive loss |
|
|
|
(25,281) |
|
|
(12,335) |
|
|
(45,875) |
|
|
(24,774) |
Accretion of preferred stock to redemption value |
|
|
|
(159,453) |
|
|
3,323 |
|
|
(199,492) |
|
|
(8,324) |
Net loss attributable to common stockholders |
|
|
$ |
(184,734) |
|
$ |
(9,012) |
|
$ |
(245,367) |
|
$ |
(33,098) |
Net loss per share attributable to common stockholders—basic and diluted |
|
|
$ |
(4.13) |
|
$ |
(0.88) |
|
$ |
(8.73) |
|
$ |
(3.27) |
Weighted-average common shares outstanding—basic and diluted |
44,759,435 |
10,255,078 |
28,104,372 |
10,116,021 |
See notes to unaudited condensed consolidated financial statements.
3
CARBON BLACK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ DEFICIT
|
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Redeemable |
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|
|
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|
|
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|
|
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||||
|
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Convertible |
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Convertible |
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Additional |
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Total |
|||||||||
|
|
Preferred Stock |
|
Preferred Stock |
|
|
Common Stock |
|
Treasury Stock |
|
Paid‑in |
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Accumulated |
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Stockholders' |
||||||||||||||||
(In thousands, except share amounts) |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Deficit |
||||||||
Balances at December 31, 2017 |
88,741,194 |
$ |
333,204 |
3,851,806 |
$ |
1,510 |
11,139,690 |
$ |
11 |
53,676 |
$ |
(6) |
$ |
13,429 |
$ |
(273,513) |
$ |
(260,079) |
|||||||||||||
Exercise of Series A stock options |
|
|
— |
|
|
— |
|
360,385 |
|
|
211 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Accretion of redeemable convertible preferred stock to redemption value |
|
|
— |
|
|
199,492 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(17,550) |
|
|
(181,942) |
|
|
(199,492) |
Conversion of redeemable convertible preferred stock upon initial public offering |
|
|
(88,741,194) |
|
|
(532,696) |
|
— |
|
|
— |
|
|
44,370,560 |
|
|
44 |
|
— |
|
|
— |
|
|
532,652 |
|
|
— |
|
|
532,696 |
Conversion of convertible preferred stock upon initial public offering |
|
|
— |
|
|
— |
|
(4,212,191) |
|
|
(1,721) |
|
|
1,709,063 |
|
|
2 |
|
— |
|
|
— |
|
|
1,719 |
|
|
— |
|
|
1,721 |
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs incurred of $4,858 |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
9,200,000 |
|
|
9 |
|
— |
|
|
— |
|
|
157,697 |
|
|
— |
|
|
157,706 |
Issuance of common stock upon exercise of common stock warrants |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
712,063 |
|
|
1 |
|
— |
|
|
— |
|
|
11,603 |
|
|
— |
|
|
11,604 |
Repurchase of common stock |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(1,728) |
|
|
— |
|
1,728 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Exercise of common stock options |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
624,019 |
|
|
1 |
|
— |
|
|
— |
|
|
2,519 |
|
|
— |
|
|
2,520 |
Stock-based compensation expense |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
5,876 |
|
|
— |
|
|
5,876 |
Net loss |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(45,875) |
|
|
(45,875) |
Balances at June 30, 2018 |
|
|
— |
|
$ |
— |
|
— |
|
$ |
— |
|
|
67,753,667 |
|
$ |
68 |
|
55,404 |
|
$ |
(6) |
|
$ |
707,945 |
|
$ |
(501,330) |
|
$ |
206,677 |
See notes to unaudited condensed consolidated financial statements.
4
CARBON BLACK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Six Months Ended June 30, |
||||
(In thousands) |
|
|
2018 |
|
2017 |
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
|
|
$ |
(45,875) |
|
$ |
(24,774) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
3,875 |
|
|
3,397 |
Stock-based compensation expense |
|
|
|
5,876 |
|
|
4,367 |
Provisions for doubtful accounts |
|
|
|
118 |
|
|
(178) |
Non-cash interest expense |
|
|
|
22 |
|
|
8 |
Change in fair value of warrant liability |
|
|
|
8,838 |
|
|
(124) |
Deferred income taxes |
|
|
|
4 |
|
|
— |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
17,100 |
|
|
(89) |
Prepaid expenses and other assets |
|
|
|
(2,293) |
|
|
(1,720) |
Deferred commissions |
|
|
|
(1,962) |
|
|
(2,109) |
Accounts payable |
|
|
|
1,787 |
|
|
1,241 |
Accrued expenses |
|
|
|
(2,773) |
|
|
(3,535) |
Deferred revenue |
|
|
|
572 |
|
|
9,898 |
Deferred rent |
|
|
|
23 |
|
|
(74) |
Other long-term liabilities |
|
|
|
(1) |
|
|
(55) |
Net cash used in operating activities |
|
|
|
(14,689) |
|
|
(13,747) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
(4,197) |
|
|
(3,124) |
Capitalization of internal-use software costs |
|
|
|
(991) |
|
|
(478) |
Net cash used in investing activities |
|
|
|
(5,188) |
|
|
(3,602) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
2,731 |
|
|
1,729 |
Repayments of line of credit |
|
|
|
— |
|
|
(5,500) |
Proceeds from initial public offering, net of offering costs of $2,947 |
|
|
|
159,617 |
|
|
— |
Payments of deferred financing costs |
|
|
|
(47) |
|
|
(84) |
Net cash provided by (used in) financing activities |
|
|
|
162,301 |
|
|
(3,855) |
Net increase (decrease) in cash and cash equivalents |
|
|
|
142,424 |
|
|
(21,204) |
Cash and cash equivalents at beginning of period |
|
|
|
36,073 |
|
|
51,503 |
Cash and cash equivalents at end of period |
|
|
$ |
178,497 |
|
$ |
30,299 |
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock upon initial public offering |
|
|
$ |
532,696 |
|
$ |
— |
Conversion of convertible preferred stock upon initial public offering |
|
|
$ |
1,721 |
|
$ |
— |
Issuance of common stock upon exercise of common stock warrants |
|
|
$ |
11,604 |
|
$ |
— |
Deferred IPO costs paid in prior periods |
|
|
$ |
1,911 |
|
$ |
— |
Accretion of preferred stock to redemption value |
|
|
$ |
199,492 |
|
$ |
8,324 |
Additions to property and equipment included in accounts payable at period end |
|
|
$ |
249 |
|
$ |
216 |
Series B preferred stock issued upon exercise of Series B Warrant |
|
|
$ |
— |
|
$ |
225 |
Series F preferred stock and common stock issued upon termination of customer warrant in connection with acquisition of Confer Technologies, Inc. |
|
|
$ |
— |
|
$ |
1,347 |
See notes to unaudited condensed consolidated financial statements.
5
CARBON BLACK, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
1. OVERVIEW AND BASIS OF PRESENTATION
Overview
Carbon Black, Inc. (the “Company”) is a leading provider of next-generation endpoint security solutions. The Company’s solutions enable customers to predict, prevent, detect, respond to and remediate cyber attacks before they cause a damaging incident or data breach. The Company was incorporated under the laws of the State of Delaware in December 2002 as Bit 9, Inc. and in April 2005 changed its name to Bit9, Inc. In January 2016, the Company amended its certificate of incorporation to change its name to Carbon Black, Inc.
On April 20, 2018, the Company effected a 1-for-2 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of Company’s Series B, Series C, Series D, Series E, Series E-1 and Series F preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying unaudited consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.
On May 8, 2018, the Company closed its initial public offering (“IPO”), in which it issued and sold 9,200,000 shares of common stock inclusive of the underwriters’ option to purchase additional shares that was exercised in full. The price to the public was $19 per share. The Company received aggregate proceeds of $162.6 million from the IPO, net of underwriters’ discounts and commissions, and before deducting offering costs of approximately $4.9 million. Upon closing of the IPO, all shares of the Company’s outstanding redeemable convertible and convertible preferred stock automatically converted into 46,079,623 shares of common stock. Additionally, an outstanding warrant which became exercisable upon the closing of the IPO was exercised to purchase 485,985 shares of common stock.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting standards (“GAAP”) for interim financial information and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company’s condensed consolidated financial statements are unaudited, but include all adjustments of a normal recurring nature necessary for a fair presentation of the quarterly results. The Company has made estimates and judgments affecting the amounts reported in the condensed consolidated financial statements and the accompanying notes. The actual results that the Company experiences may differ materially from the Company’s estimates.
The Company’s condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s final prospectus for its IPO dated as of May 4, 2018 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.
Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) on a full retrospective basis as discussed in detail in Note 2. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with ASC 606.
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as the Company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company has irrevocably elected to “opt out” of this provision and, as a result, the Company will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
6
2. NEW ACCOUNTING PRONOUNCEMENTS
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company plans to adopt this standard as of January 1, 2019. This standard requires a modified retrospective transition approach for all leases existing at or entered into after, the date of initial application, with an option to use certain transition relief. The Company is in the process of identifying the population of potential lease arrangements and evaluating these arrangements in the context of the new guidance. While the Company continues to evaluate the effect of adoption on its consolidated financial statements, the Company expects the adoption will result in the recognition of right-of-use assets and lease liabilities that were not previously recognized, which will increase total assets and liabilities on the Company’s consolidated balance sheet.
Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (“ASU 2018-02”), which provides for the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income to retained earnings resulting from the Tax Cuts and Jobs Act, or Tax Act. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2018-02 will have on its consolidated financial statements.
Stock Compensation
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”). ASU 2018-07 was issued in order to expand the guidance for stock-based compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.
Revenue
In May 2014, the FASB issued ASC 606, which supersedes existing revenue recognition guidance under GAAP. The Company adopted ASC 606 effective January 1, 2018 using the full retrospective method, which required the Company to restate each prior reporting period presented for the impact of adoption of the standard.
The Company’s recognition of total revenue related to subscription (i.e., term-based) licenses, cloud-based subscriptions, access to the threat intelligence capabilities of the Cb Predictive Security Cloud, maintenance services and customer support, and stand-alone professional services remain substantially unchanged under the new standard. However, as further discussed herein, the timing of recognition related to certain aspects of subscription (i.e. term-based) licenses, perpetual licenses and associated professional services is different under the new standard.
For subscription license sales of Cb Protection and Cb Response, under the new standard, the Company considers the software license and the access to the threat intelligence capabilities of the Cb Predictive Security Cloud, which provides continuous updates of real-time threat intelligence, to be a single performance obligation. As a result, the arrangement consideration allocated to the software license is deferred on the Company’s balance sheet and recognized ratably over the term of the subscription as the performance obligation is satisfied. However, under the new standard, the Company is no longer required to delay the commencement of revenue recognition of subscription licenses until the commencement of any professional services and training sold with the subscription license due to the lack of vendor - specific objective evidence ("VSOE") of its longest delivered service elements, maintenance and support. While under the new standard, maintenance services and customer support related to subscription licenses are a stand-alone performance obligation, the related revenue continues to be recognized ratably over the term of the maintenance and support arrangement as the performance obligation is satisfied.
7
For its infrequent sales of perpetual licenses of Cb Protection and Cb Response, prior to the adoption of ASC 606, the Company recognized revenue ratably over the longest service period of any deliverable in the arrangement, which was generally the maintenance and support term, due to the lack of VSOE of fair value for its maintenance and support offerings. Under the new standard, the Company is no longer required to delay revenue recognition of perpetual licenses until the commencement of any bundled professional services and training sold with the perpetual license. Further, the Company recognizes the revenue related to the sale of perpetual software licenses ratably over the customer’s estimated economic life, which the Company has estimated to be five years, rather than over the initially committed period of maintenance and support.
In addition, under the new standard, for subscription and perpetual licenses that are sold with professional services in a combined arrangement, the professional services represent a separate performance obligation and the Company recognizes revenue associated with the professional services as such services are performed. Revenue associated with professional services sold in a combined arrangement with subscription and perpetual licenses was previously recognized ratably over the longest service period of any deliverable in the arrangement, which was generally the maintenance and support term, due to the lack of VSOE of fair value for the Company’s maintenance and support offerings.
Another significant provision of the new standard requires the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Under the new standard, all incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. Under the previous standard, the Company capitalized commission costs that were incremental and directly related to the acquisition of a customer arrangement. The commission costs were capitalized when earned and were amortized as expense over the period that the revenue was recognized for the related non-cancelable customer arrangement in proportion to the recognition of revenue, without regard to anticipated customer renewals. Under the new standard, the Company continues to capitalize all incremental commission costs to obtain a customer arrangement, but now amortizes the capitalized costs on a straight-line basis over the estimated customer relationship period, which includes anticipated customer renewals, because the Company anticipates that a majority of customers will renew their license and cloud-based subscriptions and the commissions paid by the Company for such renewals are not commensurate with the commissions paid for new sales. Accordingly, this has resulted in the Company’s capitalized commission costs being amortized to expense over a longer period under the new standard than under the prior guidance. The Company has estimated the customer relationship period to be five years.
For additional information on the Company’s accounting policies as a result of the adoption of ASC 606 see Note 12 “Revenue”.
The Company adjusted its consolidated financial statements due to the adoption of ASC 606. Select unaudited consolidated financial statements, which reflect the adoption of ASC 606 are as follows:
|
|
As of December 31, 2017 |
|||||||
|
|
|
|
|
Adjustments for |
|
|
|
|
|
|
As Previously |
|
ASC 606 |
|
|
|||
|
|
Reported |
|
Adoption |
|
As Adjusted |
|||
Balance Sheet |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
Deferred commissions, current portion |
|
$ |
15,195 |
|
$ |
(5,644) |
|
$ |
9,551 |
Deferred commissions, net of current portion |
|
|
3,811 |
|
|
16,593 |
|
|
20,404 |
Liabilities, redeemable convertible and convertible preferred stock and stockholders' equity (deficit): |
|
|
|
|
|
|
|
|
|
Deferred revenue, current portion |
|
$ |
132,278 |
|
$ |
(2,113) |
|
$ |
130,165 |
Deferred revenue, net of current portion |
|
|
31,902 |
|
|
6,633 |
|
|
38,535 |
Accumulated deficit |
|
$ |
(279,942) |
|
$ |
6,429 |
|
$ |
(273,513) |
8
|
|
Three Months Ended June 30, 2017 |
|
Six Months Ended June 30, 2017 |
||||||||||||||
|
|
As Prepared |
|
Adjustments |
|
As Adjusted |
|
As Prepared |
|
Adjustments |
|
As Adjusted |
||||||
Consolidated Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription, license and support |
|
$ |
35,828 |
|
$ |
(79) |
|
$ |
35,749 |
|
$ |
69,567 |
|
$ |
(813) |
|
$ |
68,754 |
Services |
|
|
3,231 |
|
|
(289) |
|
|
2,942 |
|
|
6,254 |
|
|
(372) |
|
|
5,882 |
Total revenue |
|
|
39,059 |
|
|
(368) |
|
|
38,691 |
|
|
75,821 |
|
|
(1,185) |
|
|
74,636 |
Gross profit |
|
|
30,668 |
|
|
(368) |
|
|
30,300 |
|
|
59,829 |
|
|
(1,185) |
|
|
58,644 |
Sales and marketing |
|
|
25,727 |
|
|
(996) |
|
|
24,731 |
|
|
51,024 |
|
|
(1,934) |
|
|
49,090 |
Total operating expenses |
|
|
43,713 |
|
|
(996) |
|
|
42,717 |
|
|
85,486 |
|
|
(1,934) |
|
|
83,552 |
Loss from operations |
|
|
(13,045) |
|
|
628 |
|
|
(12,417) |
|
|
(25,657) |
|
|
749 |
|
|
(24,908) |
Loss before income taxes |
|
|
(12,894) |
|
|
628 |
|
|
(12,266) |
|
|
(25,437) |
|
|
749 |
|
|
(24,688) |
Net loss and comprehensive loss |
|
|
(12,963) |
|
|
628 |
|
|
(12,335) |
|
|
(25,523) |
|
|
749 |
|
|
(24,774) |
Net loss attributable to common stockholders |
|
|
(9,640) |
|
|
628 |
|
|
(9,012) |
|
|
(33,847) |
|
|
749 |
|
|
(33,098) |
Net loss per share attributable to common stockholders—basic and diluted |
|
$ |
(0.94) |
|
$ |
0.06 |
|
$ |
(0.88) |
|
$ |
(3.35) |
|
$ |
0.07 |
|
$ |
(3.27) |
|
|
Six Months Ended June 30, 2017 |
|||||||
|
|
|
|
|
Adjustments for |
|
|
|
|
|
|
As Prepared |
|
ASC 606 |
|
|
|
||
|
|
under ASC 605 |
|
Adoption |
|
As Adjusted |
|||
Consolidated Statement of Cash Flows |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(25,523) |
|
$ |
749 |
|
$ |
(24,774) |
Changes in operating assets and liabilities, excluding the impact of acquisition of businesses: |
|
|
|
|
|
|
|
|
|
Deferred commissions |
|
|
(175) |
|
|
(1,934) |
|
|
(2,109) |
Deferred revenue |
|
$ |
8,713 |
|
$ |
1,185 |
|
$ |
9,898 |
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company categorizes assets and liabilities recorded or disclosed at fair value on our condensed consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
• Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly.
• Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:
|
|
|
||||||||||
|
|
June 30, 2018 |
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
166,173 |
|
$ |
— |
|
$ |
— |
|
$ |
166,173 |
|
|
$ |
166,173 |
|
$ |
— |
|
$ |
— |
|
$ |
166,173 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred stock warrant liability |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Common stock warrant liability |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
9
|
|
December 31, 2017 |
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
21,597 |
|
$ |
— |
|
$ |
— |
|
$ |
21,597 |
|
|
$ |
21,597 |
|
$ |
— |
|
$ |
— |
|
$ |
21,597 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred stock warrant liability |
|
$ |
— |
|
$ |
— |
|
$ |
992 |
|
$ |
992 |
Common stock warrant liability |
|
|
— |
|
|
— |
|
|
1,774 |
|
|
1,774 |
|
|
$ |
— |
|
$ |
— |
|
$ |
2,766 |
|
$ |
2,766 |
As of June 30, 2018 and December 31, 2017, the Company's cash equivalents, which were invested in money market funds, were valued based on Level 1 inputs.
Changes in the fair values of the Company's preferred stock warrant liabilities and common stock warrant liability for the six months ended June 30, 2018 were as follows:
|
|
Series D |
|
|
|
|
|
|
Preferred Stock |
|
Common Stock |
||
|
|
Warrant Liability |
|
Warrant Liability |
||
Fair value at December 31, 2017 |
|
|
992 |
|
|
1,774 |
Change in fair value |
|
|
1,378 |
|
|
7,460 |
Exercise of common stock warrant |
|
|
— |
|
|
(9,234) |
Conversion to common stock warrant |
|
|
(2,370) |
|
|
— |
Fair value at June 30, 2018 |
|
$ |
— |
|
$ |
— |
Upon the closing of the IPO, the warrants for the purchase of Series D preferred stock became warrants to purchase common stock. The Company valued the Series D preferred stock liability as of the IPO closing date using the Black-Scholes option pricing-model and recorded a change in the fair value of the preferred stock warrants through that date. The Series D preferred stock warrant liability was then reclassified to additional paid-in capital. Additionally, the warrants for the purchase of common stock were exercised to purchase 485,985 shares of common stock upon the closing of the IPO. The Company valued the common stock warrant liability as of the IPO date using the $19 per share offering price and recorded a change in the fair value of the common stock warrants through that date. The common stock warrant liability was then reclassified to common stock and additional paid-in capital.
4. PROPERTY AND EQUIPMENT, NET
|
|
June 30, |
|
December 31, |
||
|
|
2018 |
|
2017 |
||
Computer equipment |
|
$ |
14,928 |
|
$ |
12,349 |
Computer software |
|
|
3,401 |
|
|
3,048 |
Leasehold improvements |
|
|
6,628 |
|
|
6,327 |
Furniture and fixtures |
|
|
3,333 |
|
|
2,870 |
Office equipment |
|
|
104 |
|
|
99 |
Construction in progress |
|
|
456 |
|
|
— |
Internal-use software |
|
|
2,970 |
|
|
1,979 |
|
|
|
31,820 |
|
|
26,672 |
Less: Accumulated depreciation and amortization |
|
|
(17,306) |
|
|
(14,213) |
|
|
$ |
14,514 |
|
$ |
12,459 |
For the three months ended June 30, 2018 and 2017, depreciation and amortization expense related to property and equipment, including internal-use software, was $1,579 and $1,347.
For the six months ended June 30, 2018 and 2017, depreciation and amortization expense related to property and equipment, including internal-use software, was $3,093 and $2,615.
10
During the three month ended June 30, 2018 and 2017, the Company capitalized $698 and $274 of costs related to the development of internal-use software and recorded amortization expense of capitalized internal-use software of $133 and $97.
During the six months ended June 30, 2018 and 2017, the Company capitalized $991 and $478 of costs related to the development of internal-use software and recorded amortization expense of capitalized internal-use software of $290 and $185.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill was $119,656 as of June 30, 2018 and December 31, 2017.
Identifiable intangible assets consisted of the following:
|
|
June 30, 2018 |
|
December 31, 2017 |
||||||||||||||
|
|
Gross |
|
Accumulated |
|
Carrying |
|
Gross |
|
Accumulated |
|
Carrying |
||||||
|
|
Amount |
|
Amortization |
|
Value |
|
Amount |
|
Amortization |
|
Value |
||||||
License agreement |
|
$ |
150 |
|
$ |
(120) |
|
$ |
30 |
|
$ |
150 |
|
$ |
(113) |
|
$ |
37 |
Developed technology |
|
|
7,301 |
|
|
(4,075) |
|
|
3,226 |
|
|
7,301 |
|
|
(3,344) |
|
|
3,957 |
Trade name |
|
|
440 |
|
|
(386) |
|
|
54 |
|
|
440 |
|
|
(342) |
|
|
98 |
Customer relationships |
|
|
2,950 |
|
|