SYNACOR, INC., 10-K filed on 3/14/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Mar. 08, 2019
Jun. 29, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
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 Accelerated Filer    
Entity Shell Company false    
Entity Emerging Growth Company false    
Entity Small Business true    
Entity Common Stock, Shares Outstanding   39,052,682  
Entity Public Float     $ 65.0
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 15,921 $ 22,476
Accounts receivable—net of allowance of $225 and $99 25,567 31,696
Prepaid expenses and other current assets 3,779 4,516
Total current assets 45,267 58,688
PROPERTY AND EQUIPMENT—Net 18,707 20,505
GOODWILL 15,941 15,955
INTANGIBLE ASSETS 10,553 12,695
OTHER ASSETS 995 937
TOTAL ASSETS 91,463 108,780
CURRENT LIABILITIES:    
Accounts payable 19,174 25,931
Accrued expenses and other current liabilities 7,849 7,075
Current portion of deferred revenue 6,672 11,605
Current portion of capital lease obligations 2,328 2,444
Total current liabilities 36,023 47,055
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS 1,367 3,371
DEFERRED REVENUE 2,214 3,682
DEFERRED INCOME TAXES 231 264
OTHER LONG-TERM LIABILITIES 457 63
Total liabilities 40,292 54,435
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS’ EQUITY:    
Preferred stock, $0.01 par value—10,000,000 shares authorized, no shares issued and outstanding at December 31, 2018 and 2017
Common stock, $0.01 par value—100,000,000 shares authorized; 39,880,054 shares issued and 39,027,572 shares outstanding at December 31, 2018; 39,625,980 shares issued and 38,763,760 shares outstanding at December 31, 2017 399 396
Treasury stock—at cost, 852,482 shares at December 31, 2018 and 842,220 shares at December 31, 2017 (1,899) (1,881)
Additional paid-in capital 144,739 142,486
Accumulated deficit (91,726) (86,627)
Accumulated other comprehensive loss (342) (29)
Total stockholders’ equity 51,171 54,345
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 91,463 $ 108,780
v3.19.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 225 $ 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
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 39,880,054 39,625,980
Common stock, shares outstanding 39,027,572 38,763,760
Treasury stock, shares 852,482 842,220
v3.19.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
REVENUE $ 143,879 $ 140,027 $ 127,373
COSTS AND OPERATING EXPENSES:      
Cost of revenue (exclusive of depreciation and amortization shown separately below) 72,547 70,053 59,146
Technology and development (exclusive of depreciation and amortization shown separately below) 24,510 27,642 25,612
Sales and marketing 24,116 24,941 22,846
General and administrative (exclusive of depreciation and amortization shown separately below) 19,454 17,800 19,695
Depreciation and amortization 9,641 9,820 9,235
Total costs and operating expenses 150,268 150,256 136,534
LOSS FROM OPERATIONS (6,389) (10,229) (9,161)
GAIN ON SALE OF INVESTMENT   1,987  
INTEREST EXPENSE (338) (433) (318)
OTHER EXPENSE, net (212) (2) (42)
LOSS BEFORE INCOME TAXES (6,939) (8,677) (9,521)
PROVISION FOR INCOME TAXES 616 1,100 1,219
NET LOSS $ (7,555) $ (9,777) $ (10,740)
NET LOSS PER SHARE:      
Basic $ (0.19) $ (0.27) $ (0.36)
Diluted $ (0.19) $ (0.27) $ (0.36)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER SHARE:      
Basic 38,895,301 36,381,299 30,251,685
Diluted 38,895,301 36,381,299 30,251,685
v3.19.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement Of Income And Comprehensive Income [Abstract]      
Net loss $ (7,555) $ (9,777) $ (10,740)
Other comprehensive loss:      
Change in foreign currency translation adjustment (313) (12) (19)
Comprehensive loss $ (7,868) $ (9,789) $ (10,759)
v3.19.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Treasury Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning balance at Dec. 31, 2015 $ 46,104 $ 306 $ (1,332) $ 113,238 $ (66,110) $ 2
Beginning balance, shares at Dec. 31, 2015   30,636,327 (653,048)      
Exercise of common stock options 1,560 $ 8   1,552    
Exercise of common stock options, shares   751,481        
Stock-based compensation cost 2,957     2,957    
Vesting of restricted stock units 2 $ 2        
Vesting of restricted stock units, shares   238,827        
Treasury stock withheld to cover tax liability (215)   $ (215)      
Treasury stock withheld to cover tax liability, shares     (92,439)      
Net loss (10,740)       (10,740)  
Other comprehensive loss (19)         (19)
Ending balance at Dec. 31, 2016 39,649 $ 316 $ (1,547) 117,747 (76,850) (17)
Ending balance, shares at Dec. 31, 2016   31,626,635 (745,487)      
Issuance of common stock upon stock offering, net of offering costs 20,046 $ 62   19,984    
Issuance of common stock upon stock offering, net of offering costs, shares   6,187,846        
Exercise of common stock options 2,149 $ 9   2,140    
Exercise of common stock options, shares   969,223        
Stock-based compensation cost 2,624     2,624    
Vesting of restricted stock units   $ 3   (3)    
Vesting of restricted stock units, shares   242,276        
Release of stock holdback   $ 6   (6)    
Release of stock holdback, shares   600,000        
Treasury stock withheld to cover tax liability (334)   $ (334)      
Treasury stock withheld to cover tax liability, shares     (96,733)      
Net loss (9,777)       (9,777)  
Other comprehensive loss (12)         (12)
Ending balance at Dec. 31, 2017 $ 54,345 $ 396 $ (1,881) 142,486 (86,627) (29)
Ending balance, shares at Dec. 31, 2017 38,763,760 39,625,980 (842,220)      
Impact of the adoption of new accounting pronouncements $ 2,456       2,456  
Exercise of common stock options $ 385 $ 2   383    
Exercise of common stock options, shares 226,081 226,081        
Stock-based compensation cost $ 1,871     1,871    
Vesting of restricted stock units   $ 1   (1)    
Vesting of restricted stock units, shares   27,993        
Treasury stock withheld to cover tax liability (18)   $ (18)      
Treasury stock withheld to cover tax liability, shares     (10,262)      
Net loss (7,555)       (7,555)  
Other comprehensive loss (313)         (313)
Ending balance at Dec. 31, 2018 $ 51,171 $ 399 $ (1,899) $ 144,739 $ (91,726) $ (342)
Ending balance, shares at Dec. 31, 2018 39,027,572 39,880,054 (852,482)      
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $ (7,555) $ (9,777) $ (10,740)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:      
Depreciation and amortization 9,832 9,820 9,235
Loss on disposal of property and equipment   203  
Capitalized software impairment 552 256 334
Stock-based compensation expense 1,804 2,490 2,771
Gain on sale of investment   (1,987)  
Provision for deferred income taxes (248) 137 143
Change in allowance for doubtful accounts 126 (164)  
Increase in estimated value of contingent consideration   107  
Change in operating assets and liabilities, net of effects of acquisitions:      
Accounts receivable 6,002 (4,146) (2,080)
Prepaid expenses and other current assets 737 346 (1,572)
Other long-term assets 142 15 (314)
Accounts payable, accrued expenses and other current liabilities (5,785) 3,261 9,286
Deferred revenue (3,945) (779) 1,546
Other long-term liabilities 394 (45) (360)
Net cash provided by (used in) operating activities 2,056 (263) 8,249
CASH FLOWS FROM INVESTING ACTIVITIES:      
Proceed from the sale of investment   2,645  
Purchases of property and equipment (6,256) (7,876) (5,939)
Acquisition net of cash acquired     (2,500)
Net cash used in investing activities (6,256) (5,231) (8,439)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from offering of common stock, net of underwriting costs   20,258  
Payments of public offering issuance costs   (212)  
Repayments of bank financing   (5,000)  
Principal payments on capital lease obligations (2,422) (1,866) (1,672)
Proceeds from exercise of common stock options 385 2,149 1,560
Purchase of shares to satisfy minimum tax withholdings (18) (334) (215)
Deferred acquisition payments   (1,300) (860)
Net cash (used in) provided by financing activities (2,055) 13,695 (1,187)
Effect of exchange rate changes on cash and cash equivalents (300) (40) (5)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,555) 8,161 (1,382)
CASH AND CASH EQUIVALENTS—Beginning of year 22,476 14,315 15,697
CASH AND CASH EQUIVALENTS—End of year 15,921 22,476 14,315
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:      
Cash paid for interest 337 416 318
Cash paid for income taxes 812 908 737
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:      
Property, equipment and service contracts financed under capital lease obligations 357 5,832 982
Liability for estimated additional contingent consideration     567
Accrued property and equipment expenditures 277 529 227
Stock-based compensation capitalized to property and equipment $ 67 $ 134 $ 186
v3.19.1
The Company and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
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, 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 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.

Foreign Currency The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period.

Cash and Cash Equivalents and Restricted CashThe Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents. The Company had no restricted cash as of the years ended December 31, 2018 and 2017.

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

 

Computer hardware under capital leases and 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 impaired, the impairment is measured and recognized 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, with the exception of software development costs included within property and equipment. See Software Development Costs below for further details.

Other Intangible Assets —Other intangible assets consist of customer relationships, trademarks, purchased technology. Definite-lived intangible assets are amortized on a straight-line basis. The Company reviews its definite-lived intangible assets for impairment when impairment indicators exist. The Company uses undiscounted cash flow to determine whether impairment exists and measures any impairment losses using discounted cash flow.

The components and original estimated economic lives of our amortizable intangible assets were as follows as of December 31, 2018 and 2017:

 

 

 

Original

Estimated

Economic Life

 

2018

 

 

2017

 

 

 

 

 

(Dollars in thousands)

 

Gross amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

10 years

 

$

14,780

 

 

$

14,780

 

Trademark

 

5 years

 

 

300

 

 

 

300

 

Developed technology

 

5 years

 

 

2,330

 

 

 

2,330

 

Total gross amortizable intangible assets

 

 

 

 

17,410

 

 

 

17,410

 

Accumulated amortization:

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

 

 

(5,193

)

 

 

(3,577

)

Trademark

 

 

 

 

(197

)

 

 

(137

)

Developed technology

 

 

 

 

(1,467

)

 

 

(1,001

)

Total accumulated amortization

 

 

 

 

(6,857

)

 

 

(4,715

)

Amortizable intangible assets, net

 

 

 

$

10,553

 

 

$

12,695

 

 

Amortization of intangible assets (in thousands) was $2,142 in the years ended December 31, 2018 and 2017 and $2,072 in the year ended December 31, 2016. Future amortization expense of amortizable intangible assets will be as follows: $2,142 in the year ending December 31, 2019, $2,031 in the year ending December 31, 2020, $1,411 in the year ending December 31, 2021, $1,340 in the year ending December 31, 2022, and $1,340 in the year ending December 31, 2023.

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 exceeds its estimated fair value, a goodwill impairment charge is required.  This charge would be recognized in the amount by which the carrying value of the reporting unit exceeds the estimated fair value of the reporting unit. The Company conducts its annual goodwill impairment test as of October 1st. For the years ended December 31, 2018, 2017, and 2016, the Company determined goodwill was not impaired.

The change in goodwill is as follows for the years ended December 31, 2018 and 2017 (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2018

 

 

2017

 

Balance, beginning of year

 

$

15,955

 

 

$

15,943

 

Foreign currency revaluation

 

 

(14

)

 

 

12

 

Balance, end of year

 

$

15,941

 

 

$

15,955

 

 

Revenue RecognitionOn January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASC 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 605.

The effect of ASC 606 and Subtopic ASC 340-40 on our consolidated statement of operations for the year ended December 31, 2018 was that revenue, loss from operations, and net loss each would have been $0.7 million lower under ASC 605. The impact of the adoption was not material to the other lines in the consolidated statements of operations.

 

The effects of ASC 606 and Subtopic ASC 340-40 on our consolidated Balance sheet as of December 31, 2018 were an impact to deferred revenue, and accumulated deficit. Total deferred revenue as of December 31, 2018 would have been higher under ASC 605 by $3.2 million, of which, $2.6 million would have been classified as current. The cumulative impact of adoption was a net decrease to accumulated deficit of $2.5 million as of January 1, 2018, with the impact primarily related to revenue from subscription license. Generally, under ASC 605, subscription licenses revenue was recognized over the subscription term of the contracts. Under ASC 606, generally we determine that the license and the maintenance and support are distinct performance obligation. The obligation for the license is satisfied in full upon delivery of the license and commencement of the license period, such that revenue for such contracts are be recognized upon delivery rather than ratably over the term of the subscription. The maintenance and support continue to be recognized over the over the subscription term.

 

For contracts that were modified prior to January 1, 2018, we have reflected the aggregate effect of all modifications prior to the date of initial adoption in order to identify the satisfied and unsatisfied performance obligations, determine the transaction price, and allocate the transaction price to satisfied and unsatisfied performance obligations.

 

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 the Company’s 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 its revenue from contracts with customers.

 

Revenue excludes sales and usage-based taxes where it has been determined that we are acting as a pass-through agent.

 

Search & Digital Advertising

 

The Company uses internet advertising to generate revenue from the traffic on its 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 its Managed Portals. For revenue earned under this relationship the Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis).  When a Google 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. The payment received from Google is recognized as revenue. Digital advertising includes video, image and text advertisements delivered on its Managed Portals. Advertising inventory is filled with advertisements sourced by the Company’s 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 the Company’s 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 its obligation to deliver the service is satisfied, which is when the service is delivered. Revenue is also recognized from the licensing and distribution of the Company’s 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 its 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 the Company’s contracts as of December 31, 2018 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to its customers are recognized as deferred revenue.

Disaggregation of revenue

 

The following table provides information about disaggregated revenue for the year ended December 31, 2018 reportable types and timing of revenue recognition (in thousands):

 

 

 

Year Ended December 31, 2018

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

Products transferred

at a point in time

 

 

Products and services

transferred over time

 

 

Total

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Search and Digital Advertising

 

$

87,461

 

 

$

 

 

$

87,461

 

Recurring and Fee-Based

 

 

13,226

 

 

 

43,192

 

 

$

56,418

 

Total revenue

 

$

100,687

 

 

$

43,192

 

 

$

143,879

 

 

As noted above, prior period amounts have not been adjusted under the modified retrospective method.  The following table shows the revenue in each reportable type for the years ended December 31, 2018, 2017 and 2016 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Search and Digital Advertising

 

$

87,461

 

 

$

83,556

 

 

$

74,889

 

Recurring and Fee-Based

 

 

56,418

 

 

 

56,471

 

 

 

52,484

 

Total revenue

 

$

143,879

 

 

$

140,027

 

 

$

127,373

 

 

Refer to Note 6 – Information about Segment and Geographic Areas for further information, including revenue disaggregated by geographic area.

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

 

(13,972

)

Deferral of revenue

 

10,027

 

Ending Balance - December 31, 2018

$

8,886

 

 

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.

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 third parties for the license of their applications or technology sold with or embedded in our email software. Product support costs consist of employee and operating costs directly related to the Company’s maintenance and professional services support.

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

 

 

 

Accounts Receivable

 

 

 

December 31, 2018

 

 

December 31, 2017

 

Google advertising affiliate

 

*

 

 

 

16

%

Google search

 

*

 

 

 

7

%

Advertising Customer A

 

*

 

 

 

12

%

Advertising Customer B

 

 

15

%

 

*

 

* - Less than 10%

 

 

 

 

 

 

 

 

 

For the years ended December 31, 2018, 2017, and 2016 the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows: 

 

 

 

Revenue

 

 

 

2018

 

 

2017

 

 

2016

 

Google advertising affiliate

 

 

11

%

 

 

21

%

 

 

12

%

Google search

 

 

13

%

 

 

15

%

 

 

12

%

 

For the years ended December 31, 2018, 2017, and 2016, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue.

 

 

 

Cost of Revenue

 

 

 

2018

 

 

2017

 

 

2016

 

Customer A

 

 

30

%

 

 

20

%

 

*

 

Customer B

 

*

 

 

 

12

%

 

 

22

%

* - 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 —The Company capitalizes certain costs incurred for the development of internal use software, as well as the costs of developing software for sale or license to customers.  Internal use software includes the Company’s proprietary portal software and related applications, CloudID authentication software, and various applications used in the management of the Company’s portals. Software for sale or license to customers includes the Company’s proprietary Email/Collaboration offerings. 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 (subsequent to the achievement of technological feasibility on software to be sold or licensed) of new software development as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. Software development costs capitalized for sale or license to customers are amortized over the estimated useful life of the applicable software. In 2018, 2017 and 2016, the Company incurred a total of $5.3 million, $6.5 million and $4.5 million of combined internal and external costs related to the application development stage. Of this amount, $1.5 million, $2.8 million and $0.8 were incurred for the development of software for sale or license in 2018, 2017 and 2016, respectively. Amortization of software capitalized for internal use was $2.9 million, $5.1 million, $3.1 million for 2018, 2017 and 2016 respectively and included in depreciation and amortization in the consolidated statement of operations. Amortization of software for sale or license in 2018 was $0.2 million and was included in cost of revenue. Amortization of software for sale or license was not material in 2017 or 2016. Internal and external training and maintenance costs are expensed as incurred. Impairment charges related to software were $0.6 million in 2018, $0.3 million in 2017 and $0.3 million in 2016 related as a result of circumstances that indicated that the carrying values of the assets were not fully recoverable. The Company utilizes the discounted cash flow method to determine the fair value of the capitalized software assets. Impairment charges are included in general and administrative expense in the consolidated statement of operations.

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.  Advertising costs totaled $0.4 million in 2018, 2017 and 2016, respectively.

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.

Earnings (Loss) Per Share —Basic earnings (loss) per share (“EPS”) is calculated in accordance with the Financial Accounting Standards Board (“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.

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, 2018 and 2017, accrued interest or penalties related to uncertain tax positions was insignificant.

Reduction In Workforce — In the third quarter of fiscal year 2018, management approved a cost reduction plan. The plan involved a reduction in the Company’s workforce by approximately 25 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 Financial Officer, amounted to $1.1 million. Of the $1.1 million in costs, $0.4 million was recorded to both sales and marketing and general and administrative expenses and $0.3 million was recorded to technology and development in the accompanying consolidated statement of operations for the year ended December 31, 2018.

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. Actual results may differ from estimated amounts.

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, 2018 and 2017.

The provisions of FASB 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provides an additional, optional transition method with which to adopt the new leases standard. This additional transition method allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, rather than in the earliest period presented in the financial statements, as originally required by ASU 2016-02. The Company will adopt the standard using the additional transition method introduced by ASU 2018-11. The Company will elect the package of practical expedients permitted under the transition guidance, which allows the Company to carryforward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that exist prior to adoption of the new standard. The Company will also elect to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term. The Company expects to record additional right-of-use assets and additional lease liabilities in the range of $9.0 million to $11.0 million on our consolidated balance sheet as of January 1, 2019. The Company does not expect that the adoption of this guidance will have a material impact to the Company's consolidated statements of operations or the consolidated statement of cash flows.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs incurred for an internal-use software license. Adoption of this guidance is required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. Entities are permitted to choose to adopt the new guidance (1) prospectively for eligible costs incurred on or after the date this guidance is first applied or (2) retrospectively. The Company is evaluating the impact of this new accounting standard on its financial statements.

In August 2018, the U.S. Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification. This final rule amends certain disclosure requirements that are redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective for the Company for all filings made on or after November 5, 2018. The SEC staff clarified that the first presentation of the changes in shareholders’ equity may be included in the first Form 10-Q for the quarter that begins after the effective date of the amendments. The adoption of the final rule did not have a material impact on the Company’s consolidated financial statements. The Company will change its presentation of shareholder's equity in the first quarter of 2019.

Recently Adopted

In May 2014, the FASB issued Topic 606, which supersedes the revenue recognition requirements in Topic 605. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. See Revenue Recognition above for further details.

The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on the Company’s financial statements and related disclosures.

v3.19.1
Property and Equipment-Net
12 Months Ended
Dec. 31, 2018
Property Plant And Equipment [Abstract]  
Property and Equipment-Net

2. PROPERTY AND EQUIPMENT—NET

As of December 31, 2018 and 2017, property and equipment-net consisted of the following (in thousands):

 

 

 

2018

 

 

2017

 

Computer equipment

 

$

27,294

 

 

$

28,845

 

Computer software

 

 

27,422

 

 

 

23,690

 

Furniture and fixtures

 

 

1,618

 

 

 

1,497

 

Leasehold improvements

 

 

1,256

 

 

 

1,215

 

Work in process

 

 

4,584

 

 

 

3,758

 

Other

 

 

179

 

 

 

159

 

 

 

 

62,353

 

 

 

59,164

 

Less accumulated depreciation

 

 

(43,646

)

 

 

(38,659

)

Total property and equipment—net

 

$

18,707

 

 

$

20,505

 

 

Property and equipment includes computer equipment held under capital leases of $8.4 million and $11.1 million as of December 31, 2018 and 2017, respectively. Accumulated depreciation of computer equipment and software held under capital leases amounted to $5.0 million and $5.4 million as of December 31, 2018 and 2017, respectively.

Depreciation expense was $7.5 million, $7.6 million, and $7.2 million for the years ended December 31, 2018, 2017, and 2016, respectively.  Impairments of internally-developed software of $0.6 million and $0.3 million for the years ended December 31, 2018 and 2017, respectively were charged to general and administrative expense.

v3.19.1
Accrued Expenses and Other Current Liabilities
12 Months Ended
Dec. 31, 2018
Payables And Accruals [Abstract]  
Accrued Expenses and Other Current Liabilities

3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of December 31, 2018 and 2017, accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

2018

 

 

2017

 

Accrued compensation

 

$

5,801

 

 

$

4,361

 

Accrued content fees and other cost of revenue

 

 

342

 

 

 

655

 

Accrued taxes

 

 

206

 

 

 

426

 

Other

 

 

1,500

 

 

 

1,633

 

Total

 

$

7,849

 

 

$

7,075

 

 

Included in accrued compensation are accrued severance costs. In 2018, the Company initiated a cost reduction program to drive overall efficiency while adding capacity and streamlining the organization. These action resulted in workforce reductions, office consolidations and consolidating operations. Severance costs charged to sales and marketing and general and administrative expenses were each $0.4 million, and $0.3 million was charged to technology and development expenses for the year ended December 31, 2018 (in thousands).

 

 

 

December 31, 2018

 

Balance at January 1, 2018

 

$

21

 

Charged to expense

 

 

1,111

 

Cash payments

 

 

(858

)

Balance at December 31, 2018

 

$

274

 

 

v3.19.1
Long-Term Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Long-Term Debt

4. LONG-TERM DEBT

In September 2013, the Company entered into a Loan and Security Agreement, with Silicon Valley Bank (“SVB”), which was amended as of September 2018 (as amended, the “Loan Agreement”). The Loan Agreement provides for a $12.0 million secured revolving line of credit with a stated maturity of January 23, 2019. The credit facility is available for cash borrowings, subject to a formula based upon eligible accounts receivable. As of December 31, 2018, there were no borrowings outstanding under the Loan Agreement, and subject to the operation of the borrowing formula, $12.0 million was available for draw under the Loan Agreement.

On February 1, 2019, the Company entered into the Ninth Amendment to Loan and Security Agreement, which extended the maturity date of the agreement to July 22, 2019, and modified the borrowing formula.

Borrowings under the Loan Agreement bear interest, at the Company’s election, at an annual rate based on either the “prime rate” as published in The Wall Street Journal or LIBOR for the relevant period.  If the Company’s liquidity coverage ratio (the ratio of cash plus eligible accounts receivable to borrowings under the Agreement) exceeds 2.75 to 1, LIBOR-based advances bear interest at LIBOR plus 3.5% and prime rate advances bear interest at the prime rate plus 1.0%.  If the Company’s liquidity coverage ratio falls below 2.75 to 1, LIBOR-based advances bear interest at LIBOR plus 4.0% and prime rate advances bear interest at the prime rate plus 1.5%.  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, 2018, the Company was in compliance with the financial covenants.

v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

5. INCOME TAXES

Income (loss) before income tax expense was attributable to the following jurisdictions (in thousands):

 

 

 

2018

 

 

2017

 

 

2016

 

United States

 

$

(8,064

)

 

$

(9,593

)

 

$

(10,194

)

Foreign

 

 

1,125

 

 

 

916

 

 

 

673

 

Total

 

$

(6,939

)

 

$

(8,677

)

 

$

(9,521

)

 

The provision (benefit) for income taxes for the years ended December 31, 2018, 2017 and 2016, was comprised of the following (in thousands):

 

 

 

2018

 

 

2017

 

 

2016

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

United States Federal

 

$

 

 

$

 

 

$

 

State

 

 

42

 

 

 

30

 

 

 

40

 

Foreign

 

 

822

 

 

 

933

 

 

 

1,036

 

Total current provision for income taxes

 

 

864

 

 

 

963

 

 

 

1,076

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

United States Federal

 

 

(310

)

 

 

74

 

 

 

95

 

State

 

 

62

 

 

 

63

 

 

 

48

 

Net deferred provision for income taxes

 

 

(248

)

 

 

137

 

 

 

143

 

Total provision for income taxes

 

$

616

 

 

$

1,100

 

 

$

1,219

 

 

The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):

 

 

 

2018

 

 

2017

 

Deferred income tax assets:

 

 

 

 

 

 

 

 

Stock and other compensation expense

 

$

2,118

 

 

$

3,345

 

Net operating losses

 

 

9,310

 

 

 

7,059

 

Research and development credits

 

 

1,676

 

 

 

1,676

 

Other federal, state and foreign carryforwards

 

 

1,858

 

 

 

1,151

 

Intangible assets

 

 

1,045

 

 

 

570

 

Other

 

 

694

 

 

 

408

 

Gross deferred tax assets

 

 

16,701

 

 

 

14,209

 

Valuation allowances

 

 

(11,984

)

 

 

(13,301

)

 

 

 

4,717

 

 

 

908

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets

 

 

(3,492

)

 

 

(16

)

Intangible assets and other

 

 

(829

)

 

 

(529

)

Gross deferred tax liabilities

 

 

(4,321

)

 

 

(545

)

Subtotal

 

 

396

 

 

 

363

 

Less unrecognized tax benefit liability related to deferred items

 

 

(627

)

 

 

(627

)

Net deferred tax liabilities

 

$

(231

)

 

$

(264

)

 

There have been no additions or reductions to the unrecognized tax benefit of $0.6 million in any of the years ended December 31, 2018, 2017 and 2016. The unrecognized tax benefits at the end of 2018, 2017 and 2016 were primarily related to research and development carryforwards.

If the $0.6 million of unrecognized tax benefits as of December 31, 2018 were recognized, approximately $0.6 million would decrease the effective tax rate in the period in which each of the benefits is recognized. 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, 2018 and 2017, 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 2005 to 2018 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.

Income tax expense for the years ended December 31, 2018, 2017 and 2016 differs from the expected income tax benefit calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):

 

 

 

2018

 

 

2017

 

 

2016

 

Federal income tax (benefit) expense at statutory rate

 

$

(1,457

)

 

 

21

%

 

$

(2,950

)

 

 

34

%

 

$

(3,237

)

 

 

34

%

State and local taxes—net of federal benefit

 

 

82

 

 

 

(1

)

 

 

64

 

 

 

(1

)

 

 

75

 

 

 

(1

)

Foreign taxes

 

 

620

 

 

 

(9

)

 

 

466

 

 

 

(6

)

 

 

1,036

 

 

 

(11

)

Impact of United States federal tax rate change

 

 

 

 

 

 

 

 

4,965

 

 

 

(57

)

 

 

 

 

 

 

Impact of United States federal tax rate change - valuation allowance

 

 

 

 

 

 

 

 

(5,205

)

 

 

60

 

 

 

 

 

 

 

Valuation allowance

 

 

1,250

 

 

 

(18

)

 

 

3,596

 

 

 

(41

)

 

 

3,299

 

 

 

(34

)

Permanent differences

 

 

164

 

 

 

(2

)

 

 

(103

)

 

 

1

 

 

 

3

 

 

 

 

Other

 

 

(43

)

 

 

-

 

 

 

267

 

 

 

(3

)

 

 

43

 

 

 

(1

)

Total

 

$

616

 

 

 

(9

)%

 

$

1,100

 

 

 

(13

)%

 

$

1,219

 

 

 

(13

)%

 

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act included significant changes to the U.S. corporate income tax system including the following: the tax rate on corporations was reduced from 35% to 21%; a limitation on the deduction of interest expense was enacted; eliminating the corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; certain tangible property acquired after September 27, 2017 will qualify for 100% expensing; gain from the sale of a partnership interest by a foreign person will be subject to U.S. tax to the extent that the partnership is engaged in a trade or business; a special deduction for qualified business income from pass-through entities was added; U.S. federal income taxes on foreign earnings was eliminated (subject to several important exceptions), and new provisions designed to tax currently global intangible low-taxed income and a new base erosion anti-abuse tax were added.

 

As a result of the reduction in the U.S. corporate income rate from 35% to 21% under the Tax Act, the Company revalued its deferred income tax assets and liabilities at December 31, 2017, recording a net reduction of both the Company’s deferred income tax liability at December 31, 2017 and income tax provision for the year ended December 31, 2017 in the amount of $0.2 million. The net benefit for 2017 consisted of the release of the valuation allowance on the Company's AMT credit carryforward, which will be refunded on or before 2021. The one-time transition tax liability of foreign subsidiaries, calculated based on earning and profits (“E&P”) that were previously deferred from U. S. income taxes had a net effect of zero due to Company’s NOLs. As of December 31, 2018, the Company had completed its accounting for all of the tax effects of the enactment of the Act, including the effects on its existing deferred tax balances and the one-time transition tax. The Company has not recognized any material adjustment to the provisional tax expense estimate previously recorded related to the Tax Act.

 

No additional U.S. income taxes or foreign withholding taxes have been provided for any additional outside basis differences inherent in the Company’s foreign entities as the Company does not have any material unremitted earnings of the subsidiaries outside of the United States.

 

At December 31, 2018 and December 31, 2017, the Company has federal and state NOL carryforwards of approximately $36.6 million and $26.8 million, respectively, including approximately $2.2 million of NOL carryforwards created by windfall tax benefits relating to stock compensation expense. The NOLs generated prior to December 31, 2017, will begin to expire in 2028. The Company has weighed all the available evidence both positive and negative and has determined that the Company more likely than not will not be able to generate sufficient taxable income in the future to be able to utilize the entire NOL in future periods. Therefore, a full valuation allowance has been recorded against the net deferred income tax asset as of December 31, 2018 and 2017.  The deferred income tax provision is primarily due to the recognition of deferred tax liabilities relating to indefinite-lived goodwill that cannot be predicted to reverse for book purposes during the Company’s loss carry-forward periods.

 

Utilization of certain NOLs and credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in the Internal Revenue Code of 1986, as amended, or the Code, and comparable state income tax laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization. A prior ownership change and certain acquisitions resulted in the Company having NOLs subject to insignificant annual limitations. Additionally, for tax years beginning after December 31, 2017, the Tax Act limits the NOL deduction to 80% of taxable income, repeals carryback of all NOLs arising in a tax year ended after 2017, and permits indefinite carryforward for all such NOLs. NOL’s arising in a tax year ended in or before 2017 can offset 100% of taxable income, are available for carryback, and expire 20 years after they arise.

v3.19.1
Information About Segment and Geographic Areas
12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Information About Segment and Geographic Areas

6. 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,

 

 

 

2018

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

119,912

 

 

$

118,764

 

 

$

110,071

 

International

 

 

23,967

 

 

 

21,263

 

 

 

17,302

 

Total revenue

 

$

143,879

 

 

$

140,027

 

 

$

127,373

 

 

 

 

As of December 31,

 

 

 

2018

 

 

2017

 

Long-lived tangible assets:

 

 

 

 

 

 

 

 

United States

 

$

18,217

 

 

$

19,775

 

International

 

 

490

 

 

 

730

 

Total long-lived tangible assets

 

$

18,707

 

 

$

20,505

 

v3.19.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. 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 4% to 7%.

Rent expense for operating leases was approximately $4.6 million, $3.5 million and $3.1 million for 2018, 2017 and 2016, respectively.

Lease commitments over the next five years as of December 31, 2018 can be summarized as follows (in thousands):

 

Years Ending December 31,

 

Operating Lease

Commitments

 

2019

 

$

5,276

 

2020

 

 

3,101

 

2021

 

 

1,594

 

2022

 

 

782

 

2023

 

 

250

 

2024

 

 

33

 

Total lease commitments

 

$

11,036

 

 

Years Ending December 31,

 

Capital Lease

Commitments

 

2019

 

$

3,025

 

2020

 

 

1,558

 

2021

 

 

107

 

Total minimum capital lease commitments

 

 

4,690

 

Less-amount representing interest

 

 

(995

)

Total capital lease obligations

 

 

3,695

 

Less-current portion of capital lease obligations

 

 

(2,328

)

Long-term portion of capital lease obligations