LOGMEIN, INC., 10-Q filed on 10/25/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Oct. 21, 2019
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Trading Symbol LOGM  
Entity File Number 001-34391  
Entity Tax Identification Number 20-1515952  
Entity Address, Address Line One 320 Summer Street  
Entity Address, City or Town Boston  
Entity Address, Postal Zip Code 02210  
City Area Code 781  
Local Phone Number 638-9050  
Entity Address, State or Province MA  
Entity Registrant Name LogMeIn, Inc.  
Entity Central Index Key 0001420302  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Shell Company false  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Current Reporting Status Yes  
Entity Common Stock, Shares Outstanding   48,814,852
Document Quarterly Report true  
Document Transition Report false  
Entity Incorporation, State or Country Code DE  
Entity Interactive Data Current Yes  
Security Exchange Name NASDAQ  
Title of 12(b) Security Common Stock, $0.01 par value per share  
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 119,197 $ 148,652
Accounts receivable (net of allowances of $2,785 and $4,413 as of December 31, 2018 and September 30, 2019, respectively) 80,876 95,354
Prepaid expenses and other current assets 81,120 83,887
Total current assets 281,193 327,893
Property and equipment, net 97,005 98,238
Operating lease assets (Note 9) 101,345  
Restricted cash, net of current portion 1,834 1,840
Intangibles, net 895,800 1,059,988
Goodwill 2,414,335 2,400,390
Other assets 61,261 41,545
Deferred tax assets 5,895 6,059
Total assets 3,858,668 3,935,953
Current liabilities:    
Accounts payable 56,671 35,447
Current operating lease liabilities (Note 9) 17,900  
Accrued liabilities 144,285 119,379
Deferred revenue, current portion 381,635 369,780
Total current liabilities 600,491 524,606
Long-term debt 200,000 200,000
Deferred revenue, net of current portion 11,189 9,518
Deferred tax liabilities 170,378 201,212
Non-current operating lease liabilities (Note 9) 91,407  
Other long-term liabilities 10,077 25,929
Total liabilities 1,083,542 961,265
Commitments and contingencies (Note 13)
Preferred stock, $0.01 par value — 5,000 shares authorized, 0 shares outstanding as of December 31, 2018 and September 30, 2019
Equity:    
Common stock, $0.01 par value—145,000 shares authorized; 56,703 and 57,160 shares issued; and 50,692 and 48,968 outstanding as of December 31, 2018 and September 30, 2019, respectively 572 567
Additional paid-in capital 3,349,108 3,316,603
Retained earnings 24,854 84,043
Accumulated other comprehensive income (loss) (1,946) 2,133
Treasury stock, at cost - 6,011 and 8,192 shares as of December 31, 2018 and September 30, 2019, respectively (597,462) (428,658)
Total equity 2,775,126 2,974,688
Total liabilities and equity $ 3,858,668 $ 3,935,953
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 4,413 $ 2,785
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 145,000,000 145,000,000
Common stock, shares issued 57,160,000 56,703,000
Common stock, shares outstanding 48,968,000 50,692,000
Treasury stock, shares 8,192,000 6,011,000
v3.19.3
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Revenue $ 316,941 $ 308,927 $ 937,705 $ 893,794
Cost of revenue 81,230 72,853 239,685 208,628
Gross profit 235,711 236,074 698,020 685,166
Operating expenses        
Research and development 39,452 42,220 120,548 129,256
Sales and marketing 110,604 95,041 346,063 282,599
General and administrative 34,954 37,441 103,379 111,990
Restructuring charge 5,172   14,602  
Gain on disposition of assets       (33,910)
Amortization of acquired intangibles 39,368 44,268 118,257 128,698
Total operating expenses 229,550 218,970 702,849 618,633
Income (loss) from operations 6,161 17,104 (4,829) 66,533
Interest income 299 293 1,375 1,335
Interest expense (2,048) (2,033) (6,317) (4,213)
Other income (expense), net 180 (77) (187) (403)
Income (loss) before income taxes 4,592 15,287 (9,958) 63,252
(Provision for) benefit from income taxes 516 (2,570) (495) (14,269)
Net income (loss) $ 5,108 $ 12,717 $ (10,453) $ 48,983
Net income (loss) per share:        
Basic $ 0.10 $ 0.25 $ (0.21) $ 0.94
Diluted $ 0.10 $ 0.24 $ (0.21) $ 0.93
Weighted average shares outstanding:        
Basic 49,265 51,652 49,886 52,090
Diluted 49,368 52,066 49,886 52,829
Cash dividends declared and paid per share $ 0.325 $ 0.30 $ 0.975 $ 0.90
v3.19.3
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Net income (loss) $ 5,108 $ 12,717 $ (10,453) $ 48,983
Other comprehensive gain (loss):        
Net translation gains (losses) (4,326) (1,215) (4,079) (9,780)
Comprehensive income (loss) $ 782 $ 11,502 $ (14,532) $ 39,203
v3.19.3
Condensed Consolidated Statements of Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Balance at Dec. 31, 2017 $ 3,163,741 $ 560 $ 3,276,891 $ 50,445 $ 15,570 $ (179,725)
Balance, shares at Dec. 31, 2017   52,564,000        
Issuance of common stock upon exercise of stock options 3,831 $ 1 3,830      
Issuance of common stock upon exercise of stock options, shares   126,000        
Net issuance of common stock upon vesting of restricted stock units (28,720) $ 6 (28,726)      
Net issuance of common stock upon vesting of restricted stock units, shares   507,000        
Stock-based compensation 48,820   48,820      
Treasury stock $ (192,668)         (192,668)
Treasury stock, shares (1,865,106) (1,866,000)        
Dividends on common stock $ (46,900)     (46,900)    
Adoption of ASC | ASU 2014-09 [Member] 21,429     21,429    
Net income (loss) 48,983     48,983    
Cumulative translation adjustments (9,780)       (9,780)  
Balance at Sep. 30, 2018 3,008,736 $ 567 3,300,815 73,957 5,790 (372,393)
Balance, shares at Sep. 30, 2018   51,331,000        
Balance at Jun. 30, 2018 3,070,925 $ 565 3,283,856 76,763 7,005 (297,264)
Balance, shares at Jun. 30, 2018   52,029,000        
Issuance of common stock upon exercise of stock options 2,809 $ 1 2,808      
Issuance of common stock upon exercise of stock options, shares   98,000        
Net issuance of common stock upon vesting of restricted stock units (1,536) $ 1 (1,537)      
Net issuance of common stock upon vesting of restricted stock units, shares   51,000        
Stock-based compensation 15,688   15,688      
Treasury stock $ (75,129)         (75,129)
Treasury stock, shares (846,233) (847,000)        
Dividends on common stock $ (15,523)     (15,523)    
Net income (loss) 12,717     12,717    
Cumulative translation adjustments (1,215)       (1,215)  
Balance at Sep. 30, 2018 3,008,736 $ 567 3,300,815 73,957 5,790 (372,393)
Balance, shares at Sep. 30, 2018   51,331,000        
Balance at Dec. 31, 2018 2,974,688 $ 567 3,316,603 84,043 2,133 (428,658)
Balance, shares at Dec. 31, 2018   50,692,000        
Issuance of common stock upon exercise of stock options 133   133      
Issuance of common stock upon exercise of stock options, shares   4,000        
Net issuance of common stock upon vesting of restricted stock units (18,468) $ 5 (18,473)      
Net issuance of common stock upon vesting of restricted stock units, shares   453,000        
Stock-based compensation 50,845   50,845      
Treasury stock $ (168,804)         (168,804)
Treasury stock, shares (2,180,934) (2,181,000)        
Dividends on common stock $ (48,736)     (48,736)    
Net income (loss) (10,453)     (10,453)    
Cumulative translation adjustments (4,079)       (4,079)  
Balance at Sep. 30, 2019 2,775,126 $ 572 3,349,108 24,854 (1,946) (597,462)
Balance, shares at Sep. 30, 2019   48,968,000        
Balance at Jun. 30, 2019 2,818,445 $ 571 3,332,239 35,783 2,380 (552,528)
Balance, shares at Jun. 30, 2019   49,566,000        
Issuance of common stock upon exercise of stock options 51   51      
Issuance of common stock upon exercise of stock options, shares   1,000        
Net issuance of common stock upon vesting of restricted stock units (792) $ 1 (793)      
Net issuance of common stock upon vesting of restricted stock units, shares   29,000        
Stock-based compensation 17,611   17,611      
Treasury stock $ (44,934)         (44,934)
Treasury stock, shares (628,038) (628,000)        
Dividends on common stock $ (16,037)     (16,037)    
Net income (loss) 5,108     5,108    
Cumulative translation adjustments (4,326)       (4,326)  
Balance at Sep. 30, 2019 $ 2,775,126 $ 572 $ 3,349,108 $ 24,854 $ (1,946) $ (597,462)
Balance, shares at Sep. 30, 2019   48,968,000        
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Mar. 31, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Cash flows from operating activities                
Net income (loss)           $ (10,453) $ 48,983  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
Stock-based compensation $ 17,611     $ 15,688   50,845 48,820  
Depreciation and amortization           228,355 223,181  
Gain on disposition of assets, excluding transaction costs             (36,281)  
Change in fair value of contingent consideration liability           581    
Restructuring-related property and equipment charges           3,164    
Benefit from deferred income taxes           (34,101) (34,062)  
Other, net           1,274 1,282  
Changes in assets and liabilities, excluding effect of acquisitions and dispositions:                
Accounts receivable           12,608 16,301  
Prepaid expenses and other current assets           (5,415) 8,474  
Other assets           (20,387) (12,830)  
Accounts payable           21,451 13,575  
Accrued liabilities           24,146 21,113  
Deferred revenue           17,664 28,031  
Other long-term liabilities           (3,364) 4,277  
Net cash provided by operating activities           286,368 330,864  
Cash flows from investing activities                
Purchases of property and equipment           (29,813) (21,590)  
Intangible asset additions           (29,421) (26,138)  
Cash paid for acquisitions, net of cash acquired           (22,463) (342,072)  
Proceeds from disposition of assets           7,500 42,394  
Net cash provided by (used in) investing activities           (74,197) (347,406)  
Cash flows from financing activities                
Borrowings (repayments) under credit facility             200,000  
Proceeds from issuance of common stock upon option exercises           133 3,831  
Payments of withholding taxes in connection with restricted stock unit vesting           (18,468) (29,490)  
Payment of contingent consideration           (1,857)    
Dividends paid on common stock (16,000) $ (16,500) $ (15,300) (15,500) $ (15,700) (48,736) (46,900) $ (62,200)
Purchase of treasury stock           (169,188) (190,230)  
Net cash provided by (used in) financing activities           (238,116) (62,789)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash           (3,516) (5,427)  
Net increase (decrease) in cash, cash equivalents and restricted cash           (29,461) (84,758)  
Cash, cash equivalents and restricted cash, beginning of period   $ 150,492 169,451   $ 254,209 150,492 254,209 254,209
Cash, cash equivalents and restricted cash, end of period $ 121,031   $ 150,492 $ 169,451   121,031 169,451 $ 150,492
Supplemental disclosure of cash flow information                
Cash paid for interest           5,766 2,877  
Cash paid (refunds received) from income taxes           8,290 18,690  
Noncash investing and financing activities                
Purchases of property and equipment included in accounts payable and accrued liabilities           4,638 5,504  
Purchases of treasury stock included in accrued liabilities           1,405 $ 2,438  
Fair value of contingent consideration in connection with acquisition, included in accrued liabilities           $ 1,718    
v3.19.3
Nature of the Business
9 Months Ended
Sep. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of the Business

1. Nature of the Business

LogMeIn, Inc., which is referred to herein as LogMeIn or the Company, provides a portfolio of cloud-based unified communications and collaboration, identity and access management, and customer engagement and support solutions designed to simplify how people connect with each other and the world around them to drive meaningful interactions, deepen relationships, and create better outcomes for individuals and businesses. The Company is headquartered in Boston, Massachusetts with additional locations in North America, South America, Europe, Asia and Australia.

v3.19.3
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation — The accompanying condensed consolidated financial statements include the results of operations of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company has prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP.

Unaudited Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated financial statements and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited and have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read along with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 21, 2019. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results for the interim periods presented are not necessarily indicative of future results. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.

 

Costs to Obtain and Fulfill a Contract — The Company’s incremental costs of obtaining a contract consist of sales commissions and their related fringe benefits. Sales commissions and fringe benefits paid on renewals are not commensurate with sales commissions paid on the initial contract, but they are commensurate with each other. Sales commissions and fringe benefits are deferred and amortized on a straight-line basis over the period of benefit, which the Company has estimated to be three to four years for initial contracts and amortized over the renewal period for renewal contracts, typically one year. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and the Company’s ability to retain customers. Deferred commissions are classified as current or noncurrent assets based on the timing the expense will be recognized. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and other assets, respectively, in the Company’s condensed consolidated balance sheets. As of December 31, 2018 and September 30, 2019, the Company had $33.7 million of current deferred commissions and $31.2 million of noncurrent deferred commissions, and $43.7 million of current deferred commissions and $47.2 million of noncurrent deferred commissions, respectively. Commissions expense is primarily included in sales and marketing expense on the condensed consolidated statements of operations. The Company had amortization expense of $5.8 million and $13.5 million related to deferred commissions during the three and nine months ended September 30, 2018, respectively, and $11.3 million and $29.1 million during the three and nine months ended September 30, 2019, respectively. Other costs incurred to fulfill contracts have been immaterial to date.

 

Revenue Recognition — The Company derives its revenue primarily from subscription fees for its premium subscription software services and, to a lesser extent, usage fees from audio services and the sale or lease of telecommunications equipment. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction including mandatory government charges that are passed through to the Company’s customers. Revenue is recognized when control of these services or products are transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the contract’s performance obligations.

The Company determines revenue recognition through the following five steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations in the contract

 

Recognition of revenue when, or as, performance obligations are satisfied

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Disaggregated Revenue — The Company disaggregates revenue from contracts with customers by geography and product grouping, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s revenue by geography (based on customer address) is as follows (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

241,630

 

 

$

250,888

 

 

$

690,097

 

 

$

739,752

 

International

 

 

67,297

 

 

 

66,053

 

 

 

203,697

 

 

 

197,953

 

Total revenue

 

$

308,927

 

 

$

316,941

 

 

$

893,794

 

 

$

937,705

 

 

The Company’s revenue by product grouping is as follows (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified communications and collaboration

 

$

175,045

 

 

$

171,795

 

 

$

498,142

 

 

$

513,569

 

Identity and access management

 

 

89,762

 

 

 

102,429

 

 

 

262,197

 

 

 

294,874

 

Customer engagement and support

 

 

44,120

 

 

 

42,717

 

 

 

133,455

 

 

 

129,262

 

Total revenue

 

$

308,927

 

 

$

316,941

 

 

$

893,794

 

 

$

937,705

 

 

Performance Obligations

Premium Subscription Services — Revenue from the Company’s premium subscription services represents a single promise to provide continuous access (i.e., a stand-ready obligation) to its software solutions and their processing capabilities in the form of a service through one of the Company’s data centers. The Company’s software cannot be run on another entity’s hardware and customers do not have the right to take possession of the software and use it on their own or another entity’s hardware.

As each day of providing access to the software is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, the Company has determined that its premium subscription services arrangements include a single performance obligation comprised of a series of distinct services. Revenue from the Company’s premium subscription services is recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. Subscription periods range from monthly to multi-year, are typically billed in advance and are non-cancelable.

Audio Services — Revenue from the Company’s audio services represent a single promise to stand-ready to provide access to the Company’s platform. As each day of providing audio services is substantially the same and the customer simultaneously receives and consumes the benefits as access is provided, the Company has determined that its audio services arrangements include a single performance obligation comprised of a series of distinct services. These audio services may include fixed consideration, variable consideration or a combination of the two. Variable consideration in these arrangements is typically a function of the corresponding rate per minute. The Company allocates the variable amount to each distinct service period within the series and recognizes revenue as each distinct service period is performed (i.e., recognized as incurred).

Accounts Receivable, Net — Accounts receivable, net, are amounts due from customers where there is an unconditional right to consideration. Unbilled receivables of $5.4 million and $7.1 million are included in this balance at December 31, 2018 and September 30, 2019, respectively. The payment of consideration related to these unbilled receivables is subject only to the passage of time. As of December 31, 2018 and September 30, 2019, lease receivables totaled $4.9 million (of which, $2.8 million was long term and in other assets), and $8.7 million (of which, $4.8 million was long term and in other assets), respectively.

Contract Assets and Contract Liabilities — Contract assets and contract liabilities (deferred revenue) are reported net at the contract level for each reporting period.

Contract Assets — Contract assets primarily relate to unbilled amounts typically resulting from sales contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. The contract assets are transferred to accounts receivable when the rights become unconditional. The Company had contract assets of $2.3 million as of December 31, 2018 ($1.3 million included in prepaid and other current assets and $1.0 million included in other assets) and $5.6 million as of September 30, 2019 ($3.2 million included in prepaid and other current assets and $2.4 million included in other assets).

Contract Liabilities (Deferred Revenue) — Deferred revenue primarily consists of billings and payments received in advance of revenue recognition. The Company primarily bills and collects payments from customers for its services in advance on a monthly and annual basis. The Company initially records subscription fees as deferred revenue and then recognizes revenue as performance obligations are satisfied over the subscription period. Typically, subscriptions automatically renew at the end of the subscription period unless the customer specifically terminates it prior to the end of the period. Deferred revenue to be recognized within the next twelve months is included in current deferred revenue, and the remaining amount is included in long-term deferred revenue in the condensed consolidated balance sheets.

For the three and nine months ended September 30, 2019, revenue recognized related to deferred revenue at January 1, 2019 was approximately $69 million and $340 million, respectively. As of September 30, 2019, approximately $604 million of revenue is expected to be recognized from remaining performance obligations, including backlog, primarily over the next two years.

Changes in contract liabilities for the nine months ended September 30, 2019 are as follows (in thousands):

 

 

 

Deferred Revenue

 

 

 

Current

 

 

Non-

Current

 

 

Total

 

Balance as of January 1, 2019

 

$

369,780

 

 

$

9,518

 

 

$

379,298

 

Increase (decrease), net

 

 

11,855

 

 

 

1,671

 

 

 

13,526

 

Balance as of September 30, 2019

 

$

381,635

 

 

$

11,189

 

 

$

392,824

 

 

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, restricted cash and accounts receivable. Cash, cash equivalents and restricted cash are deposited primarily with financial institutions that management believes to be of high-credit quality. To manage accounts receivable credit risk, the Company regularly evaluates the creditworthiness of its customers and maintains allowances for potential credit losses. To date, losses resulting from uncollected receivables have not exceeded management’s expectations.

For the three and nine months ended September 30, 2018 and 2019, no customer accounted for more than 10% of revenue. As of December 31, 2018 and September 30, 2019, no customer accounted for more than 10% of accounts receivable.

Segment Data — Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker or decision-making group when making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company, whose management uses consolidated financial information in determining how to allocate resources and assess performance, has determined that it operates in one segment.

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill but performs an impairment test of goodwill annually or whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. As of November 30, 2018, our measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through September 30, 2019, no events have been identified indicating an impairment.

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their respective estimated fair values at the date of acquisition. Intangible assets are being amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives, which range up to eleven years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through September 30, 2019, the Company recorded no material impairments.

Foreign Currency Translation — The functional currency of operations outside the United States of America is deemed to be the currency of the local country, unless otherwise determined that the United States dollar would serve as a more appropriate functional currency given the economic operations of the entity. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars using the period-end exchange rate, and income and expense items are translated using the average exchange rate during the period. Cumulative translation adjustments are reflected as a separate component of equity. Foreign currency transaction gains and losses are charged to operations.

Derivative Financial Instruments — The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses foreign currency forward contracts to manage exposure to fluctuations in foreign exchange rates that arise from receivables and payables denominated in foreign currencies. The Company does not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings. Because the Company enters into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in foreign currency net gains and losses.

As of December 31, 2018 and September 30, 2019, the Company had outstanding forward contracts with notional amounts equivalent to the following (in thousands):

 

Currency Hedged

 

December 31,

2018

 

 

September 30,

2019

 

Euro / Canadian Dollar

 

$

537

 

 

$

 

Euro / U.S. Dollar

 

 

5,203

 

 

 

2,480

 

Euro / British Pound

 

 

3,809

 

 

 

 

British Pound / U.S. Dollar

 

 

563

 

 

 

1,093

 

Euro / Hungarian Forint

 

 

 

 

 

3,266

 

U.S. Dollar / Canadian Dollar

 

 

4,504

 

 

 

2,000

 

Total

 

$

14,616

 

 

$

8,839

 

 

Net realized and unrealized foreign currency gains and losses was a net loss of $0.1 million and $0.4 million for the three and nine months ended September 30, 2018, respectively, and a net gain of $0.2 million and a net loss of $0.2 million for the three and nine months ended September 30, 2019, respectively, which are included in other income (expense), net in the condensed consolidated statements of operations. Excluding the underlying foreign currency exposure being hedged, net realized and unrealized gains and losses on forward contracts included in foreign currency gains and losses was a net loss of $40,000 and a net gain of $0.5 million for the three and nine months ended September 30, 2018, respectively, and a net loss of $0.1 million and $0.5 million for the three and nine months ended September 30, 2019, respectively.

Stock-Based Compensation — The Company values all stock-based compensation awards, primarily restricted stock units, at fair value on the date of grant and recognizes the expense over the requisite service period, which is generally the vesting period, on a straight-line basis.

Income Taxes — Deferred income taxes are provided for the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carryforwards and credits using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. At each balance sheet date, the Company assesses the likelihood that deferred tax assets will be realized and recognizes a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction.

The Company evaluates its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings is more likely than not to be realized. Potential interest and penalties associated with any uncertain tax positions are recorded as a component of income tax expense.

Guarantees and Indemnification Obligations — As permitted under Delaware law, the Company has agreements whereby the Company indemnifies certain of its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. As permitted under Delaware law, the Company also has similar indemnification obligations under its certificate of incorporation and bylaws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has directors’ and officers’ insurance coverage that the Company believes limits its exposure and enables it to recover a portion of any future amounts paid.

In the ordinary course of business, the Company enters into agreements with certain customers that contractually obligate the Company to provide indemnifications of varying scope and terms with respect to certain matters including, but not limited to, losses arising out of the breach of such agreements, from the services provided by the Company or claims alleging that the Company’s products infringe third-party patents, copyrights, or trademarks. The term of these indemnification obligations is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is, in many cases, unlimited. Through September 30, 2019, the Company has not experienced any losses related to these indemnification obligations.

Net Income (Loss) Per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential common shares outstanding from the assumed exercise of stock options and the vesting of restricted stock units.

The Company excluded the following options to purchase common shares and restricted stock units from the computation of diluted net income (loss) per share because they had an anti-dilutive impact (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Options to purchase common shares

 

 

 

 

 

 

 

 

 

 

 

42

 

Restricted stock units

 

 

853

 

 

 

1,431

 

 

 

113

 

 

 

1,767

 

Total options and restricted stock units

 

 

853

 

 

 

1,431

 

 

 

113

 

 

 

1,809

 

 

Basic and diluted net income (loss) per share was calculated as follows (in thousands, except per share data):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net income (loss)

 

$

12,717

 

 

$

5,108

 

 

$

48,983

 

 

$

(10,453

)

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

51,652

 

 

 

49,265

 

 

 

52,090

 

 

 

49,886

 

Net income (loss) per share, basic

 

$

0.25

 

 

$

0.10

 

 

$

0.94

 

 

$

(0.21

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

51,652

 

 

 

49,265

 

 

 

52,090

 

 

 

49,886

 

Add: Common stock equivalents

 

 

414

 

 

 

103

 

 

 

739

 

 

 

 

Weighted average common shares outstanding, diluted

 

 

52,066

 

 

 

49,368

 

 

 

52,829

 

 

 

49,886

 

Net income (loss) per share, diluted

 

$

0.24

 

 

$

0.10

 

 

$

0.93

 

 

$

(0.21

)

 

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software: Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, referred to herein as ASU 2018-15. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. ASU 2018-15 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company early adopted ASU 2018-15 on a prospective basis effective July 1, 2019. The adoption of this guidance did not have a significant effect on the Company’s condensed consolidated financial statements.

On January 1, 2019, the Company adopted ASU 2016-02, Leases Topic 842, or ASU 2016-02, which requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. In general, lease arrangements exceeding a twelve-month term must be recognized as assets and liabilities on the balance sheet. Under ASU 2016-02, a right-of-use asset and lease obligation is recorded for all leases, whether operating or financing, while the income statement reflects lease expense for operating leases and amortization/interest expense for financing leases. The Financial Accounting Standards Board, or FASB, also issued ASU 2018-10, Codification Improvements to Topic 842 Leases, and ASU 2018-11, Targeted Improvements to Topic 842 Leases, which allows the new lease standard to be applied as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings rather than retroactive restatement of all periods presented.

 

The Company adopted ASU 2016-02 and related amendments (collectively referred to herein as Topic 842) on January 1, 2019 using the modified retrospective approach applied at the beginning of the period of adoption and recorded operating lease assets of $117.3 million and operating lease liabilities of $123.4 million. The operating lease assets are lower than the operating lease liabilities, primarily because previously recorded net deferred rent balances were reclassified into the operating lease assets. There was no impact to retained earnings upon adoption of Topic 842.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed the Company to carry forward its historical lease classification. In addition, the Company has elected to exempt short term leases that qualify from recognizing right-of-use assets or lease liabilities and has elected to not separate lease and non-lease components for all leases of which it is the lessee. The Company’s non-lease components are primarily related to maintenance related costs, which are typically variable in nature and are expensed in the period incurred.

The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the assets’ economic benefits. The Company’s leases are primarily for office space. The Company determines the initial classification and measurement of its operating right-of-use assets and operating lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated incremental borrowing rate for that lease term.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the condensed consolidated statements of operations. For finance leases, any interest expense is recognized using the effective interest method and is included within interest expense. Amounts related to finance leases were immaterial as of September 30, 2019.

For all leases, payments that are based on a fixed index or rate are included in the measurement of right-of-use assets and lease liabilities using the index or rate at the lease commencement date. The portion of future payments that vary based on the outcome of future indexes or rates are expensed in the period incurred.

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016-13, which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the potential impact of the adoption of ASU 2016-13 on its condensed consolidated financial statements.

v3.19.3
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The carrying value of the Company’s financial instruments, including cash equivalents, restricted cash, accounts receivable and accounts payable, approximate their fair values due to their short maturities and the debt outstanding under the variable-rate credit facility approximates fair value. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:

 

Level 1: Unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company at the measurement date.

 

Level 2: Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

Certificates of deposit, commercial paper and certain U.S. government agency securities are classified within Level 2 of the fair value hierarchy. These instruments are valued based on quoted prices in markets that are not active or based on other observable inputs consisting of market yields, reported trades and broker/dealer quotes.

The principal market in which the Company executes foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants are usually large financial institutions. The Company’s foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

The Company’s Level 3 liability at September 30, 2019 consisted of contingent consideration related to a 2019 acquisition, as described further in Note 4 below. The remaining contingent consideration liability of up to $2.0 million is based on the achievement of certain development milestones, the fair value of which is estimated at $1.7 million as of September 30, 2019. The fair value of contingent consideration was estimated by applying a probability-based model, which utilized inputs that were unobservable in the market.

The Company’s significant financial assets and liabilities are measured at fair value in the table below (in thousands), which excludes cash on hand and assets and liabilities that are measured at historical cost or any basis other than fair value.

 

 

 

Fair Value Measurements at December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

7,207

 

 

$

19,943

 

 

$

 

 

$

27,150

 

Forward contracts ($14.6 million notional amount)

 

$

 

 

$

5

 

 

$

 

 

$

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 30, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

1,419

 

 

$

 

 

$

 

 

$

1,419

 

Forward contracts ($8.8 million notional amount)

 

$

 

 

$

(30

)

 

$

 

 

$

(30

)

Contingent consideration liability

 

$

 

 

$

 

 

$

(1,718

)

 

$

(1,718

)

 

v3.19.3
Acquisitions
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisitions

4. Acquisitions

Acquisition-Related Costs

Acquisition-related costs were $19.1 million and $10.3 million for the nine months ended September 30, 2018 and 2019, respectively. Acquisition-related costs are associated with the acquisitions of businesses and intellectual property and include transaction, transition and integration-related charges (including legal, accounting and other professional fees, severance, and retention bonuses) and subsequent adjustments to the Company’s initial estimated amount of contingent consideration associated with acquisitions.

Acquisition-related costs for the nine months ended September 30, 2018 were primarily related to $3.5 million in integration-related severance costs, $7.6 million of transaction, transition and integration-related expenses largely related to the acquisition of Jive Communications, Inc., or Jive, which closed on April 3, 2018, and $8.0 million of retention-based bonuses primarily related to Jive and the Company’s 2017 acquisition of Nanorep Technologies Ltd. Acquisition-related costs for the nine months ended September 30, 2019 were primarily related to $1.9 million of transaction, transition and integration-related costs and $8.3 million of retention-based bonuses primarily related to the Jive and 2019 acquisitions described below.

2019 Acquisitions

On February 6, 2019, the Company acquired substantially all of the assets of an Israeli-based company specializing in artificial intelligence, or A.I., and speech-to-text recognition, pursuant to an asset purchase agreement. The Company completed the acquisition for $5.0 million in cash and potential acquisition-related contingent consideration totaling up to $4.0 million payable in 2019 and 2020 contingent upon the achievement of certain development milestones. This contingent consideration liability was recorded at an estimated fair value of $3.2 million at the acquisition date. In the nine months ended September 30, 2019, the Company paid $2.0 million of the contingent consideration for the achievement of the first development milestone. During the three and nine months ended September 30, 2019, the Company recorded $0.4 million and $0.6 million, respectively, of expense related to the change in fair value of the contingent consideration liability. As of September 30, 2019, the fair value of the remaining $2.0 million contingent consideration liability was $1.7 million. The Company will re-measure the fair value of the contingent consideration at each subsequent reporting period and recognize any adjustments to fair value as part of earnings. The Company accounted for the acquisition as a business combination. Assets acquired were primarily intellectual property. The Company’s purchase price allocation of the $8.2 million purchase consideration was $5.1 million of completed technology and $3.1 million of goodwill. The Company finalized the allocation of the purchase price in the second quarter of 2019. Additionally, the Company expects to pay up to $2.0 million in retention-based bonus payments to certain employees upon the achievement of specified retention milestones over the two-year period following the closing of the transaction.

On February 21, 2019, the Company acquired a California-based provider of multi-factor and single-sign-on, or SSO, services pursuant to a stock purchase agreement dated February 13, 2019 for $17.5 million, net of cash acquired. Additionally, the Company expects to pay up to $4.4 million in retention-based bonus payments to certain employees upon the achievement of specified retention milestones over a three-year period following the closing of the transaction. The Company accounted for the acquisition as a business combination. The Company’s preliminary purchase price allocation of the $17.5 million purchase consideration was $11.8 million of completed technology, $9.0 million of goodwill and $0.1 million of other current assets partially offset by $0.3 million of current liabilities and $3.1 million of a long-term deferred tax liability primarily related to the amortization of intangible assets which cannot be deducted for tax purposes. The allocation of the purchase price is preliminary for income taxes as the Company is still gathering information. The Company plans to finalize the preliminary purchase price allocation in the fourth quarter of 2019.

The operating results of these February 2019 acquisitions, which have been included in the Company’s results since the date of the acquisitions, are not material. Accordingly, pro forma financial information for these business combinations has not been presented.

2018 Acquisition

Jive Communications, Inc.

On April 3, 2018, the Company acquired all of the outstanding equity of Jive Communications, Inc., a provider of cloud-based phone systems and unified communications services for $342.1 million, net of cash acquired. The Company funded the purchase price through a combination of existing cash on-hand and a $200.0 million revolving loan borrowed pursuant to its existing credit agreement.

Additionally, the Company expects to pay up to $15 million in retention-based bonus payments to certain employees of Jive upon the achievement of specified retention milestones over the two-year period following the closing of the transaction, of which $4.6 million has been paid as of September 30, 2019. At the time of the closing, Jive had approximately 700 employees and fiscal year 2017 revenue was approximately $80 million. The operating results of Jive have been included in the Company’s results since the date of the acquisition. The Company continues to integrate Jive into its business and has begun selling new bundled product offerings. In 2019, stand-alone Jive revenue and operating income are not provided as the continued integration of the business and go-to-market strategy made these metrics incomparable to prior periods.

The acquisition was accounted for under the acquisition method of accounting. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The fair value of assets acquired and liabilities assumed has been recognized based on management’s estimates and assumptions using the information about facts and circumstances that existed at the acquisition date.

The following table summarizes the Company’s purchase price allocation (in thousands):

 

Cash

 

$

2,571

 

Accounts receivable

 

 

11,986

 

Property and equipment

 

 

2,492

 

Prepaid expenses and other current assets

 

 

2,511

 

Other assets

 

 

2,255

 

Intangible assets:

 

 

 

 

Completed technology (9 years)

 

 

35,200

 

Customer relationships (10 years)

 

 

117,500

 

Trade name (2 years)

 

 

900

 

Deferred revenue

 

 

(5,498

)

Accounts payable and accrued liabilities

 

 

(7,685

)

Deferred tax liabilities, net

 

 

(25,223

)

Goodwill

 

 

207,634

 

Total purchase consideration

 

 

344,643

 

Less: cash acquired

 

 

(2,571

)

Total purchase consideration, net of cash acquired

 

$

342,072

 

 

 

The useful lives of the identifiable intangible assets acquired range from 2 to 10 years with a weighted average useful life of 9.7 years. The goodwill recorded in connection with this transaction is primarily related to the expected opportunities to be achieved as a result of the Company’s ability to leverage its customer base, sales force and business plan with Jive’s product, technical expertise and customer base. All goodwill and intangible assets acquired are not deductible for income tax purposes.

The Company recorded a long-term deferred tax liability, net, of $25.2 million primarily related to definite-lived intangible assets which cannot be deducted for tax purposes, partially offset by deferred tax assets primarily related to net operating losses acquired.

The unaudited financial information in the table below summarizes the combined results of operations of the Company, including Jive, on a pro forma basis, as though the acquisition had been consummated as of the beginning of 2017, including amortization charges from acquired intangible assets, interest expense on borrowings and lower interest income in connection with the Company’s funding of the acquisition with existing cash and cash equivalents and borrowings under its credit facility, the inclusion of expense related to retention-based bonuses assuming full achievement of the retention requirements, the reclassification of acquisition-related costs of the Company and Jive incurred up to the transaction closing date, the effect of acquisition accounting on the fair value of acquired deferred revenue and the related tax effects. Any impact on the Jive pro forma net deferred tax liabilities as a result of the reduction in the federal corporate tax rate resulting from the Tax Cuts and Jobs Act of 2017, or the U.S. Tax Act, enacted on December 22, 2017 has been excluded. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place at the beginning of 2017.

Unaudited Pro Forma Financial Information (in millions except per share amounts)

 

 

 

Nine Months Ended

September 30, 2018

 

 

 

Reported

 

 

Pro Forma

 

 

 

(unaudited)

 

Revenue

 

$

893.8

 

 

$

917.7

 

Net income

 

$

49.0

 

 

$

39.7

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.94

 

 

$

0.76

 

Diluted

 

$

0.93

 

 

$

0.75

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

52.1

 

 

 

52.1

 

Diluted

 

 

52.8

 

 

 

52.8

 

 

v3.19.3
Divestitures
9 Months Ended
Sep. 30, 2019
Divestitures [Abstract]  
Divestitures

5. Divestitures

Divestiture of Xively

On February 9, 2018, the Company and certain of its subsidiaries entered into an agreement to sell its Xively business. On March 20, 2018, the Company completed the sale for consideration of $49.9 million, comprised of $42.4 million of cash received in the first quarter of 2018 and $7.5 million of receivables held back as an escrow by the buyer as an exclusive security in the event of the Company’s breach of any of the representations and warranties in the definitive agreement. The Company received the $7.5 million escrow payment in September 2019.

The Xively disposition resulted in a gain of $33.9 million recorded in 2018, comprised of the present value of the $49.6 million received as consideration less net assets disposed of $13.3 million and transaction costs of $2.4 million. The net assets disposed are primarily comprised of $14.0 million of goodwill allocated to the Xively business. The sale of the Xively business does not constitute a significant strategic shift that will have a material impact on the Company’s ongoing operations and financial results. Accordingly, pro forma information for the divestiture of Xively has not been presented.

v3.19.3
Goodwill and Intangible Assets
9 Months Ended
Sep. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

6. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill during the nine months ended September 30, 2019 are primarily due to the 2019 acquisitions. For additional information regarding these acquisitions, see Note 4 to the condensed consolidated financial statements.

Changes in goodwill for the nine months ended September 30, 2019 are as follows (in thousands):

 

Balance, January 1, 2019

 

$

2,400,390

 

Goodwill resulting from 2019 acquisitions

 

 

12,040

 

Foreign currency translation adjustments

 

 

1,905

 

Balance, September 30, 2019

 

$

2,414,335

 

 

Intangible assets consist of the following (in thousands):

 

 

 

December 31, 2018

 

 

September 30, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Weighted

Average

Life

Remaining

(in years)

 

Identifiable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

920,265

 

 

$

294,362

 

 

$

625,903

 

 

$

914,615

 

 

$

402,012

 

 

$

512,603

 

 

 

5.9

 

Technology

 

 

481,776

 

 

 

132,895

 

 

 

348,881

 

 

 

495,982

 

 

 

194,652

 

 

 

301,330

 

 

 

6.3

 

Trade names and trademarks

 

 

70,985

 

 

 

20,685

 

 

 

50,300

 

 

 

70,469

 

 

 

28,118

 

 

 

42,351

 

 

 

6.3

 

Other

 

 

3,577

 

 

 

1,319

 

 

 

2,258

 

 

 

3,573

 

 

 

1,557

 

 

 

2,016

 

 

 

6.3

 

Internally developed software

 

 

66,361

 

 

 

33,715

 

 

 

32,646

 

 

 

95,211

 

 

 

57,711

 

 

 

37,500

 

 

 

1.5

 

 

 

$

1,542,964

 

 

$

482,976

 

 

$

1,059,988

 

 

$

1,579,850

 

 

$

684,050

 

 

$

895,800

 

 

 

 

 

 

During the nine months ended September 30, 2019, the Company capitalized $16.9 million for technology as intangible assets in connection with its 2019 acquisitions. The Company also capitalized $8.2 million and $10.7 million during the three months ended September 30, 2018 and 2019, respectively, and $23.5 million and $29.5 million during the nine months ended September 30, 2018 and 2019, respectively, of costs related to internally developed software to be sold as a service incurred during the application development stage and is amortizing these costs over the expected lives of the related services.

The Company is amortizing its intangible assets based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives. Amortization relating to technology, documented know-how (other) and internally developed software is recorded within cost of revenue and the amortization of trade names and trademarks, customer relationships, and domain names (other) is recorded within operating expenses. Amortization expense for intangible assets consisted of the following (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of internally developed software

 

$

6,105

 

 

$

8,342

 

 

$

15,554

 

 

$

24,640

 

Amortization of acquired intangibles (1)

 

 

18,216

 

 

 

20,859

 

 

 

54,388

 

 

 

62,867

 

Sub-Total amortization of intangibles in cost of revenue

 

 

24,321

 

 

 

29,201

 

 

 

69,942

 

 

 

87,507

 

Amortization of acquired intangibles (1)

 

 

44,268

 

 

 

39,368

 

 

 

128,698

 

 

 

118,257

 

Total amortization of intangibles

 

$

68,589

 

 

$

68,569

 

 

$

198,640