LOGMEIN, INC., 10-Q filed on 7/28/2017
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2017
Jul. 24, 2017
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
LOGM 
 
Entity Registrant Name
LogMeIn, Inc. 
 
Entity Central Index Key
0001420302 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
52,728,376 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 261,007 
$ 140,756 
Marketable securities
24,488 
55,710 
Accounts receivable (net of allowance of $245 and $1,764 as of December 31, 2016 and June 30, 2017, respectively)
75,765 
25,901 
Prepaid expenses and other current assets
40,354 
5,723 
Total current assets
401,614 
228,090 
Property and equipment, net
82,538 
23,867 
Restricted cash
1,549 
2,481 
Intangibles, net
1,209,249 
62,510 
Goodwill
2,225,692 
121,760 
Other assets
8,186 
4,282 
Deferred tax assets
262 
303 
Total assets
3,929,090 
443,293 
Current liabilities:
 
 
Accounts payable
37,040 
14,640 
Accrued liabilities
104,321 
35,253 
Deferred revenue, current portion
304,777 
156,966 
Total current liabilities
446,138 
206,859 
Long-term debt
 
30,000 
Deferred revenue, net of current portion
5,373 
5,287 
Deferred tax liabilities
388,254 
2,332 
Other long-term liabilities
5,802 
2,699 
Total liabilities
845,567 
247,177 
Commitments and contingencies (Note 10)
   
   
Preferred stock, $0.01 par value - 5,000 shares authorized, 0 shares outstanding as of December 31, 2016 and June 30, 2017
   
   
Equity:
 
 
Common stock, $0.01 par value - 75,000 and 150,000 shares authorized as of December 31, 2016 and June 30, 2017 respectively; 28,405 and 55,906 shares issued as of December 31, 2016 and June 30, 2017, respectively; 25,552 and 52,773 outstanding as of December 31, 2016 and June 30, 2017, respectively
559 
284 
Additional paid-in capital
3,244,722 
314,700 
Accumulated deficit
(26,460)
(1,754)
Accumulated other comprehensive (loss) income
4,813 
(6,618)
Treasury stock, at cost - 2,853 and 3,132 shares as of December 31, 2016 and June 30, 2017, respectively
(140,111)
(110,496)
Total equity
3,083,523 
196,116 
Total liabilities and equity
$ 3,929,090 
$ 443,293 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 1,764 
$ 245 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000,000 
5,000,000 
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
150,000,000 
75,000,000 
Common stock, shares issued
55,906,000 
28,405,000 
Common stock, shares outstanding
52,773,000 
25,552,000 
Treasury stock, shares
3,132,000 
2,853,000 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Income Statement [Abstract]
 
 
 
 
Revenue
$ 257,025 
$ 83,266 
$ 444,483 
$ 163,000 
Cost of revenue
53,236 
11,436 
92,175 
22,636 
Gross profit
203,789 
71,830 
352,308 
140,364 
Operating expenses
 
 
 
 
Research and development
40,710 
14,046 
73,832 
29,410 
Sales and marketing
93,469 
41,663 
169,237 
83,905 
General and administrative
33,163 
11,404 
82,554 
21,656 
Amortization of acquired intangibles
36,154 
1,357 
60,574 
2,740 
Total operating expenses
203,496 
68,470 
386,197 
137,711 
Income (loss) from operations
293 
3,360 
(33,889)
2,653 
Interest income
373 
186 
519 
369 
Interest expense
(345)
(367)
(794)
(759)
Other expense, net
(128)
(92)
(78)
(496)
Income (loss) before income taxes
193 
3,087 
(34,242)
1,767 
(Provision for) benefit from income taxes
14,653 
(581)
30,524 
(334)
Net income (loss)
$ 14,846 
$ 2,506 
$ (3,718)
$ 1,433 
Net income (loss) per share:
 
 
 
 
Basic
$ 0.28 
$ 0.10 
$ (0.08)
$ 0.06 
Diluted
$ 0.28 
$ 0.10 
$ (0.08)
$ 0.06 
Weighted average shares outstanding:
 
 
 
 
Basic
52,715 
25,135 
48,168 
25,144 
Diluted
53,723 
25,828 
48,168 
25,841 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net income (loss)
$ 14,846 
$ 2,506 
$ (3,718)
$ 1,433 
Other comprehensive (loss) gain :
 
 
 
 
Net unrealized gains (losses) on marketable securities, (net of tax provision $12 and $1 for the three months ended June 30, 2016 and 2017 and a tax provision of $60 and a tax benefit of $2 for the six months ended June 30, 2016 and 2017)
21 
(3)
105 
Net translation (losses) gains
11,530 
(644)
11,434 
(202)
Total other comprehensive (loss) gain
11,532 
(623)
11,431 
(97)
Comprehensive income
$ 26,378 
$ 1,883 
$ 7,713 
$ 1,336 
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net unrealized gains (losses) on marketable securities, tax (benefit) provision
$ 1 
$ 12 
$ (2)
$ 60 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Cash flows from operating activities
 
 
Net income (loss)
$ (3,718)
$ 1,433 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Stock-based compensation
30,490 
18,328 
Depreciation and amortization
98,586 
10,704 
Amortization of premium on investments
114 
257 
Change in fair value of contingent consideration liability
 
502 
Amortization of debt issuance costs
319 
144 
Provision for bad debts
119 
26 
Benefit from deferred income taxes
(32,477)
 
Other, net
822 
(3)
Changes in assets and liabilities, excluding effect of acquisitions:
 
 
Accounts receivable
(3)
1,562 
Prepaid expenses and other current assets
(12,586)
(2,306)
Other assets
156 
949 
Accounts payable
11,194 
2,523 
Accrued liabilities
38,044 
342 
Deferred revenue
59,752 
26,073 
Other long-term liabilities
1,973 
3,460 
Net cash provided by operating activities
192,785 
63,994 
Cash flows from investing activities
 
 
Purchases of marketable securities
 
(31,573)
Proceeds from sale or disposal or maturity of marketable securities
31,103 
31,250 
Purchases of property and equipment
(9,804)
(8,812)
Intangible asset additions
(13,709)
(715)
Cash paid for acquisition, net of cash acquired
24,215 
(61)
(Increase) decrease in restricted cash
1,750 
(31)
Net cash (used in) provided by investing activities
33,555 
(9,942)
Cash flows from financing activities
 
 
Repayments under credit facility
(30,000)
(15,000)
Proceeds from issuance of common stock upon option exercises
5,354 
5,404 
Payments of withholding taxes in connection with restricted stock unit vesting
(29,455)
(8,617)
Payment of debt issuance costs
(1,993)
(349)
Dividends paid on common stock
(25,936)
 
Purchase of treasury stock
(29,615)
(19,337)
Net cash used in financing activities
(111,645)
(37,899)
Effect of exchange rate changes on cash and cash equivalents
5,556 
586 
Net increase in cash and cash equivalents
120,251 
16,739 
Cash and cash equivalents, beginning of period
140,756 
123,143 
Cash and cash equivalents, end of period
261,007 
139,882 
Supplemental disclosure of cash flow information
 
 
Cash paid for interest
201 
547 
Cash paid for income taxes
12,879 
127 
Noncash investing and financing activities
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
4,492 
3,219 
Fair value of contingent consideration in connection with acquisition, included in accrued liabilities
 
2,530 
Receivable for proceeds from issuance of common stock upon option exercises
 
148 
GetGo, Inc. [Member]
 
 
Noncash investing and financing activities
 
 
Purchase consideration of GetGo paid in equity
$ 2,921,179 
 
Nature of the Business
Nature of the Business

1. Nature of the Business

LogMeIn, Inc. (the “Company”) provides a portfolio of cloud-based communication and conferencing, identity and access, 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 wholly-owned subsidiaries in North America, South America, Europe, Asia and Australia.

On January 31, 2017, the Company completed a merger with GetGo, Inc. (“GetGo”) a wholly-owned subsidiary of Citrix Systems, Inc. (“Citrix), pursuant to which the Company combined with Citrix’s GoTo family of service offerings known as the “GoTo Business” in a Reverse Morris Trust transaction (the “Merger”). For additional information regarding the Merger, see Note 4 below.

Summary of Significant Accounting Policies
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 (“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 March 1, 2017. 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.

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2016 and June 30, 2017, marketable securities consisted of U.S. government agency securities and corporate bonds that have remaining maturities within two years and have an aggregate amortized cost of $55.7 million and $24.5 million, respectively. The securities have an aggregate fair value of $55.7 million and $24.5 million, including $17,000 and $0 of unrealized gains and $43,000 and $29,000 of unrealized losses, at December 31, 2016 and June 30, 2017, respectively.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its premium subscription software services, usage fees from its audio services and to a lesser extent, the delivery of professional services, primarily related to its Customer Engagement and Support business. Revenues are reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction.

Revenue from the Company’s premium services is recognized on a daily basis over the subscription term as the services are delivered, provided that there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is deemed reasonably assured. Subscription periods range from monthly to ten years. 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. Revenue from the Company’s audio services is recognized upon actual usage of audio minutes or the expiration of audio minutes purchased in prepaid plans. Any unbilled audio revenue is accrued for in the period the usage occurs.

 

The Company’s multi-element arrangements typically include subscription and professional services, which may include development services. The Company evaluates each element within the arrangement to determine if they can be accounted for as separate units of accounting. If the delivered item or items have value to the customer on a standalone basis, either because they are sold separately by any vendor or the customer could resell the delivered item or items on a standalone basis, the Company has determined that the deliverables within these arrangements qualify for treatment as separate units of accounting. Accordingly, the Company recognizes revenue for each delivered item or items as a separate earnings process commencing when all of the significant performance obligations have been performed and when all of the revenue recognition criteria have been met. Professional services revenue recognized as a separate earnings process under multi-element arrangements has been immaterial to date.

In cases where the Company has determined that the delivered items within its multi-element arrangements do not have value to the customer on a stand-alone basis, the arrangement is accounted for as a single unit of accounting and the related consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met. Revenue from multi-element arrangements accounted for as a single unit of accounting which do not have value to the customer has been immaterial to date.

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, marketable securities, 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 and custody of its marketable securities is with an accredited financial institution. 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 six months ended June 30, 2016 and 2017, no customers accounted for more than 10% of revenue. As of December 31, 2016 and June 30, 2017, no customers accounted for more than 10% of accounts receivable.

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, 2016, our measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through June 30, 2017, 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 June 30, 2017, 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 contract 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.

The Company had net foreign currency losses of $0.1 million and $0.5 million for the three and six months ended June 30, 2016, respectively, and net foreign currency losses of $0.1 million for each of the three and six months ended June 30, 2017, included in other expense in the condensed consolidated statements of operations. As of June 30, 2017, the Company did not have any foreign currency forward contracts outstanding.

 

Stock-Based Compensation — The Company values all stock-based compensation, including grants of stock options and 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 of the award, for those awards expected to vest, 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 carry-forwards 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.

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.

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Revenues:

           

United States

   $ 59,476      $ 199,108      $ 116,727      $ 340,286  

United Kingdom

     6,523        12,450        12,709        23,947  

International—all other

     17,267        45,467        33,564        80,250  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 83,266      $ 257,025      $ 163,000      $ 444,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts for the three and six months ended June 30, 2016 presented in the Company’s revenue by service cloud (product grouping) table below include reclassifications between product groups to conform to the current year classification of the Company’s and the GoTo Business’ products (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Revenues:

           

Communications and Collaboration cloud

   $ 9,989      $ 141,239      $ 19,209      $ 230,972  

Identity and Access Management cloud

     48,152        71,561        94,131        132,107  

Customer Engagement and Support cloud

     25,125        44,225        49,660        81,404  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 83,266      $ 257,025      $ 163,000      $ 444,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s 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 June 30, 2017, 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. For the six months ended June 30, 2017, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents was not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for the period were identical.

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Options to purchase common shares

     —        —        —        206  

Restricted stock units

     337        505        429        1,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     337        505        429        2,070  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three months ended June 30,      Six months ended June 30,  
     2016      2017      2016      2017  

Basic:

           

Net income (loss)

   $ 2,506      $ 14,846      $ 1,433      $ (3,718 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, basic

     25,135        52,715        25,144        48,168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share, basic

   $ 0.10      $ 0.28      $ 0.06      $ (0.08 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted:

           

Net income (loss)

   $ 2,506      $ 14,846      $ 1,433      $ (3,718 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     25,135        52,715        25,144        48,168  

Add: Common stock equivalents

     693        1,008        697        —  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     25,828        53,723        25,841        48,168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share, diluted

   $ 0.10      $ 0.28      $ 0.06      $ (0.08 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Recently Adopted Accounting Pronouncements

On May 10, 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which provides clarity on what changes to share-based payment awards are considered substantive and require modification accounting to be applied. The guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The Company has early adopted ASU 2017-09 in second quarter 2017 and will apply it prospectively to award modifications after the adoption date. The Company does not regularly modify the terms and conditions of share-based awards and does not believe this ASU 2017-09 will have a material effect on its consolidated financial statements.

On January 1, 2017, the Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) and recorded, using the modified retrospective approach, a cumulative-effect adjustment to accumulated deficit of a credit of $4.9 million to record $6.8 million of previously unrecognized windfall tax benefits, partially offset by $1.9 million for the accounting policy election to account for forfeitures in compensation cost when they occurred. The Company recorded $2.7 million to additional paid-in capital for the differential between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures, partially offset by its tax effect of $0.8 million recorded to deferred tax assets. Previously, excess tax benefits were recognized in additional paid-in capital on the condensed consolidated balance sheet to the extent they reduced income taxes payable.

 

Further, upon the adoption of ASU 2016-09, the Company, on a prospective basis, records the recognition of excess tax benefits and deficits in benefit from income taxes in the condensed consolidated income statement and treats those amounts as discrete items in the period in which they occur. In the first quarter of 2017, the Company recognized a $2.3 million income tax benefit and a corresponding decrease in net loss during the period ($0.05 per weighted average shares outstanding).

On January 1, 2017, the Company early adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”) which records the effect of intra-entity transfers of assets other than inventory when the transfer occurs, resulting in $0.1 million charged to accumulated deficit upon adoption in the first quarter of 2017.

Recently Issued Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), its final standard on revenue from contracts with customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations in the contract and recognizes revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of ASU 2014-09’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (i.e. property plant and equipment, real estate or intangible assets). Existing accounting guidance applicable to these transfers has been amended or superseded. ASU 2014-09 also requires significantly expanded disclosures about revenue recognition. ASU 2014-09 will be effective for the Company on January 1, 2018, with early adoption permitted, but not earlier than January 1, 2017. The Company is currently assessing the method of adoption and potential impact of the adoption of ASU 2014-09 on its consolidated financial statements, including the impact after considering the Merger with GetGo on January 31, 2017.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. Although the Company is currently assessing the impact of adoption of ASU 2016-02 on its consolidated financial statements, the Company currently believes the most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on the Company’s balance sheet for operating leases.

On January 26, 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity’s testing of reporting units for goodwill impairment, clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual reporting periods beginning after January 1, 2020 and interim periods within those fiscal years. The Company is currently assessing the potential impact of the adoption of ASU 2017-04 on its consolidated financial statements.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB’s EITF) (“ASU 2016-18”). ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently assessing the potential impact of the adoption of ASU 2016-18 on its consolidated financial statements.

Fair Value of Financial Instruments
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. 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.

 

The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

 

     Fair Value Measurements at December 31, 2016  
     Level 1      Level 2      Level 3      Total  

Cash equivalents — money market funds

   $ 11,599      $ —      $ —      $ 11,599  

Short-term marketable securities:

           

U.S. government agency securities

     34,961        8,001        —        42,962  

Corporate bond securities

     —        12,748        —        12,748  

 

     Fair Value Measurements at June 30, 2017  
     Level 1      Level 2      Level 3      Total  

Cash equivalents — money market funds

   $ 172,352        —        —      $ 172,352  

Short-term marketable securities:

        

U.S. government agency securities

     16,492        —          —        16,492  

Corporate bond securities

     —          7,966        —        7,996  

Bank deposits, corporate bonds and certain U.S. government agency securities are classified within the second level of the fair value hierarchy as the fair value of those assets are determined based upon quoted prices for similar assets.

Acquisitions
Acquisitions

4. Acquisitions

Acquisition-Related Costs

Acquisition-related costs were $6.2 million and $40.9 million for the six months ended June 30, 2016 and 2017. 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 our initial estimated amount of contingent consideration associated with acquisitions. Acquisition-related costs for the first six months of 2016 were primarily comprised of retention bonuses related to the Company’s 2014 and 2015 acquisitions. Acquisition-related costs for the first six months of 2017 were primarily related to the Merger and consisted of $21.5 million in transaction, transition and integration-related expenses, $8.2 million in integration-related severance costs and $11.2 million of retention-based bonuses, which also includes $3.0 million related to the Company’s 2015 and 2016 acquisitions.

2017 Acquisitions

GetGo Merger

On January 31, 2017, the Company completed its Merger with GetGo, a wholly-owned subsidiary of Citrix, pursuant to which the Company acquired Citrix’s GoTo Business. In connection with the Merger, the Company issued 26.9 million shares of its common stock to Citrix stockholders and an additional 0.4 million of the Company’s restricted stock units in substitution for certain outstanding Citrix restricted stock units held by GetGo employees. Based on the Company’s closing stock price of $108.10 on January 31, 2017 as reported by the NASDAQ Global Select Market, the total value of the shares of LogMeIn common stock issued to Citrix stockholders in connection with the Merger was $2.9 billion.

The Merger is being accounted for under the acquisition method of accounting with the operations of the GoTo Business included in the Company’s operating results since the date of acquisition. During the six months ended June 30, 2017, the Company recorded revenue of $267.1 million, amortization of acquired intangibles of $72.6 million, and acquisition-related transaction, transition and integration costs of $37.2 million directly attributable to the Merger within its condensed consolidated financial statements. Since the Merger, the operating costs of the GoTo Business have been integrated with the operating costs of the Company and therefore, the Company has not provided operating income for the GoTo Business.

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 preliminary determination of 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.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The finalization of the purchase accounting assessment will result in a change in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company’s results of operations and financial position. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill to reflect additional information received about facts and circumstances that existed at the date of acquisition. The Company records these adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company’s operating results in the period in which the adjustments were determined. The size and breadth of the Merger will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the fair value of certain tangible and intangible assets acquired and liabilities assumed as of the acquisition date and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values presented below.

The following table summarizes the fair value (in thousands) of the assets acquired and liabilities assumed at the date of acquisition:

 

Purchase consideration:

  

Company common shares issued

   $ 2,904,487 (1) 

Restricted stock units issued

     16,692 (2)  
  

 

 

 

Total estimated purchase consideration

   $ 2,921,179  

Estimated fair value of assets acquired and liabilities assumed:

  

Cash

     24,215  

Accounts receivable

     48,957 (3) 

Property and equipment

     59,715  

Prepaid expense and other current assets

     21,448 (3) 

Other assets

     4,448  

Intangible assets (weighted average useful life): (4)

  

Completed technology (9 years)

     385,000  

Customer relationships (8 years)

     756,000  

Tradenames and trademark (9 years)

     65,100  

Accounts payable

     (11,030 )

Accrued liabilities

     (26,886 )

Deferred revenue, current and noncurrent

     (82,643 )

Other long-term liabilities

     (996 )

Deferred tax liability, net

     (426,081 )
  

 

 

 

Goodwill

   $ 2,103,932  
  

 

 

 

 

(1) Represents the fair value of the 26.9 million new shares of the Company’s common stock (plus cash in lieu of fractional shares) issued to Citrix stockholders, based on the fair value per share of the Company’s common stock of $108.10 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on January 31, 2017.
(2) Represents the fair value of the 0.4 million Company restricted stock units issued by the Company in substitution for certain outstanding Citrix restricted stock units held by GetGo employees, pursuant to the terms of the Merger. These Company restricted stock units were issued on the same terms and conditions as were applicable to the outstanding Citrix restricted stock units held by the GetGo employees immediately prior to the Merger date (including the same vesting and forfeiture provisions). The aggregate fair value of those awards ($48.2 million) is based on the fair value per share of the Company’s common stock of $108.10 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on January 31, 2017. Of that amount, $18.0 million was related to pre-combination employee services and, after adjusting for known and estimated forfeitures, $16.7 million was allocated to purchase consideration and $30.2 million was allocated to future employee services and will be expensed as stock-based compensation on a straight-line basis over the remaining service periods of those awards.
(3) During the six months ended June 30, 2017, the Company identified measurement period adjustments that impacted the estimated fair value of the assets and liabilities assumed as of the date of the acquisition. The table above, which summarizes the allocation of the purchase price for the entities acquired, has been updated to reflect these measurement period adjustments. The total measurement period adjustments resulted in a decrease in accounts receivable of $1.1 million, a decrease in prepaid expense and other current assets of $0.3 million and an overall increase in goodwill of $1.4 million. This change to the provisional fair value amounts of the assets and liabilities assumed had no impact on the Company’s results of operations for the six months ended June 30, 2017.
(4) The weighted average useful life of identifiable intangible assets acquired in the Merger is 8.4 years.

The completion of the Merger and the acquisition of the GoTo Business is expected to result in a combined company with the scale, employees, products and customer base needed to lead large markets, support a more global customer base and compete against a variety of different solution providers of all sizes. Goodwill of $2.1 billion was recognized for the excess purchase consideration over the estimated fair value of the assets acquired. Goodwill and intangible assets recorded as part of the acquisition are not deductible for tax purposes.

The Company recorded a deferred tax liability, net of deferred tax assets, of $426.1 million, which was primarily related to the amortization of intangible assets which cannot be deducted for tax purposes and which was partially offset by deferred tax assets primarily related to the pre-combination services of the Company’s restricted stock units issued in substitution for the outstanding Citrix restricted stock units pursuant to the Merger agreement.

 

The Company and Citrix entered into a transition services agreement, pursuant to which each party will provide to the other party certain services on a transitional basis following the completion of the Merger to facilitate the transition of the GoTo Business to the Company. Among other services, the transition services generally relate to information technology and security operations, facilities, human resources support and accounting and finance support. As of June 30, 2017, the Company has incurred $4.1 million of costs related to the transition services agreement.

The unaudited financial information in the table below summarizes the combined results of operations of the Company, including the GoTo Business, on a pro forma basis, as though the Merger had been consummated as of the beginning of 2016, including amortization charges from acquired intangible assets, the effect of acquisition accounting on the fair value of acquired deferred revenue, the inclusion of expense related to retention-based bonuses assuming full achievement of the retention requirements, the reclassification of all acquisition-related costs incurred by the Company and the GoTo Business as of the beginning of 2016, and the related tax effects. 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 if the acquisition had taken place at the beginning of 2016.

Unaudited Pro Forma Financial Information

 

     Three Months Ended      Six Months Ended  
     June 30, (unaudited)      June 30, (unaudited)  
     2016      2016      2017  
     (in millions except per share amounts)  

Pro forma revenue

   $ 243.5      $ 472.8      $ 515.4  

Pro forma net (loss) income

   $ (14.4    $ (92.9    $ 26.1  

Pro forma (loss) income per share:

        

Basic

   $ (0.29    $ (1.80    $ 0.50  

Diluted

   $ (0.29    $ (1.80    $ 0.49  

Pro forma weighted average shares outstanding

        

Basic

     52.0        52.0        52.6  

Diluted

     52.0        52.0        53.8  

2016 Acquisitions

AuthAir

On October 31, 2016, the Company acquired all of the outstanding equity interests in AuthAir, Inc., a Woodbridge, Connecticut-based provider of proximity-based security and wireless authentication solutions, for $6.0 million. The Company finalized the allocation of the purchase price in the second quarter of 2017 and no further adjustments were recorded.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill during the six months ended June 30, 2017 are due to the addition of goodwill resulting from the Merger (see Note 4 for additional information).

Changes in goodwill for the six months ended June 30, 2017 are as follows (in thousands):

 

Balance, December 31, 2016

   $ 121,760  

Goodwill resulting from the Merger

     2,103,932  
  

 

 

 

Balance, June 30, 2017

   $ 2,225,692  
  

 

 

 

Intangible assets consist of the following (in thousands):

 

            December 31, 2016      June 30, 2017  
     Estimated
Useful
Life
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
 

Identifiable intangible assets:

                    

Trade names and trademarks

     1-11 years      $ 3,806      $ 955      $ 2,851      $ 69,577      $ 5,172      $ 64,405  

Customer relationships

     5-8 years        29,249        9,315        19,934        793,046        66,165        726,881  

Domain names

     5 years        913        796        117        917        850        67  

Technology

     3-9 years        51,179        14,942        36,237        440,150        37,299        402,851  

Other

     4-5 years        442        359        83        442        394        48  

Internally developed software

     2-3 years        8,313        5,025        3,288        22,365        7,368        14,997  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 93,902      $ 31,392      $ 62,510      $ 1,326,497      $ 117,248      $ 1,209,249  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the six months ended June 30, 2017, the Company capitalized $65.1 million for trade names and trademarks, $756.0 million for customer relationships and $385.0 million for technology as intangible assets in connection with the Merger. The gross carrying amount of trade names and trademarks, customer relationships, domain names and technology changed from the first quarter of 2017 due to foreign currency translation adjustments. The Company capitalized $0.3 million and $8.0 million during the three months ended June 30, 2016 and 2017, respectively, and $0.7 million and $14.1 million during the six months ended June 30, 2016 and 2017, respectively, of costs related to internally developed computer 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 over the estimated useful lives noted above 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 revenues and the amortization of trade name and trademark, customer relationships, domain names and non-compete agreements (other) is recorded within operating expenses. Amortization expense for intangible assets consisted of the following (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2017      2016      2017  

Cost of revenue:

           

Amortization of internally developed computer software

   $ 420      $ 1,564      $ 962      $ 2,343  

Amortization of acquired intangibles (1)

     1,150        13,048        2,305        22,187  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sub-Total amortization of intangibles in cost of revenue

     1,570        14,612        3,267        24,530  

Amortization of acquired intangibles (1)

     1,357        36,154        2,740        60,574  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization of intangibles

   $ 2,927      $ 50,766      $ 6,007      $ 85,104  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Total amortization of acquired intangibles was $2.5 million and $49.2 million for the three months ended June 30, 2016 and 2017, respectively, and $5.0 million and $82.8 million for the six months ended June 30, 2016 and 2017, respectively.

 

Future estimated amortization expense for intangible assets at June 30, 2017 is as follows (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2017 (six months ending December 31)

   $ 103,463  

2018

     241,309  

2019

     222,960  

2020

     192,302  

2021

     156,586  

Thereafter

     292,629  
  

 

 

 

Total

   $ 1,209,249  
  

 

 

 
Accrued Liabilities
Accrued Liabilities

6. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2016
     June 30,
2017
 

Marketing programs

   $ 4,274      $ 14,178  

Payroll and payroll-related

     11,886        32,854  

Professional fees

     1,429        6,190  

Acquisition-related(1)

     9,539        17,141  

Other accrued liabilities

     8,125        33,958  
  

 

 

    

 

 

 

Total accrued liabilities

   $ 35,253      $ 104,321  
  

 

 

    

 

 

 

 

(1) Acquisition-related costs include transaction, transition and integration-related fees and expenses and contingent retention-based bonus costs.
Income Taxes
Income Taxes

7. Income Taxes

The Company recorded a provision for federal, state, and foreign taxes of $0.6 million and a benefit of $14.7 million on a profit before income taxes of $3.1 million and $0.2 million for the three months ended June 30, 2016 and 2017, respectively. For the six months ended June 30, 2016 and 2017, the Company recorded a provision for federal, state, and foreign taxes of $0.3 million and a benefit of $30.5 million on a profit before income taxes of $1.8 million and a pre-tax loss of $34.2 million, respectively, resulting in an effective tax rate of 19% and 89%, respectively. The effective income tax rates for the six months ended June 30, 2016 and 2017 were impacted by profits earned in certain foreign jurisdictions, primarily our Irish subsidiaries, which are subject to significantly lower tax rates than the U.S. federal statutory rate. The effective income tax rate for the six months ended June 30, 2017 was also impacted by the expected non-deductibility of certain transaction costs related to the Merger and $13.8 million of discrete income tax benefits related to excess tax deductions on stock compensation now recorded as a tax benefit due to our adoption of ASU 2016-09 as well as a $3.8 million tax benefit related to discrete integration-related activity.

Deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, the Company estimates deferred tax assets, current tax liabilities and deferred tax liabilities, and the Company assesses temporary differences resulting from differing treatment of items for tax and accounting purposes. As of June 30, 2017, the Company maintained a full valuation allowance against the deferred tax assets of its Hungarian subsidiary. This entity has historical tax losses and the Company concluded it was not more likely than not that these deferred tax assets are realizable.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s income tax returns from 2011 are open to examination by federal, state, and/or foreign tax authorities. In the normal course of business, the Company and its subsidiaries are examined by various taxing authorities. The Company regularly assesses the likelihood of additional assessments by tax authorities and provides for these matters as appropriate. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits.

Although the Company believes its tax estimates are appropriate, the final determination of tax audits could result in material changes in its estimates. The Company has recorded a liability related to uncertain tax positions of $1.5 million and $3.4 million as of December 31, 2016 and June 30, 2017, respectively. The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision. The Company recognized $15,000 and $25,000 of interest expense for the six months ended June 30, 2016 and 2017, respectively.

Common Stock and Equity
Common Stock and Equity

8. Common Stock and Equity

On February 23, 2017, the Company’s Board of Directors approved a three-year capital return plan. During the second quarter, the Company paid a cash dividend of $0.25 per share on May 26, 2017 to stockholders of record as of May 10, 2017. The Company’s Board of Directors will continue to review this capital return plan for potential modifications based on the Company’s financial performance, business outlook and other considerations. The timing and number of shares to be repurchased pursuant to the capital return plan will depend upon prevailing market conditions and other factors, including potential tax restrictions which may be imposed on the Company related to the Merger and the resolution of the Company’s related private letter ruling from the Internal Revenue Service. Additionally, the Company’s credit facility contains certain financial and operating covenants that may restrict its ability to pay dividends in the future.

For the three months ended June 30, 2016 and 2017, the Company repurchased 206,785 and 202,928 shares of its common stock at an average price of $53.05 and $109.15 per share, for a total cost of $11.0 million and $22.1 million, respectively. For the six months ended June 30, 2016 and 2017, the Company repurchased 370,912 and 279,588 shares of its common stock at an average price of $52.13 and $105.92 per share, for a total cost of $19.3 million and $29.6 million, respectively.

In connection with the Merger, the Company declared and paid three special cash dividends of $0.50 per share of common stock. The first two dividends totaling $25.5 million were declared and paid in the third and fourth quarters of fiscal 2016. The third cash dividend was declared by the Company’s Board of Directors on January 6, 2017 and paid on January 31, 2017 to stockholders of record as of January 16, 2017, and totaled $12.8 million.

The following table summarizes the changes in equity for the six months ended June 30, 2017 (amounts in thousands):

 

     Common Stock      Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Treasury
Stock
    Total Equity  
     Number of
Shares
    Amount                                 

Balance at December 31, 2016

     25,552     $ 284      $ 314,700     $ (1,754 )   $ (6,618 )   $ (110,496 )   $ 196,116  

Issuance of common stock upon exercise of stock options

     149       1        5,353       —       —       —       5,354  

Net issuance of common stock upon vesting of restricted stock units

     483       5        (29,460     —       —       —       (29,455 )

Shares issued as Merger purchase consideration

     26,869       269        2,904,218       —       —       —       2,904,487  

Restricted stock units issued as Merger purchase consideration

     —       —        16,692       —       —       —       16,692  

Stock-based compensation

     —       —        30,490       —       —       —       30,490  

Treasury stock

     (280     —        —       —       —       (29,615     (29,615

Dividends on common stock

     —       —        —       (25,936     —       —       (25,936

Adoption of ASU 2016-16

     —       —        —       84       —       —       84  

Adoption of ASU 2016-09

     —       —        2,729       4,864       —       —       7,593  

Net loss

     —       —        —       (3,718     —       —       (3,718

Unrealized loss on available-for-sale securities

     —       —        —       —       (3     —       (3

Cumulative translation adjustments

     —       —        —       —       11,434       —       11,434  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

     52,773     $ 559      $ 3,244,722     $ (26,460   $ 4,813     $ (140,111   $ 3,083,523  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Stock Incentive Plan
Stock Incentive Plan

9. Stock Incentive Plan

The Company’s 2009 Stock Incentive Plan (“2009 Plan”) is administered by the Board of Directors and Compensation Committee, which have the authority to designate participants and determine the number and type of awards to be granted and any other terms or conditions of the awards. The Company awards restricted stock units as the principal equity incentive award. Restricted stock units with time-based vesting conditions generally vest over a three-year period while restricted stock units with market-based or performance-based vesting conditions generally vest over two or three-year periods. Until 2012, the Company generally granted stock options as the principal equity incentive award. Options generally vest over a four-year period and expire ten years from the date of grant. Certain stock-based awards provide for accelerated vesting if the Company experiences a change in control.

Effective on January 31, 2017, the Company’s stockholders approved an amendment and restatement of the Company’s 2009 Stock Incentive Plan, which increased the number of shares of the Company’s common stock that may be issued under the plan by an additional 4,500,000 shares and extended the term of the plan to December 5, 2026. As of June 30, 2017, 7.1 million shares remained available for grant under the 2009 Plan.

 

The following table summarizes stock option activity (shares and intrinsic value in thousands):

 

     Number of Options      Weighted Average
Exercise Price
     Weighted Average
Remaining
Contractual Term
(Years)
     Aggregate
Intrinsic Value
 

Outstanding, January 1, 2017

     355      $ 33.15        5.0      $ 22,529  
           

 

 

 

Granted

     —        —        

Exercised

     (149      35.88         $ 9,504  
           

 

 

 

Forfeited

     (1 )      29.50      
  

 

 

    

 

 

       

Outstanding, June 30, 2017

     205      $ 31.18        4.4      $ 13,044  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2016

     272      $ 38.03        5.3      $ 15,895  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2017

     160      $ 37.40        5.2      $ 9,132  
  

 

 

    

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value was calculated based on the positive differences between the fair value of the Company’s common stock of $96.55 per share on December 31, 2016 and $104.50 per share on June 30, 2017, or at time of exercise, and the exercise price of the options.

During the six months ended June 30, 2017, the Company granted 1,260,676 restricted stock units, of which 1,142,523 have time-based vesting conditions, 81,915 have performance-based vesting conditions and 36,238 have market-based vesting conditions. Restricted stock units with time-based vesting conditions are valued on the grant date using the grant date closing price of the underlying shares. The Company recognizes the expense on a straight-line basis over the requisite service period of the restricted stock unit, which is generally three years. The performance-based awards vest on February 14, 2019 based on the achievement of performance criteria for fiscal years 2017 and 2018 established by the Board of Directors at the time of grant. Shares not earned will be forfeited.

Since 2013, the Company has granted to certain key executives restricted stock unit awards with market-based vesting conditions, which are tied to the individual executive’s continued employment with the Company throughout the applicable performance period and the level of the Company’s achievement of a pre-established relative total shareholder return, or TSR, goal, as measured over an applicable performance period ranging from two to three years as compared to the TSR realized for that same period by a well-known stock index (the “TSR Units”). The number of shares that may vest under these TSR Units may range from 0% to 200% of the target number of shares granted depending on the Company’s level of achievement of its TSR goal. Compensation cost for TSR Units is recognized on a straight-line basis over the requisite service period and is recognized regardless of the actual number of awards that are earned based on the level of achievement of the market-based vesting condition. In May 2017, a total of 65,500 shares underlying TSR Units which were awarded in 2014 and 2015 vested, representing 200% of the target amount of TSR Units initially granted. In June 2017, the Company granted a total of 36,238 TSR Units, 50% of which may be earned over a two-year performance period with the remaining 50% earned over a three-year performance period. The fair value of the 2017 TSR Units granted was determined using a Monte Carlo simulation model including (but not limited to) a risk-free interest rate of 1.43%, an expected volatility of 36% and an expected dividend yield of 0.88%.

The following table summarizes restricted stock unit activity, including market-based TSR Units (shares in thousands):

 

     Number of shares
Underlying Restricted
Stock Units
     Weighted Average
Grant Date Fair
Value
 

Unvested as of January 1, 2017

     1,445      $ 62.23  

Restricted stock units granted

     814        108.21  

Restricted stock units issued for Merger

     446        108.10  

Restricted stock units earned

     66     

Restricted stock units vested

     (762      69.47  

Restricted stock units forfeited

     (145      79.35  
  

 

 

    

 

 

 

Unvested as of June 30, 2017

     1,864      $ 89.50  
  

 

 

    

 

 

 

The Company recognized stock based compensation expense within the accompanying condensed consolidated statements of operations as summarized in the following table (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Cost of revenue

   $ 690      $ 1,285      $ 1,238      $ 2,299  

Research and development

     1,728        5,208        3,226        9,637  

Sales and marketing

     4,651        4,190        8,478        7,796  

General and administrative

     2,667        5,613        5,386        10,758  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,736      $ 16,296      $ 18,328      $ 30,490  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

On January 1, 2017, the Company adopted ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) and elected to account for forfeitures in compensation cost when they occur. As of June 30, 2017, there was $139.1 million of total unrecognized share-based compensation cost related to unvested stock awards which are expected to be recognized over a weighted average period of 2.2 years.

Commitments and Contingencies
Commitments and Contingencies

10. Commitments and Contingencies

Operating Leases — The Company has operating lease agreements for offices in the United States, Hungary, Germany, Australia, the United Kingdom, Ireland and India that expire at various dates through 2028.

Rent expense under all leases was $3.0 million and $5.8 million for the three months ended June 30, 2016 and 2017, respectively, and $5.9 million and $10.5 million for the six months ended June 30, 2016 and 2017, respectively. The Company records rent expense on a straight-line basis for leases with scheduled escalation clauses or free rent periods.

The Company also enters into hosting services agreements with third-party data centers and internet service providers that are subject to annual renewal. Hosting fees incurred under these arrangements totaled $2.4 million and $10.3 million for the three months ended June 30, 2016 and 2017, respectively and $4.6 million and $18.2 million for the six months ended June 30, 2016 and 2017, respectively.

Future minimum lease payments under non-cancelable operating leases including one year commitments associated with the Company’s hosting services arrangements are approximately as follows as of June 30, 2017 (in thousands):

 

Years Ending December 31

      

2017 (six months ending December 31)

   $ 13,893  

2018

     25,160  

2019

     20,375  

2020

     16,982  

2021

     14,871  

Thereafter

     41,624  
  

 

 

 

Total minimum lease payments

   $ 132,905  
  

 

 

 

Litigation — The Company routinely assesses its current litigation and/or threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable.

On September 2, 2016, Meetrix IP, LLC, (“Meetrix”), filed a complaint against the Company in the U.S. District Court for the Western District of Texas (Case No. 1:16-cv-1034). The complaint, which was served upon the Company on September 22, 2016, alleges that the Company’s join.me service infringes upon U.S. Patent Nos. 9,253,332, 9,094,525 and 8,339,997, each of which are allegedly owned by Meetrix and which Meetrix asserts relate to audio-video conferencing collaboration. On the same date, Meetrix also filed a complaint against Citrix in the same jurisdiction (Case No. 1:16-cv-1033-LY) alleging that the GoToMeeting service, which has since been acquired by the Company as part of the Merger, also infringes upon U.S. Patent Nos. 9,253,332, 9,094,525 and 8,339,997. On April 17, 2017, Meetrix also alleged that the GoToTraining and GoToWebinar services, which also have been acquired by the Company, infringe upon the three patents. The complaints seek monetary damages in an unspecified amount, attorneys’ fees and costs, and additional relief as is deemed appropriate by the Court. The Company believes it has meritorious defenses to these claims and intends to defend against them vigorously. Given the inherent unpredictability of litigation and the fact that this litigation is still in its early stages, the Company is unable to predict the outcome of this litigation or reasonably estimate a possible loss or range of loss associated with this litigation at this time.

In February 2006, ‘01 Communiqué, or ‘01, filed a patent infringement lawsuit against Citrix and Citrix Online, LLC in the United States District Court for the Northern District of Ohio (Case No. 1:06-cv-253), claiming that certain GoTo remote access service offerings, which have since been acquired by the Company as part of the Merger, infringed U.S. Patent No. 6,928,479, or the ‘479 Patent, which is allegedly owned by ‘01. In January 2016, an Ohio jury rendered a verdict that the GoTo services had not infringed the ‘479 Patent. The District Court affirmed the jury’s findings and denied ‘01’s request for a new trial. On March 30, 2017, ’01 initiated an appeal of this ruling and a hearing has not yet been scheduled.

The Company is from time to time subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these other claims cannot be predicted with certainty, management does not believe that the outcome of any of these other legal matters will have a material adverse effect on the Company’s condensed consolidated financial statements.

 

Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

11. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments and changes in unrealized losses and gains (net of tax) on marketable securities. For the purposes of comprehensive income disclosures, the Company does not record tax provisions or benefits for the net changes in the foreign currency translation adjustment, as the Company intends to reinvest permanently undistributed earnings of its foreign subsidiaries. Accumulated other comprehensive income (loss) is reported as a component of stockholders’ equity and, as of December 31, 2016 and June 30, 2017, was comprised of cumulative translation adjustment losses of $6.6 million and gains of $4.8 million and unrealized losses (net of tax) on marketable securities of $16,000 and $19,000, respectively. There were no material reclassifications to earnings in the six months ending June 30, 2017.

Credit Facility
Credit Facility

12. Credit Facility

On February 18, 2015, the Company entered into a multi-currency credit agreement with a syndicate of banks, pursuant to which a secured revolving credit facility of up to $100.0 million in the aggregate was made available to the Company. On January 22, 2016, the Company entered into the First Amendment to the Credit Agreement, pursuant to which the Company exercised its option to increase the credit facility to up to $150.0 million in the aggregate with an option to further increase the credit facility by an additional $50.0 million. On February 1, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”), which increased the Company’s secured revolving credit facility from $150.0 million to $400.0 million in the aggregate, and permits the Company to increase the revolving credit facility and/or enter into one or more tranches of term loans up to an additional $200.0 million. The Amended Credit Agreement also extended the maturity date of the revolving credit facility to February 1, 2022. The Company may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty. The Company and its subsidiaries expect to use the credit facility for general corporate purposes, including, but not limited to, the potential acquisition of complementary products or businesses, share repurchases, as well as for working capital. The Company repaid $15.0 million of outstanding borrowings on April 4, 2017 and May 3, 2017, and no outstanding debt balance remained as of June 30, 2017.

Loans under the Amended Credit Agreement bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by the Company as described below. The average interest rate on borrowings outstanding for the period ending June 30, 2017 was 2.188%. The quarterly commitment fee on the undrawn portion of the credit facility ranges from 0.15% to 0.30% per annum, based upon the Company’s total leverage ratio.

The Amended Credit Agreement contains customary affirmative and negative covenants, subject to customary and other exceptions for a credit facility of this size and type, each as further described in the Amended Credit Agreement. As of June 30, 2017, the Company was in compliance with all financial and operating covenants of the Amended Credit Agreement.

Any failure to comply with the financial or operating covenants of the Amended Credit Agreement would prevent the Company from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility and to terminate the credit facility.

As of June 30, 2017, the Company had $2.5 million of origination costs recorded in other assets. The Company incurred approximately $2.0 million of origination costs in connection with the Amended Credit Agreement executed in February 2017. As permitted by FASB issued ASU 2015-15, the Company presents debt issuance costs as an asset and subsequently amortizes the deferred debt issuance costs ratably over the term of the credit facility.

Subsequent Events
Subsequent Events

13. Subsequent Events

In connection with the Company’s previously announced three-year capital return plan, on July 24, 2017, the Company’s Board of Directors declared a $0.25 per share cash dividend to be paid on August 25, 2017 to stockholders of record as of August 9, 2017.

Summary of Significant Accounting Policies (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 (“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 March 1, 2017. 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.

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2016 and June 30, 2017, marketable securities consisted of U.S. government agency securities and corporate bonds that have remaining maturities within two years and have an aggregate amortized cost of $55.7 million and $24.5 million, respectively. The securities have an aggregate fair value of $55.7 million and $24.5 million, including $17,000 and $0 of unrealized gains and $43,000 and $29,000 of unrealized losses, at December 31, 2016 and June 30, 2017, respectively.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its premium subscription software services, usage fees from its audio services and to a lesser extent, the delivery of professional services, primarily related to its Customer Engagement and Support business. Revenues are reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction.

Revenue from the Company’s premium services is recognized on a daily basis over the subscription term as the services are delivered, provided that there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is deemed reasonably assured. Subscription periods range from monthly to ten years. 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. Revenue from the Company’s audio services is recognized upon actual usage of audio minutes or the expiration of audio minutes purchased in prepaid plans. Any unbilled audio revenue is accrued for in the period the usage occurs.

 

The Company’s multi-element arrangements typically include subscription and professional services, which may include development services. The Company evaluates each element within the arrangement to determine if they can be accounted for as separate units of accounting. If the delivered item or items have value to the customer on a standalone basis, either because they are sold separately by any vendor or the customer could resell the delivered item or items on a standalone basis, the Company has determined that the deliverables within these arrangements qualify for treatment as separate units of accounting. Accordingly, the Company recognizes revenue for each delivered item or items as a separate earnings process commencing when all of the significant performance obligations have been performed and when all of the revenue recognition criteria have been met. Professional services revenue recognized as a separate earnings process under multi-element arrangements has been immaterial to date.

In cases where the Company has determined that the delivered items within its multi-element arrangements do not have value to the customer on a stand-alone basis, the arrangement is accounted for as a single unit of accounting and the related consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met. Revenue from multi-element arrangements accounted for as a single unit of accounting which do not have value to the customer has been immaterial to date.

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, marketable securities, 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 and custody of its marketable securities is with an accredited financial institution. 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 six months ended June 30, 2016 and 2017, no customers accounted for more than 10% of revenue. As of December 31, 2016 and June 30, 2017, no customers accounted for more than 10% of accounts receivable.

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, 2016, our measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through June 30, 2017, 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 June 30, 2017, 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 contract 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.

The Company had net foreign currency losses of $0.1 million and $0.5 million for the three and six months ended June 30, 2016, respectively, and net foreign currency losses of $0.1 million for each of the three and six months ended June 30, 2017, included in other expense in the condensed consolidated statements of operations. As of June 30, 2017, the Company did not have any foreign currency forward contracts outstanding.

Stock-Based Compensation — The Company values all stock-based compensation, including grants of stock options and 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 of the award, for those awards expected to vest, 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 carry-forwards 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.

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.

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Revenues:

           

United States

   $ 59,476      $ 199,108      $ 116,727      $ 340,286  

United Kingdom

     6,523        12,450        12,709        23,947  

International—all other

     17,267        45,467        33,564        80,250  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 83,266      $ 257,025      $ 163,000      $ 444,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts for the three and six months ended June 30, 2016 presented in the Company’s revenue by service cloud (product grouping) table below include reclassifications between product groups to conform to the current year classification of the Company’s and the GoTo Business’ products (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Revenues:

           

Communications and Collaboration cloud

   $ 9,989      $ 141,239      $ 19,209      $ 230,972  

Identity and Access Management cloud

     48,152        71,561        94,131        132,107  

Customer Engagement and Support cloud

     25,125        44,225        49,660        81,404  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 83,266      $ 257,025      $ 163,000      $ 444,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s 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 June 30, 2017, 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. For the six months ended June 30, 2017, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents was not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for the period were identical.

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Options to purchase common shares

     —        —        —        206  

Restricted stock units

     337        505        429        1,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     337        505        429        2,070  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three months ended June 30,      Six months ended June 30,  
     2016      2017      2016      2017  

Basic:

           

Net income (loss)

   $ 2,506      $ 14,846      $ 1,433      $ (3,718 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, basic

     25,135        52,715        25,144        48,168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share, basic

   $ 0.10      $ 0.28      $ 0.06      $ (0.08 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted:

           

Net income (loss)

   $ 2,506      $ 14,846      $ 1,433      $ (3,718 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     25,135        52,715        25,144        48,168  

Add: Common stock equivalents

     693        1,008        697        —  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     25,828        53,723        25,841        48,168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share, diluted

   $ 0.10      $ 0.28      $ 0.06      $ (0.08 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Recently Adopted Accounting Pronouncements

On May 10, 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which provides clarity on what changes to share-based payment awards are considered substantive and require modification accounting to be applied. The guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The Company has early adopted ASU 2017-09 in second quarter 2017 and will apply it prospectively to award modifications after the adoption date. The Company does not regularly modify the terms and conditions of share-based awards and does not believe this ASU 2017-09 will have a material effect on its consolidated financial statements.

On January 1, 2017, the Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) and recorded, using the modified retrospective approach, a cumulative-effect adjustment to accumulated deficit of a credit of $4.9 million to record $6.8 million of previously unrecognized windfall tax benefits, partially offset by $1.9 million for the accounting policy election to account for forfeitures in compensation cost when they occurred. The Company recorded $2.7 million to additional paid-in capital for the differential between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures, partially offset by its tax effect of $0.8 million recorded to deferred tax assets. Previously, excess tax benefits were recognized in additional paid-in capital on the condensed consolidated balance sheet to the extent they reduced income taxes payable.

 

Further, upon the adoption of ASU 2016-09, the Company, on a prospective basis, records the recognition of excess tax benefits and deficits in benefit from income taxes in the condensed consolidated income statement and treats those amounts as discrete items in the period in which they occur. In the first quarter of 2017, the Company recognized a $2.3 million income tax benefit and a corresponding decrease in net loss during the period ($0.05 per weighted average shares outstanding).

On January 1, 2017, the Company early adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”) which records the effect of intra-entity transfers of assets other than inventory when the transfer occurs, resulting in $0.1 million charged to accumulated deficit upon adoption in the first quarter of 2017.

Recently Issued Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), its final standard on revenue from contracts with customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations in the contract and recognizes revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of ASU 2014-09’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (i.e. property plant and equipment, real estate or intangible assets). Existing accounting guidance applicable to these transfers has been amended or superseded. ASU 2014-09 also requires significantly expanded disclosures about revenue recognition. ASU 2014-09 will be effective for the Company on January 1, 2018, with early adoption permitted, but not earlier than January 1, 2017. The Company is currently assessing the method of adoption and potential impact of the adoption of ASU 2014-09 on its consolidated financial statements, including the impact after considering the Merger with GetGo on January 31, 2017.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. Although the Company is currently assessing the impact of adoption of ASU 2016-02 on its consolidated financial statements, the Company currently believes the most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on the Company’s balance sheet for operating leases.

On January 26, 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity’s testing of reporting units for goodwill impairment, clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual reporting periods beginning after January 1, 2020 and interim periods within those fiscal years. The Company is currently assessing the potential impact of the adoption of ASU 2017-04 on its consolidated financial statements.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB’s EITF) (“ASU 2016-18”). ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently assessing the potential impact of the adoption of ASU 2016-18 on its consolidated financial statements.

Summary of Significant Accounting Policies (Tables)

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Revenues:

           

United States

   $ 59,476      $ 199,108      $ 116,727      $ 340,286  

United Kingdom

     6,523        12,450        12,709        23,947  

International—all other

     17,267        45,467        33,564        80,250  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 83,266      $ 257,025      $ 163,000      $ 444,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts for the three and six months ended June 30, 2016 presented in the Company’s revenue by service cloud (product grouping) table below include reclassifications between product groups to conform to the current year classification of the Company’s and the GoTo Business’ products (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Revenues:

           

Communications and Collaboration cloud

   $ 9,989      $ 141,239      $ 19,209      $ 230,972  

Identity and Access Management cloud

     48,152        71,561        94,131        132,107  

Customer Engagement and Support cloud

     25,125        44,225        49,660        81,404  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 83,266      $ 257,025      $ 163,000      $ 444,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Options to purchase common shares

     —        —        —        206  

Restricted stock units

     337        505        429        1,864  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     337        505        429        2,070  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three months ended June 30,      Six months ended June 30,  
     2016      2017      2016      2017  

Basic:

           

Net income (loss)

   $ 2,506      $ 14,846      $ 1,433      $ (3,718 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, basic

     25,135        52,715        25,144        48,168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share, basic

   $ 0.10      $ 0.28      $ 0.06      $ (0.08 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted:

           

Net income (loss)

   $ 2,506      $ 14,846      $ 1,433      $ (3,718 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     25,135        52,715        25,144        48,168  

Add: Common stock equivalents

     693        1,008        697        —  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     25,828        53,723        25,841        48,168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share, diluted

   $ 0.10      $ 0.28      $ 0.06      $ (0.08 )
  

 

 

    

 

 

    

 

 

    

 

 

 
Fair Value of Financial Instruments (Tables)
Summary of Company's Financial Assets Carried at Fair Value

The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

 

     Fair Value Measurements at December 31, 2016  
     Level 1      Level 2      Level 3      Total  

Cash equivalents — money market funds

   $ 11,599      $ —      $ —      $ 11,599  

Short-term marketable securities:

           

U.S. government agency securities

     34,961        8,001        —        42,962  

Corporate bond securities

     —        12,748        —        12,748  

 

     Fair Value Measurements at June 30, 2017  
     Level 1      Level 2      Level 3      Total  

Cash equivalents — money market funds

   $ 172,352        —        —      $ 172,352  

Short-term marketable securities:

        

U.S. government agency securities

     16,492        —          —        16,492  

Corporate bond securities

     —          7,966        —        7,996  
Acquisitions (Tables) (GetGo, Inc. [Member])

The following table summarizes the fair value (in thousands) of the assets acquired and liabilities assumed at the date of acquisition:

 

Purchase consideration:

  

Company common shares issued

   $ 2,904,487 (1) 

Restricted stock units issued

     16,692 (2)  
  

 

 

 

Total estimated purchase consideration

   $ 2,921,179  

Estimated fair value of assets acquired and liabilities assumed:

  

Cash

     24,215  

Accounts receivable

     48,957 (3) 

Property and equipment

     59,715  

Prepaid expense and other current assets

     21,448 (3) 

Other assets

     4,448  

Intangible assets (weighted average useful life): (4)

  

Completed technology (9 years)

     385,000  

Customer relationships (8 years)

     756,000  

Tradenames and trademark (9 years)

     65,100  

Accounts payable

     (11,030 )

Accrued liabilities

     (26,886 )

Deferred revenue, current and noncurrent

     (82,643 )

Other long-term liabilities

     (996 )

Deferred tax liability, net

     (426,081 )
  

 

 

 

Goodwill

   $ 2,103,932  
  

 

 

 

 

(1) Represents the fair value of the 26.9 million new shares of the Company’s common stock (plus cash in lieu of fractional shares) issued to Citrix stockholders, based on the fair value per share of the Company’s common stock of $108.10 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on January 31, 2017.
(2) Represents the fair value of the 0.4 million Company restricted stock units issued by the Company in substitution for certain outstanding Citrix restricted stock units held by GetGo employees, pursuant to the terms of the Merger. These Company restricted stock units were issued on the same terms and conditions as were applicable to the outstanding Citrix restricted stock units held by the GetGo employees immediately prior to the Merger date (including the same vesting and forfeiture provisions). The aggregate fair value of those awards ($48.2 million) is based on the fair value per share of the Company’s common stock of $108.10 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on January 31, 2017. Of that amount, $18.0 million was related to pre-combination employee services and, after adjusting for known and estimated forfeitures, $16.7 million was allocated to purchase consideration and $30.2 million was allocated to future employee services and will be expensed as stock-based compensation on a straight-line basis over the remaining service periods of those awards.
(3) During the six months ended June 30, 2017, the Company identified measurement period adjustments that impacted the estimated fair value of the assets and liabilities assumed as of the date of the acquisition. The table above, which summarizes the allocation of the purchase price for the entities acquired, has been updated to reflect these measurement period adjustments. The total measurement period adjustments resulted in a decrease in accounts receivable of $1.1 million, a decrease in prepaid expense and other current assets of $0.3 million and an overall increase in goodwill of $1.4 million. This change to the provisional fair value amounts of the assets and liabilities assumed had no impact on the Company’s results of operations for the six months ended June 30, 2017.
(4) The weighted average useful life of identifiable intangible assets acquired in the Merger is 8.4 years.

Unaudited Pro Forma Financial Information

 


     Three Months Ended      Six Months Ended  
     June 30, (unaudited)      June 30, (unaudited)  
     2016      2016      2017  
     (in millions except per share amounts)  

Pro forma revenue

   $ 243.5      $ 472.8      $ 515.4  

Pro forma net (loss) income

   $ (14.4    $ (92.9    $ 26.1  

Pro forma (loss) income per share:

        

Basic

   $ (0.29    $ (1.80    $ 0.50  

Diluted

   $ (0.29    $ (1.80    $ 0.49  

Pro forma weighted average shares outstanding

        

Basic

     52.0        52.0        52.6  

Diluted

     52.0        52.0        53.8
Goodwill and Intangible Assets (Tables)

Changes in goodwill for the six months ended June 30, 2017 are as follows (in thousands):

 

Balance, December 31, 2016

   $ 121,760  

Goodwill resulting from the Merger

     2,103,932  
  

 

 

 

Balance, June 30, 2017

   $ 2,225,692  
  

 

 

 

Intangible assets consist of the following (in thousands):

 

            December 31, 2016      June 30, 2017  
     Estimated
Useful
Life
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
 

Identifiable intangible assets:

                    

Trade names and trademarks

     1-11 years      $ 3,806      $ 955      $ 2,851      $ 69,577      $ 5,172      $ 64,405  

Customer relationships

     5-8 years        29,249        9,315        19,934        793,046        66,165        726,881  

Domain names

     5 years        913        796        117        917        850        67  

Technology

     3-9 years        51,179        14,942        36,237        440,150        37,299        402,851  

Other

     4-5 years        442        359        83        442        394        48  

Internally developed software

     2-3 years        8,313        5,025        3,288        22,365        7,368        14,997  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 93,902      $ 31,392      $ 62,510      $ 1,326,497      $ 117,248      $ 1,209,249  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense for intangible assets consisted of the following (in thousands):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2017      2016      2017  

Cost of revenue:

           

Amortization of internally developed computer software

   $ 420      $ 1,564      $ 962      $ 2,343  

Amortization of acquired intangibles (1)

     1,150        13,048        2,305        22,187  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sub-Total amortization of intangibles in cost of revenue

     1,570        14,612        3,267        24,530  

Amortization of acquired intangibles (1)

     1,357        36,154        2,740        60,574  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization of intangibles

   $ 2,927      $ 50,766      $ 6,007      $ 85,104  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Total amortization of acquired intangibles was $2.5 million and $49.2 million for the three months ended June 30, 2016 and 2017, respectively, and $5.0 million and $82.8 million for the six months ended June 30, 2016 and 2017, respectively.

Future estimated amortization expense for intangible assets at June 30, 2017 is as follows (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2017 (six months ending December 31)

   $ 103,463  

2018

     241,309  

2019

     222,960  

2020

     192,302  

2021

     156,586  

Thereafter

     292,629  
  

 

 

 

Total

   $ 1,209,249  
  

 

 

 
Accrued Liabilities (Tables)
Summary of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2016
     June 30,
2017
 

Marketing programs

   $ 4,274      $ 14,178  

Payroll and payroll-related

     11,886        32,854  

Professional fees

     1,429        6,190  

Acquisition-related(1)

     9,539        17,141  

Other accrued liabilities

     8,125        33,958  
  

 

 

    

 

 

 

Total accrued liabilities

   $ 35,253      $ 104,321  
  

 

 

    

 

 

 

 

(1) Acquisition-related costs include transaction, transition and integration-related fees and expenses and contingent retention-based bonus costs.
Common Stock and Equity (Tables)
Summary of Changes in Equity

The following table summarizes the changes in equity for the six months ended June 30, 2017 (amounts in thousands):

 

     Common Stock      Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Treasury
Stock
    Total Equity  
     Number of
Shares
    Amount                                 

Balance at December 31, 2016

     25,552     $ 284      $ 314,700     $ (1,754 )   $ (6,618 )   $ (110,496 )   $ 196,116  

Issuance of common stock upon exercise of stock options

     149       1        5,353       —       —       —       5,354  

Net issuance of common stock upon vesting of restricted stock units

     483       5        (29,460     —       —       —       (29,455 )

Shares issued as Merger purchase consideration

     26,869       269        2,904,218       —       —       —       2,904,487  

Restricted stock units issued as Merger purchase consideration

     —       —        16,692       —       —       —       16,692  

Stock-based compensation

     —       —        30,490       —       —       —       30,490  

Treasury stock

     (280     —        —       —       —       (29,615     (29,615

Dividends on common stock

     —       —        —       (25,936     —       —       (25,936

Adoption of ASU 2016-16

     —       —        —       84       —       —       84  

Adoption of ASU 2016-09

     —       —        2,729       4,864       —       —       7,593  

Net loss

     —       —        —       (3,718     —       —       (3,718

Unrealized loss on available-for-sale securities

     —       —        —       —       (3     —       (3

Cumulative translation adjustments

     —       —        —       —       11,434       —       11,434  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

     52,773     $ 559      $ 3,244,722     $ (26,460   $ 4,813     $ (140,111   $ 3,083,523  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Stock Incentive Plan (Tables)

The following table summarizes stock option activity (shares and intrinsic value in thousands):

 

     Number of Options      Weighted Average
Exercise Price
     Weighted Average
Remaining
Contractual Term
(Years)
     Aggregate
Intrinsic Value
 

Outstanding, January 1, 2017

     355      $ 33.15        5.0      $ 22,529  
           

 

 

 

Granted

     —        —        

Exercised

     (149      35.88         $ 9,504  
           

 

 

 

Forfeited

     (1 )      29.50      
  

 

 

    

 

 

       

Outstanding, June 30, 2017

     205      $ 31.18        4.4      $ 13,044  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2016

     272      $ 38.03        5.3      $ 15,895  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2017

     160      $ 37.40        5.2      $ 9,132  

The following table summarizes restricted stock unit activity, including market-based TSR Units (shares in thousands):

 

     Number of shares
Underlying Restricted
Stock Units
     Weighted Average
Grant Date Fair
Value
 

Unvested as of January 1, 2017

     1,445      $ 62.23  

Restricted stock units granted

     814        108.21  

Restricted stock units issued for Merger

     446        108.10  

Restricted stock units earned

     66     

Restricted stock units vested

     (762      69.47  

Restricted stock units forfeited

     (145      79.35  
  

 

 

    

 

 

 

Unvested as of June 30, 2017

     1,864      $ 89.50  
  

 

 

    

 

 

 

The Company recognized stock based compensation expense within the accompanying condensed consolidated statements of operations as summarized in the following table (in thousands):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2017      2016      2017  

Cost of revenue

   $ 690      $ 1,285      $ 1,238      $ 2,299  

Research and development

     1,728        5,208        3,226        9,637  

Sales and marketing

     4,651        4,190        8,478        7,796  

General and administrative

     2,667        5,613        5,386        10,758  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 9,736      $ 16,296      $ 18,328      $ 30,490  
  

 

 

    

 

 

    

 

 

    

 

 

 
Commitments and Contingencies (Tables)
Schedule of Minimum Future Lease Payments Receivable

Future minimum lease payments under non-cancelable operating leases including one year commitments associated with the Company’s hosting services arrangements are approximately as follows as of June 30, 2017 (in thousands):

 

Years Ending December 31

      

2017 (six months ending December 31)

   $ 13,893  

2018

     25,160  

2019

     20,375  

2020

     16,982  

2021

     14,871  

Thereafter

     41,624  
  

 

 

 

Total minimum lease payments

   $ 132,905  
  

 

 

 

 

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended 0 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Segment
Jun. 30, 2016
Dec. 31, 2016
Mar. 31, 2017
ASU 2016-09 [Member]
Jun. 30, 2017
ASU 2016-09 [Member]
Jan. 1, 2017
ASU 2016-09 [Member]
Jun. 30, 2017
ASU 2016-09 [Member]
Accumulated Deficit [Member]
Jan. 1, 2017
ASU 2016-09 [Member]
Accumulated Deficit [Member]
Jan. 1, 2017
ASU 2016-09 [Member]
Additional Paid-In Capital [Member]
Jun. 30, 2017
ASU 2016-09 [Member]
Additional Paid-In Capital [Member]
Jun. 30, 2017
Sales Revenue, Net [Member]
Customer
Jun. 30, 2016
Sales Revenue, Net [Member]
Customer
Jun. 30, 2017
Sales Revenue, Net [Member]
Customer
Jun. 30, 2016
Sales Revenue, Net [Member]
Customer
Jun. 30, 2017
Accounts Receivable [Member]
Customer
Dec. 31, 2016
Accounts Receivable [Member]
Customer
Jun. 30, 2017
Indemnification Agreement [Member]
Jun. 30, 2017
Maximum [Member]
Jun. 30, 2017
Minimum [Member]
Jun. 30, 2017
Minimum [Member]
Customer Concentration Risk [Member]
Sales Revenue, Net [Member]
Jun. 30, 2016
Minimum [Member]
Customer Concentration Risk [Member]
Sales Revenue, Net [Member]
Jun. 30, 2017
Minimum [Member]
Customer Concentration Risk [Member]
Sales Revenue, Net [Member]
Jun. 30, 2016
Minimum [Member]
Customer Concentration Risk [Member]
Sales Revenue, Net [Member]
Jun. 30, 2017
Minimum [Member]
Credit Concentration Risk [Member]
Accounts Receivable [Member]
Dec. 31, 2016
Minimum [Member]
Credit Concentration Risk [Member]
Accounts Receivable [Member]
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities, maturities remaining
 
 
2 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities, amortized cost
$ 24,500,000 
 
$ 24,500,000 
 
$ 55,700,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities
24,488,000 
 
24,488,000 
 
55,710,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities, unrealized gains
 
 
17,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities, unrealized losses
29,000 
 
29,000 
 
43,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue subscription period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10 years 
1 month 
 
 
 
 
 
 
Revenue, number of customers accounted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage outstanding for major customer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.00% 
10.00% 
10.00% 
10.00% 
10.00% 
10.00% 
Accounts receivable, number of major customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of reporting unit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of operating segments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill impairments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets, estimated useful life
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11 years 
 
 
 
 
 
 
 
Long-lived asset impairment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net foreign currency contract gain (loss)
(100,000)
(100,000)
(100,000)
(500,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Losses related to indemnification obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative effect of change in accounting principle
 
 
 
 
 
 
7,593,000 
 
4,864,000 
4,900,000 
 
2,729,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrecognized windfall tax benefits
 
 
 
 
 
 
 
6,800,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Windfall tax benefits offset amount account for forfeitures in compensation cost
 
 
 
 
 
 
 
1,900,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Windfall tax benefit to additional paid-in capital
 
 
 
 
 
 
 
 
 
 
2,700,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax assets
 
 
 
 
 
 
 
800,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit
14,653,000 
(581,000)
30,524,000 
(334,000)
 
2,300,000 
3,800,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
$ 0.05 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of intra-entity transfers of assets other than inventory charged to accumulated deficit
 
 
 
 
 
$ 100,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Summary of Significant Accounting Policies - Schedule of Revenue and Long-lived Assets by Geographic Areas (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
 
 
Revenues
$ 257,025 
$ 83,266 
$ 444,483 
$ 163,000 
United States [Member]
 
 
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
 
 
Revenues
199,108 
59,476 
340,286 
116,727 
United Kingdom [Member]
 
 
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
 
 
Revenues
12,450 
6,523 
23,947 
12,709 
International - All Other [Member]
 
 
 
 
Revenues from External Customers and Long-Lived Assets [Line Items]
 
 
 
 
Revenues
$ 45,467 
$ 17,267 
$ 80,250 
$ 33,564 
Summary of Significant Accounting Policies - Schedule of Revenue by Service Cloud (Product Grouping) (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Revenue from External Customer [Line Items]
 
 
 
 
Revenues
$ 257,025 
$ 83,266 
$ 444,483 
$ 163,000 
Communications And Collaboration Cloud [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenues
141,239 
9,989 
230,972 
19,209 
Identity and Access Management Cloud [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenues
71,561 
48,152 
132,107 
94,131 
Customer Engagement And Support [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenues
$ 44,225 
$ 25,125 
$ 81,404 
$ 49,660 
Summary of Significant Accounting Policies - Schedule of Options to Purchase Common Shares and Restricted Stock Units (Detail)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
505 
337 
2,070 
429 
Stock Options [Member]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]