SYNACOR, INC., 10-Q filed on 5/10/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
May 04, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Trading Symbol SYNC  
Entity Registrant Name Synacor, Inc.  
Entity Central Index Key 0001408278  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   38,796,722
v3.8.0.1
Condensed Consolidated Balance Sheets - Unaudited - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 16,425 $ 22,476
Accounts receivable, net of allowance of $96 and $99, respectively 24,179 31,696
Prepaid expenses and other current assets 5,741 4,516
Total current assets 46,345 58,688
PROPERTY AND EQUIPMENT, net 20,621 20,505
GOODWILL 15,950 15,955
INTANGIBLE ASSETS, net 12,159 12,695
OTHER ASSETS 649 937
Total assets 95,724 108,780
CURRENT LIABILITIES:    
Accounts payable 18,726 25,931
Accrued expenses and other current liabilities 4,650 7,075
Current portion of deferred revenue 8,361 11,605
Current portion of capital lease obligations 2,405 2,444
Total current liabilities 34,142 47,055
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS 2,770 3,371
DEFERRED REVENUE 3,598 3,682
DEFERRED INCOME TAXES 225 264
OTHER LONG-TERM LIABILITIES 59 63
Total liabilities 40,794 54,435
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:    
Preferred stock – par value $0.01 per share; authorized 10,000,000 shares; none issued
Common stock – par value $0.01 per share; authorized 100,000,000 shares; 39,638,942 shares issued and 38,796,722 shares outstanding at March 31, 2018 and 39,625,980 shares issued and 38,783,760 shares outstanding at December 31, 2017 393 396
Treasury stock – at cost, 842,220 shares at March 31, 2018 and 842,220 shares at December 31, 2017 (1,881) (1,881)
Additional paid-in capital 143,079 142,486
Accumulated deficit (86,568) (86,627)
Accumulated other comprehensive loss (93) (29)
Total stockholders’ equity 54,930 54,345
Total liabilities and stockholders’ equity $ 95,724 $ 108,780
v3.8.0.1
Condensed Consolidated Balance Sheets - Unaudited (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 96 $ 99
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 39,638,942 39,625,980
Common stock, shares outstanding 38,796,722 38,783,760
Treasury stock, shares 842,220 842,220
v3.8.0.1
Condensed Consolidated Statements of Operations - Unaudited - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
REVENUE $ 32,915 $ 26,540
COSTS AND OPERATING EXPENSES:    
Cost of revenue (exclusive of depreciation and amortization shown separately below) 15,217 12,562
Technology and development (exclusive of depreciation and amortization shown separately below) 6,687 7,298
Sales and marketing 5,936 6,661
General and administrative (exclusive of depreciation and amortization shown separately below) 5,017 3,964
Depreciation and amortization 2,435 2,184
Total costs and operating expenses 35,292 32,669
LOSS FROM OPERATIONS (2,377) (6,129)
OTHER INCOME 119 6
INTEREST EXPENSE (97) (87)
LOSS BEFORE INCOME TAXES (2,355) (6,210)
INCOME TAX PROVISION 20 446
NET LOSS $ (2,375) $ (6,656)
NET LOSS PER SHARE:    
Basic $ (0.06) $ (0.21)
Diluted $ (0.06) $ (0.21)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER SHARE:    
Basic 38,794,165 31,045,488
Diluted 38,794,165 31,045,488
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Loss - Unaudited - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]    
Net loss $ (2,375) $ (6,656)
Other comprehensive income:    
Changes in foreign currency translation adjustment (64) 45
Comprehensive loss $ (2,439) $ (6,611)
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - Unaudited - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (2,375) $ (6,656)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 2,435 2,184
Stock-based compensation expense 553 647
Provision for deferred income taxes (39) 200
Increase in estimated value of contingent consideration   107
Changes in operating assets and liabilities, net of effect of acquisition:    
Accounts receivable, net 7,517 10,151
Prepaid expenses and other assets (942) (342)
Accounts payable (7,392) (3,771)
Accrued expenses and other liabilities (2,429) (3,535)
Deferred revenue (872) 48
Net cash used in operating activities (3,544) (967)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property and equipment (1,924) (1,515)
Net cash used in investing activities (1,924) (1,515)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Repayments on capital lease obligations (520) (319)
Proceeds from exercise of common stock options 18 308
Deferred acquisition payments   (567)
Net cash used in financing activities (502) (578)
Effect of exchange rate changes on cash and cash equivalents (81) 6
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,051) (3,054)
Cash and cash equivalents, beginning of period 22,476 14,315
Cash and cash equivalents, end of period 16,425 11,261
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Cash paid for interest 92 69
Cash paid for income taxes 106 192
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:    
Property, equipment and service center contracts financed under capital lease   521
Minimum capital lease payments in accounts payable 160  
Accrued property and equipment expenditures 596 269
Stock-based compensation capitalized to property and equipment $ 19 $ 37
v3.8.0.1
The Company and Summary of Significant Accounting Principles
3 Months Ended
Mar. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
The Company and Summary of Significant Accounting Principles

1.

The Company and Summary of Significant Accounting Principles

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, governments and enterprises. Synacor enables its customers to provide their consumers engaging, multiscreen experiences and advertising to their consumers that require scale, actionable data and sophisticated implementation.

Basis of Presentation

The interim unaudited condensed 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. In the opinion of the Company’s management, the interim unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented. These interim unaudited condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year or for any subsequent period.

The accompanying condensed consolidated balance sheet as of March 31, 2018 was derived from the audited financial statements as of that date, but does not include all the information and footnotes required by U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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.

Concentrations of Risk

 

As of March 31, 2018 and December 31, 2017, the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable as follows:

 

 

 

Accounts Receivable

 

 

 

March 31, 2018

 

December 31, 2017

 

Google advertising affiliate

 

*

 

 

16

%

Google search

 

*

 

 

7

%

Advertising customer

 

*

 

 

12

%

* - Less than 10%

 

 

 

 

 

 

 

For the three months ended March 31, 2018 and 2017, the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows:

 

 

Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Google search

 

 

15

%

 

 

11

%

Google advertising affiliate

 

 

16

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2018 and 2017, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue:

 

 

 

Cost of Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

*

 

 

 

19

%

Customer B

 

 

20

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

 

Recent Accounting Pronouncements

Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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, but currently expects that all of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon the adoption of ASU 2016-02, which will increase the total assets and total liabilities that it reports as compared to those reported prior to adoption. The Company will adopt the standard on the required effective date, which for the Company will be January 1, 2019.

Recently Adopted

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"), using the modified retrospective method. Results for reporting periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods. The Company recorded a reduction to the opening balance of the accumulated deficit of $2.5 million as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606. The impact to revenue recorded for the quarter ended March 31, 2018 was a decrease of $0.2 million with the adoption of Topic 606 as compared to Topic 605.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. This ASU reduces the diversity in reporting of eight specific cash flow issues due to accounting guidance that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements and other various activities. The Company adopted this ASU as of January 1, 2018 and it did not have an impact on our consolidated financial statements.

v3.8.0.1
Revenue from Contracts with Customers
3 Months Ended
Mar. 31, 2018
Revenue From Contract With Customer [Abstract]  
Revenue from Contracts with Customers

2.

Revenue from Contracts with Customers

 

The following is a description of principal activities from which the Company generates revenue. Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. The Company generates all of our revenue from contracts with customers.

 

Search & Digital Advertising

 

The Company uses internet advertising to generate revenue from the traffic on our Managed Portals and Advertising solutions, categorized as search advertising and digital advertising. For search advertising, the Company has a revenue-sharing relationship with Google, pursuant to which the Company includes a Google-branded search tool on our 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 us. The net payment received from Google is recognized as revenue. Digital advertising includes video, image and text advertisements delivered on our Managed Portals. Advertising inventory is filled with advertisements sourced by our direct sales force and advertising network partners. Revenue is generated 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 on a cost per impression or cost per action basis. Digital advertising also includes advertising fees received for the placement of syndicated digital advertisements with other digital advertising publishers, for which the Company acquires and pay for the space (inventory) on a cost per impression or cost per action basis. Revenue is recognized based on amounts received from advertising customers as the impressions are delivered or the actions occur, according to contractually-determined rates.

 

Recurring and fee-based

 

Recurring and fee-based revenue includes subscription fees and other fees that are received from customers for the use of our proprietary technology, including the use of, or access to, email, Cloud ID, security services, games and other premium services and paid content. Monthly subscriber levels typically form the basis for generating Recurring and fee-based revenue. This revenue is typically determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed, except in the case of software licenses and support, which are based on a fixed fee. Revenue earned as subscription fees and maintenance and support fees is recognized from customers as our obligation to deliver the service is satisfied, which is when the service is delivered. Revenue is also recognized from the licensing and distribution of our Email/Collaboration products and services, including licenses of intellectual property. Software license revenue is recognized up front upon delivery of the licensed product and the utility that enables the customer to access authorization keys, provided that a signed contract has been received. The Company typically sells term-based software licenses that expire, which are referred to as subscription licenses, but also sell perpetual licenses for our Email products. The software is delivered before related services are provided and is functional without professional services, updates, and technical support.

 

Many of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis. The Company usually expects payment within 30 to 90 days from the invoice date (fulfillment of performance obligations or per contract terms). None of our contracts as of March 31, 2018 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as deferred revenue.

 

Disaggregation of revenue

 

The following table provides information about disaggregated revenue for the three months ended March 31, 2018 by primary geographical market and timing of revenue recognition, and includes a reconciliation of the disaggregated revenue with reportable types (in thousands):

 

 

 

Geographic Area

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

United States

 

 

International

 

 

 

Products transferred

at a point in time

 

 

Products and services

transferred over time

 

 

Total

 

 

 

(in thousands)

 

 

 

(in thousands)

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Search and digital advertising

 

$

18,667

 

 

$

1,161

 

 

 

$

19,828

 

 

$

 

 

$

19,828

 

Recurring and fee-based

 

 

8,371

 

 

 

4,716

 

 

 

 

2,214

 

 

 

10,873

 

 

$

13,087

 

Total revenue

 

$

27,038

 

 

$

5,877

 

 

 

$

22,042

 

 

$

10,873

 

 

$

32,915

 

 

Remaining Performance Obligations

 

Deferred revenue is recorded when cash payments are received or due in advance of revenue recognition from software licenses, professional services, and maintenance agreements. The timing of revenue recognition may differ from the timing of billings to customers. The changes in deferred revenue, inclusive of both current and long-term, are as follows:

 

(in thousands)

 

 

 

Beginning balance - January 1, 2018

$

15,287

 

Record the cumulative effect of ASC 606 implementation

 

(2,456

)

Recognition of deferred revenue

 

(2,301

)

Deferral of revenue

 

1,429

 

Ending Balance - March 31, 2018

$

11,959

 

 

The portion of deferred revenue that is related to professional services is $0.2 million, which will be recognized over the next twelve months and is based upon a number of factors, including customers’ needs and schedules. Client advances are pre-payments from customers for services not yet provided. The majority of the deferred revenue balance above relates to the maintenance and support contracts for Email software licenses. These are recognized straight-line over the life of the contract, with the majority of the balance being recognized within the next twelve months.  

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

 

v3.8.0.1
Acquisitions
3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisitions

3.

Acquisitions

In August 2015, the Company and Zimbra, Inc. (now known as “TZ Holdings”) entered into an agreement under which the Company acquired certain assets relating to TZ Holdings’ email/collaboration products and services business, including certain of its wholly-owned foreign subsidiaries, for cash consideration of $17.3 million, 2.4 million shares of common stock and warrants to purchase 480,000 shares of common stock (collectively valued at $3.2 million). The Company held back an additional 600,000 shares of common stock and warrants to purchase an additional 120,000 shares of common stock (collectively valued at $0.8 million at the acquisition date) to secure TZ Holdings’ indemnification obligations including pending claims.  The held back common shares and warrants were released to TZ holdings in March 2017.  The warrants expire on September 14, 2018.

Additionally, TZ Holdings was eligible to receive cash consideration of up to $2.0 million (the “Earn-Out Consideration”) upon the satisfaction of certain business performance milestones following the closing of the transaction, subject to and contingent upon any reduction to satisfy indemnification claims including pending claims. The acquisition date fair value of this contingent consideration was estimated to be $1.6 million. The Company paid $0.9 million of the Earn-Out Consideration to TZ Holdings in November 2016, and the Company paid the remaining $0.7 million of the Earn-Out Consideration in May 2017.

In connection with the Company’s February 2016 acquisition of Technorati, the Company withheld $0.5 million of the purchase price to secure Technorati’s indemnification obligations under the Asset Purchase Agreement, and the Company owed approximately $0.1 million in post-closing working capital adjustments. These amounts were paid in March 2017.

v3.8.0.1
Intangible Assets
3 Months Ended
Mar. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Intangible Assets

4.

Intangible Assets

Intangible assets consisted of the following (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Customer and publisher relationships

 

$

14,780

 

 

$

14,780

 

Technology

 

 

2,330

 

 

 

2,330

 

Trademark

 

 

300

 

 

 

300

 

 

 

 

17,410

 

 

 

17,410

 

Less accumulated amortization

 

 

(5,251

)

 

 

(4,715

)

Intangible assets, net

 

$

12,159

 

 

$

12,695

 

 

Amortization of intangible assets totaled $0.5 million and $0.5 million for the three months ended March 31, 2018 and 2017, respectively.  

v3.8.0.1
Property and Equipment - Net
3 Months Ended
Mar. 31, 2018
Property Plant And Equipment [Abstract]  
Property and Equipment - Net

5.

Property and Equipment – Net

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

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Computer equipment

 

$

28,908

 

 

$

28,845

 

Computer software

 

 

25,225

 

 

 

23,690

 

Furniture and fixtures

 

 

1,497

 

 

 

1,497

 

Leasehold improvements

 

 

1,213

 

 

 

1,215

 

Work in process (primarily software development costs)

 

 

4,148

 

 

 

3,758

 

Other

 

 

161

 

 

 

159

 

 

 

 

61,152

 

 

 

59,164

 

Less accumulated depreciation

 

 

(40,531

)

 

 

(38,659

)

Property and equipment, net

 

$

20,621

 

 

$

20,505

 

Depreciation expense totaled $1.9 million and $1.6 million for the three months ended March 31, 2018 and 2017, respectively.   

v3.8.0.1
Accrued Expenses and Other Current Liabilities
3 Months Ended
Mar. 31, 2018
Payables And Accruals [Abstract]  
Accrued Expenses and Other Current Liabilities

6.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Accrued compensation

 

$

2,354

 

 

$

4,361

 

Accrued content fees and other costs of revenue

 

 

628

 

 

 

655

 

Accrued taxes

 

 

186

 

 

 

426

 

Other

 

 

1,482

 

 

 

1,633

 

Total

 

$

4,650

 

 

$

7,075

 

 

 

v3.8.0.1
Information About Segment and Geographic Areas
3 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
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 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. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the company level. Accordingly, the Company has determined that it has a single reporting segment and operating unit structure.

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Revenue:

 

 

 

 

 

 

 

 

United States

 

$

27,038

 

 

$

21,668

 

International

 

 

5,877

 

 

 

4,872

 

Total revenue

 

$

32,915

 

 

$

26,540

 

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Long-lived tangible assets:

 

 

 

 

 

 

 

 

United States

 

$

19,950

 

 

$

19,775

 

International

 

 

671

 

 

 

730

 

Total long-lived tangible assets

 

$

20,621

 

 

$

20,505

 

 

v3.8.0.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

8.

Commitments and Contingencies

Contract Commitments

The Company is obligated to make minimum payments under various contracts with vendors and other business partners, principally for revenue-share and content arrangements. Contract commitments as of March 31, 2018 are as follows (in thousands):

 

Year ending December 31,

 

 

 

 

2018 (remaining nine months)

 

$

1,575

 

2019

 

 

2,053

 

2020

 

 

753

 

Total

 

$

4,381

 

 

Capital Lease Commitments —

Capital lease commitments for the remainder of 2018 and for the following three years as of March 31, 2018 are summarized as follows (in thousands):

 

Years Ending December 31,

 

Capital Lease

Commitments

 

2018 (remaining nine months)

 

$

1,987

 

2019

 

 

2,348

 

2020

 

 

1,152

 

Total minimum capital lease commitments

 

 

5,487

 

Less-amount representing interest

 

 

(312

)

Total capital lease obligations

 

 

5,175

 

Less-current portion of capital lease obligations

 

 

(2,405

)

Long-term portion of capital lease obligations

 

$

2,770

 

Litigation

From time to time, the Company is a party to legal actions. In consultation with counsel, as it relates to any current pending matters, the outcome of these matters is not expected to have a material impact on the consolidated financial statements of the Company.

The Company and two of its executive officers were recently named as defendants in a putative securities class action lawsuit filed April 4, 2018 in the United States District Court for the Southern District of New York. The complaint makes various allegations regarding statements related to the contractual arrangement between the Company and AT&T Inc. (“AT&T”), and the effect of that arrangement on the Company’s revenue. The complaint seeks unspecified damages, interest and other costs. The case is still in its initial stage and a lead plaintiff has not yet been appointed. The Company and its officers dispute these claims and will defend vigorously against any allegations of wrongdoing.

v3.8.0.1
Stock-based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-based Compensation

9.

Stock-based Compensation

The Company has stock-based employee compensation plans for which compensation cost is recognized in its financial statements. The cost is measured at the grant date, based on the fair value of the award, determined using the Black-Scholes option pricing model, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).

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 condensed consolidated statements of operations for the periods presented, is as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Technology and development

 

$

134

 

 

$

208

 

Sales and marketing

 

 

138

 

 

 

168

 

General and administrative

 

 

281

 

 

 

271

 

Total stock-based compensation expense

 

$

553

 

 

$

647

 

 

Stock Option Activity – A summary of the stock option activity for the three months ended March 31, 2018 is presented below:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term (years)

 

 

Aggregate

Intrinsic

Value (in

thousands)

 

Outstanding at January 1, 2018

 

 

8,478,213

 

 

$

2.60

 

 

 

 

 

 

 

 

 

Granted

 

 

613,100

 

 

 

2.00

 

 

 

 

 

 

 

 

 

Exercised

 

 

(10,439

)

 

 

1.62

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

(179,229

)

 

 

2.20

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2018

 

 

8,901,645

 

 

$

2.57

 

 

 

6.88

 

 

$

103

 

Vested and expected to vest at March 31, 2018

 

 

8,609,183

 

 

$

2.57

 

 

 

6.81

 

 

$

100

 

Vested and exercisable at March 31, 2018

 

 

5,691,837

 

 

$

2.59

 

 

 

5.94

 

 

$

62

 

 

Aggregate intrinsic value represents the difference between the Company’s closing stock price of its common stock and the exercise price of outstanding, in-the-money options. The Company’s closing stock price as reported on the Nasdaq Global Market as of March 31, 2018 was $1.60 per share. The total intrinsic value of options exercised for the three months ended March 31, 2018 was minimal. The weighted average fair value of options issued during the three months ended March 31, 2018 amounted to $0.99 per option share.

As of March 31, 2018, the unrecognized compensation cost related to non-vested options granted, for which vesting is probable, and adjusted for estimated forfeitures, was approximately $3.8 million. This cost is expected to be recognized over a weighted-average remaining period of 2.6 years.

 

v3.8.0.1
Net Loss Per Common Share Data
3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]  
Net Loss Per Common Share Data

10.

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.

Stock options, warrants and RSUs are not included in the calculation of diluted net loss per share for the three months ended March 31, 2018 and 2017 because the Company had a net loss for each of those periods. The inclusion of these equity awards would have had an antidilutive effect on the calculation of diluted loss per share. As such, the Company’s calculations of basic and diluted net loss per share are identical.

The following table presents the calculation of basic and diluted net loss per share for the three months ended March 31, 2018 and 2017:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Basic net loss per share:

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net loss (in thousands)

 

$

(2,375

)

 

$

(6,656

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

38,794,165

 

 

 

31,045,488

 

Basic net loss per share

 

$

(0.06

)

 

$

(0.21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per share:

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net loss (in thousands)

 

$

(2,375

)

 

$

(6,656

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

38,794,165

 

 

 

31,045,488

 

Add - potentially dilutive securities (options, RSUs and warrants)

 

 

 

 

 

 

Weighted average common shares outstanding - diluted

 

 

38,794,165

 

 

 

31,045,488

 

Diluted net loss per share

 

$

(0.06

)

 

$

(0.21

)

 

The following securities were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Anti-dilutive equity awards:

 

 

 

 

 

 

 

 

Stock options

 

 

8,901,645

 

 

 

9,547,477

 

Restricted Stock Units

 

 

51,267

 

 

 

309,889

 

Warrants

 

 

600,000

 

 

 

600,000

 

 

v3.8.0.1
The Company and Summary of Significant Accounting Principles (Policies)
3 Months Ended
Mar. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

Basis of Presentation

The interim unaudited condensed 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. In the opinion of the Company’s management, the interim unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented. These interim unaudited condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year or for any subsequent period.

The accompanying condensed consolidated balance sheet as of March 31, 2018 was derived from the audited financial statements as of that date, but does not include all the information and footnotes required by U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Accounting Estimates

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.

Concentrations of Risk

Concentrations of Risk

 

As of March 31, 2018 and December 31, 2017, the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable as follows:

 

 

 

Accounts Receivable

 

 

 

March 31, 2018

 

December 31, 2017

 

Google advertising affiliate

 

*

 

 

16

%

Google search

 

*

 

 

7

%

Advertising customer

 

*

 

 

12

%

* - Less than 10%

 

 

 

 

 

 

 

For the three months ended March 31, 2018 and 2017, the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows:

 

 

Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Google search

 

 

15

%

 

 

11

%

Google advertising affiliate

 

 

16

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2018 and 2017, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue:

 

 

 

Cost of Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

*

 

 

 

19

%

Customer B

 

 

20

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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, but currently expects that all of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon the adoption of ASU 2016-02, which will increase the total assets and total liabilities that it reports as compared to those reported prior to adoption. The Company will adopt the standard on the required effective date, which for the Company will be January 1, 2019.

Recently Adopted

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"), using the modified retrospective method. Results for reporting periods beginning on or after January 1, 2018 are presented under Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods. The Company recorded a reduction to the opening balance of the accumulated deficit of $2.5 million as of January 1, 2018 due to the cumulative impact of the adoption of Topic 606. The impact to revenue recorded for the quarter ended March 31, 2018 was a decrease of $0.2 million with the adoption of Topic 606 as compared to Topic 605.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. This ASU reduces the diversity in reporting of eight specific cash flow issues due to accounting guidance that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements and other various activities. The Company adopted this ASU as of January 1, 2018 and it did not have an impact on our consolidated financial statements.

v3.8.0.1
The Company and Summary of Significant Accounting Principles (Tables)
3 Months Ended
Mar. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Schedule of Concentrations Equal to or Exceeding 10% of Company's Accounts Receivable, Revenue, and Cost of Revenue

 

As of March 31, 2018 and December 31, 2017, the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable as follows:

 

 

 

Accounts Receivable

 

 

 

March 31, 2018

 

December 31, 2017

 

Google advertising affiliate

 

*

 

 

16

%

Google search

 

*

 

 

7

%

Advertising customer

 

*

 

 

12

%

* - Less than 10%

 

 

 

 

 

 

 

For the three months ended March 31, 2018 and 2017, the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows:

 

 

Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Google search

 

 

15

%

 

 

11

%

Google advertising affiliate

 

 

16

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2018 and 2017, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue:

 

 

 

Cost of Revenue

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Customer A

 

*

 

 

 

19

%

Customer B

 

 

20

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

v3.8.0.1
Revenue from Contracts with Customers (Tables)
3 Months Ended
Mar. 31, 2018
Revenue From Contract With Customer [Abstract]  
Summary of Geographical Market and Timing of Revenue Recognition, Includes Reconciliation of Disaggregated Revenue with Reportable Types

The following table provides information about disaggregated revenue for the three months ended March 31, 2018 by primary geographical market and timing of revenue recognition, and includes a reconciliation of the disaggregated revenue with reportable types (in thousands):

 

 

 

Geographic Area

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

United States

 

 

International

 

 

 

Products transferred

at a point in time

 

 

Products and services

transferred over time

 

 

Total

 

 

 

(in thousands)

 

 

 

(in thousands)

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Search and digital advertising

 

$

18,667

 

 

$

1,161

 

 

 

$

19,828

 

 

$

 

 

$

19,828

 

Recurring and fee-based

 

 

8,371

 

 

 

4,716

 

 

 

 

2,214

 

 

 

10,873

 

 

$

13,087

 

Total revenue

 

$

27,038

 

 

$

5,877

 

 

 

$

22,042

 

 

$

10,873

 

 

$

32,915

 

 

Schedule of Changes in Deferred Revenue, Inclusive of Both Current and Long-term

The changes in deferred revenue, inclusive of both current and long-term, are as follows:

 

(in thousands)

 

 

 

Beginning balance - January 1, 2018

$

15,287

 

Record the cumulative effect of ASC 606 implementation

 

(2,456

)

Recognition of deferred revenue

 

(2,301

)

Deferral of revenue

 

1,429

 

Ending Balance - March 31, 2018

$

11,959

 

 

v3.8.0.1
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets

Intangible assets consisted of the following (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Customer and publisher relationships

 

$

14,780

 

 

$

14,780

 

Technology

 

 

2,330

 

 

 

2,330

 

Trademark

 

 

300

 

 

 

300

 

 

 

 

17,410

 

 

 

17,410

 

Less accumulated amortization

 

 

(5,251

)

 

 

(4,715

)

Intangible assets, net

 

$

12,159

 

 

$

12,695

 

 

v3.8.0.1
Property and Equipment - Net (Tables)
3 Months Ended
Mar. 31, 2018
Property Plant And Equipment [Abstract]  
Schedule of Property and Equipment

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

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Computer equipment

 

$

28,908

 

 

$

28,845

 

Computer software

 

 

25,225

 

 

 

23,690

 

Furniture and fixtures

 

 

1,497

 

 

 

1,497

 

Leasehold improvements

 

 

1,213

 

 

 

1,215

 

Work in process (primarily software development costs)

 

 

4,148

 

 

 

3,758

 

Other

 

 

161

 

 

 

159

 

 

 

 

61,152

 

 

 

59,164

 

Less accumulated depreciation

 

 

(40,531

)

 

 

(38,659

)

Property and equipment, net

 

$

20,621

 

 

$

20,505

 

 

v3.8.0.1
Accrued Expenses and Other Current Liabilities (Tables)
3 Months Ended
Mar. 31, 2018
Payables And Accruals [Abstract]  
Schedule of Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017