UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number: 001-35584

EXA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3139906
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

55 Network Drive

Burlington, MA 01803

(Address of Principal Executive Offices, Including Zip Code)

(781) 564-0200

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by 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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

As of May 31, 2013, 13,313,094 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

EXA CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED APRIL 30, 2013

TABLE OF CONTENTS

	Pages
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of April 30, 2013 and January 31, 2013		3
Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months ended April  30, 2013 and 2012		4
Consolidated Statements of Cash Flows for the three months ended April 30, 2013 and 2012		5
Notes to Unaudited Consolidated Financial Statements		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		22
ITEM 4. CONTROLS AND PROCEDURES		23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		24
ITEM 1A. RISK FACTORS		24
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		24
ITEM 6. EXHIBITS		24
SIGNATURES		25

2

PART I. UNAUDITED FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXA CORPORATION

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

	April 30, 2013			January 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	47,938		$	30,716
Accounts receivable		4,310			27,840
Deferred tax assets		1,204			970
Prepaid expenses and other current assets		1,928			1,938
Total current assets		55,380			61,464
Property and equipment, net		5,900			6,176
Intangible assets, net		3,008			3,096
Deferred tax assets		12,527			12,274
Other assets		1,096			1,060
Total assets	$	77,911		$	84,070
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	762		$	1,743
Accrued expenses		4,829			7,284
Current portion of long-term debt, net of discount (1)		2,039			1,747
Current portion of deferred revenue		24,499			26,013
Current maturities of capital lease obligations		2,091			2,051
Total current liabilities		34,220			38,838
Long-term debt, net of current portion and discount (1)		4,498			5,024
Deferred revenue		12			128
Capital lease obligations		2,301			2,818
Other long-term liabilities		1,042			1,009
Deferred rent		1,336			1,482
Total liabilities		43,409			49,299
Commitments and contingencies (Note 10)
Stockholders’ equity :
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.001 par value; 195,000,000 authorized; 13,345,596 and 13,319,715 shares issued, respectively; 13,313,094 and 13,287,213 shares outstanding, respectively		13			13
Additional paid-in capital		84,060			83,786
Accumulated deficit		(49,553	)		(49,012	)
Treasury stock (32,502 common shares, at cost)		0			0
Accumulated other comprehensive loss		(18	)		(16	)
Total stockholders’ equity		34,502			34,771
Total liabilities and stockholders’ equity	$	77,911		$	84,070
(1)    Includes amounts due to a related party, as follows:
	April 30, 2013			January 31, 2013
Current portion of long-term debt	$	282		$	274
Long-term debt, net of current portion	$	425		$	499

The accompanying notes are an integral part of the consolidated financial statements

3

EXA CORPORATION

Consolidated Statements of Operations and Statements of Comprehensive (Loss) Income

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended April 30,
	2013			2012
Revenue:
License revenue	$	10,692		$	10,013
Project revenue		1,796			1,281
Total revenues		12,488			11,294
Operating expenses:
Cost of revenues		3,671			3,223
Sales and marketing		2,117			1,600
Research and development		4,386			4,140
General and administrative		2,771			1,958
Total operating expenses		12,945			10,921
(Loss) income from operations		(457	)		373
Other expense, net:
Foreign exchange gain		37			—
Interest expense		(381	)		(414	)
Interest income		4			2
Other income, net		2			66
Total other expense, net		(338	)		(346	)
(Loss) income before income taxes		(795	)		27
Benefit for income taxes		254			35
Net (loss) income	$	(541	)	$	62
Net (loss) income per share:
Basic	$	(0.04	)	$	0.12
Diluted	$	(0.04	)	$	0.01
Weighted average shares outstanding used in computing net (loss) income per share:
Basic		13,296,098			497,124
Diluted		13,296,098			10,455,405
Comprehensive (loss) income:
Net (loss) income	$	(541	)	$	62
Foreign currency translation adjustments		(2	)		28
Comprehensive (loss) income	$	(543	)	$	90

The accompanying notes are an integral part of the consolidated financial statements

4

EXA CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended April 30,
	2013			2012
Cash flows provided by operating activities:
Net (loss) income	$	(541	)	$	62
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		496			409
Stock-based compensation expense		245			241
Deferred rent expense		(76	)		(107	)
Non-cash interest		122			124
Mark-to-market adjustment of preferred stock warrant liability		—			(63	)
Deferred income taxes		(487	)		55
Net change in operating assets and liabilities:
Accounts receivable		23,706			14,905
Prepaid expenses and other current assets		(15	)		20
Other assets		(36	)		(460	)
Accounts payable		(973	)		(433	)
Accrued expenses		(2,322	)		(2,673	)
Other liabilities		33			—
Deferred revenue		(1,618	)		(3,665	)
Net cash provided by operating activities		18,534			8,415
Cash flows used in investing activities:
Purchases of property and equipment		(336	)		(39	)
Net cash used in investing activities		(336	)		(39	)
Cash flows used in financing activities:
Net decrease in line of credit		—			(7,000	)
Proceeds from borrowings under long-term debt		—			3,500
Proceeds from stock option and warrant exercises		29			7
Payments of long-term debt		(331	)		(200	)
Payments of capital lease obligations		(520	)		(147	)
Net cash used in financing activities		(822	)		(3,840	)
Effect of exchange rate changes on cash		(154	)		(50	)
Net increase in cash and cash equivalents		17,222			4,486
Cash and cash equivalents, beginning of period		30,716			11,468
Cash and cash equivalents, end of period	$	47,938		$	15,954
Supplemental cash flow disclosures:
Cash paid for interest	$	264			233
Cash paid for income taxes	$	121		$	551
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment through capital leases	$	43		$	56

The accompanying notes are an integral part of the consolidated financial statements

5

EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

1. Description of Business

Exa Corporation (the “Company” or “Exa”), a Delaware corporation, develops, sells and supports simulation software and services that vehicle manufacturers use to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. The Company’s solutions enable engineers and designers to augment or replace conventional methods of evaluating designs that rely on expensive and inefficient physical prototypes and test facilities with accurate digital simulations that are more useful, cost effective and timely. The Company’s simulation solutions enable customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes, which result in cost savings and fundamental improvements in the development process. The Company is primarily focused on the ground transportation market, but is also beginning to explore the application of its capabilities in the aerospace, oil and gas production, chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

Exa has offices and sells directly in the United States and through subsidiaries in France, Germany, Italy, Japan, Korea, China, and the United Kingdom. The Company also conducts business in Sweden, India, Brazil, Russia, Canada, Finland, Spain and Australia.

2. Summary of Significant Accounting Policies

Applicable Accounting Guidance

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental United States generally accepted accounting principles as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended January 31, 2013 included in the Company’s Annual Report on Form 10-K. These financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods presented.

Change in Estimates

Property and equipment are stated at cost. Major renewals, additions and betterments are charged to equipment accounts while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed in the period incurred. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income from operations. Depreciation is computed using the straight-line method over the estimated useful life of each asset.

The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. During the first quarter of fiscal year 2014, the Company reevaluated its network assets, consisting primarily of server equipment utilized in its data centers, and determined that the expected average useful life of those assets had increased from three to five years. The net book value of server assets placed in service as of February 1, 2013 was approximately $2,755. This change resulted in decreased depreciation expense on these assets by approximately $121 on an after-tax basis, or $0.01 per share, for the three months ended April 30, 2013.

Recent Accounting Pronouncements

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities (ASU No 2011-11). The update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. The Company adopted ASU 2011-11 on February 1, 2013. This adoption did not have a material impact on the Company’s consolidated financial statements.

6

EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Companies are also required to disclose these reclassifications by each respective line item on the statements of operations. ASU 2013-02 is effective prospectively for annual reporting periods beginning after December 15, 2012, and interim periods within those annual periods. The Company adopted ASU 2013-02 on February 1, 2013. This adoption did not have a material impact on the Company’s consolidated financial statements.

3. Computation of Net (Loss) Income Per Share

Net (loss) income per share has been computed using the weighted average number of shares of common stock outstanding during each period. Diluted amounts per share include the impact of the Company’s outstanding potential common shares, such as shares issuable upon exercise of in-the-money stock options or warrants or upon conversion of convertible preferred stock, when dilutive. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income per common share. The impact of the accretion of unpaid and undeclared dividends has not been reflected in the weighted average shares used to compute diluted net (loss) income per share as the convertible preferred stock was not entitled to receive undeclared dividends upon such conversion.

The following summarizes the calculation of basic and diluted net (loss) income per share:

	Three Months Ended April 30,
	2013			2012
Numerator:
Net (loss) income	$	(541	)	$	62
Denominator:
Weighted average common shares outstanding, basic		13,296,098			497,124
Dilutive effect of:
Options to purchase common stock		—			130,270
Options to purchase preferred stock		—			1,221,357
Warrants to purchase common stock		—			84,737
Convertible preferred stock		—			8,521,917
Weighted average common shares outstanding, fully diluted		13,296,098			10,455,405
Basic net (loss) income per share	$	(0.04	)	$	0.12
Diluted net (loss) income per share	$	(0.04	)	$	0.01

The following equity instruments have been excluded from diluted net (loss) income per common share as they would be anti-dilutive:

	Three Months Ended April 30,
	2013		2012
Options and warrants to purchase common and preferred stock		2,316,328		675,752

4. Property and Equipment, net

Property and equipment, net consists of the following as of April 30, 2013 and January 31, 2013:

	April 30, 2013			January 31, 2013
Computer software and equipment	$	15,799		$	15,718
Office equipment and furniture		365			371
Leasehold improvements		2,635			2,732
Total property and equipment		18,799			18,821
Less: accumulated depreciation		(12,899	)		(12,645	)
Property and equipment, net	$	5,900		$	6,176

Depreciation expense was $408 and $311 for the three months ended April 30, 2013 and 2012, respectively.

7

EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

Included in computer software and equipment and office equipment and furniture is equipment held pursuant to capital leases with costs of $14,442 and $14,450 and accumulated amortization of $10,013 and $9,752 as of April 30, 2013 and January 31, 2013, respectively.

5. Accrued Expenses

Accrued expenses consist of the following:

	April 30, 2013		January 31, 2013
Accrued payroll	$	1,649	$	1,457
Sales and withholding taxes		705		2,595
Accrued commissions and bonuses		680		1,543
Accrued income taxes payable		252		73
Deferred rent, current portion		592		523
Legal and professional		341		451
Other accrued expenses		610		642
Total accrued expenses	$	4,829	$	7,284

6. Deferred Rent

In connection with its corporate headquarters lease entered into in July 2008, the Company received a tenant improvement allowance of $1,958 from the landlord. This lease incentive was recorded as leasehold improvements and deferred rent and is being amortized as part of rent expense on a straight-line basis over the life of the lease. The Company’s subsidiary Euroxa S.a.r.l. entered into a new office lease in Paris, France in May 2012 with a landlord incentive totaling $148, equivalent to four months free rent, which is also being amortized as rent expense on a straight line basis over the life of the lease. In addition, the Company’s facility leases typically contain other than straight-line payment features. The difference between the straight-line rent expense of the lease and the cash payments is recorded as deferred rent. Deferred rent at April 30, 2013 and January 31, 2013 is as follows:

	April 30, 2013			January 31, 2013
Leasehold improvements, less incentive	$	770		$	836
Non-cash rent expense		1,158			1,169
Total deferred rent		1,928			2,005
Less: current portion included in accrued expenses		(592	)		(523	)
Deferred rent, net of current portion	$	1,336		$	1,482

7. Fair Value Measurements

Financial instruments consist primarily of cash and cash equivalents, accounts receivable, capital lease obligations and debt. As of April 30, 2013 and January 31, 2013, the carrying amounts of these instruments approximate their fair values. The estimated fair values have been determined from information obtained from market sources and management estimates.

In determining the fair value of its financial assets and liabilities, the Company uses various valuation approaches. ASC 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

8

EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement and that are based on management’s best estimate of inputs market participants would use for pricing the asset or liability at the measurement date, including assumptions about risk.

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of April 30, 2013:

	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	$	20,002	$	20,002	$	—	$	—
Other assets – certificate of deposit	$	525	$	525	$	—	$	—

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value as of January 31, 2013:

	Total		Level 1		Level 2		Level 3
Assets:
Other assets – certificate of deposit	$	525	$	525	$	—	$	—

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

8. Acquired Intangible Assets

Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives.

The following table reflects the carrying value of intangible assets as of April 30, 2013:

	April 30, 2013
	Cost		Accumulated Amortization			Net Book Value
Intellectual property	$	3,505	$	(497	)	$	3,008
Access to facilities contract		38		(38	)		—
Total	$	3,543	$	(535	)	$	3,008

The following table reflects the carrying value of intangible assets as of January 31, 2013:

	January 31, 2013
	Cost		Accumulated Amortization			Net Book Value
Intellectual property	$	3,505	$	(409	)	$	3,096
Access to facilities contract		38		(38	)		—
Total	$	3,543	$	(447	)	$	3,096

Amortization expense of intangible assets was $88 and $97 for the three months ended April 30, 2013 and 2012, respectively.

9. Debt

Long-term Debt

On January 28, 2011, the Company entered into a Loan and Security Agreement with Gold Hill Capital 2008, L.P. (“Gold Hill”) and Massachusetts Capital Resource Company (the “Loan and Security Agreement”), which provided for term loans of up to $8,500, of which $1,000 was with a related party. The Company borrowed $5,000 on January 28, 2011 and an additional $3,500 on March 30, 2012, for a total borrowed of $8,500. The agreement is for 54 months from the borrowing dates (the January 28, 2011 draw matures on August 1, 2015 and the March 30, 2012 draw matures on October 1, 2016) and bears interest at 10.5% per annum. An additional 2.5%

9

EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

($125 on the January 28, 2011 draw and $87 on the March 30, 2012 draw) is due at maturity and was recorded as a liability and a debt discount. Interest only payments were payable during the first twelve months, with principal and interest payments required for forty-two months thereafter. Early prepayment of the debt results in additional interest penalties of 4% on the original principal if prepaid prior to the second anniversary of funding and 3% on the original principal if prepaid after the second anniversary but before the third anniversary of funding. Under this agreement and subsequent amendments, the Company issued warrants to purchase preferred stock, the valuations of which were recorded as additional debt discount. In addition, the Company incurred $106 of legal and origination costs in fiscal year 2011, which were recorded as a debt discount.

The discount relating to this debt is being amortized over the term of the debt using the effective interest method. Under this method, interest expense is recognized each period until the debt reaches maturity. If the maturity of the debt is accelerated because of prepayment, the amortization will be accelerated. Total non-cash interest expense from amortizing this debt discount for the three months ended April 30, 2013 and 2012, was $97 and $96, respectively.

Line of Credit

In May 2010, the Company secured a $10,000 line of credit agreement with a bank bearing interest at the bank’s prime rate plus 1.50% on existing accounts receivable and 2.5% on certain forecasted renewal invoices, expiring one year from closing. On May 23, 2013, the line of credit expired in accordance with its terms.

The agreement contained certain restrictive financial covenants requiring the maintenance of an adjusted quick ratio through January 31, 2013.

There were no amounts outstanding under the line of credit agreement as of April 30, 2013 and January 31, 2013. The Company incurred $211 of financing fees in fiscal year 2012 related to this line of credit, of which $100 was accrued and paid in May 2012. The Company recorded these fees as deferred financing costs in prepaid and other current assets and is amortizing them to interest expense over the term of the line using the effective interest method, as a result of which, the Company amortized $25 and $28 as interest expense for the three months ended April 30, 2013 and 2012, respectively.

Total interest expense, including interest under the Company’s capital lease obligations, was $381 and $414 for the three months ended April 30, 2013 and 2012, respectively. Included in interest expense was interest paid to related parties of $20 and $31 for the three months ended April 30, 2013 and 2012, respectively.

10. Commitments and Contingencies

Legal Contingencies

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. There is no litigation pending that could, individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

In 2011, the Company was notified by the Massachusetts Institute of Technology, or MIT, that MIT believes that Exa is utilizing the intellectual property covered by a license agreement between the Company and MIT, and therefore is in arrears in the payment of royalties under the agreement. The Company has advised MIT that it does not believe that the Company utilized the underlying technology at any time since at least 1998, or that any royalties are owed under the agreement. MIT has not commenced suit against the Company with respect to its claims, and if any such suit is commenced by MIT, the Company intends to defend it vigorously. The Company believes that if MIT were to prevail in any such litigation, the royalties due under the terms of the license agreement, after giving effect to the approximately $200 in minimum royalties that the Company has already paid, would not exceed approximately $2,600 (excluding any interest or costs of litigation). The Company is not able to determine whether a loss is probable or estimate the reasonably possible or probable amount of such loss.

Guarantees and Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification provisions is generally perpetual after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is unlimited.

10

EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

Based on historical experience and information known as of April 30, 2013 and January 31, 2013, the Company has not recorded any liabilities for the above guarantees and indemnities.

11. Stock Based Compensation

The fair value of common stock options for employees and non-employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used:

	Three Months Ended April 30,
	2013			2012
Estimated dividend yield		0	%		0	%
Expected stock price volatility		50.3	%		52.6	%
Weighted-average risk-free interest rate		1.3	%		2.0	%
Expected life of options (in years)		6.25			6.25

Stock-based compensation expense of $245 and $241 was recorded during the three months ended April 30, 2013 and 2012, respectively, related to the Company’s outstanding stock options. The weighted average grant date fair value per share for stock options granted in the three months ended April 30, 2013 was $4.72.

Total stock-based compensation expense is as follows:

	Three Months Ended April 30,
	2013		2012
Cost of revenues	$	31	$	27
Sales and marketing		50		46
Research and development		77		81
General and administrative		87		87
Total	$	245	$	241

The total unrecognized compensation cost related to outstanding stock options is $2,196 at April 30, 2013. This amount is expected to be recognized over a weighted-average period of 3.0 years.

12. Income Taxes

The Company’s income tax benefit was $254 and $35 for the three months ended April 30, 2013 and 2012, respectively, and the effective tax rate, including discrete items, was 31.9% and 129.6% for the same periods. For the three months ended April 30, 2013, the effective income tax rate differed from the federal statutory rate mainly due to nondeductible compensation offset by the tax benefit of federal and state research and development credits. The effective tax rate for the three months ended April 30, 2012 does not include a benefit for federal research and development credits, as the credit was not extended until the fourth quarter of fiscal year 2013. For the three months ended April 30, 2013 and 2012, the effective income tax rate was impacted discretely by foreign exchange gains, and for 2012 only, mark-to-market adjustments on the Company’s former warrants, for which there was no tax provision.

The Company does not expect that its unrecognized tax benefit will change significantly within the next twelve months. The Company and one or more of its subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, the Company is no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2009. However, carryforward attributes that were generated prior to January 31, 2010 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

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EXA CORPORATION

Notes to Unaudited Consolidated Financial Statements

(dollars in thousands except per share amounts)

13. Geographic Information

Revenue is attributed to individual countries based upon location of the external customer. Revenue by geographic area is as follows:

	Three Months Ended April 30,
	2013		2012
United States	$	2,692	$	2,435
Japan		2,025		2,390
Germany		2,215		1,874
France		2,244		1,828
Korea		1,086		970
United Kingdom		1,089		921
Sweden		648		548
Other		489		328
Total	$	12,488	$	11,294

Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid.

Net long-lived assets by principal geographic areas were as follows:

	April 30, 2013		January 31, 2013
United States	$	4,419	$	4,678
Japan		280		204
Germany		135		144
France		983		1,068
Other		83		82
Total property and equipment, net	$	5,900	$	6,176

14. Subsequent Event

On May 31, 2013 the Company repaid, with available cash on hand, all outstanding obligations under the Loan and Security Agreement described in Note 9. This included $6,852 of remaining outstanding principal, $60 of accrued interest and $213 of deferred origination fees that were accrued for in other long-term liabilities in the accompanying consolidated balance sheet. In addition, in accordance with the agreement terms, the Company incurred and paid a prepayment interest penalty of $290, representing 3% of the January 2011 advance and 4% of the March 2012 advance. The Company expects to recognize a loss from the extinguishment of this debt of approximately $754 during the second quarter of fiscal year 2014, representing the prepayment interest penalty and the write-off of unamortized debt discount. As a result of this repayment, the Company expects to save cash interest of approximately $429 for the remainder of fiscal year 2014, and $428, $170 and $31 for fiscal years 2015, 2016 and 2017, respectively.

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ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Result of Operations appearing in our Annual Report on Form 10-K, filed with the SEC on April 9, 2013. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” or the “Company” refer to Exa Corporation.

Overview

We develop, sell and support simulation software and services that vehicle manufacturers use to enhance the performance of their products, reduce product development costs and improve the efficiency of their design and engineering processes. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. Our solutions enable engineers and designers to augment or replace conventional methods of evaluating design alternatives that rely on expensive and inefficient physical prototypes and test facilities, such as wind tunnels, with accurate digital simulations that are more useful and timely. Our simulation solutions enable our customers to gain crucial insights about design performance early in the design cycle, reducing the likelihood of expensive redesigns and late-stage engineering changes. As a result, our customers realize significant cost savings and fundamental improvements in their vehicle development process.

Simulation-driven design has enabled product and process improvements in many industries, and as a result, the process in which products are conceptualized and developed is undergoing a radical transformation. Digital simulation not only provides feedback earlier and in a more useful form than traditional approaches, but in many areas simulation has reached a level of accuracy and robustness that is sufficient to enable a manufacturer to rely solely on its results for design decisions, without prototype testing.

Global vehicle manufacturers face increasing pressure, from government mandates as well as from consumers, to improve the efficiency of their products and to reduce particulate and greenhouse gas emissions. This requires different powertrain choices (diesel, electric, hybrid), changes in the shape of the vehicle, and reductions in vehicle weight. Consumers also demand improved quality and durability, and equally important, innovative and emotionally expressive designs. In addition, manufacturers are offering a broader array of vehicles for different niche customer segments and geographies on a faster design refresh schedule than in the past. We believe these industry forces favor the adoption of simulation-driven design.

One of the most critical challenges for our customers in their vehicle development processes is measuring or predicting how a vehicle feature or a mechanical system will interact with air, water or other fluids. For example, developing vehicles with reduced aerodynamic drag is critical to achieving the improvements in fuel efficiency that are increasingly desired by customers and mandated by government regulations. Our core product, PowerFLOW, is an innovative software solution for simulating complex fluid flow problems, including aerodynamics, thermal management, and aeroacoustics, or wind noise. PowerFLOW relies upon a proprietary technology that we refer to as Digital Physics, based on algorithms known as the lattice Boltzmann method. Our proprietary technology enables PowerFLOW to predict complex fluid flows with a level of reliability comparable to or better than physical testing. The combination of PowerFLOW’s accuracy and timeliness provides results that are superior to those of alternative computational fluid dynamics, or CFD, methods.

We currently focus primarily on the ground transportation market, including manufacturers in the passenger vehicle, highway truck, off-highway vehicle and train markets, as well as their suppliers. Over 90 manufacturers currently utilize our products and services, including 14 of the global top 15 passenger vehicle manufacturer groups such as BMW, Ford, Hyundai, Jaguar Land Rover, Nissan, Porsche, Renault, Toyota and Volkswagen; truck and off-highway vehicle manufacturers such as AGCO, Hyundai, Kenworth, Kobelco, MAN, Peterbilt, Scania and Volvo Truck; and suppliers to these manufacturers, such as Cummins, Denso and Magna Steyr. We are also beginning to explore other markets in which we believe the capabilities of PowerFLOW have broad application, such as the aerospace, oil and gas production, chemical processing, architecture, engineering and construction, power generation, biomedical and electronics industries.

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We derive our revenue primarily from the sale of our simulation software, using an annual capacity-based licensing model. Customers usually purchase PowerFLOW simulation capacity under one-year licenses. Simulation capacity may be purchased as software-only, to be run on the customer’s own computer hardware, or provided in the form of software-as-a-service, via our hosted PowerFLOW OnDemand offering. To introduce new customers to our simulation solutions, we typically perform fixed-price projects that include simulation services accessed via our OnDemand facilities, along with engineering and consulting services. Customers typically license our products for one application, such as aerodynamics, and over time expand to other applications such as thermal management or aeroacoustics.

We sell our products and project services primarily through our direct sales force, including sales executives and applications engineering teams deployed near our customers in the United States, United Kingdom, France, Germany, Italy, Japan, Korea and China and through a distributor in India and through a sales agent in Brazil. In our customer engagement model, our applications management teams engage with our customers in long-term relationships focused on identifying problems that we can help them solve, demonstrating the value of our solutions and ensuring that the customer achieves maximum benefit from them. In this process we interact continuously with our customers to improve our software and services and add new solutions, and at the same time deepen our knowledge of their industry.

We were founded in 1991 and had 241 employees worldwide at April 30, 2013. Our corporate headquarters, including our principal administrative, marketing, technical support, research and product development facilities, are located in Burlington, Massachusetts.

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Results of Operations

The following tables set forth, for the periods presented, data from our consolidated statements of operation, as well as that data as a percentage of revenues.

	Three Months Ended April 30,
(in thousands)	2013			2012
Revenue:
License revenue	$	10,692		$	10,013
Project revenue		1,796			1,281
Total revenues		12,488			11,294
Operating expenses: (1)
Cost of revenues		3,671			3,223
Sales and marketing		2,117			1,600
Research and development		4,386			4,140
General and administrative		2,771			1,958
Total operating expenses		12,945			10,921
(Loss) income from operations		(457	)		373
Other expense, net:
Foreign exchange gain		37			—
Interest expense		(381	)		(414	)
Interest income		4			2
Other income, net		2			66
Total other expense, net		(338	)		(346	)
(Loss) income before income taxes		(795	)		27
Benefit for income taxes		254			35
Net (loss) income	$	(541	)	$	62

(1) Amounts include stock-based compensation expense as follows:

	Three Months Ended April 30,
(in thousands)	2013		2012
Cost of revenues	$	31	$	27
Sales and marketing		50		46
Research and development		77		81
General and administrative		87		87
Total stock-based compensation expense	$	245	$	241

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	Three Months Ended April 30,
(as a percent of total revenue)	2013			2012
Revenue:
License revenue		85.6	%		88.7	%
Project revenue		14.4	%		11.3	%
Total revenues		100.0	%		100.0	%
Operating expenses:
Cost of revenues		29.4	%		28.5	%
Sales and marketing		17.0	%		14.2	%
Research and development		35.1	%		36.7	%
General and administrative		22.2	%		17.3	%
Total operating expenses		103.7	%		96.7	%
(Loss) income from operations		(3.7	)%		3.3	%
Other expense, net:
Foreign exchange gain		0.3	%		0.0	%
Interest expense		(3.1	)%		(3.7	)%
Interest income		0.0	%		0.0	%
Other income, net		0.0	%		0.6	%
Total other expense, net		(2.7	)%		(3.1	)%
(Loss) income before income taxes		(6.4	)%		0.2	%
Benefit for income taxes		2.0	%		0.3	%
Net (loss) income		(4.3	)%		0.5	%

Due to rounding, totals may not equal the sum of line items in the table above.

Comparison of Three Months Ended April 30, 2013 and 2012

Revenue

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Increase		% Change
License revenue	$	10,692	$	10,013	$	679		6.8	%
Project revenue		1,796		1,281		515		40.2
Total revenues	$	12,488	$	11,294	$	1,194		10.6	%

License revenue increased 6.8%, from $10.0 million for the three months ended April 30, 2012 to $10.7 million for the three months ended April 30, 2013. The $0.7 million increase was driven almost entirely by increased consumption of simulation capacity by existing customers. Project revenue increased $0.5 million during the three months ended April 30, 2013 compared to the three months ended April 30, 2012 due to increased activity on existing projects and the initiation of new projects.

Foreign exchange fluctuations, particularly the weakness of the Euro and Japanese yen, negatively impacted total revenue in the three months ended April 30, 2013 by $0.4 million as compared to the three months ended April 30, 2012. On a constant currency basis, our total revenues in the three months ended April 30, 2013 increased 14.2%, compared with the three months ended April 30, 2012.

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Cost of revenue

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Increase		% Change
Cost of revenue	$	3,671	$	3,223	$	448		13.9	%

Cost of revenue for the three months ended April 30, 2013 was $3.7 million, an increase of $0.4 million, or 13.9%, compared with $3.2 million during the three months ended April 30, 2012. As a percentage of revenues, cost of revenues increased to 29.4% for the three months ended April 30, 2013 compared to 28.5% for the three months ended April 30, 2012. Increased payroll and employee related costs, including travel, accounted for substantially all of the increase, primarily as a result of the net addition of 24 new application engineers, merit-based compensation increases for existing personnel and increased travel due to expanded service and support efforts.

Sales and marketing

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Increase		% Change
Sales and marketing	$	2,117	$	1,600	$	517		32.3	%

Sales and marketing expenses for the three months ended April 30, 2013 were $2.1 million, an increase of $0.5 million, or 32.3% compared to $1.6 million for the three months ended April 30, 2012. As a percentage of revenues, sales and marketing expenses increased to 17.0% for the three months ended April 30, 2013 compared to 14.2% for the three months ended April 30, 2012. Increased non-commission payroll and employee related costs accounted for approximately $0.2 million of the increase, primarily due to the net addition of 5 new sales people, merit-based compensation increases for existing personnel and recruiting fees relating to new European sales executives. Commission expense increased by approximately $0.3 million, primarily due to an increase in invoicing levels during the current quarter as compared to the prior fiscal year quarter. These increases were partially offset by a slight decrease in travel expenses due to an off-site sales meeting in the prior year fiscal quarter that did not reoccur in the current quarter.

Research and development

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Increase		% Change
Research and development	$	4,386	$	4,140	$	246		5.9	%

Research and development expenses for the three months ended April 30, 2013 were $4.4 million, an increase of $0.2 million, or 5.9%, compared to $4.1 million for the three months ended April 30, 2012. As a percentage of revenues, research and development expense decreased to 35.1% for the three months ended April 30, 2013 compared to 36.7% for the three months ended April 30, 2012. Increased payroll and employee related costs, including travel, accounted for approximately $0.2 million of the increase, primarily as a result of the net addition of 7 new scientists and software engineers and merit-based compensation increases for existing personnel. In addition, data center hosting fees increased by approximately $0.1 million due to the expansion of our data center capabilities and our research and development efforts. These increases were partially offset by approximately $0.1 million of decreased consulting, royalty and research sponsorship costs incurred in the prior fiscal year quarter that did not reoccur in the current quarter.

General and administrative

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Increase		% Change
General and administrative	$	2,771	$	1,958	$	813		41.5	%

General and administrative expenses for the three months ended April 30, 2013 were $2.8 million, an increase of $0.8 million, or 41.5%, compared to $2.0 million for the three months ended April 30, 2012. As a percentage of revenues, general and administrative expenses increased to 22.2% for the three months ended April 30, 2013, compared to 17.3% for the three months ended April 30, 2012. The increase is primarily attributed to increased professional costs associated with being a public company after our initial public offering on July 3, 2012, including increased audit, tax and legal fees, investor relations fees, filing fees, insurance premiums and franchise taxes. Approximately $0.3 million of these cost increases are not expected to reoccur in future periods. Payroll and employee related costs decreased slightly as the net addition of 2 new employees (including our chief accounting officer at the end of the third quarter of fiscal year 2013) was offset by a reduction in recruiting fees.

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Other expense, net

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Decrease			% Change
Other expense, net	$	338	$	346	$	(8	)		(2.3	)%

Total other expense, net for the three months ended April 30, 2013 was essentially flat when compared to the three months ended April 30, 2012. Gains from the valuation of our former preferred stock warrant liability in the prior period were offset by a decrease in interest expense during the current period due to lower borrowing levels.

Benefit for income taxes

	Three Months Ended April 30,
(in thousands, except percentages)	2013		2012		Increase		% Change
Benefit for income taxes	$	254	$	35	$	219		625.7	%

Income taxes changed from a slight benefit in the three months ended April 30, 2012 to a benefit of $0.3 million in the three months ended April 30, 2013, and our effective tax rate changed from 129.6% to 31.9% for the same periods. For the three months ended April 30, 2013, the effective income tax rate differed from the federal statutory rate mainly due to nondeductible compensation offset by the tax benefit of federal and state research and development credits. The effective tax rate for the three months ended April 30, 2012 does not include a benefit for federal research and development credits, as the credit was not extended until the fourth quarter of fiscal year 2013. For the three months ended April 30, 2013 and 2012, the effective income tax rate was impacted discretely by foreign exchange gains, and for 2012 only, mark-to-market adjustments on our former warrants, for which there was no tax provision.

We do not expect that our unrecognized tax benefit will change significantly within the next twelve months. We and one or more of our subsidiaries file United States federal income tax returns and tax returns in various state and foreign jurisdictions. With limited exceptions, we are no longer subject to federal, state, local or foreign examinations for years prior to January 31, 2009. However, carryforward attributes that were generated prior to January 31, 2010 may still be adjusted upon examination by state and local tax authorities if they either have been or will be used in a future period.

Non-GAAP Measures

From time to time we provide certain non-GAAP financial measures to investors as additional information in order to supplement our consolidated financial statements, which are presented in accordance with accounting principles generally accepted in the United States, or GAAP. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for or superior to the financial information presented in accordance with GAAP and should not be considered a measure of our liquidity. There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled or used by other companies and therefore should not be used to compare our performance to that of other companies.

Revenue on a constant currency basis. Our international operations generate and incur expenses that are denominated in foreign currencies, and changes in currency exchange rates can materially affect our consolidated results of operations. Our principal exposures are to fluctuations in exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won. To provide investors with information concerning underlying trends in our business, we disclose revenue on a constant currency basis, which we define as GAAP revenue, adjusted to reverse the impact of changes in the exchange rates of the principal currencies in which our international operations generated revenue and incurred expenses. We calculate revenue on a constant currency basis by converting revenue that was generated in the currencies specified above during the three months ended April 30, 2013 to United States Dollars at assumed exchange rates equal to the exchange rates in effect for such currencies during the corresponding period of the previous fiscal year, rather than the exchange rates actually in effect during the current fiscal year.

Adjusted EBITDA. We define Adjusted EBITDA as EBITDA, excluding non-cash, stock-based compensation expense. We define EBITDA as net income, excluding depreciation and amortization, interest expense, other income (expense), foreign exchange gain (loss) and provision for income taxes. The GAAP measure most comparable to Adjusted EBITDA is GAAP net income.

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Non-GAAP operating income. We define non-GAAP operating income as GAAP operating income excluding non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP operating income is GAAP operating income.

Non-GAAP net income. We define non-GAAP net income as GAAP net income excluding the after tax impact of non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP net income is net income.

Non-GAAP net income per diluted share. We define non-GAAP net income per diluted share as GAAP net income per diluted share excluding the after tax impact of non-cash, stock-based compensation expense and amortization of acquired intangible assets. The GAAP measure most comparable to non-GAAP net income per diluted share is GAAP net income per diluted share.

Our management uses these non-GAAP financial measures to evaluate our operating performance and for internal planning and forecasting purposes. We believe that these measures help identify underlying trends in our business, are useful for comparing current results with prior period results, and are helpful to investors and financial analysts in assessing our operating performance. For example, our management considers Adjusted EBITDA to be an important indicator of our operational strength and the performance of our business and a good measure of our historical operating trends. However, each of these non-GAAP financial measures may have limitations as an analytical tool. In considering our Adjusted EBITDA, non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share, investors should take into account the following reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures:

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Adjusted EBITDA:

	Three Months Ended April 30,
(in thousands)	2013			2012
Net (loss) income	$	(541	)	$	62
Add back:
Depreciation and amortization		496			409
Interest expense, net		377			412
Other income, net		(2	)		(66	)
Foreign exchange gain		(37	)		—
Benefit for income taxes		(254	)		(35	)
EBITDA		39			782
Stock-based compensation expense		245			241
Adjusted EBITDA	$	284		$	1,023

Non-GAAP operating (loss) income:

	Three Months Ended April 30,
(in thousands)	2013			2012
Operating (loss) income	$	(457	)	$	373
Add back:
Stock-based compensation expense		245			241
Amortization of acquired intangible assets		88			97
Non-GAAP operating (loss) income	$	(124	)	$	711

Non-GAAP net (loss) income:

	Three Months Ended April 30,
(in thousands)	2013			2012
Net (loss) income	$	(541	)	$	62
Add back:
Stock-based compensation expense		245			241
Amortization of acquired intangible assets		88			97
Income tax effect (1)		(116	)		(117	)
Non-GAAP net (loss) income	$	(324	)	$	283

Non-GAAP net (loss) income, per diluted share:

	Three Months Ended April 30,
	2013			2012
Net (loss) income	$	(0.04	)	$	0.01
Add back:
Stock-based compensation expense		0.02			0.02
Amortization of acquired intangible assets		0.01			0.01
Income tax effect (1)		(0.01	)		(0.01	)
Non-GAAP net (loss) income, per diluted share (2)(3):	$	(0.02	)	$	0.03

(1) The tax effect of non-cash stock based compensation expense and non-cash amortization of acquired intangibles is estimated using a blended rate equivalent to our annual estimated United States federal tax rate and our state tax rate, exclusive of our net federal benefit. This rate is based on our estimated annual GAAP income tax rate forecast. Our estimated tax rate on non-GAAP income is

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determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

(2) Share amounts utilized on a fully diluted basis were approximately 13.3 million and 10.5 million for the three months ended April 30, 2013 and 2012, respectively.

(3) Due to rounding, totals may not equal the sum of line items in the table above.

Liquidity

Overview

Our primary sources of liquidity during the three months ended April 30, 2013 were cash and cash equivalents on hand and cash flows provided by operating activities. Our primary uses of cash during the three months ended April 30, 2013 were capital expenditures and repayments of our term loan and capital lease obligations. As of April 30, 2013, we had $47.9 million in cash and cash equivalents and $10.0 million of accessible borrowing availability under our line of credit, which subsequently expired on May 23, 2013.

On May 31, 2013 we repaid, with available cash on hand, all outstanding obligations under our loan and security agreement with Gold Hill Capital 2008, L.P. and Massachusetts Capital Resource Company. This included $6.9 million of remaining outstanding principal and accrued interest and $0.2 million of deferred origination fees that were accrued for in other long-term liabilities in the accompanying consolidated balance sheet. In addition, in accordance with the agreement terms, we incurred and paid a prepayment interest penalty of $0.3 million. We expect to recognize a loss from the extinguishment of this debt of approximately $0.8 million during the second quarter of fiscal year 2014, representing the prepayment interest penalty and the write-off of unamortized debt discount. As a result of this repayment, we expect to save cash interest of approximately $0.4 million for the remainder of fiscal year 2014, and $0.4 million and $0.2 million for fiscal years 2015 and 2016, respectively.

Net Cash Flows from Operating Activities

Variations in the amount of our net cash provided or used by operating activities are primarily the result of changes in the amount of our working capital accounts, mainly accounts receivable and deferred revenue, the timing of cash payments from our customers and of our cash expenditures, principally employee salaries, accounts payable and payments of value added taxes and consumption taxes on the receivables of our foreign subsidiaries.

Cash payments from our customers fluctuate due to timing of new and renewal license sales, which typically coincide with our customers’ budget cycles. The fourth quarter of each fiscal year generally has the highest license sales, with payment of the license fee becoming due at the commencement of the license term. As a result, our cash flows from operations are typically highest in the first quarter of each fiscal year. Generally, customers are invoiced in advance for their annual subscription fee and the invoices are recorded in accounts receivable and deferred revenue, with deferred revenues being recognized ratably over the term of the subscription agreement. Increases in deferred revenue are attributable to growth in new business, offset by the related license revenues that are recognized ratably over time.

For the three months ended April 30, 2013, net cash provided by operating activities totaled $18.5 million, as compared to $8.4 million in the prior period, and was primarily the result of a $23.7 million decrease in accounts receivable associated with the timing of collections from certain large customers, partially offset by a $2.3 million decrease in accrued expenses, a $1.6 million decrease in deferred revenue and a $1.0 million decrease in accounts payable.

Net Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended April 30, 2013 was $0.3 million, which was attributable to expenditures for purchases of property and equipment to support the growth in our business operations.

Net Cash Flows from Financing Activities

Net cash used for financing activities for the three months ended April 30, 2013 was $0.8 million, which consisted primarily of payments on our capital lease obligations of $0.5 million and payments on our long-term debt of $0.3 million. Net cash used for financing activities for the three months ended April 30, 2012 was $3.8 million, which consisted primarily of payments on our line of credit of $7.0 million, payments on our capital lease obligations of $0.1 million and payments on our long-term debt of $0.2 million, partially offset by proceeds from long-term debt borrowings of $3.5 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of either April 30, 2013 or January 31, 2013.

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Capital Resources

Our future capital requirements may vary materially from those now planned and will depend on many factors, including the costs to develop and implement new solutions and applications, the sales and marketing resources needed to further penetrate our market and gain acceptance of new solutions and applications we develop, the expansion of our operations in the United States and internationally and the response of competitors to our solutions and applications. Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business. Our practice has been to reinvest the undistributed earnings of our foreign subsidiaries in their local jurisdictions, and we currently do not intend to repatriate such earnings. As of April 30, 2013 and January 31, 2013, approximately $18.4 million and $3.5 million, respectively, of our cash is held in bank accounts outside the United States and may not be completely available to fund our domestic operations and obligations without paying taxes upon repatriation.

We expect to be able to meet the funding needs of our United States operations without repatriating undistributed earnings that have been reinvested in our international subsidiaries.

We believe our cash on hand and cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future.

Seasonality

We have experienced and expect to continue to experience seasonal variations in the timing of customers’ purchases of our software products. Many customers make purchase decisions based on their budget cycles, which typically coincide with the calendar year, except in Japan, where our customer budget cycles typically begin on April 1. Because our software products are sold pursuant to annual subscription agreements and we recognize revenue from these subscriptions over the term of the agreement, downturns or upturns in invoices may not be immediately reflected in our operating results. However, these seasonal trends materially affect the timing of our cash flows, as we generally receive the annual license fee at the time the license term commences. As a result, our cash flows from operations are typically highest in the first quarter of each fiscal year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

As we conduct business in multiple international currencies throughout the world, our international operations generate and incur expenses that are denominated in foreign currencies. These amounts could be materially affected by currency fluctuations. Our principal exposures are to fluctuations in exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. Additionally, our international operations maintain cash balances denominated in foreign currencies. To reduce the risk associated with translation of foreign cash balances into our reporting currency, we typically avoid maintaining excess cash balances in foreign currencies. To date, we have not hedged our exposure to changes in foreign currency exchange rates and, as a result, we could incur unanticipated translation gains and losses.

The Euro was approximately 1.9% weaker against the United States dollar on average, for the three months ended April 30, 2013, when compared with the three months ended April 30, 2012. The resulting net overall impact to revenue and operating expense was a decrease of approximately $0.1 million and $0.1 million, respectively, during the three months ended April 30, 2013.

The exchange rate impact of other currencies for the three months ended April 30, 2013, primarily driven by a weaker Japanese yen, was a decrease to revenue and operating expense of approximately $0.3 million and $0.1 million, respectively.

For the three months ended April 30, 2013, a 10% change in the exchange rates for the United States dollar versus the British pound, Chinese yuan, Euro, Japanese yen, and Korean won would have resulted in a $0.7 million change in revenue.

Interest Rate Sensitivity

Our outstanding long-term debt carries interest at a fixed rate. Our revolving bank line of credit bore interest at a floating rate. We had no outstanding borrowings under our revolving bank line of credit as of April 30, 2013 and January 31, 2013. As a result, we do not believe that we are exposed to material interest rate risk at this time. Interest income is sensitive to changes in the general level of United States and international interest rates. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Our cash and short-term investments are relatively insensitive to interest rate changes. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.

We do not believe that a 10% change in interest rates would have a material impact on our financial position or results of operations.

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ITEM 4. CONTROLS AND PROCEDURES

Material Weakness in Internal Control over Financial Reporting and Status of Remediation Efforts.

As discussed in our Annual Report on Form 10K, our management has determined that we have the following material weaknesses in our internal control over financial reporting: (1) we do not have the appropriate resources and controls to properly account for taxes and (2) we do not have adequate oversight and controls related to our accounting for complex equity arrangements. These deficiencies constituted material weaknesses in our control environment as of April 30, 2013 and January 31, 2013, 2012 and 2011. We have concluded that these material weaknesses in our internal control over financial reporting are due to the fact that we do not have the appropriate resources with the appropriate level of experience and technical expertise to account for taxes and complex equity arrangements. In order to remediate these material weaknesses, we have taken and are taking the following actions:

• we hired a Chief Accounting Officer at the end of the third quarter of fiscal year 2013 and an assistant corporate controller in February 2013 to augment our current staff and to improve the effectiveness of our financial statement close process, and we will continue to assess any additional staffing needs;

• we have engaged an external tax advisor to augment our current staff and improve the effectiveness of our tax accounting process; and

• we are continuing to formalize our accounting policies and internal controls documentation and strengthening supervisory reviews by our management.

Notwithstanding the material weaknesses described above, management has concluded that the condensed consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operation and cash flows in conformity with United States generally accepted accounting principles.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rule 13a-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of April 30, 2013 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of April 30, 2013 because of the material weaknesses in internal controls over financial reporting discussed above.

Changes in Internal Control over Financial Reporting

As described under “Material Weakness in Internal Control over Financial Reporting and Status of Remediation Efforts,” above, during the period covered by this Quarterly Report on Form 10-Q we have taken and are taking remedial actions intended to correct material weaknesses in our system of internal controls over financial reporting, which remedial actions have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Except for those remedial actions, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending material legal proceedings. However, because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future.

ITEM 1A. RISK FACTORS

You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K filed with the SEC on April 9, 2013 and other documents we file with the SEC. The risks and uncertainties described are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as overall U.S. and non-U.S. economic and industry conditions including a global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns, natural disasters or other disruptions of expected economic and business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business operations and liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Unregistered Sales of Equity Securities

From February 1, 2013 through April 30, 2013, we issued 25,881 shares of our common stock to employees at per share prices ranging from $0.65 to $6.50 pursuant to exercises of options granted under our stock option plans, resulting in aggregate cash consideration to us of $29,785.

The sales of the above securities were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 4(a)(2) of the Securities Act and Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

(b) Use of Proceeds

On July 3, 2012, we completed the initial public offering of our common stock pursuant to our Registration Statement on Form S-1 (File No. 333-176019), which was declared effective by the Securities and Exchange Commission on June 27, 2012. The underwriters for the offering were Stifel Nicolaus & Company, Incorporated, Robert W. Baird & Co. Incorporated, Canaccord Genuity Inc. and Needham & Company, LLC. We did not utilize any of the net proceeds of this offering in our business during the three months ended April  30, 2013.

ITEM 6. EXHIBITS

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-k, event date June 27, 2012, filed on July 3, 2012).
3.2	Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, event date June 27, 2012, filed on July 3, 2012).
10.1†	Second Amendment to OEM License Agreement dated as of February 1, 2013, by and between ThermoAnalytics, Inc. and Exa Corporation (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2013).
31.1*	Rule 13a-14(a)/15d-14(a) Certification, executed by Stephen A. Remondi, President and Chief Executive Officer of Exa Corporation.
31.2*	Rule 13a-14(a)/15d-14(a) Certification, executed by Edmond L. Furlong, Chief Financial Officer of Exa Corporation.
32.1**	Section 1350 Certification, executed by Stephen A. Remondi, President and Chief Executive Officer of Exa Corporation.
32.2**	Section 1350 Certification, executed by Edmond L. Furlong, Chief Financial Officer of Exa Corporation.
101***	Interactive Data Files pursuant to Rule 405 of Regulation S-T (XBRL)

* Filed herewith.

** Furnished herewith.

*** Pursuant to Rule 406T of SEC Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or

prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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† Portions of this exhibit were omitted subject to a pending request for confidential treatment under 24b-2 under the Securities Exchange Act of 1934, and in connection with that request, an unredacted copy of this exhibit was filed with the SEC.

EXA CORPORATION

SIGNATURE

Pursuant to the requirements 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.

EXA CORPORATION (Registrant)
By:	/s/ Edmond L. Furlong
	Edmond L. Furlong
	Chief Financial Officer and Chief Operating   Officer
	Date: June 5, 2013

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