| Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation:
The Company is subject to the normal risks associated with
technology companies that have not demonstrated sustainable income
from operations, including product development, the risk of
customer acceptance and market penetration of its products and
services and, ultimately, the need to attain profitability to
generate positive cash resources.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all normal recurring
adjustments necessary to present fairly the financial position,
results of operations, comprehensive loss and cash flows for the
interim periods, but are not necessarily indicative of the results
of operations to be anticipated for the full fiscal year 2021 or
any future period.
Variable Interest Entity:
Redeemable Non-Controlling non-controlling non-controlling non-controlling paid-in-capital. non-controlling
Use of Estimates: non-controlling
Concentration of Credit Risk and Significant Customers:
As of January 31, 2020, two customers represented 22% of
accounts receivable, 11% of which was from a customer who is an
equity holder. In the quarter ended July 31, 2020, the equity
holder no longer qualifies as a related party of the Company and
the amounts disclosed related to such equity holder are presented
as a related party through April 30, 2020, only. As of
July 31, 2020, one customer represented 12% of accounts
receivable. For the three and six months ended July 31, 2019
and 2020, no individual customer represented more than 10% of the
Company’s total revenues.
Accounts Receivable and Allowances: non-cancelable,
The Company records allowances for doubtful accounts based upon the
credit worthiness of customers, historical experience, the age of
the accounts receivable and current market and economic
conditions.
A summary of activity in the allowance for doubtful accounts is as
follows:
Three Months Ended Six Months Ended
2019
2020
2019
2020
Balance, beginning of period $
— $ 167 $ 123 $
—
Charged to (recovery of) bad debt expense
— 452 (105 ) 619
Write off of uncollectible accounts
—
— (18 )
—
Translation adjustments
— 3
— 3
Balance, end of period $
— $ 622 $
— $ 622
Recently Adopted Accounting Guidance:
In August 2018, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value
Measurement, ASU 2018-13
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and
Other-Internal-Use 350-40): internal-use 2018-15
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic
810), Targeted Improvements to Related Party Guidance for Variable
Interest Entities 2018-17 is
Recent Accounting Pronouncements Not Yet Adopted:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842). right-of-use 2018-10, Codification
Improvements to Topic 842, Leases, 2016-02, 10-K
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments–Credit Losses: Measurement of Credit Losses on
Financial Instruments 2016-13, 10-K
In December 2019, the FASB issued ASU 2019-12, ncome Taxes (Topic 740):
Simplifying the Accounting for Income Taxes 2019-12 2019-12 10-K | Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation:
The Company is subject to the normal risks associated with
technology companies that have not demonstrated sustainable income
from operations, including product development, the risk of
customer acceptance and market penetration of its products and
services and, ultimately, the need to attain profitability to
generate positive cash resources.
Effective February 1, 2019, the Company adopted the
requirement of Accounting Standards Update, or ASU No. 2014-09 2014-09”)
Variable Interest Entity:
Redeemable Non-Controlling non-controlling non-controlling non-controlling paid-in-capital. non-controlling
Use of Estimates:
The Company assesses these estimates on a regular basis using
historical experience and other factors. Actual results could
differ from these estimates, which were based upon circumstances
that existed as of the date of the consolidated financial
statements, January 31, 2020. Subsequent to this date, there
have been significant changes to the global economic environment as
a consequence of the COVID-19
Operating Segments:
Concentration of Credit Risk and Significant Customers:
For the fiscal year ended January 31, 2018, three customers
represented 20% of total revenues, 14% of which was from two
customers who are also equity holders in the Company. These three
customers also represented 58% of accounts receivable as of
January 31, 2018, of which 40% was from the two customers who
are also equity holders. For the fiscal year ended January 31,
2019, two customers represented 9% of total revenues, 4% of which
was also from a customer who is an equity holder in the Company.
These two customers also represented 29% of accounts receivable as
of January 31, 2019, of which 14% was from the customer who is
an equity holder. For the fiscal year ended January 31, 2020,
two customers represented 6% of total revenues, 3% of which was
also from a customer who is an equity holder in the Company. These
two customers also represented 22% of accounts receivable as of
January 31, 2020, of which 11% was from the customer who is an
equity holder.
Revenue Recognition
The Company determines revenue recognition through the following
steps:
•
Identification of the contract, or contracts, with a
customer
•
Identification of the performance obligations in the
contract
•
Determination of the transaction price
•
Allocation of the transaction price to the performance
obligations in the contract
•
Recognition of revenues when, or as, the Company
satisfies a performance obligation
Subscription Revenues
Subscription revenues primarily consist of fees for providing
customers access to the Company’s cloud applications, with
routine customer support and maintenance related to email and phone
support, bug fixes, and unspecified software updates and upgrades
released when and if available during the maintenance term.
Revenues are generally recognized on a ratable basis over the
contract term beginning on the date that the Company’s
service is made available to the customer, which the Company
believes best reflects the manner in which the Company’s
customers utilize the Company’s subscription offerings.
Arrangements with customers do not provide the customer with the
right to take possession of the software supporting the cloud-based
application service at any time and, as a result, are accounted for
as a service contract. Generally, the Company’s subscription
contracts are three years or longer in length, billed annually in
advance, are non-cancelable
Professional Services Revenues
Professional services revenues primarily consist of fees for
deployment, configuration and optimization services, as well as
training. The majority of the Company’s professional services
contracts are billed on a fixed price basis, and revenues are
recognized over time based on a proportional performance
methodology which utilizes input methods. A portion of the
Company’s professional services contracts are billed on a
time and materials basis and revenues are recognized over time as
the services are performed.
Contracts with Multiple Performance Obligations
Most of the Company’s contracts with customers contain
multiple performance obligations. For these contracts, the Company
accounts for individual performance obligations separately if they
are distinct. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
(“SSP”) basis. The Company determines SSP by
considering its overall pricing objectives and market conditions.
Significant pricing practices taken into consideration include the
Company’s discounting practices, the size and volume of the
Company’s transactions, the customer demographic, the
geographic area where services are sold, price lists, the
Company’s go-to-market go-to-market
Given the variability of pricing, the Company uses a range of SSP.
The Company determines the SSP range using information that may
include market conditions or other observable inputs. The Company
typically has more than one SSP for individual products and
services due to the stratification of products and services by
customer size.
Costs Capitalized to Obtain Revenue Contracts
As part of its adoption of ASU 2014-09, non-cancelable 2014-09
Under ASU 2014-09, non-cancelable
Judgments
Contracts with customers may include multiple services requiring
allocation of the transaction price across the different
performance obligations.
Standalone selling price is established by maximizing the amount of
observable inputs, primarily actual historical selling prices for
performance obligations where available and includes consideration
of factors such as go-to-market
Capitalized costs to obtain a contract are amortized over the
expected period of benefit, which the Company has determined, based
on analysis, to be approximately 4 years. The Company evaluated
qualitative and quantitative factors to determine the period of
amortization, including contract length, renewals, customer life
and the useful lives of our products and acquired products. When
the expected period of benefit of an asset which would be
capitalized is less than one year, the Company expenses the amount
as incurred, utilizing the practical expedient. The Company
regularly evaluates whether there have been changes in the
underlying assumptions and data used to determine the amortization
period.
At times, the Company provides credits or incentives to its
customers. Known and estimable credits and incentives represent a
form of variable consideration, which are determined at contract
inception and reduce the revenues recognized for a particular
contract. At the end of each reporting period, the Company reviews
and updates its estimates as additional information becomes
available. The Company believes that there will not be significant
changes to its estimates of variable consideration as of
January 31, 2020.
The Company evaluates whether it is the principal (i.e., report
revenues on a gross basis) or agent (i.e., report revenues on a net
basis) with respect to vendor reseller agreements pursuant to which
the Company resells certain third-party solutions along with the
Company’s solutions. Generally, the Company reports revenues
from these types of contracts on a gross basis, meaning the amounts
billed to customers are recorded as revenues and expenses incurred
are recorded as cost of revenues. Where the Company is the
principal, it first obtains control of the inputs to the specific
good or service and directs their use to create the combined
output. The Company’s control is evidenced by its involvement
in the integration of the good or service on its platform before it
is transferred to its customers and is further supported by the
Company being primarily responsible to its customers and having a
level of discretion in establishing pricing. Revenues provided from
agreements in which the Company is an agent are immaterial.
Deferred Revenue: non-cancellable non-refundable non-cancellable 12-month
Payment terms vary by contract, although terms generally include a
requirement of payment within 30 to 45 days. In instances where the
timing of revenue recognition differs from the timing of invoicing,
the Company has determined contracts generally do not include a
significant financing component. The primary purpose of invoicing
terms is to provide customers with simplified and predictable ways
of purchasing services, such as invoicing at the beginning of a
subscription term with revenues recognized ratably over the
contract period, and not to provide financing to customers. Any
implied financing costs are considered insignificant in the context
of the Company’s contracts.
Cash and Cash Equivalents:
Accounts Receivable and Allowances: 2014-09, non-cancelable,
The Company records allowances for doubtful accounts based upon the
credit worthiness of customers, historical experience, the age of
the accounts receivable and current market and economic
conditions.
A summary of activity in the allowance for doubtful accounts is as
follows:
Fiscal Year Ended
2018 2019 2020
Balance, beginning of period $ 349 $ 20 $ 123
Charged to (recovery of) bad debt expense (329 ) 110 (105 )
Write offs and others
— (7 ) (18 )
Balance, end of period $ 20 $ 123 $
—
Costs Capitalized to Obtain Revenue Contracts: 2014-09
Property and Equipment:
Asset Classification
Estimated Useful Life
Furniture and fixtures 3-7
Computers and equipment 3 years
Leasehold improvements Shorter of remaining life of the lease term or
estimated useful life
When assets are retired or otherwise disposed of, the cost and
accumulated depreciation or amortization are removed from their
respective accounts, and any gain or loss on such retirement is
reflected in operating expenses.
Capitalized Software Costs: internal-use
Intangible Assets:
Impairment Assessment
Goodwill: 2017-04, “Simplifying the Test for Goodwill Impairment” 2017-04
The Company determines the fair value of a reporting unit using a
discounted cash flow analysis that is corroborated by a
market-based approach. Determining fair value requires the exercise
of significant judgment, including judgment about appropriate
discount rates, perpetual growth rates and the amount and timing of
expected future cash flows. The cash flows employed in the
discounted cash flow analyses are based on the most recent budget
and long-term forecast. The discount rates used in the discounted
cash flow analyses are intended to reflect the risks inherent in
the future cash flows of the respective reporting units. The market
comparable approach estimates fair value using market multiples of
various financial measures compared to a set of comparable public
companies and recent comparable transactions.
Business Combinations tax-related
For acquisitions involving additional consideration to be
transferred to the selling parties in the event certain future
events occur or conditions are met (“contingent
consideration”), the Company recognizes the acquisition-date
fair value of contingent consideration as part of the consideration
transferred in exchange for the business combination. Contingent
consideration meeting the criteria to be classified as equity in
the consolidated balance sheets is not remeasured, and its
subsequent settlement is recorded within stockholders’
equity. Contingent consideration classified as a liability is
remeasured to fair value at each reporting date until the
contingency is resolved, with any changes in fair value recognized
in the Company’s consolidated statements of operations.
Deferred Rent: non-cancelable
Cost of Revenues:
Advertising:
Income Taxes:
Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more-likely-than-not
The Company follows the accounting standards on accounting for
uncertainty in income taxes, which addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the consolidated financial statements.
Under this guidance, the Company may recognize the tax benefit from
an uncertain tax position only if it is more-likely-than-not de-recognition,
When and if applicable, potential interest and penalties are
accrued as incurred, within income tax expense.
Other Comprehensive Income (Loss):
Foreign Currency Exchange:
Stock-Based Compensation: Compensation – Stock Compensation
Basic and Diluted Loss per Common Share:
Diluted loss per share is calculated by giving effect to all
potentially dilutive common stock, which is comprised of stock
options and restricted stock units, when determining the
weighted-average number of common shares outstanding. For purposes
of the diluted loss per share calculation, basic and diluted loss
per share were the same, as the effect of all potentially dilutive
securities would have been anti-dilutive.
Recently Adopted Accounting Guidance:
On May 28, 2014, the FASB issued ASU 2014-09 2014-09 340-40,
The Company adopted the requirements of ASU 2014-09
As of January 31, Topic 606 As of February 1,
Accounts receivable, less allowance for doubtful accounts
(1) $ 25,495 $ (1,978 ) $ 23,517
Costs capitalized to obtain revenue contracts, current portion,
net
— 2,879 2,879
Costs capitalized to obtain revenue contracts, noncurrent, net
— 5,330 5,330
Total assets $ 119,966 $ 6,231 $ 126,197
Deferred revenue, current portion 34,172 (4,366 ) 29,806
Deferred revenue, noncurrent 825 (825 )
—
Total liabilities $ 53,930 $ (5,191 ) $ 48,739
Stockholders’ Equity:
Accumulated deficit $ (104,752 ) $ 11,422 $ (93,330 )
(1)
Unbilled accounts receivable previously included in
Accounts receivable, less allowance for doubtful accounts before
the adoption of Topic 606.
The Company recognized the cumulative effect of initially applying
the new revenue standard as a positive adjustment to the opening
balance of accumulated deficit on the consolidated balance sheet in
the amount of $11.4 million, which reflects the acceleration
of revenues and deferral of costs capitalized to obtain revenue
contracts. The following is a summary of the adoption impacts of
the new revenue standard:
•
The Company capitalized $8.2 million of contract
acquisition costs comprised of sales commissions at the adoption
date with a corresponding adjustment to accumulated deficit. The
Company is amortizing these costs over their respective expected
period of benefit.
•
Upon adoption, the Company recorded a decrease in
deferred revenue of $5.2 million and a decrease of
$2.0 million in receivables that were recorded to accumulated
deficit.
Adoption of the new revenue standard impacted the Company’s
consolidated statement of operations for the year ended
January 31, 2020 as follows:
As reported Topic 606 Amounts without
Subscription $ 103,265 $ 2,351 $ 105,616
Professional services 34,915 (1,901 ) 33,014
Total revenues 138,180 450 138,630
Subscription 31,062 914 31,976
Professional services 33,008 (8 ) 33,000
Total cost of revenues 64,070 906 64,976
Gross profit 74,110 (456 ) 73,654
Sales and marketing 44,440 2,404 46,844
Research and development 35,304 (21 ) 35,283
Total operating expenses 102,280 2,383 104,663
Net loss attributable to nCino, Inc. $ (27,594 ) $ (2,839 ) $ (30,433 )
Basic and diluted net loss per share $ (0.35 ) $ 0.04 $ (0.39 )
Adoption of the new revenue standard impacted the Company’s
consolidated balance sheet as of January 31, 2020 as
follows:
As reported Topic 606 Amounts without
Accounts receivable, less allowance for doubtful accounts $ 34,205 $ 260 $ 34,465
Costs capitalized to obtain revenue contracts, current portion,
net 3,608 (3,608 )
—
Costs capitalized to obtain revenue contracts, noncurrent, net 7,000 (7,000 )
—
Total assets 249,894 (10,348 ) 239,546
Deferred revenue, current portion 50,929 3,923 54,852
Total liabilities 78,517 3,923 82,440
Stockholders’ Equity:
Accumulated other comprehensive loss (408 ) (10 ) (418 )
Accumulated deficit (120,924 ) (14,261 ) (135,185 )
The adoption of ASU 2014-09 2014-09
The most significant impact of the new revenue standard relates to
the capitalization of certain incremental costs to acquire
contracts and the requirement to amortize these amounts over the
expected period of benefit. Under the previous standard, the
Company expensed costs related to the acquisition of revenue
generating contracts as incurred. There was impact from
arrangements with customers that include subscription services
bundled with professional services driven by a change in allocation
of transaction value amongst performance obligations under the new
standard. Additionally, there was impact from the Company’s
acquisitions which are not material to the Company’s overall
revenues. These consisted of principal versus agent consideration
(reporting revenues gross vs. net – approximately a
$0.9 million decrease to subscription revenues and cost of
revenues to present net under ASU 2014-09)
Other impacts to policies and disclosures include deferred
recognition of revenues for certain contracts, the requirement to
estimate variable consideration for certain arrangements, increased
allocation of revenues to and from professional services and other
offerings and changes to financial statement disclosures such as
new disclosures related to remaining performance obligations.
However, the timing and pattern of revenue recognition related to
professional services remain substantially unchanged.
The Company utilized the transitional practical expedient
provisions in adopting ASU 2014-09
The Company also adopted the following ASUs effective
February 1, 2019, none of which had a material impact on the
Company’s consolidated financial statements.
•
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Receipts and Cash Payments
•
ASU No. 2016-16, Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory
•
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment
•
ASU 2018-07, Compensation – Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting
Recent Accounting Pronouncements Not Yet Adopted:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). right-of-use 2018-10, Codification Improvements
to Topic 842, Leases, 2016-02,
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments–Credit Losses: Measurement of Credit Losses on
Financial Instruments 2016-13,
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement, 2018-13
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and
Other-Internal-Use 350-40): internal-use 2018-15
In October 2018, the FASB issued Accounting Standards Update
(“ASU”) 2018-17, Consolidation (Topic 810),
Targeted Improvements to Related Party Guidance for Variable
Interest Entities 2018-17
In December 2019, the FASB issued ASU 2019-12, ncome Taxes (Topic 740):
Simplifying the Accounting for Income Taxes 2019-12 2019-12 |
