SYNACOR, INC., 10-K filed on 3/22/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Mar. 3, 2016
Jun. 30, 2015
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
SYNC 
 
 
Entity Registrant Name
Synacor, Inc. 
 
 
Entity Central Index Key
0001408278 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
30,023,414 
 
Entity Public Float
 
 
$ 36,999,903 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
CURRENT ASSETS:
 
 
Cash and cash equivalents
$ 15,697 
$ 25,600 
Accounts receivable-net of allowance of $388 and $372
24,341 
20,479 
Prepaid expenses and other current assets
3,290 
2,292 
Total current assets
43,328 
48,371 
PROPERTY AND EQUIPMENT-Net
14,377 
15,128 
GOODWILL
15,187 
1,565 
INTANGIBLE ASSETS
14,798 
 
INVESTMENTS
1,000 
1,073 
OTHER LONG-TERM ASSETS
336 
101 
TOTAL ASSETS
89,026 
66,238 
CURRENT LIABILITIES:
 
 
Accounts payable
9,004 
12,545 
Accrued expenses and other current liabilities
9,765 
7,761 
Current portion of deferred revenue
11,295 
642 
Current portion of capital lease obligations
1,574 
1,150 
Total current liabilities
31,638 
22,098 
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS
1,007 
1,383 
LONG-TERM DEBT
5,000 
 
DEFERRED REVENUE
3,225 
 
OTHER LONG-TERM LIABILITIES
2,052 
275 
Total liabilities
42,922 
23,756 
COMMITMENTS AND CONTINGENCIES (Note 8)
   
   
STOCKHOLDERS' EQUITY:
 
 
Preferred stock, $0.01 par value-10,000,000 shares authorized, no shares issued and outstanding at December 31, 2014 and 2015
   
   
Common stock, $0.01 par value-100,000,000 authorized, 27,944,853 issued and 27,391,709 shares outstanding at December 31, 2014 and 30,636,327 issued and 29,983,279 shares outstanding at December 31, 2015
306 
279 
Treasury stock-at cost, 553,144 shares at December 31, 2014 and 653,048 shares at December 31, 2015
(1,332)
(1,142)
Additional paid-in capital
113,238 
105,961 
Accumulated deficit
(66,110)
(62,636)
Accumulated other comprehensive income
20 
Total stockholders' equity
46,104 
42,482 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 89,026 
$ 66,238 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 372 
$ 388 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
30,636,327 
27,944,853 
Common stock, shares outstanding
29,983,279 
27,391,709 
Treasury stock, shares
653,048 
553,144 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Income Statement [Abstract]
 
 
 
REVENUE
$ 110,245 
$ 106,579 
$ 111,807 
COSTS AND OPERATING EXPENSES:
 
 
 
Cost of revenue (exclusive of depreciation and amortization shown separately below)
54,423 
57,939 
59,622 
Technology and development (exclusive of depreciation and amortization shown separately below)
20,007 
26,259 
28,458 
Sales and marketing
16,272 
10,807 
8,124 
General and administrative (exclusive of depreciation and amortization shown separately below)
15,543 
14,249 
11,663 
Depreciation and amortization
6,901 
5,126 
4,650 
Gain on sale of domain
 
(1,000)
 
Total costs and operating expenses
113,146 
113,380 
112,517 
LOSS FROM OPERATIONS
(2,901)
(6,801)
(710)
OTHER EXPENSE
(16)
(28)
(37)
INTEREST EXPENSE
(245)
(218)
(193)
LOSS BEFORE INCOME TAXES AND EQUITY INTEREST
(3,162)
(7,047)
(940)
(BENEFIT) PROVISION FOR INCOME TAXES
239 
4,821 
(134)
LOSS IN EQUITY INTEREST
(73)
(1,063)
(561)
NET LOSS
$ (3,474)
$ (12,931)
$ (1,367)
NET LOSS PER SHARE:
 
 
 
Basic
$ (0.12)
$ (0.47)
$ (0.05)
Diluted
$ (0.12)
$ (0.47)
$ (0.05)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER SHARE:
 
 
 
Basic
28,213,838 
27,389,793 
27,306,882 
Diluted
28,213,838 
27,389,793 
27,306,882 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
Net loss
$ (3,474)
$ (12,931)
$ (1,367)
Other comprehensive income (loss):
 
 
 
Change in foreign currency translation adjustment, net of tax
(18)
18 
Comprehensive loss
$ (3,492)
$ (12,913)
$ (1,359)
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Treasury Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income [Member]
Beginning balance at Dec. 31, 2012
$ 50,811 
$ 275 
$ (569)
$ 99,449 
$ (48,338)
$ (6)
Beginning balance, shares at Dec. 31, 2012
 
27,517,665 
(319,500)
 
 
 
Exercise of common stock options
195 
 
193 
 
 
Exercise of common stock options, shares
 
166,933 
 
 
 
 
Stock-based compensation cost
2,584 
 
 
2,584 
 
 
Net income (loss)
(1,367)
 
 
 
(1,367)
 
Other comprehensive income
 
 
 
 
Ending balance at Dec. 31, 2013
52,231 
277 
(569)
102,226 
(49,705)
Ending balance, shares at Dec. 31, 2013
 
27,684,598 
(319,500)
 
 
 
Exercise of common stock options
68 
 
66 
 
 
Exercise of common stock options, shares
 
246,880 
 
 
 
 
Stock-based compensation cost
3,669 
 
 
3,669 
 
 
Vesting of restricted stock units
 
13,375 
 
 
 
 
Treasury stock withheld to cover tax
(11)
 
(11)
 
 
 
Treasury stock withheld to cover tax, shares
4,594 
 
(4,594)
 
 
 
Purchase of treasury stock
(562)
 
(562)
 
 
 
Purchase of treasury stock, shares
(229,050)
 
(229,050)
 
 
 
Net income (loss)
(12,931)
 
 
 
(12,931)
 
Other comprehensive income
18 
 
 
 
 
18 
Ending balance at Dec. 31, 2014
42,482 
279 
(1,142)
105,961 
(62,636)
20 
Ending balance, treasury stock, shares at Dec. 31, 2014
(553,144)
 
(553,144)
 
 
 
Ending balance, shares at Dec. 31, 2014
27,944,853 
27,944,853 
 
 
 
 
Exercise of common stock options
70 
 
 
70 
 
 
Exercise of common stock options, shares
36,135 
36,135 
 
 
 
 
Stock and warrants issued in acquisition
3,960 
24 
 
3,936 
 
 
Stock and warrants issued in acquisition, shares
 
2,400,000 
 
 
 
 
Stock-based compensation cost
3,271 
 
 
3,271 
 
 
Vesting of restricted stock units
 
 
 
 
Vesting of restricted stock units
 
255,339 
 
 
 
 
Treasury stock withheld to cover tax
(190)
 
(190)
 
 
 
Treasury stock withheld to cover tax, shares
99,904 
 
99,904 
 
 
 
Net income (loss)
(3,474)
 
 
 
(3,474)
 
Other comprehensive income
(18)
 
 
 
 
(18)
Ending balance at Dec. 31, 2015
$ 46,104 
$ 306 
$ (1,332)
$ 113,238 
$ (66,110)
$ 2 
Ending balance, treasury stock, shares at Dec. 31, 2015
(653,048)
 
 
 
 
 
Ending balance, shares at Dec. 31, 2015
30,636,327 
30,636,327 
(653,048)
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$ (3,474)
$ (12,931)
$ (1,367)
Adjustments to reconcile net loss to net cash and cash equivalents provided (used) by operating activities:
 
 
 
Depreciation and amortization
6,901 
5,126 
4,650 
Stock-based compensation expense
3,115 
3,595 
2,561 
Gain on sale of domain
 
(1,000)
 
Change in provision for deferred income taxes
 
4,769 
(243)
Loss in equity interest
73 
1,063 
561 
Change in assets and liabilities:
 
 
 
Accounts receivable, net
(362)
(5,910)
1,055 
Prepaid expenses and other current assets
(547)
(367)
189 
Other long-term assets
(167)
247 
220 
Accounts payable
(3,579)
(359)
(527)
Accrued expenses and other current liabilities
2,090 
2,665 
(2,205)
Deferred revenue
3,478 
 
 
Other long-term liabilities
122 
(207)
334 
Net cash provided (used) by operating activities
7,650 
(3,309)
5,228 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(3,236)
(4,982)
(5,920)
Investment in equity interest
 
(772)
(926)
Proceeds from sale of domain
 
1,000 
 
Acquisition net of cash acquired
(17,260)
 
(1,011)
Purchase of convertible promissory note
 
 
(1,000)
Net cash used by investing activities
(20,496)
(4,754)
(8,857)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from bank financing
5,000 
 
 
Repayments on capital lease obligations
(1,442)
(2,258)
(2,121)
Proceeds from exercise of common stock options
70 
68 
195 
Purchase of treasury stock and shares received to satisfy minimum tax withholdings
(190)
(562)
 
Deferred acquisition payment
(495)
 
 
Net cash (used) provided by financing activities
2,943 
(2,752)
(1,926)
Effect of exchange rate changes on cash and cash equivalents
 
18 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(9,903)
(10,797)
(5,547)
CASH AND CASH EQUIVALENTS-Beginning of year
25,600 
36,397 
41,944 
CASH AND CASH EQUIVALENTS-End of year
15,697 
25,600 
36,397 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest
212 
219 
165 
Cash paid for income taxes
210 
112 
140 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
 
 
 
Property, equipment and service contracts financed under capital lease obligations
1,173 
1,961 
1,039 
Contingent consideration
1,600 
 
495 
Fair value of common stock and warrants in acquisition
3,960 
 
 
Accrued property and equipment expenditures
21 
117 
719 
Stock-based compensation capitalized to property and equipment
$ 159 
$ 74 
 
The Company and Summary of Significant Accounting Policies
The Company and Summary of Significant Accounting Policies

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Synacor, Inc., together with its consolidated subsidiaries (collectively, the “Company” or “Synacor”), is the trusted technology development, multiplatform services and revenue partner for video, internet and communications providers, device manufacturers, and enterprises. Synacor delivers engaging, multiscreen experiences and advertising to their consumers that require scale, actionable data and sophisticated implementation.

Basis of Presentation—The consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Accounts Receivable—The Company records accounts receivable at the invoiced amount and does not charge interest on past due invoices. An allowance for doubtful accounts is maintained to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable from customers that are past due to identify specific accounts with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations.

Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

 

Leasehold improvements

     3–10 years   

Computer hardware

     5 years   

Computer software

     3 years   

Furniture and fixtures

     7 years   

Other

     3–5 years   

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.

Long-Lived Assets—The Company reviews the carrying value of its long-lived assets, exclusive of goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. For purposes of evaluating and measuring impairment, the Company groups a long-lived asset or assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. There have been no material impairments to long-lived assets in any of the years presented.

 

The components and estimated economic lives of our amortizable intangible assets were as follows as of December 31, 2014 and 2015:

 

     Estimated
Economic  Life
         2014          2015  
            (Dollars in thousands)  

Gross amortizable intangible assets:

        

Customer relationships

     10 years       $ —         $ 13,400   

Trademark

     5 years         —           300   

Developed technology

     5 years         —           1,600   
     

 

 

    

 

 

 

Total gross amortizable intangible assets

        —           15,300   

Accumulated amortization:

        

Customer relationships

        —           (391

Trademark

        —           (18

Developed technology

        —           (93
     

 

 

    

 

 

 

Total accumulated amortization

        —           (502
     

 

 

    

 

 

 

Amortizable intangible assets, net

      $ —         $ 14,798   
     

 

 

    

 

 

 

Future amortization expense of amortizable intangible assets will be approximately $1,720 in each of years ending December 31, 2016 through 2020, respectively, and $6,198 thereafter.

Goodwill—Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment on an annual basis and more frequently if impairment indicators are present. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its estimated fair value. The Company has determined it is a single reporting unit, and estimates its fair value using a market approach. If the carrying value of the reporting unit were to exceed its estimated fair value, the second step of the goodwill impairment test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge would then be recognized for the excess of the carrying value of goodwill over its implied estimated fair value. The Company conducts its annual goodwill impairment test as of October 1st. For the years ended December 31, 2013, 2014 and 2015, the Company determined goodwill was not impaired.

The change in goodwill is as follows (in thousands) for the year ended December 31, 2015:

 

     Years Ended December 31,  
           2014                  2015        

At December 31, 2014

   $ 1,565       $ 1,565   

Zimbra acquisition related goodwill (Note 2)

     —           13,622   
  

 

 

    

 

 

 

At December 31, 2015

   $ 1,565       $ 15,187   
  

 

 

    

 

 

 

 

Revenue Recognition—The Company derives revenue from two categories: revenue generated from our Managed Portals and Advertising activities and Recurring and Fee-Based revenue, each of which is described below. Advertising and Recurring and Fee-Based revenue are recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. The following table shows the revenue in each category for the years ended December 31, 2013, 2014 and 2015 (in thousands):

 

     Year Ended December 31,  
     2013      2014      2015  

Search and digital advertising

   $   90,447       $   83,906      $   78,316   

Recurring and fee-based

     21,360         22,673        31,929   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $   111,807       $   106,579      $   110,245   
  

 

 

    

 

 

    

 

 

 

The Company uses internet advertising to generate revenue from the traffic on its Managed Portals categorized as search advertising and digital advertising.

 

   

In the case of search advertising, the Company has a revenue-sharing relationship with Google, pursuant to which it includes a Google-branded search tool on its Managed Portals. When a consumer makes a search query using this tool, the Company delivers the query to Google and they return search results to consumers that include advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with the Company, which is recognized as revenue.

 

   

Digital advertising includes video, image and text advertisements delivered on one of the Company’s Managed Portals. Advertising inventory is filled with advertisements sourced by the Company’s direct sales force, independent advertising sales representatives, and also advertising network partners. Revenue is generated for the Company when an advertisement displays, otherwise known as an impression, or when consumers view or click an advertisement, otherwise known as an action. Digital advertising revenue is calculated on a per-impression or per-action basis. Revenue is recognized as the impressions are delivered or the actions occur, according to contractual rates.

Recurring and Fee-Based revenue represents subscription fees and other fees that the Company receives from customers for the use of its proprietary technology, including the use of, or access to, email, video solutions, Cloud ID, security services, games and other premium services and paid content. Monthly subscriber levels typically form the basis for calculating and generating Recurring and Fee-Based revenue. They are generally determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed. In other cases, the fee is fixed. Revenue is recognized from customers as the services are delivered.

The Company evaluates its relationship between search and digital advertising revenue and its Managed Portal customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45, Principal Agent Considerations. The Company has determined that the search and digital advertising revenue derived from the internet traffic on Managed Portals is reported on a gross basis because the Company is the primary obligor (Synacor is responsible to its customers for fulfilling search and digital advertising services and premium and other services), is involved in the service specifications, performs part of the service, has discretion in supplier selection, has latitude in establishing price and bears credit risk.

Certain Recurring and Fee-Based revenue is derived from the sale of software licenses on a perpetual or subscription basis, for which revenue is recognized upon receipt of an external agreement and delivery of the software, provided the fees are fixed and determinable, and collection is probable. For agreements that include one or more elements to be delivered at a future date, revenue is recognized using the residual method, under which the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered elements is deferred, and the remaining portion of the agreement fee is recognized as license revenue. VSOE of fair value is based on the Company’s pricing for products and services when sold separately and, for support services, is measured by the renewal rate. If VSOE of fair value has not been established for certain undelivered elements, revenue is deferred until those elements have been delivered or their fair values have been determined.

Cost of Revenue—Cost of revenue consists primarily of revenue sharing, content acquisition costs, co-location facility costs, royalty costs and product support costs. Revenue sharing consists of amounts accrued and paid to customers for the internet traffic on Managed Portals where the Company is the primary obligor, resulting in the generation of search and digital advertising revenue. The revenue-sharing agreements with customers are primarily variable payments based on a percentage of the search and digital advertising revenue.

Content-acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per month, or a combination of both. Fixed-payment agreements are expensed on a straight-line basis over the term defined in the agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist of rent and operating costs for the Company’s data center facilities. Royalty costs consist of amounts due to other parties for sale of mailboxes with third party technology enabled. Product support costs consist of employee and operating costs directly related to the Company’s maintenance and professional services support.

Concentrations of Risk—As of December 31, 2014 and 2015, and for the years ended December 31, 2013, 2014 and 2015 the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable and revenue as follows:

 

     Accounts Receivable  
     2014     2015  

Google

     23     14

Portal Customer

     12     *   

Advertising Customer

     11 %     *   

 

 

  * - less than 10%

 

     Revenue  
     2013     2014     2015  

Google

     51     42     28

For the years ended December 31, 2013, 2014 and 2015, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue.

 

     Cost of Revenue  
     2013     2014     2015  

Customer A

     22     22     26

Customer B

     13     12     10

Customer C

     12     10     *   

Customer D

     11     12     *   

 

 

  * - less than 10%

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash primarily in checking and money market accounts with high credit quality financial institutions, which, at times, have exceeded federally insured limits of $0.25 million. Although the Company maintains balances that exceed the federally insured limit, it has not experienced any losses related to these balances and believes credit risk to be minimal.

Software Development Costs—Costs incurred during the preliminary project stage for internal software programs are expensed as incurred. External and internal costs incurred during the application development stage of new software development as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. In 2013, 2014 and 2015, the Company incurred $3.0 million, $3.4 million and $2.8 million of combined internal and external costs related to the application development stage. Internal and external training and maintenance costs are expensed as incurred.

Technology and Development—Technology and development expenses consist primarily of compensation-related expenses incurred for the research and development of, enhancements to, and maintenance and operation of the Company’s products, equipment and related infrastructure.

Sales and Marketing—Sales and marketing expenses consist primarily of compensation-related expenses to the Company’s direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials, and other sales and marketing programs. Advertising costs are expensed as incurred.

General and Administrative—General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, professional fees and other administrative functions.

Sale of Domain—In June 2014, the Company executed a transaction to sell a domain name of its legacy business. The sale amounted to $1.0 million and the entire amount was recorded as a gain on the sale in the accompanying consolidated statement of operations for the year ended December 31, 2014. The sale was unique to 2014 and no such transactions occurred in the comparative periods.

Earnings (Loss) Per Share—Basic earnings (loss) per share (“EPS”) is calculated in accordance with FASB ASC 260, Earnings per Share, using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, stock options, warrants and restricted stock units (“RSUs”) are considered to be potential common shares and are only included in the calculation of diluted earnings (loss) per share when their effect is dilutive.

Stock-Based Compensation—The Company records compensation costs related to stock-based awards in accordance with FASB ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of ASC 718, the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized ratably over the requisite service period of the award. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest.

Rights Plan—On July 14, 2014 the board of directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock and adopted a stockholder rights plan (the “Rights Plan”). The Rights were issued on July 14, 2014 to the stockholders of record at the close of business on that date. Each Right allows its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (a “ Series A Junior Preferred Share”) for $10.00 per share (the “Exercise Price”), if the Rights become exercisable. This portion of a Series A Junior Preferred Share will give the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights. On July 14, 2014, in conjunction with the adoption of the Rights Plan, the Company designated 2,000,000 shares of its Preferred Stock as Series A Junior Participating Preferred Stock.

The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 10% or more of the Company’s outstanding common stock (the “Distribution Date”). If a person or group becomes an Acquiring Person, each Right will entitle its holder (other than such Acquiring Person) to purchase for $10.00 per share, a number of shares of the Company’s common stock having a market value of twice such price based on the market price of the common stock prior to such acquisition. Additionally, if the Company is acquired in a merger or similar transaction after the Distribution Date, each Right will entitle its holder (other than such Acquiring Person) to purchase for $10.00 per share, a number of shares of the acquiring corporation with a market value of $20.00 per share based on the market price of the acquiring corporation’s stock, prior to such merger. In addition, at any time after a person or group becomes an Acquiring Person, but before such Acquiring Person or group owns 50% or more of the Company’s common stock, the board of directors may exchange one share of the Company’s common stock for each outstanding Right (other than Rights owned by such Acquiring Person, which would have become void). An Acquiring Person will not be entitled to exercise the Rights.

On April 20, 2015, The Company’s stockholders ratified the Rights Plan. It will expire on July 14, 2017.

On August 18, 2015, the Company amended the definition of “Acquiring Person” to provide that (i) issuances of securities under plans, contracts or arrangements approved by the board of directors or its compensation committee as compensation for service as a director, employee or consultant of Synacor or any of its subsidiaries will not trigger the exercisability of the Rights and (ii) issuances of securities in consideration for the acquisition of assets or a business in a transaction approved by the board of directors will not trigger the exercisability of the Rights.

Business Combinations—The Company records its business combinations under the acquisition method of accounting. Under the acquisition method of accounting, the Company allocates the purchase price of each acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The fair value of identifiable intangible assets is based upon detailed valuations that use various assumptions made by management. Any excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired is allocated to goodwill. All direct acquisition-related costs are expensed as incurred.

The following methodology and assumptions are considered relevant to the fair value judgments related to acquired intangible assets and assumed liabilities:

 

   

Technology and Trademark intangible assets—valued based on discounted cash flows using the relief from royalty method (a form of an income approach)

 

   

Customer Relationship—valued based on a multi-period excess earnings method (a form on an income approach)

 

   

Deferred Revenue—valued based on a cost approach using estimated costs to be incurred in connection with the continuing legal obligation associated with acquired contracts plus a reasonable profit margin.

Business assumptions, such as projections of revenue, costs to fulfill acquired contracts, applicable royalty rates, and future profitability are key assumptions included in the methods described above.

In circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments it expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through other expense in the consolidated statement of operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing, amount of, or the likelihood of achieving the applicable contingent consideration.

Income Taxes—Deferred income tax assets and liabilities are determined based on temporary differences between the financial statement and income tax bases of assets and liabilities and net operating loss (“NOL”) and credit carryforwards using enacted income tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will be realized.

The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2014 and 2015, accrued interest or penalties related to uncertain tax positions was insignificant.

Reduction In Workforce—On September 28, 2014, the Company’s board of directors approved a cost reduction plan. The plan involved a reduction in the Company’s workforce by approximately 70 employees. The pre-tax severance charge and outplacement services resulting from the reduction in workforce, combined with the Company’s separation from its former Chief Operating Officer, amounted to $1.3 million. Of the $1.3 million in costs, $0.5 million was recorded to technology and development, $0.2 million was recorded to sales and marketing and $0.6 million was recorded to general and administrative in the accompanying consolidated statement of operations for the year ended December 31, 2014. As of December 31, 2015, there were no remaining amounts owing under this plan.

Accounting Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts.

Investment—In July 2013, the Company made a $1.0 million investment (in the form of a convertible promissory note) in a privately held Delaware corporation called Blazer and Flip Flops, Inc. (“B&FF” doing business as The Experience Engine). In March 2015, the note was converted into preferred stock of B&FF and is accounted for as a cost method investment. B&FF is a professional services company whose principals have experience integrating its customers’ systems with their customers’ devices, including smartphones and tablets.

Fair Value Measurements—Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period. The fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates their carrying value due to their short-term nature. The carrying amounts of the Company’s capital leases approximate fair value of these obligations based upon management’s best estimates of interest rates that would be available for similar debt obligations at December 31, 2014 and 2015. The carrying value of our long-term debt approximates its fair value due to its variable interest rate. The fair value of accrued contingent consideration recorded by the Company represents the estimated fair value of the contingent consideration the Company expects to pay.

 

The provisions of ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:

Level 1—Level 1 inputs are defined as observable inputs such as quoted prices in active markets.

Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

Applicable Recent Accounting Pronouncements—In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) Revenue from Contracts with Customers (Topic 606) which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 (as subsequently amended) is effective for annual reporting periods beginning after December 15, 2017 (beginning in calendar year 2018 for the Company), with earlier application permitted as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (Topic 842) which amends lease accounting by lessors and lessees. This new standard will require, among other things, that lessees recognize a right-to-use asset and related lease liability for all significant financing and operating leases, and specifies where in the statement of cash flows the related lease payments are to be presented. The standard is effective for years beginning after December 15, 2018, including interim periods within those years (beginning in calendar year 2019 for the Company), and early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements. The Company has not yet determined whether it will adopt the standard in advance of the required effective date.

Acquisition
Acquisition

2. ACQUISITION

On August 18, 2015 the Company and Sync Holdings, LLC, its wholly-owned subsidiary, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Zimbra, Inc. (now known as TZ Holdings) to acquire certain assets related to TZ Holdings’ email/collaboration products and services business, including certain of its wholly-owned foreign subsidiaries. The business acquired by the Company pursuant to the Asset Purchase Agreement is referred to herein as “Zimbra” or the “Purchased Business.” The Purchased Business includes software for email/collaboration, calendaring, file sharing, activity streams and social networks, among other things. The Zimbra software is used globally by service providers, governments and companies. The Company completed the acquisition (the “Acquisition”) on September 14, 2015 (the “Closing”). Since the closing of the Acquisition, through December 31, 2015, the Purchased Business generated revenue of approximately $7.9 million.

Purchase Price—The total purchase price paid (including the fair value of the contingent consideration described below) for the Purchased Business was approximately $22.9 million. At the Closing, in consideration for the Purchased Business, the Company paid TZ Holdings $17.3 million in cash and issued to TZ Holdings 2.4 million shares of its common stock (such shares, the “Closing Stock Consideration”), valued at $3.1 million, and warrants to purchase 480,000 shares of common stock (the “Closing Warrants”). Additionally, TZ Holdings is eligible to receive additional consideration, estimated at $2.5 million, consisting of contingent cash consideration, warrants and additional shares of common stock, as described below.

Contingent Consideration—TZ Holdings is eligible to receive up to an additional $2.0 million (the “Earn Out Consideration”) in cash upon the satisfaction of certain business performance milestones related to Zimbra after the Closing, subject to and contingent upon any reduction to satisfy indemnification claims (including pending claims), as further described in the Asset Purchase Agreement. The fair value of this contingent consideration was determined to be $1.6 million and is included in consideration paid.

Holdback—In addition to the Earn Out Consideration, the Company has held back an additional 600,000 shares of common stock (the “Holdback Stock” and together with the Closing Stock Consideration, the “Stock Consideration”) and warrants to purchase an additional 120,000 shares of common stock (the “Holdback Warrants” and together with the Closing Warrants, the “Warrants”) to secure TZ Holdings’ indemnification obligations under the Asset Purchase Agreement. Any Holdback Shares and Holdback Warrants not used to satisfy indemnification claims (including pending claims) will be released to TZ Holdings eighteen months following the Closing. The Company recorded the Holdback Stock and the Holdback Warrants based on its estimated fair value at the Closing.

Additionally, the Company has assumed certain obligations of TZ Holdings, including the performance of TZ Holdings’ post-closing obligations under contracts assigned to the Company.

Consideration:

 

Cash consideration

   $ 17,310   

Fair value of 2,400,000 shares of common stock issued on September 14, 2015

     3,132   

Fair value of Closing and Holdback Warrants (warrants to purchase an aggregate of 600,000 shares of common stock)

     45   

Fair value of the Holdback Stock (600,000 shares of common stock) on September 14, 2015

     783   

Fair value of contingent consideration

     1,600   
  

 

 

 

Total purchase price

   $ 22,870   
  

 

 

 

In connection with the Acquisition, TZ Holdings has agreed not to sell, transfer or otherwise dispose of any portion of the Stock Consideration until the first anniversary of the Closing. Upon the first anniversary of the Closing, the restrictions will lapse with respect to 1/6th of the Stock Consideration, and upon the completion of each of the five months thereafter, the restrictions will lapse with respect to an additional 1/6th of the Stock Consideration. Following the lapse of such restrictions, TZ Holdings may transfer the Stock Consideration solely to its stockholders.

Allocation of Purchase Price—The purchase price allocation was determined in accordance with the accounting treatment of a business combination in accordance with the FASB ASC Topic 805, Business Combinations. Under the guidance, the fair value of the consideration was determined and the assets acquired and liabilities assumed have been recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair values has been recorded as goodwill.

The allocation of purchase price to the assets acquired and liabilities assumed as the date of the acquisition is presented in the table below. Management is responsible for determining the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as of the Closing. Management considered a number of factors, including reference to an analysis under FASB ASC Topic 805 solely for the purpose of allocating the purchase price to the assets acquired and liabilities assumed. The Company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would not reflect unanticipated events and circumstances that occur. The purchase price allocation is a preliminary estimate as it is subject to change due to events in the future.

 

Assets acquired:

  

Cash and cash equivalents

   $ 50   

Accounts receivable

     3,500   

Prepaid expenses and other current assets

     451   

Property and equipment

     1,194   

Other long-term assets

     68   

Goodwill

     13,622   

Intangible assets

     15,300   
  

 

 

 

Total assets acquired

     34,185   
  

 

 

 

 

Liabilities assumed:

  

Accounts payable

     134   

Accrued expenses and other current liabilities

     409   

Deferred revenue

     10,400   

Capital lease obligations

     317   

Other long-term liabilities

     55   
  

 

 

 

Total liabilities assumed

     11,315   
  

 

 

 

Net assets acquired

   $ 22,870   
  

 

 

 

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed, the purchase price allocation is preliminary and could change during the measurement period (not to exceed one year) if new information is obtained about the facts and circumstances that existed as of the date of Closing that, if known, would have resulted in the recognition of additional or changes in the value of the assets and liabilities presented in the purchase price allocation.

During the fiscal year 2015, acquisition costs of $0.5 million were recorded in general and administrative expenses in the consolidated statement of operations.

Technology—The Purchased Business includes has an open-source integrated collaboration software suite with secure email/collaboration, calendaring and related services. The Zimbra software is used by over 100 million paid users in on-premises, public and private cloud deployments. The valuation of these assets was based on the estimated discounted cash flows using the relief from royalty method, a form of the income approach. The fair value of technology at date of acquisition was $1.6 million and has an amortization period of 5 years.

Trademark—Among the assets Synacor acquired was the “Zimbra” trademark. The valuation of this asset was based on the estimated discounted cash flows using the relief from royalty method, a form of the income approach. The fair value of the trademark at the date of acquisition was $0.3 million and has an amortization period of 5 years.

Customer Relationships—Through Zimbra, Synacor has acquired a diverse set of customer relationships. The majority of Zimbra revenue is related to geographies outside of North America. The largest customer segment is Internet Service Providers (ISPs), while smaller but still important verticals include small-to-medium businesses and the government/non-profit sector. Zimbra makes direct sales to ISPs as well as indirect sales through an extensive global channel of reseller and service-provider partners. The fair value of customer lists was determined using the multi-period excess-earnings method, a form of the income approach. The fair value of customer relationships at date of acquisition was $13.4 million and has an amortization period of 10 years.

Deferred Revenue—The deferred revenue obligation assumed by Synacor is associated with maintenance and support, licenses and professional services. Synacor accounted for the acquired deferred revenue at its acquisition date fair value, which was determined utilizing the cost approach. The cost approach was based upon management’s assessment of the cost to be incurred in connection with the continuing legal obligation associated with the acquired contracts plus a reasonable profit margin. The fair value of deferred revenue at date of acquisition was $10.4 million.

Goodwill—The excess of the purchase price over the fair value of net tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. Various factors contributed to the establishment of goodwill, including: the value of Zimbra’s trained workforce; the incremental value that Zimbra’s technology will bring to the Company; and the expected revenue growth over time that is attributable to increased market penetration from future products and customers. The goodwill acquired in connection with the Acquisition is deductible for tax purposes.

Pro Forma Results—The following unaudited pro forma information presents the combined results of operations as if the acquisition of Zimbra had been completed on January 1, 2014, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include adjustments to reflect: (i) the carve-out of revenue and expenses relating to the portion of the Zimbra business not acquired; (ii) the elimination of depreciation and amortization from Zimbra’s historical financial statements and the inclusion of depreciation and amortization based on the fair values of acquired property, plant and equipment and intangible assets; (iii) the fair value of deferred revenue liabilities assumed; (iv) recognition of the post-acquisition share-based compensation expense related to stock options that were granted to Zimbra employees who accepted employment with Synacor; (v) the elimination of intercompany revenue and expenses between Zimbra and Synacor; and (iv) the elimination of acquisition-related expenses.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations

Set forth below is the unaudited pro forma consolidated results of operations of the Company and Zimbra as if the Acquisition occurred as of January 1, 2014 (in thousands, except per share amounts):

 

     Years Ended December 31,  
           2014                  2015        

Revenue

   $ 134,207       $ 130,077   
  

 

 

    

 

 

 

Operating loss

   $ (9,485    $ (2,944
  

 

 

    

 

 

 

Net loss

   $   (16,017    $   (4,608
  

 

 

    

 

 

 

Net loss per share:

     

Basic

   $ (0.54    $ (0.16
  

 

 

    

 

 

 

Diluted

   $ (0.54    $ (0.16
Property and Equipment-Net
Property and Equipment-Net

3. PROPERTY AND EQUIPMENT—NET

As of December 31, 2014 and 2015, property and equipment, net consisted of the following (in thousands):

 

     2014      2015  

Computer equipment

   $ 21,194      $ 23,324   

Computer software

     10,741        12,748   

Furniture and fixtures

     1,847        1,945   

Leasehold improvements

     1,389        1,532   

Work in process

     1,203        2,065   

Other

     173        252   
  

 

 

    

 

 

 
     36,547        41,866   

Less accumulated depreciation

        (21,147        (27,489
  

 

 

    

 

 

 

Total property and equipment—net

   $ 15,128      $ 14,377   
  

 

 

    

 

 

 

Property and equipment includes computer equipment and software held under capital leases of approximately $4.8 million and $4.1 million as of December 31, 2014 and 2015, respectively. Accumulated depreciation of computer equipment and software held under capital leases amounted to $2.7 million and $1.8 million as of December 31, 2014 and 2015, respectively.

Depreciation expense was $4.7 million, $5.1 million, and $6.4 million for the years ended December 31, 2013, 2014, and 2015, respectively.

Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of December 31, 2014 and 2015, accrued expenses and other current liabilities consisted of the following (in thousands):

 

     2014      2015  

Accrued compensation

   $   4,066      $   6,112   

Accrued content fees

     1,745        1,964   

Accrued business acquisition consideration

     495         —     

Other

     1,455        1,689   
  

 

 

    

 

 

 

Total

   $ 7,761      $ 9,765   

Long-Term Debt
Long-Term Debt

5. LONG-TERM DEBT

In September 2013, the Company entered into a Loan and Security Agreement, with Silicon Valley Bank (“SVB”), which was most recently amended in February 2016 (as amended, the “Loan Agreement”). The Loan Agreement provides for a $12.0 million secured revolving line of credit with a stated maturity of September 27, 2017. The credit facility is available for cash borrowings, subject to a formula based upon eligible accounts receivable. As of December 31, 2015, $5.0 million was outstanding under the Loan Agreement; and subject to the operation of the borrowing formula, an additional $7.0 million was available for draw under the Loan Agreement.

Borrowings under the Loan Agreement bear interest, at the Company’s election, at an annual rate of either 1.00% above the “prime rate” as published in The Wall Street Journal or LIBOR for the relevant period plus 3.50%. For LIBOR advances, interest is payable (i) on the last day of a LIBOR interest period or (ii) on the last day of each calendar quarter. For prime rate advances, interest is payable (a) on the first day of each month and (b) on each date a prime rate advance is converted into a LIBOR advance.

 

The Company’s obligations to SVB are secured by a first priority security interest in all our assets, including our intellectual property. The Loan Agreement contains customary events of default, including non-payment of principal or interest, violations of covenants, material adverse changes, cross-default, bankruptcy and material judgments. Upon the occurrence of an event of default, SVB may accelerate repayment of any outstanding balance. The Loan Agreement also contains certain financial covenants and other agreements that are customary in loan agreements of this type, including restrictions on paying dividends and making distributions to our stockholders. As of December 31, 2015, the Company was in compliance with the covenants.

Income Taxes
Income Taxes

6. INCOME TAXES

Loss from continuing operations before income taxes included income from domestic operations of $(1.1) million, $(7.1) million and $(2.9) million for the years ended December 31, 2013, 2014 and 2015, and income from foreign operations of $0.2 million, $0.1 million $(0.3) million for the years ended December 31, 2013, 2014 and 2015.

The (benefit) provision for income taxes for the years ended December 31, 2013, 2014 and 2015, comprised the following (in thousands):

 

     2013      2014      2015  

Current:

        

United States Federal

   $ 16      $ 21       $ (1

State

     22        24         45   

Foreign

     71        7         195   
  

 

 

    

 

 

    

 

 

 

Total current provision for income taxes

     109        52         239   

Deferred:

        

United States Federal

     (119 )      4,135         —     

State

     (97 )      634         —     

Foreign

     (27      —           —     
  

 

 

    

 

 

    

 

 

 

Net deferred (benefit) provision for income taxes

     (243 )      4,769         —     
  

 

 

    

 

 

    

 

 

 

Total (benefit) provision for income taxes

   $   (134 )    $   4,821       $   239   
  

 

 

    

 

 

    

 

 

 

 

The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2014 and 2015 are as follows (in thousands):

 

     2014      2015  

Deferred income tax assets:

     

Stock and other compensation expense

   $ 2,838       $ 3,997   

Net operating losses

     3,533         3,212   

Research and development credits

     1,676         1,676   

Other federal, state and foreign carryforwards

     304         618   

Other

     294         341   
  

 

 

    

 

 

 

Gross deferred tax assets

     8,645         9,844   

Valuation allowances

       (7,504       (8,846
  

 

 

    

 

 

 
     1,141         998   

Deferred income tax liabilities:

     

Fixed assets

     (457      (290

Other

     (57      (81
  

 

 

    

 

 

 

Gross deferred tax liabilities

     (514      (371
  

 

 

    

 

 

 

Subtotal

     627         627   

Less unrecognized tax benefit liability related to deferred items

     (627      (627
  

 

 

    

 

 

 

Net deferred tax assets

   $ —         $ —     
  

 

 

    

 

 

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

     2013      2014      2015  

Balance—beginning of year

   $ 627      $ 627      $ 627  

Additions for tax positions of prior years

     —          —           —     

Reductions for tax positions of prior years

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Balance—end of year

   $   627      $   627      $   627  
  

 

 

    

 

 

    

 

 

 

The unrecognized tax benefits at the end of 2013, 2014 and 2015 were primarily related to research and development carryforwards.

If the $0.6 million of unrecognized tax benefits as of December 31, 2015 were recognized, approximately $0.6 million would decrease the effective tax rate in the period in which each of the benefits is recognized. The remaining amount would be offset by the reversal of related deferred income tax assets on which an unrecognized tax benefit liability is placed. The Company does not expect any material changes to its unrecognized tax benefits within the next twelve months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2014 and 2015, penalties and interest were insignificant.

The Company files income tax returns in the U.S. federal jurisdiction as well as many U.S. states and foreign jurisdictions. The tax years 2004 to 2015 remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized. The Company is currently not under examination in any major taxing jurisdictions.

 

Income tax (benefit) expense for the years ended December 31, 2013, 2014 and 2015, differs from the expected income tax (benefit) expense calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):

 

     2013     2014     2015  

Federal income tax (benefit) expense at statutory rate

   $ (320     34   $   (2,390     34   $   (1,075     34

State and local taxes—net of federal benefit

     (75     8        (410     6        30        (1

Foreign taxes

     (3     —          (1     —          195        (6

Valuation allowance

     —          —          7,504          (107     928          (29

Permanent differences

     264          (28     262        (4 )     144        (5

Other

     —          —          (144     2        17        (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $   (134     14   $ 4,821        (69 )%    $ 239        (8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company had federal and state NOL carryforwards of approximately $7.9 million and $7.6 million, respectively, at December 31, 2015. In addition, the Company has approximately $2.0 million of NOL carryforwards created by windfall tax benefits relating to stock compensation for which no deferred income tax assets have been recorded in accordance with the rules under FASB ASC 718. The NOLs will begin to expire in 2027. The Company has weighed the positive and negative evidence, including cumulative pre-tax losses, and determined that it is more likely than not that the deferred income tax assets, primarily related to the NOLs, will not be realized and, therefore, a full valuation allowance has been recorded against the net deferred income tax assets as of December 31, 2014 and 2015.

Information About Segment and Geographic Areas
Information About Segment and Geographic Areas

7. INFORMATION ABOUT SEGMENT AND GEOGRAPHIC AREAS

Operating segments are components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews operating results and financial information presented on a total Company basis, accompanied by information about revenue by major service line for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single reporting segment and operating unit structure.

The following table sets forth revenue and long-lived tangible assets by geographic area (in thousands):

 

     Years Ended December 31,  
      2013      2014      2015  

Revenue:

        

United States

   $ 111,122      $ 105,872      $ 105,228   

International

     685        707        5,017   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $   111,807      $   106,579      $   110,245   
  

 

 

    

 

 

    

 

 

 

 

     As of December 31,  
     2014      2015  

Long-lived tangible assets:

     

United States

   $ 14,573      $ 12,909   

Canada

     502         726   

International

     53        742   
  

 

 

    

 

 

 

Total long-lived tangible assets

   $   15,128      $   14,377   
  

 

 

    

 

 

 
Commitments and Contingencies
Commitments and Contingencies

8. COMMITMENTS AND CONTINGENCIES

Lease Commitments—The Company leases office space and data center space under operating lease agreements and certain equipment under capital lease agreements with interest rates ranging from 3% to 7%.

Rent expense for operating leases was approximately $1.7 million, $2.5 million and $2.6 million for 2013, 2014 and 2015, respectively.

Lease commitments over the next five years as of December 31, 2015 can be summarized as follows (in thousands):

 

Years Ending
December 31,

   Operating
Lease Commitments
 

2016

   $ 2,454   

2017

     1,629   

2018

     1,422   

2019

     1,289   

2020

     367   
  

 

 

 

Total lease commitments

   $   7,161   
  

 

 

 

 

Years Ending
December 31,

   Capital
Lease Commitments
 

2016

   $ 1,665   

2017

     734   

2018

     232   

2019

     91   

2020

     8   
  

 

 

 

Total minimum capital lease commitments

     2,730   

Less-amount representing interest

     149   
  

 

 

 

Total capital lease obligations

     2,581   

Less-current portion of capital lease obligations

     1,007   
  

 

 

 

Long-term portion of capital lease obligations

   $   1,574   
  

 

 

 

Contract Commitments—The Company is obligated to make payments under various contracts with vendors and other business partners, principally for revenue-share arrangements. Contract commitments as of December 31, 2015 can be summarized as follows (in thousands):

 

Years Ending
December 31,

   Contract
Commitments
 

2016

   $ 4,140   

2017

     2,020   

2018

     660   

2019

     660   
  

 

 

 

Total contract commitments

   $   7,480   
  

 

 

 

Litigation—From time to time, the Company is a party to legal actions. In the opinion of management, the outcome of these matters is not expected to have a material impact on the consolidated financial statements of the Company.

Equity
Equity

9. EQUITY

Stock Repurchases—In February 2014, the board of directors approved a Stock Repurchase Program, which authorizes a repurchase of up to $5.0 million worth of the Company’s outstanding common stock. The Stock Repurchase Program has no expiration date, and may be suspended or discontinued at any time without notice.

The following table sets forth the shares of common stock repurchased through the program:

 

     Years Ended December 31,  
      2013      2014      2015  

Shares of common stock repurchased

     —           229,050           —     

Value of common stock repurchased (in thousands)

   $   —         $   562       $ —     

Withhold to Cover—During the years ended December 31, 2014 and 2015, certain employees, in lieu of paying withholding taxes on the vesting of certain shares of restricted stock awards, authorized the withholding of shares of the Company’s common stock to satisfy their minimum statutory tax withholding requirements related to such vesting. These shares were recorded as treasury stock using the cost method at the per share closing price on the date of vesting. Shares and cost of the Company’s common stock withheld to cover minimum statutory tax withholding requirements during the years ended December 31, 2013, 2014 and 2015 were as follows:

 

     Years Ended December 31,  
     2013      2014      2015  

Shares withheld

     —          4,594          99,904   

Cost (in thousands)

   $   —         $   11       $ 190   

Warrants—Warrants to purchase 480,000 shares of common stock were issued as a component of the consideration transferred for the acquisition of the Zimbra assets (see Note 2). These warrants are exercisable at $3.00 per share and have a three-year life.

Stock-based Compensation
Stock-based Compensation

10. STOCK-BASED COMPENSATION

The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the fair value of the Company’s common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of the Company’s common stock, a risk-free interest rate and expected dividends. The Company also estimates forfeitures of unvested stock options. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for options that do not vest. The Company uses the simplified calculation of expected life described in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, and volatility is based on the blended average historic price volatility for Synacor Inc. and its industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the technology industry, some larger and some similar in size, at a similar stage of life cycle and having similar financial leverage. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses an expected dividend yield of zero, as it does not anticipate paying any dividends in the foreseeable future. Expected forfeitures are based on the Company’s historical experience.

 

The following table presents the weighted-average assumptions used to estimate the fair value of options granted (excluding replacement options in conjunction with modifications described below) during the periods presented:

 

     Years Ended December 31,  
       2013         2014         2015    

Volatility

     59     58     52

Expected dividend yield

     —       —       —  

Risk-free rate

     1.4     1.9     1.7

Expected term (in years)

     6.25       6.25       6.25   

The Company recorded $2.6 million, $3.6 million, and $3.1 million of stock-based compensation expense for the years ended December 31, 2013, 2014, and 2015 , respectively. No income tax deduction is allowed for incentive stock options (“ISOs”). Accordingly, no deferred income tax asset is recorded for the potential tax deduction related to these options. Expense related to stock option grants of non-qualified stock options (“NSOs”) results in a temporary difference, which gives rise to a deferred tax asset.

Total stock-based compensation expense included in the accompanying consolidated statements of operations for the years ended December 31, 2013, 2014 and 2015, is as follows (in thousands):

 

     Years Ended December 31,  
     2013      2014      2015  

Technology and development

   $ 1,184      $ 1,621      $ 936   

Sales and marketing

     348        599        942   

General and administrative

     1,029        1,375        1,237   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $   2,561      $   3,595      $   3,115   
  

 

 

    

 

 

    

 

 

 

Equity Incentive Plans—The Company has four stock option plans (the 2000 Stock Plan, the 2006 Stock Plan, the 2012 Equity Incentive Plan and the Special Purpose Recruitment Plan), which, as of December 31, 2015, authorize the Company to grant up to 10,118,056 stock options (ISOs and NSOs), stock appreciation rights, restricted stock, RSUs and performance cash awards. The ISOs and NSOs will be granted at a price per share not less than the fair value of the Company’s common stock at the date of grant. Options granted to date generally vest over a four-year period with 25 % vesting at the end of one year and the remaining 75% vesting monthly thereafter. Options granted generally are exercisable up to 10 years. RSUs generally vest over a three year period with one-sixth vesting at the end of each six month period.

Special Purpose Recruitment Plan—During 2013, our shareholders approved the Special Purpose Recruitment Plan from which equity compensation awards are granted to newly-hired employees. One million shares of common stock are reserved for issuance under this plan.

 

Stock Option Activity—A summary of stock option activity for the year ended December 31, 2015 is as follows:

 

     Number of
Stock
Options
    Weighted
Average
Exercise
Price
     Aggregate
Intrinsic Value
(in thousands)
     Weighted
Average
Remaining
Contractual
Term (in years)
 

Outstanding—January 1, 2015

     6,754,082     $   2.83         

Granted

     2,731,500     $ 1.86         

Exercised

     (36,135   $ 1.94         

Forfeited

     (753,529   $ 2.39         
  

 

 

         

Outstanding—December 31, 2015

     8,695,918     $ 2.57       $   553         7.30   
  

 

 

         

Expected to vest—December 31, 2015

     8,226,433      $ 2.60       $ 510         7.20   
  

 

 

         

Vested and exercisable—December 31, 2015

     4,039,240      $ 3.08       $ 214        5.39   
  

 

 

         

Aggregate intrinsic value represents the difference between the closing stock price of the Company’s common stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the Nasdaq as of December 31, 2015 was $1.75. The total intrinsic value of options exercised was approximately $0.2 million, $0.5 million, and less than $0.1 million for the years ended December 31, 2013, 2014 and 2015, respectively. The weighted-average grant date fair value of options granted was $1.86 per share, $1.31 per share, and $0.95 per share for the years ended December 31, 2013, 2014 and 2015, respectively.

As of December 31, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested stock options was approximately $5.1 million, which is expected to be recognized over a weighted-average period of 2.63 years.

Option Modification—Effective August 4, 2014, the compensation committee of the Company’s board of directors agreed to modify all outstanding employee options with an exercise price of $3.00 per share or greater, other than options held by directors and executive officers, by resetting the exercise price per share to the closing price of the Company’s common stock on August 4, 2014. As a result of the modification, 203 employees had a total of 1,547,382 options reset to an exercise price of $2.38 per share. The total incremental compensation expense resulting from the August 2014 modification is $0.6 million. During the year ended December 31, 2014, the Company recorded $0.4 million expense related to the modification. The remaining expense will be recorded over the remaining requisite service period.

Non-plan Option Grant—On August 4, 2014, the Company appointed Himesh Bhise as President and CEO of the Company. In conjunction with the effective date of Mr. Bhise’s first day of employment, and as part of Mr. Bhise’s compensation, the Company awarded Mr. Bhise options to purchase 2,001,338 shares of the Company’s common stock with an exercise price of $2.38 per share.

RSU Activity—A summary of RSU activity for the year ended December 31, 2015 is as follows:

 

     Number of
Stock Options
     Weighted
Average
Fair
Value
 

Unvested—January 1, 2015

     833,788       $   2.15  

Granted

     —         $ —     

Released

     (255,339    $ 2.14   

Forfeited

     (140,854    $ 2.29   
  

 

 

    

Unvested—December 31, 2015

     437,595       $ 2.11   
  

 

 

    

Expected to vest —December 31, 2015

     700,457       $ 2.11   
  

 

 

    

 

As of December 31, 2015, total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was approximately $0.8 million, which is expected to be recognized over the next 1.59 years.

Net Loss Per Common Share Data
Net Loss Per Common Share Data

11. NET LOSS PER COMMON SHARE DATA

Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The Company’s potential common shares consist of the incremental common shares issuable upon the exercise of stock options, warrants, and to a lesser extent, shares issuable upon the release of RSUs. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method.

The following table presents the calculation of basic and diluted net loss per share for the years ended December 31, 2013, 2014 and 2015 (in thousands, except share and per share amounts):

 

     Year Ended December 31,  
     2013     2014     2015  

Basic net loss per share:

      

Numerator:

      

Net loss

   $ (1,367 )   $ (12,931   $ (3,474
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Weighted-average common shares outstanding

     27,306,882        27,389,793        28,213,838   
  

 

 

   

 

 

   

 

 

 

Basic net loss per share

   $ (0.05 )   $ (0.47   $ (0.12
  

 

 

   

 

 

   

 

 

 

Diluted net loss per share:

      

Numerator:

      

Net loss

   $ (1,367 )   $ (12,931   $ (3,474
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Number of shares used in the basic computation

     27,306,882        27,389,793        28,213,838   

Add weighted-average effect of dilutive securities:

      

Conversion of preferred stock (as if converted basis)

     —          —          —     

Stock options, RSUs and warrants

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Number of shares used in diluted calculation

     27,306,882        27,389,793        28,213,838   
  

 

 

   

 

 

   

 

 

 

Dilutive net loss per share

   $ (0.05 )   $ (0.47   $ (0.12
  

 

 

   

 

 

   

 

 

 

Stock options, warrants and RSUs are not included in the calculation of diluted net loss per share for the years ended December 31, 2013, 2014 and 2015 because the Company had a net loss for those years. The inclusion of these equity awards would have had an antidilutive effect on the calculation of diluted loss per share.

The following equivalent shares were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the periods presented:

 

     Year Ended December 31,  
      2013      2014      2015  

Antidilutive Equity Awards:

        

Stock options and RSUs

     3,356,358        7,589,578        9,133,513   

Warrants

     —           —           480,000   

Employee Benefit Plan
Employee Benefit Plan

12. EMPLOYEE BENEFIT PLAN

The Company sponsors a 401(k) profit sharing plan that covers substantially all employees. Under the plan, eligible employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee contributions; however, no matching contributions were made during the years ended December 31, 2013, 2014 or 2015.

Subsequent Events
Subsequent Events

13. SUBSEQUENT EVENTS

On February 23, 2016, the Company entered into an Asset Purchase Agreement to acquire substantially all of the assets of Technorati, Inc. (“Technorati”) for $3.0 million in cash (the “Purchase Price”). The Company completed the acquisition on February 26, 2016 (the “Closing”). The final allocation of the Purchase Price to the assets and liabilities acquired has not yet been completed.

The assets acquired include Technorati’s intellectual property and advertising technology platforms, products and services. Synacor also assumed certain obligations of Technorati, including the performance of Technorati’s post-closing obligations under contracts assigned to Synacor. Many of Technorati’s employees will commence employment with Synacor. We granted an aggregate of 202,000 stock options to the Technorati employees who have accepted employment with Synacor.

The Company paid $2.5 million of the Purchase Price at the Closing and withheld $0.5 million of the Purchase Price to secure Technorati’s indemnification obligations under the Asset Purchase Agreement. Pursuant to the terms of the Asset Purchase Agreement, Technorati shall indemnify Synacor for breaches of its representations and warranties, breaches of covenants and certain other matters. The representations and warranties set forth in the Asset Purchase Agreement generally survive for 12 months following the Closing, with longer survival periods for certain fundamental representations and warranties.

The Company and Summary of Significant Accounting Policies (Policies)

Basis of Presentation—The consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Accounts Receivable—The Company records accounts receivable at the invoiced amount and does not charge interest on past due invoices. An allowance for doubtful accounts is maintained to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable from customers that are past due to identify specific accounts with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations.

Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

 

Leasehold improvements

     3–10 years   

Computer hardware

     5 years   

Computer software

     3 years   

Furniture and fixtures

     7 years   

Other

     3–5 years   

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.

Long-Lived Assets—The Company reviews the carrying value of its long-lived assets, exclusive of goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. For purposes of evaluating and measuring impairment, the Company groups a long-lived asset or assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. There have been no material impairments to long-lived assets in any of the years presented.

 

The components and estimated economic lives of our amortizable intangible assets were as follows as of December 31, 2014 and 2015:

 

     Estimated
Economic  Life
         2014          2015  
            (Dollars in thousands)  

Gross amortizable intangible assets:

        

Customer relationships

     10 years       $ —         $ 13,400   

Trademark

     5 years         —           300   

Developed technology

     5 years         —           1,600   
     

 

 

    

 

 

 

Total gross amortizable intangible assets

        —           15,300   

Accumulated amortization:

        

Customer relationships

        —           (391

Trademark

        —           (18

Developed technology

        —           (93
     

 

 

    

 

 

 

Total accumulated amortization

        —           (502
     

 

 

    

 

 

 

Amortizable intangible assets, net

      $ —         $ 14,798   
     

 

 

    

 

 

 

Future amortization expense of amortizable intangible assets will be approximately $1,720 in each of years ending December 31, 2016 through 2020, respectively, and $6,198 thereafter.

Goodwill—Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized, but is tested for impairment on an annual basis and more frequently if impairment indicators are present. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its estimated fair value. The Company has determined it is a single reporting unit, and estimates its fair value using a market approach. If the carrying value of the reporting unit were to exceed its estimated fair value, the second step of the goodwill impairment test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge would then be recognized for the excess of the carrying value of goodwill over its implied estimated fair value. The Company conducts its annual goodwill impairment test as of October 1st. For the years ended December 31, 2013, 2014 and 2015, the Company determined goodwill was not impaired.

The change in goodwill is as follows (in thousands) for the year ended December 31, 2015:

 

     Years Ended December 31,  
           2014                  2015        

At December 31, 2014

   $ 1,565       $ 1,565   

Zimbra acquisition related goodwill (Note 2)

     —           13,622   
  

 

 

    

 

 

 

At December 31, 2015

   $ 1,565       $ 15,187   
  

 

 

    

 

 

 

Revenue Recognition—The Company derives revenue from two categories: revenue generated from our Managed Portals and Advertising activities and Recurring and Fee-Based revenue, each of which is described below. Advertising and Recurring and Fee-Based revenue are recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. The following table shows the revenue in each category for the years ended December 31, 2013, 2014 and 2015 (in thousands):

 

     Year Ended December 31,  
     2013      2014      2015  

Search and digital advertising

   $   90,447       $   83,906      $   78,316   

Recurring and fee-based

     21,360         22,673        31,929   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $   111,807       $   106,579      $   110,245   
  

 

 

    

 

 

    

 

 

 

The Company uses internet advertising to generate revenue from the traffic on its Managed Portals categorized as search advertising and digital advertising.

 

   

In the case of search advertising, the Company has a revenue-sharing relationship with Google, pursuant to which it includes a Google-branded search tool on its Managed Portals. When a consumer makes a search query using this tool, the Company delivers the query to Google and they return search results to consumers that include advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with the Company, which is recognized as revenue.

 

   

Digital advertising includes video, image and text advertisements delivered on one of the Company’s Managed Portals. Advertising inventory is filled with advertisements sourced by the Company’s direct sales force, independent advertising sales representatives, and also advertising network partners. Revenue is generated for the Company when an advertisement displays, otherwise known as an impression, or when consumers view or click an advertisement, otherwise known as an action. Digital advertising revenue is calculated on a per-impression or per-action basis. Revenue is recognized as the impressions are delivered or the actions occur, according to contractual rates.

Recurring and Fee-Based revenue represents subscription fees and other fees that the Company receives from customers for the use of its proprietary technology, including the use of, or access to, email, video solutions, Cloud ID, security services, games and other premium services and paid content. Monthly subscriber levels typically form the basis for calculating and generating Recurring and Fee-Based revenue. They are generally determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed. In other cases, the fee is fixed. Revenue is recognized from customers as the services are delivered.

The Company evaluates its relationship between search and digital advertising revenue and its Managed Portal customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45, Principal Agent Considerations. The Company has determined that the search and digital advertising revenue derived from the internet traffic on Managed Portals is reported on a gross basis because the Company is the primary obligor (Synacor is responsible to its customers for fulfilling search and digital advertising services and premium and other services), is involved in the service specifications, performs part of the service, has discretion in supplier selection, has latitude in establishing price and bears credit risk.

Certain Recurring and Fee-Based revenue is derived from the sale of software licenses on a perpetual or subscription basis, for which revenue is recognized upon receipt of an external agreement and delivery of the software, provided the fees are fixed and determinable, and collection is probable. For agreements that include one or more elements to be delivered at a future date, revenue is recognized using the residual method, under which the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered elements is deferred, and the remaining portion of the agreement fee is recognized as license revenue. VSOE of fair value is based on the Company’s pricing for products and services when sold separately and, for support services, is measured by the renewal rate. If VSOE of fair value has not been established for certain undelivered elements, revenue is deferred until those elements have been delivered or their fair values have been determined.

 

Cost of Revenue—Cost of revenue consists primarily of revenue sharing, content acquisition costs, co-location facility costs, royalty costs and product support costs. Revenue sharing consists of amounts accrued and paid to customers for the internet traffic on Managed Portals where the Company is the primary obligor, resulting in the generation of search and digital advertising revenue. The revenue-sharing agreements with customers are primarily variable payments based on a percentage of the search and digital advertising revenue.

Content-acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per month, or a combination of both. Fixed-payment agreements are expensed on a straight-line basis over the term defined in the agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist of rent and operating costs for the Company’s data center facilities. Royalty costs consist of amounts due to other parties for sale of mailboxes with third party technology enabled. Product support costs consist of employee and operating costs directly related to the Company’s maintenance and professional services support.

Concentrations of Risk—As of December 31, 2014 and 2015, and for the years ended December 31, 2013, 2014 and 2015 the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable and revenue as follows:

 

     Accounts Receivable  
     2014     2015  

Google

     23     14

Portal Customer

     12     *   

Advertising Customer

     11 %     *   

 

 

  * - less than 10%

 

     Revenue  
     2013     2014     2015  

Google

     51     42     28

For the years ended December 31, 2013, 2014 and 2015, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue.

 

     Cost of Revenue  
     2013     2014     2015  

Customer A

     22     22     26

Customer B

     13     12     10

Customer C

     12     10     *   

Customer D

     11     12     *   

 

 

  * - less than 10%

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash primarily in checking and money market accounts with high credit quality financial institutions, which, at times, have exceeded federally insured limits of $0.25 million. Although the Company maintains balances that exceed the federally insured limit, it has not experienced any losses related to these balances and believes credit risk to be minimal.

Software Development Costs—Costs incurred during the preliminary project stage for internal software programs are expensed as incurred. External and internal costs incurred during the application development stage of new software development as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. In 2013, 2014 and 2015, the Company incurred $3.0 million, $3.4 million and $2.8 million of combined internal and external costs related to the application development stage. Internal and external training and maintenance costs are expensed as incurred.

Technology and Development—Technology and development expenses consist primarily of compensation-related expenses incurred for the research and development of, enhancements to, and maintenance and operation of the Company’s products, equipment and related infrastructure.

Sales and Marketing—Sales and marketing expenses consist primarily of compensation-related expenses to the Company’s direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials, and other sales and marketing programs. Advertising costs are expensed as incurred.

General and Administrative—General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, professional fees and other administrative functions.

Sale of Domain—In June 2014, the Company executed a transaction to sell a domain name of its legacy business. The sale amounted to $1.0 million and the entire amount was recorded as a gain on the sale in the accompanying consolidated statement of operations for the year ended December 31, 2014. The sale was unique to 2014 and no such transactions occurred in the comparative periods.

Earnings (Loss) Per Share—Basic earnings (loss) per share (“EPS”) is calculated in accordance with FASB ASC 260, Earnings per Share using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, stock options, warrants and restricted stock units (“RSUs”) are considered to be potential common shares and are only included in the calculation of diluted earnings (loss) per share when their effect is dilutive.

Stock-Based Compensation—The Company records compensation costs related to stock-based awards in accordance with FASB ASC 718, Compensation—Stock Compensation . Under the fair value recognition provisions of ASC 718, the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized ratably over the requisite service period of the award. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest.

Rights Plan—On July 14, 2014 the board of directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock and adopted a stockholder rights plan (the “Rights Plan”). The Rights were issued on July 14, 2014 to the stockholders of record at the close of business on that date. Each Right allows its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (a “ Series A Junior Preferred Share”) for $10.00 per share (the “Exercise Price”), if the Rights become exercisable. This portion of a Series A Junior Preferred Share will give the stockholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights. On July 14, 2014, in conjunction with the adoption of the Rights Plan, the Company designated 2,000,000 shares of its Preferred Stock as Series A Junior Participating Preferred Stock.

The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 10% or more of the Company’s outstanding common stock (the “Distribution Date”). If a person or group becomes an Acquiring Person, each Right will entitle its holder (other than such Acquiring Person) to purchase for $10.00 per share, a number of shares of the Company’s common stock having a market value of twice such price based on the market price of the common stock prior to such acquisition. Additionally, if the Company is acquired in a merger or similar transaction after the Distribution Date, each Right will entitle its holder (other than such Acquiring Person) to purchase for $10.00 per share, a number of shares of the acquiring corporation with a market value of $20.00 per share based on the market price of the acquiring corporation’s stock, prior to such merger. In addition, at any time after a person or group becomes an Acquiring Person, but before such Acquiring Person or group owns 50% or more of the Company’s common stock, the board of directors may exchange one share of the Company’s common stock for each outstanding Right (other than Rights owned by such Acquiring Person, which would have become void). An Acquiring Person will not be entitled to exercise the Rights.

On April 20, 2015, The Company’s stockholders ratified the Rights Plan. It will expire on July 14, 2017.

On August 18, 2015, the Company amended the definition of “Acquiring Person” to provide that (i) issuances of securities under plans, contracts or arrangements approved by the board of directors or its compensation committee as compensation for service as a director, employee or consultant of Synacor or any of its subsidiaries will not trigger the exercisability of the Rights and (ii) issuances of securities in consideration for the acquisition of assets or a business in a transaction approved by the board of directors will not trigger the exercisability of the Rights.

Business Combinations—The Company records its business combinations under the acquisition method of accounting. Under the acquisition method of accounting, the Company allocates the purchase price of each acquisition to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The fair value of identifiable intangible assets is based upon detailed valuations that use various assumptions made by management. Any excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired is allocated to goodwill. All direct acquisition-related costs are expensed as incurred.

The following methodology and assumptions are considered relevant to the fair value judgments related to acquired intangible assets and assumed liabilities:

 

   

Technology and Trademark intangible assets—valued based on discounted cash flows using the relief from royalty method (a form of an income approach)

 

   

Customer Relationship—valued based on a multi-period excess earnings method (a form on an income approach)

 

   

Deferred Revenue—valued based on a cost approach using estimated costs to be incurred in connection with the continuing legal obligation associated with acquired contracts plus a reasonable profit margin.

Business assumptions, such as projections of revenue, costs to fulfill acquired contracts, applicable royalty rates, and future profitability are key assumptions included in the methods described above.

In circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments it expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through other expense in the consolidated statement of operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing, amount of, or the likelihood of achieving the applicable contingent consideration.

Income Taxes—Deferred income tax assets and liabilities are determined based on temporary differences between the financial statement and income tax bases of assets and liabilities and net operating loss (“NOL”) and credit carryforwards using enacted income tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will be realized.

The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2014 and 2015, accrued interest or penalties related to uncertain tax positions was insignificant.

Reduction In Workforce—On September 28, 2014, the Company’s board of directors approved a cost reduction plan. The plan involved a reduction in the Company’s workforce by approximately 70 employees. The pre-tax severance charge and outplacement services resulting from the reduction in workforce, combined with the Company’s separation from its former Chief Operating Officer, amounted to $1.3 million. Of the $1.3 million in costs, $0.5 million was recorded to technology and development, $0.2 million was recorded to sales and marketing and $0.6 million was recorded to general and administrative in the accompanying consolidated statement of operations for the year ended December 31, 2014. As of December 31, 2015, there were no remaining amounts owing under this plan.

Accounting Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts.

Investment—In July 2013, the Company made a $1.0 million investment (in the form of a convertible promissory note) in a privately held Delaware corporation called Blazer and Flip Flops, Inc. (“B&FF” doing business as The Experience Engine). In March 2015, the note was converted into preferred stock of B&FF and is accounted for as a cost method investment. B&FF is a professional services company whose principals have experience integrating its customers’ systems with their customers’ devices, including smartphones and tablets.

Fair Value Measurements—Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period. The fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates their carrying value due to their short-term nature. The carrying amounts of the Company’s capital leases approximate fair value of these obligations based upon management’s best estimates of interest rates that would be available for similar debt obligations at December 31, 2014 and 2015. The carrying value of our long-term debt approximates its fair value due to its variable interest rate. The fair value of accrued contingent consideration recorded by the Company represents the estimated fair value of the contingent consideration the Company expects to pay.

 

The provisions of ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:

Level 1—Level 1 inputs are defined as observable inputs such as quoted prices in active markets.

Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

Investments and Fair Value Measurements—In July 2013, the Company made a $1.0 million investment (in the form of a convertible promissory note) in a privately held Delaware corporation called Blazer and Flip Flops, Inc. (“B&FF” doing business as The Experience Engine). In March 2015, the note was converted into preferred stock of B&FF and is accounted for as a cost method investment. B&FF is a professional services company whose principals have experience integrating its customers’ systems with their customers’ devices, including smartphones and tablets.

The investment in B&FF is considered an available-for-sale security and is reported on the Company’s consolidated balance sheets as an investment.

 

The provisions of ASC 820, Fair Value Measurements and Disclosures , establishes a framework for measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:

Level 1—Level 1 inputs are defined as observable inputs such as quoted prices in active markets.

Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

The Company classifies its investment in B&FF within Level 3 because it is valued using unobservable inputs. As of December 31, 2014 and 2015, the estimated fair value is equal to the purchase price of $1.0 million.

Applicable Recent Accounting Pronouncements—In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) Revenue from Contracts with Customers (Topic 606) which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 (as subsequently amended) is effective for annual reporting periods beginning after December 15, 2017 (beginning in calendar year 2018 for the Company), with earlier application permitted as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 Leases (Topic 842) which amends lease accounting by lessors and lessees. This new standard will require, among other things, that lessees recognize a right-to-use asset and related lease liability for all significant financing and operating leases, and specifies where in the statement of cash flows the related lease payments are to be presented. The standard is effective for years beginning after December 15, 2018, including interim periods within those years (beginning in calendar year 2019 for the Company), and early adoption is permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements. The Company has not yet determined whether it will adopt the standard in advance of the required effective date.

The Company and Summary of Significant Accounting Policies (Tables)

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

 

Leasehold improvements

     3–10 years   

Computer hardware

     5 years   

Computer software

     3 years   

Furniture and fixtures

     7 years   

Other

     3–5 years   

The components and estimated economic lives of our amortizable intangible assets were as follows as of December 31, 2014 and 2015:

 

     Estimated
Economic  Life
         2014          2015  
            (Dollars in thousands)  

Gross amortizable intangible assets:

        

Customer relationships

     10 years       $ —         $ 13,400   

Trademark

     5 years         —           300   

Developed technology

     5 years         —           1,600   
     

 

 

    

 

 

 

Total gross amortizable intangible assets

        —           15,300   

Accumulated amortization:

        

Customer relationships

        —           (391

Trademark

        —           (18

Developed technology

        —           (93
     

 

 

    

 

 

 

Total accumulated amortization

        —           (502
     

 

 

    

 

 

 

Amortizable intangible assets, net

      $ —         $ 14,798   
     

 

 

    

 

 

 

The change in goodwill is as follows (in thousands) for the year ended December 31, 2015:

 

     Years Ended December 31,  
           2014                  2015        

At December 31, 2014

   $ 1,565       $ 1,565   

Zimbra acquisition related goodwill (Note 2)

     —           13,622   
  

 

 

    

 

 

 

At December 31, 2015

   $ 1,565       $ 15,187   
  

 

 

    

 

 

 

The following table shows the revenue in each category for the years ended December 31, 2013, 2014 and 2015 (in thousands):

 

     Year Ended December 31,  
     2013      2014      2015  

Search and digital advertising

   $   90,447       $   83,906      $   78,316   

Recurring and fee-based

     21,360         22,673        31,929   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $   111,807       $   106,579      $   110,245   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2014 and 2015, and for the years ended December 31, 2013, 2014 and 2015 the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable and revenue as follows:

 

     Accounts Receivable  
     2014     2015  

Google

     23     14

Portal Customer

     12     *   

Advertising Customer

     11 %     *   

 

 

  * - less than 10%

 

     Revenue  
     2013     2014     2015  

Google

     51     42     28

For the years ended December 31, 2013, 2014 and 2015, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue.

 

     Cost of Revenue  
     2013     2014     2015  

Customer A

     22     22     26

Customer B

     13     12     10

Customer C

     12     10     *   

Customer D

     11     12     *   

 

 

  * - less than 10%
Acquisition (Tables)

Additionally, the Company has assumed certain obligations of TZ Holdings, including the performance of TZ Holdings’ post-closing obligations under contracts assigned to the Company.

Consideration:

 

Cash consideration

   $ 17,310   

Fair value of 2,400,000 shares of common stock issued on September 14, 2015

     3,132   

Fair value of Closing and Holdback Warrants (warrants to purchase an aggregate of 600,000 shares of common stock)

     45   

Fair value of the Holdback Stock (600,000 shares of common stock) on September 14, 2015

     783   

Fair value of contingent consideration

     1,600   
  

 

 

 

Total purchase price

   $ 22,870   
  

 

 

 

The Company’s estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would not reflect unanticipated events and circumstances that occur. The purchase price allocation is a preliminary estimate as it is subject to change due to events in the future.

 

Assets acquired:

  

Cash and cash equivalents

   $ 50   

Accounts receivable

     3,500   

Prepaid expenses and other current assets

     451   

Property and equipment

     1,194   

Other long-term assets

     68   

Goodwill

     13,622   

Intangible assets

     15,300   
  

 

 

 

Total assets acquired

     34,185   
  

 

 

 

 

Liabilities assumed:

  

Accounts payable

     134   

Accrued expenses and other current liabilities

     409   

Deferred revenue

     10,400   

Capital lease obligations

     317   

Other long-term liabilities

     55   
  

 

 

 

Total liabilities assumed

     11,315   
  

 

 

 

Net assets acquired

   $ 22,870   
  

 

 

 

Set forth below is the unaudited pro forma consolidated results of operations of the Company and Zimbra as if the Acquisition occurred as of January 1, 2014 (in thousands, except per share amounts):

 

     Years Ended December 31,  
           2014                  2015        

Revenue

   $ 134,207       $ 130,077   
  

 

 

    

 

 

 

Operating loss

   $ (9,485    $ (2,944
  

 

 

    

 

 

 

Net loss

   $   (16,017    $   (4,608
  

 

 

    

 

 

 

Net loss per share:

     

Basic

   $ (0.54    $ (0.16
  

 

 

    

 

 

 

Diluted

   $ (0.54    $ (0.16
  

 

 

    

 

 

 
Property and Equipment-Net (Tables)
Schedule of Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

     2014      2015  

Computer equipment

   $ 21,194      $ 23,324   

Computer software

     10,741        12,748   

Furniture and fixtures

     1,847        1,945   

Leasehold improvements

     1,389        1,532   

Work in process

     1,203        2,065   

Other

     173        252   
  

 

 

    

 

 

 
     36,547        41,866   

Less accumulated depreciation

        (21,147        (27,489
  

 

 

    

 

 

 

Total property and equipment—net

   $ 15,128      $ 14,377   
  

 

 

    

 

 

 
Accrued Expenses and Other Current Liabilities (Tables)
Schedule of Accrued Expenses and Other Current Liabilities

As of December 31, 2014 and 2015, accrued expenses and other current liabilities consisted of the following (in thousands):

 

     2014      2015  

Accrued compensation

   $   4,066      $   6,112   

Accrued content fees

     1,745        1,964   

Accrued business acquisition consideration

     495         —     

Other

     1,455        1,689   
  

 

 

    

 

 

 

Total

   $ 7,761      $ 9,765   
  

 

 

    

 

 

Income Taxes (Tables)

The (benefit) provision for income taxes for the years ended December 31, 2013, 2014 and 2015, comprised the following (in thousands):

 

     2013      2014      2015  

Current:

        

United States Federal

   $ 16      $ 21       $ (1

State

     22        24         45   

Foreign

     71        7         195   
  

 

 

    

 

 

    

 

 

 

Total current provision for income taxes

     109        52         239   

Deferred:

        

United States Federal

     (119 )      4,135         —     

State

     (97 )      634         —     

Foreign

     (27      —           —     
  

 

 

    

 

 

    

 

 

 

Net deferred (benefit) provision for income taxes

     (243 )      4,769         —     
  

 

 

    

 

 

    

 

 

 

Total (benefit) provision for income taxes

   $   (134 )    $   4,821       $   239   
  

 

 

    

 

 

    

 

 

 

The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2014 and 2015 are as follows (in thousands):

 

     2014      2015  

Deferred income tax assets:

     

Stock and other compensation expense

   $ 2,838       $ 3,997   

Net operating losses

     3,533         3,212   

Research and development credits

     1,676         1,676   

Other federal, state and foreign carryforwards

     304         618   

Other

     294         341   
  

 

 

    

 

 

 

Gross deferred tax assets

     8,645         9,844   

Valuation allowances

       (7,504       (8,846
  

 

 

    

 

 

 
     1,141         998   

Deferred income tax liabilities:

     

Fixed assets

     (457      (290

Other

     (57      (81
  

 

 

    

 

 

 

Gross deferred tax liabilities

     (514      (371
  

 

 

    

 

 

 

Subtotal

     627         627   

Less unrecognized tax benefit liability related to deferred items

     (627      (627
  

 

 

    

 

 

 

Net deferred tax assets

   $ —         $ —     
  

 

 

    

 

 

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

     2013      2014      2015  

Balance—beginning of year

   $ 627      $ 627      $ 627  

Additions for tax positions of prior years

     —          —           —     

Reductions for tax positions of prior years

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Balance—end of year

   $   627      $   627      $   627  
  

 

 

    

 

 

    

 

 

 

Income tax (benefit) expense for the years ended December 31, 2013, 2014 and 2015, differs from the expected income tax (benefit) expense calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):

 

     2013     2014     2015  

Federal income tax (benefit) expense at statutory rate

   $ (320     34   $   (2,390     34   $   (1,075     34

State and local taxes—net of federal benefit

     (75     8        (410     6        30        (1

Foreign taxes

     (3     —          (1     —          195        (6

Valuation allowance

     —          —          7,504          (107     928          (29

Permanent differences

     264          (28     262        (4 )     144        (5

Other

     —          —          (144     2        17        (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $   (134     14   $ 4,821        (69 )%    $ 239        (8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Information About Segment and Geographic Areas (Tables)
Schedule of Revenue and Long Lived Tangible Assets by Geographic Area

The following table sets forth revenue and long-lived tangible assets by geographic area (in thousands):

 

     Years Ended December 31,  
      2013      2014      2015  

Revenue:

        

United States

   $ 111,122      $ 105,872      $ 105,228   

International

     685        707        5,017   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $   111,807      $   106,579      $   110,245   
  

 

 

    

 

 

    

 

 

 

 

     As of December 31,  
     2014      2015  

Long-lived tangible assets:

     

United States

   $ 14,573      $ 12,909   

Canada

     502         726   

International

     53        742   
  

 

 

    

 

 

 

Total long-lived tangible assets

   $   15,128      $   14,377   
  

 

 

    

 

 

 

Commitments and Contingencies (Tables)

Lease commitments over the next five years as of December 31, 2015 can be summarized as follows (in thousands):

 

Years Ending
December 31,

   Operating
Lease Commitments
 

2016

   $ 2,454   

2017

     1,629   

2018

     1,422   

2019

     1,289   

2020

     367   
  

 

 

 

Total lease commitments

   $   7,161   
  

 

 

 

Years Ending
December 31,

   Capital
Lease Commitments
 

2016

   $ 1,665   

2017

     734   

2018

     232   

2019

     91   

2020

     8   
  

 

 

 

Total minimum capital lease commitments

     2,730   

Less-amount representing interest

     149   
  

 

 

 

Total capital lease obligations

     2,581   

Less-current portion of capital lease obligations

     1,007   
  

 

 

 

Long-term portion of capital lease obligations

   $   1,574   
  

 

 

 

Contract commitments as of December 31, 2015 can be summarized as follows (in thousands):

 

Years Ending
December 31,

   Contract
Commitments
 

2016

   $ 4,140   

2017

     2,020   

2018

     660   

2019

     660   
  

 

 

 

Total contract commitments

   $   7,480   
  

 

 

 
Equity (Tables)

The following table sets forth the shares of common stock repurchased through the program:

 

     Years Ended December 31,  
      2013      2014      2015  

Shares of common stock repurchased

     —           229,050           —     

Value of common stock repurchased (in thousands)

   $   —         $   562       $ —     

Shares and cost of the Company’s common stock withheld to cover minimum statutory tax withholding requirements during the years ended December 31, 2013, 2014 and 2015 were as follows:

 

     Years Ended December 31,  
     2013      2014      2015  

Shares withheld

     —          4,594          99,904   

Cost (in thousands)

   $   —         $   11       $ 190   

Stock-based Compensation (Tables)

The following table presents the weighted-average assumptions used to estimate the fair value of options granted (excluding replacement options in conjunction with modifications described below) during the periods presented:

 

     Years Ended December 31,  
       2013         2014         2015    

Volatility

     59     58     52

Expected dividend yield

     —       —       —  

Risk-free rate

     1.4     1.9     1.7

Expected term (in years)

     6.25       6.25       6.25   

Total stock-based compensation expense included in the accompanying consolidated statements of operations for the years ended December 31, 2013, 2014 and 2015, is as follows (in thousands):

 

     Years Ended December 31,  
     2013      2014      2015  

Technology and development

   $ 1,184      $ 1,621      $ 936   

Sales and marketing

     348        599        942   

General and administrative

     1,029        1,375        1,237   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $   2,561      $   3,595      $   3,115   
  

 

 

    

 

 

    

 

 

 

Stock Option Activity—A summary of stock option activity for the year ended December 31, 2015 is as follows:

 

     Number of
Stock
Options
    Weighted
Average
Exercise
Price
     Aggregate
Intrinsic Value
(in thousands)
     Weighted
Average
Remaining
Contractual
Term (in years)
 

Outstanding—January 1, 2015

     6,754,082     $   2.83         

Granted

     2,731,500     $ 1.86         

Exercised

     (36,135   $ 1.94         

Forfeited

     (753,529   $ 2.39         
  

 

 

         

Outstanding—December 31, 2015

     8,695,918     $ 2.57       $   553         7.30   
  

 

 

         

Expected to vest—December 31, 2015

     8,226,433      $ 2.60       $ 510         7.20   
  

 

 

         

Vested and exercisable—December 31, 2015

     4,039,240      $ 3.08       $ 214        5.39   
  

 

 

         

A summary of RSU activity for the year ended December 31, 2015 is as follows:

 


     Number of
Stock Options
     Weighted
Average
Fair
Value
 

Unvested—January 1, 2015

     833,788       $   2.15  

Granted

     —         $ —     

Released

     (255,339    $ 2.14   

Forfeited

     (140,854    $ 2.29   
  

 

 

    

Unvested—December 31, 2015

     437,595       $ 2.11   
  

 

 

    

Expected to vest —December 31, 2015

     700,457       $ 2.11   
  

 

 

    
Net Loss Per Common Share Data (Tables)

The following table presents the calculation of basic and diluted net loss per share for the years ended December 31, 2013, 2014 and 2015 (in thousands, except share and per share amounts):

 

     Year Ended December 31,  
     2013     2014     2015  

Basic net loss per share:

      

Numerator:

      

Net loss

   $ (1,367 )   $ (12,931   $ (3,474
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Weighted-average common shares outstanding

     27,306,882        27,389,793        28,213,838   
  

 

 

   

 

 

   

 

 

 

Basic net loss per share

   $ (0.05 )   $ (0.47   $ (0.12
  

 

 

   

 

 

   

 

 

 

Diluted net loss per share:

      

Numerator:

      

Net loss

   $ (1,367 )   $ (12,931   $ (3,474
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Number of shares used in the basic computation

     27,306,882        27,389,793        28,213,838   

Add weighted-average effect of dilutive securities:

      

Conversion of preferred stock (as if converted basis)

     —          —          —     

Stock options, RSUs and warrants

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Number of shares used in diluted calculation

     27,306,882        27,389,793        28,213,838   
  

 

 

   

 

 

   

 

 

 

Dilutive net loss per share

   $ (0.05 )   $ (0.47   $ (0.12
  

 

 

   

 

 

   

 

 

 

The following equivalent shares were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the periods presented:

 

     Year Ended December 31,  
      2013      2014      2015  

Antidilutive Equity Awards:

        

Stock options and RSUs

     3,356,358        7,589,578        9,133,513   

Warrants

     —           —           480,000   
The Company and Summary of Significant Accounting Policies - Useful Lives of Property and Equipment (Detail)
12 Months Ended
Dec. 31, 2015
Computer Equipment [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
5 years 
Computer Software [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
3 years 
Furniture and Fixtures [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
7 years 
Minimum [Member] |
Leasehold Improvements [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
3 years 
Minimum [Member] |
Other [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
3 years 
Maximum [Member] |
Leasehold Improvements [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
10 years 
Maximum [Member] |
Other [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life
5 years 
The Company and Summary of Significant Accounting Policies - Property Plant and Equipment - Additional Information (Detail) (Leasehold Improvements [Member])
12 Months Ended
Dec. 31, 2015
Leasehold Improvements [Member]
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, useful life, description
Amortized over the shorter of the lease term or the estimated useful life of the assets 
The Company and Summary of Significant Accounting Policies - Summary of Components and Estimated Economic Lives of Amortizable Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
 
Total gross amortizable intangible assets
$ 15,300 
Total accumulated amortization
(502)
Amortizable intangible assets, net
14,798 
Customer Relationships [Member]