Carbonite 2011 Annual Report Download - page 42

Table of Contents
addition, we expect to invest heavily in our operations to support anticipated growth and public company reporting and compliance obligations. We
defer revenue over our customers’ subscription periods, but expense marketing costs as incurred. As a result of these factors, we expect to continue to
incur GAAP operating losses on an annual basis for the foreseeable future.
In August 2011, we closed our initial public offering of 7,187,500 shares of common stock at an offering price of $10.00 per share, of which
6,303,973 shares were sold by us, including 937,500 shares pursuant to the underwriters’ option to purchase additional shares, and 883,527 shares were
sold by selling stockholders, resulting in net proceeds to us of approximately $55.6 million, after deducting underwriting discounts and offering
expenses.
Our Business Model
We evaluate the profitability of a customer relationship over its lifecycle because of the nature of our business model. As we generally incur
customer acquisition costs in advance of subscriptions while recognizing revenue ratably over the terms of the subscriptions, a customer relationship
may not be profitable at the beginning of the subscription period, even though it may be profitable over the life of the customer relationship. As we also
generally incur capital equipment costs in advance of subscriptions, a customer relationship may not result in positive cash flow at the beginning of the
subscription period, even though it may result in positive cash flow over the life of the customer relationship. While we offer both annual and multi-
year
subscriptions to our customers, a significant majority of them are currently on one-year subscription plans. We typically generate positive cash flow
during the first year of a multi-year subscription as we charge the subscription fee for the entire period at the beginning of the subscription.
Key Business Metrics
Our management regularly reviews a number of financial and operating metrics, including the following key metrics, to evaluate our business:
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Total customers.
We calculate total customers as the number of paid subscriptions from consumers and SMBs at the end of the relevant period. A
consumer who has more than one computer may have multiple subscriptions, each of which is treated as a separate subscription. An SMB
subscription may cover multiple computers and users but is treated as a single subscription.
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Annual retention rate.
We calculate annual retention rate as the percentage of customers on the last day of the prior year who remain customers on
the last day of the current year, or for quarterly presentations, the percentage of customers on the last day of the comparable quarter in the prior
year who remain customers on the last day of the current quarter. Our management uses these measures to determine the stability of our customer
base and to evaluate the lifetime value of our customer relationships.
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Renewal rate.
We define renewal rate for a period as the percentage of customers who renew annual or multi-year subscriptions that expire during
the period presented. Renewal rate excludes customers under our discontinued third-party distribution agreements and prior SMB offering with
subscriptions that remain active until cancelled. Our management uses this measure to monitor trends in customer renewal activity.
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Bookings.
We calculate bookings as revenue recognized during a particular period plus the change in total deferred revenue (excluding deferred
revenue recorded in connection with acquisitions) during the same period. Our management uses this measure as a proxy for cash receipts.
Bookings represents the aggregate dollar value of customer subscriptions received by us during a period. We initially record a subscription fee as
deferred revenue and then recognize it ratably, on a daily basis, over the life of the subscription period.
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Free cash flow.
We calculate free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment, and
adjusted for any extraordinary items. Our management uses this measure to evaluate our operating results.