LOGMEIN, INC., 10-Q filed on 10/24/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 20, 2014
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
LOGM 
 
Entity Registrant Name
LogMeIn, Inc. 
 
Entity Central Index Key
0001420302 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
24,382,805 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 96,341 
$ 89,257 
Marketable securities
99,985 
100,299 
Accounts receivable (net of allowance for doubtful accounts of $269 and $275 as of December 31, 2013 and September 30, 2014, respectively)
11,055 
12,957 
Prepaid expenses and other current assets
7,942 
6,508 
Restricted cash, current portion
1,492 
23 
Deferred income tax assets
3,011 
3,053 
Total current assets
219,826 
212,097 
Property and equipment, net
13,496 
13,198 
Restricted cash, net of current portion
2,538 
3,902 
Intangibles, net
19,488 
16,886 
Goodwill
37,916 
18,712 
Other assets
4,949 
5,348 
Deferred income tax assets
8,100 
9,470 
Total assets
306,313 
279,613 
Current liabilities:
 
 
Accounts payable
6,315 
6,390 
Accrued liabilities
23,904 
20,110 
Deferred revenue, current portion
101,292 
82,496 
Total current liabilities
131,511 
108,996 
Deferred revenue, net of current portion
2,119 
2,667 
Other long-term liabilities
1,744 
611 
Total liabilities
135,374 
112,274 
Commitments and contingencies (Note 10)
   
   
Preferred stock, $0.01 par value - 5,000,000 shares authorized, 0 shares outstanding as of December 31, 2013 and September 30, 2014
   
   
Equity:
 
 
Common stock, $0.01 par value - 75,000,000 shares authorized as of December 31, 2013 and September 30, 2014; 25,371,844 and 26,313,667 shares issued as of December 31, 2013 and September 30, 2014, respectively; 24,103,201 and 24,417,181 outstanding as of December 31, 2013 and September 30, 2014, respectively
265 
254 
Additional paid-in capital
226,349 
200,235 
(Accumulated deficit) retained earnings
3,203 
(1,439)
Accumulated other comprehensive loss
(2,311)
(1,186)
Treasury stock, at cost - 1,268,643 and 1,896,486 shares as of December 31, 2013 and September 30, 2014, respectively
(56,567)
(30,525)
Total equity
170,939 
167,339 
Total liabilities and equity
$ 306,313 
$ 279,613 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 275 
$ 269 
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
75,000,000 
75,000,000 
Common stock, shares issued
26,313,667 
25,371,844 
Common stock, shares outstanding
24,417,181 
24,103,201 
Treasury stock, shares
1,896,486 
1,268,643 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Income Statement [Abstract]
 
 
 
 
Revenue
$ 58,062 
$ 42,970 
$ 162,057 
$ 121,077 
Cost of revenue
7,334 
4,685 
20,851 
13,870 
Gross profit
50,728 
38,285 
141,206 
107,207 
Operating expenses
 
 
 
 
Research and development
9,751 
7,693 
24,436 
22,002 
Sales and marketing
30,091 
22,327 
88,854 
65,462 
General and administrative
7,887 
5,913 
22,012 
23,785 
Amortization of acquired intangibles
228 
161 
753 
520 
Total operating expenses
47,957 
36,094 
136,055 
111,769 
Income (loss) from operations
2,771 
2,191 
5,151 
(4,562)
Interest income, net
167 
117 
427 
437 
Other (expense) income
(141)
202 
313 
Income (loss) before income taxes
2,944 
2,167 
5,780 
(3,812)
Provision for income taxes
(636)
(2,223)
(1,138)
(3,411)
Net (loss) income
$ 2,308 
$ (56)
$ 4,642 
$ (7,223)
Net (loss) income per share:
 
 
 
 
Basic
$ 0.09 
$ 0.00 
$ 0.19 
$ (0.30)
Diluted
$ 0.09 
$ 0.00 
$ 0.18 
$ (0.30)
Weighted average shares outstanding:
 
 
 
 
Basic
24,592,053 
24,248,893 
24,381,859 
24,403,549 
Diluted
25,203,594 
24,248,893 
25,105,164 
24,403,549 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net (loss) income
$ 2,308 
$ (56)
$ 4,642 
$ (7,223)
Other comprehensive income (loss):
 
 
 
 
Net unrealized gains (losses) on marketable securities, net of tax
(76)
69 
(70)
Net translation gains (losses)
(939)
156 
(1,055)
(1,041)
Total other comprehensive income (loss)
(1,015)
225 
(1,125)
(1,040)
Comprehensive income (loss)
$ 1,293 
$ 169 
$ 3,517 
$ (8,263)
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities
 
 
Net (loss) income
$ 4,642 
$ (7,223)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
 
 
Depreciation and amortization
8,281 
5,652 
Amortization of premium on investments
178 
139 
Provision for bad debts
52 
72 
Provision for deferred income taxes
516 
204 
Stock-based compensation
18,421 
14,895 
Loss on disposal of fixed assets
29 
 
Changes in assets and liabilities:
 
 
Accounts receivable
1,824 
1,841 
Prepaid expenses and other current assets
(1,429)
(5,007)
Other assets
311 
(2,070)
Accounts payable
584 
(2,181)
Accrued liabilities
3,607 
1,092 
Deferred revenue
20,745 
10,623 
Other long-term liabilities
1,125 
(226)
Net cash provided by operating activities
58,886 
17,811 
Cash flows from investing activities
 
 
Purchases of marketable securities
(49,973)
(65,380)
Proceeds from sale or disposal or maturities of marketable securities
50,000 
65,000 
Purchases of property and equipment
(5,697)
(9,659)
Intangible asset additions
(1,767)
(1,119)
Cash paid for acquisition, net of cash acquired
(22,449)
 
Decrease (increase) in restricted cash and deposits
(199)
125 
Net cash used in investing activities
(30,085)
(11,033)
Cash flows from financing activities
 
 
Proceeds from issuance of common stock upon option exercises
12,987 
2,530 
Income tax benefit from the exercise of stock options
643 
Payment of contingent consideration
 
(104)
Common stock withheld to satisfy income tax withholdings for restricted stock unit vesting
(5,290)
(1,546)
Purchase of treasury stock
(26,042)
(20,292)
Net cash used in financing activities
(18,339)
(18,769)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(3,378)
(957)
Net (decrease) increase in cash and cash equivalents
7,084 
(12,948)
Cash and cash equivalents, beginning of period
89,257 
111,932 
Cash and cash equivalents, end of period
96,341 
98,984 
Supplemental disclosure of cash flow information
 
 
Cash paid for interest
Cash paid for income taxes
887 
8,406 
Noncash investing and financing activities
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
1,026 
583 
Fair value of contingent consideration in connection with acquisition included in accrued liabilities and other long term liabilities
$ 242 
 
Nature of the Business
Nature of the Business

1. Nature of the Business

LogMeIn, Inc. (the “Company”) provides a portfolio of secure, easy-to-use cloud-based offerings aimed at transforming the way people work and live through secure connections to the computers, devices, data and people that make up their digital world. The Company’s product line includes AppGuru™, BoldChat® , Cubby™, join.me®, LogMeIn Pro®, LogMeIn® Central™, LogMeIn Rescue®, LogMeIn® Rescue+Mobile™, LogMeIn Backup®, LogMeIn for iOS, LogMeIn Hamachi®, Xively™ and RemotelyAnywhere®. The Company is headquartered in Boston, Massachusetts with wholly-owned subsidiaries in Hungary, The Netherlands, Australia, the United Kingdom, Brazil, Japan, Ireland, and India.

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 10, 2014. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited condensed consolidated 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 income 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, 2013 and September 30, 2014, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of approximately $100.3 million and $100.1 million and an aggregate fair value of approximately $100.3 million and $100.0 million, including approximately $67,000 and $36,000 of unrealized gains and approximately $28,000 and $106,000 of unrealized losses, respectively.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services and the delivery of professional services, primarily related to its Xively business.

Revenue from the Company’s LogMeIn 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 five years, but are generally one year in duration. The Company’s software cannot be run on another entity’s hardware nor do customers have the right to take possession of the software and use it on their own or another entity’s hardware.

        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.

 

The Company currently only offers free versions of its iPhone, iPad and Android software products. The Company had formerly sold these iPhone, iPad and Android software products as perpetually licensed software, the revenue from which was recognized when there was persuasive evidence of an arrangement, the product had been provided to the customer, the collection of the fee was probable, and the amount of fees to be paid by the customer was fixed or determinable.

Revenues are reported net of applicable sales and use tax, value-added tax, and other transaction taxes imposed on the related transaction.

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.

As of December 31, 2013, no customers accounted for 10% or more of accounts receivable and no customers accounted for 10% or more of revenue for the three and nine months ended September 30, 2013 or 2014. As of September 30, 2014, there were two customers that accounted for 14% and 10% of accounts receivable, respectively.

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 annual impairment test of goodwill on the last day of its fiscal year and 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. Through September 30, 2014, no impairments have occurred.

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their estimated fair values at the date of acquisition. Intangible assets are 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. The Company’s intangible assets have estimated useful lives which range from four months to eight years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through September 30, 2014, no impairments have occurred.

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. The Company had foreign currency losses of approximately $141,000 for the three months ended September 30, 2013 and foreign currency gains of approximately $313,000 for the nine months ended September 30, 2013 and foreign currency gains of approximately $5,000 and $202,000 for the three and nine months ended September 30, 2014, respectively.

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. The Company uses the with-or-without method to determine when it will realize excess tax benefits from stock based compensation. Under this method, the Company will realize these excess tax benefits only after it realizes the tax benefits of net operating losses from operations.

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. As of December 31, 2013 and September 30, 2014, the Company has provided a liability for approximately $304,000 and $572,000 for uncertain tax positions, respectively. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

Segment Data — Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision making group, in making decisions regarding resource allocation and assessing performance. The Company, which 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 September 30,      Nine Months Ended September 30,  
              2013                        2014                        2013                        2014           

Revenues:

           

United States

   $ 28,292       $ 38,831       $ 79,775       $ 107,701   

United Kingdom

     3,852         5,028         10,958         14,353   

International — all other

     10,826         14,203         30,344         40,003   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 42,970       $ 58,062       $ 121,077       $ 162,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims, including 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 unlimited. Through September 30, 2014, the Company has not experienced any losses related to these indemnification obligations.

In November 2012, the Company filed suit against Pragmatus Telecom LLC (“Pragmatus”), seeking declaratory judgment after certain of the Company’s customers received letters from Pragmatus claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. The Company paid Pragmatus a one-time licensing fee in April 2013, after a portion of the fee was reimbursed in March 2013 from a designated escrow arrangement associated with a prior acquisition. The Company recorded approximately $1.2 million of expense related to this matter in general and administrative expenses in March 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013.

Net (Loss) Income Per Share — Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the sum of the weighted average number of common shares outstanding during the period and 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 three and nine months ended September 30, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were 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) income per share either because they had an anti-dilutive impact or because the Company had a net loss in the period (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
         2013              2014              2013              2014      

Options to purchase common shares

     2,598         55         2,598         418   

Restricted stock units

     1,214         146         1,214         75   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     3,812         201         3,812         493   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended
September 30, 2013
    Nine Months Ended
September 30, 2013
 

Basic and Diluted Net Loss per Share:

    

Net loss

   $ (56 )   $ (7,223 )
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,248,893        24,403,549   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.00 )   $ (0.30 )
  

 

 

   

 

 

 

 

     Three Months Ended
September 30, 2014
     Nine Months Ended
September 30, 2014
 

Basic:

     

Net income

   $ 2,308       $ 4,642   
  

 

 

    

 

 

 

Weighted average common shares outstanding, basic

     24,592,053         24,381,859   
  

 

 

    

 

 

 

Net income per share, basic

   $ 0.09       $ 0.19   
  

 

 

    

 

 

 

Diluted:

     

Net income

   $ 2,308       $ 4,642   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     24,592,053         24,381,859   

Add: Options to purchase common shares and restricted stock units

     611,541         723,305   
  

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     25,203,594         25,105,164   
  

 

 

    

 

 

 

Net income per share, diluted

   $ 0.09       $ 0.18   
  

 

 

    

 

 

 

Recently Issued Accounting Pronouncements — On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), its final standard on revenue from contracts with customers. ASU 2014-9 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 is effective for the Company on January 1, 2017. The Company is currently assessing the potential impact of the adoption of ASU 2014-09 on its condensed consolidated financial statements.

On June 19, 2014, the FASB issued ASU 2014-12, Stock Compensation (“ASU 2014-12”), providing guidance on accounting for share-based payment awards when the terms of an award provide that a performance target could be achieved after the requisite service period. The update clarifies that performance targets that can be achieved after the requisite service period of a share-based payment award be treated as performance conditions that affect vesting. These awards should be accounted for under Accounting Standards Codification Topic 718, Compensation — Stock Compensation, and existing guidance should be applied as it relates to awards with performance conditions that affect vesting. The update is effective for the Company for the interim and annual periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this standard, if any, on its consolidated financial statements.

On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The standard requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect to early adopt ASU 2014-15, which will be effective for the Company’s fiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its 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):

 

     Basis of Fair Value Measurements  
     Balance      Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Balance at December 31, 2013

           

Cash equivalents — money market funds

   $ 28,210       $ 28,210       $ —        $ —     

Cash equivalents — bank deposits

     5,001         —          5,001         —    

Short-term marketable securities — U.S. government agency securities

     100,299         75,288         25,011         —    

Balance at September 30, 2014

           

Cash equivalents—money market funds

     12,730         12,730         —          —    

Cash equivalents—bank deposits

     5,002         —          5,002         —    

Short-term marketable securities — U.S. government agency securities

     99,985         85,012         14,973         —    

Contingent Consideration Liability

     242         —           —           242  

Bank deposits 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.

The Level 3 liability consists of contingent consideration related to the August 27, 2014 acquisition of Meldium and the September 5, 2014 acquisition of a San Francisco-based collaboration software provider. The fair value of the contingent consideration was estimated by applying a probability based model, which utilizes significant inputs that are unobservable in the market. Key assumptions include a 12% discount rate and an assumption that the earn-out will be achieved. The current portion of contingent consideration is included in Accrued liabilities and the non-current portion is included in Other long-term liabilities. A reconciliation of the beginning and ending Level 3 liability is as follows:

 

     Three Months
Ended
September 30,
2014
 

Balance beginning of period

   $ —     

Transfers into Level 3

     239   

Payments

     —     

Change in fair value

     3   
  

 

 

 

Balance end of period

   $ 242   
  

 

 

 

Acquisitions
Acquisitions

4. Acquisitions

On March 7, 2014, the Company acquired all of the outstanding capital stock of Ionia Corporation, or Ionia, a Boston, Massachusetts based systems integrator, for a cash purchase price of $7.5 million plus contingent retention-based bonuses totaling up to $4.0 million, which are expected to be paid over a two-year period from the date of acquisition. The operating results, which are comprised of approximately $679,000 and $1.5 million of revenue for the three and nine months ended September 30, 2014, respectively, as well as $1.7 million and $3.8 million of expenses during the three and nine months ended September 30, 2014, are included in the condensed consolidated financial statements beginning on the acquisition date.

The acquisition has been accounted for as a business combination. The assets acquired and the liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company retained an independent third party valuation firm to calculate the fair value of the intangible assets with estimates and assumptions provided by Company management. The excess of the purchase price over the tangible net assets and identifiable intangible assets was recorded as goodwill.

The purchase price was allocated as follows (in thousands):

 

     Amount  

Cash

   $ 67   

Current assets

     296   

Other assets

     26   

Deferred revenue

     (70 )

Other liabilities

     (864 )

Customer backlog

     120   

Trade name and trademark

     10   

Customer relationships

     1,340   

Documented know-how

     280   

Goodwill

     6,295   
  

 

 

 

Total purchase price

   $ 7,500   
  

 

 

 

The pro forma results of operations for the quarter ended September 30, 2013 and 2014, assuming the Company had acquired Ionia on January 1, 2013, do not differ materially from those reported in the Company’s condensed consolidated statement of income for that quarter.

 

The stock purchase agreement included a contingent, retention-based bonus program provision requiring the Company to make additional payments to employees, including former Ionia stockholders now employed by the Company, on the first and second anniversaries of the acquisition, contingent upon their continued employment and achievement of certain bookings goals. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $4.0 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to the Company’s ability to leverage its Xively platform, customer base, sales force and Internet of Things business plan with Ionia’s technical expertise and customer base. All goodwill and intangible assets acquired are not deductible for income tax purposes.

During the second quarter of 2014, the Company finalized its purchase price accounting related to the Ionia acquisition and recorded both a deferred tax liability and a corresponding increase in goodwill of approximately $0.7 million related to the amortization of intangible assets which cannot be deducted for income tax purposes.

On August 27, 2014, the Company acquired BBA, Inc., d/b/a Meldium, a San Francisco, California-based provider of single sign-on password management software, through a merger transaction for a cash purchase price of $10.6 million plus contingent bonuses totaling up to $4.6 million, which are expected to be paid over a two-year period from the date of acquisition. Meldium’s operating results, which are comprised of approximately $10,000 of revenue and approximately $469,000 of expenses during the three months ended September 30, 2014, are included in the condensed consolidated financial statements beginning on the acquisition date.

The acquisition has been accounted for as a business combination. The assets acquired and the liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company retained an independent third party valuation firm to calculate the fair value of the intangible assets with estimates and assumptions provided by Company management. The excess of the purchase price over the tangible net assets and identifiable intangible assets was recorded as goodwill.

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

 

     Amount  

Cash

   $ 120   

Current assets

     90   

Other assets

     440   

Deferred revenue

     (5 )

Other liabilities

     (935 )

Completed Technology

     1,580   

Trade name and trademark

     30   

Customer relationships

     100   

Goodwill

     9,433   
  

 

 

 

Total purchase price

     10,853   
  

 

 

 

Liability for contingent consideration

     (216
  

 

 

 

Cash Paid

   $ 10,637   
  

 

 

 

The allocation of the purchase price is preliminary as the Company is still reviewing the intangible asset valuation.

The Company’s pro forma results of operations for the quarter ended September 30, 2013 and 2014, assuming the Company had acquired Meldium on January 1, 2013, do not differ materially from those reported in the Company’s condensed consolidated statement of income for those quarters.

        The merger agreement included a contingent, retention-based bonus program requiring the Company to make additional payments to employees, including former Meldium stockholders now employed by the Company, in the first quarter of 2015 and on the first and second anniversaries of the date of acquisition, contingent upon their continued employment and achievement of certain product integration goals. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $4.3 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The contingent bonus program also includes payments to non-employee stockholders for an amount between $0 and $226,000, which the Company has concluded is part of the purchase price. This contingent liability was recorded at its fair value of $216,000 at the acquisition date. The Company continues to re-measure the fair value of the consideration at each subsequent reporting period and recognizes any adjustments to fair value as part of earnings.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to the Company’s ability to leverage its IT management offerings, customer base, sales force and IT management business plan with Meldium’s product, technical expertise and customer base. All goodwill and intangible assets acquired are not deductible for income tax purposes.

The Company recorded both a current and a long-term deferred tax asset of approximately $88,000 and $438,000, respectively, primarily related to net operating losses that were acquired as a part of the acquisition and are shown in the accompanying table above as Current Assets and Other Assets respectively. The Company also recorded a long-term deferred tax liability of approximately $694,000 related to the amortization of intangible assets which cannot be deducted for tax purposes and are included in the accompanying table above as Other Liabilities.

On September 5, 2014, the Company acquired all of the outstanding capital stock of a San Francisco, California-based collaboration software provider, for a cash purchase price of $4.5 million plus contingent bonuses totaling up to $1.5 million, which are expected to be paid two years from the date of acquisition. The acquired company’s operating results, which are comprised of approximately $1,000 of revenue and approximately $96,000 of expenses during the three months ended September 30, 2014 are included in the condensed consolidated financial statements beginning on the acquisition date.

 

This acquisition has been accounted for as a business combination. The assets acquired and the liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company retained an independent third party valuation firm to calculate the fair value of the intangible assets with estimates and assumptions provided by Company management. The excess of the purchase price over the tangible net assets and identifiable intangible assets was recorded as goodwill.

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

 

     Amount  

Cash

   $ 2   

Current assets

     13   

Other assets

     412   

Other liabilities

     (439 )

Completed Technology

     960   

Trade name and trademark

     100   

Goodwill

     3,476   
  

 

 

 

Total purchase price

     4,524   

Liability for contingent consideration

     (24

Cash Paid

   $ 4,500   
  

 

 

 

The allocation of the purchase price is preliminary as the Company is still reviewing the intangible asset valuation.

The Company’s pro forma results of operations for the quarter ended September 30, 2013 and 2014, assuming the Company had acquired the San Francisco, California-based collaboration software company on January 1, 2013, do not differ materially from those reported in the Company’s condensed consolidated statement of income for those quarters.

The stock purchase agreement included a contingent, retention-based bonus program provision requiring the Company to make additional payments to employees, including former stockholders now employed by the Company, on the second anniversary of the acquisition, contingent upon their continued employment and achievement of certain product integration goals. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $1.5 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The contingent bonus program also includes payments to non-employee stockholders for an amount between $0 and $30,000, which the Company has concluded is part of the purchase price. This contingent liability was recorded at its fair value of $24,000 at the acquisition date. The Company continues to re-measure the fair value of the consideration at each subsequent reporting period and recognizes any adjustments to fair value as part of earnings.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to the Company’s ability to leverage its join.me product, customer base, sales force and join.me business plan with the collaboration software provider’s product, technical expertise and customer base. All goodwill and intangible assets acquired are not deductible for income tax purposes.

The Company recorded a long-term deferred tax asset of approximately $410,000 related to net operating losses that were acquired as a part of the acquisition, which is included in the accompanying table above as Other Assets. The Company also recorded a long-term deferred tax liability of approximately $430,000 related to the amortization of intangible assets which cannot be deducted for tax purposes and is included in the accompanying table above as Other Liabilities.

For the three and nine months ended September 30, 2014, the Company incurred approximately $250,000 and $350,000, respectively, of acquisition-related costs for the three acquisitions closed in 2014 which are included in general and administrative expense.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

The changes in the carry amounts of goodwill for the nine months ended September 30, 2014 are due to the addition of goodwill resulting from the acquisitions of Ionia, Meldium and the San Francisco-based collaboration software provider (See Note 4 to the Condensed Consolidated Financial Statements).

Changes in goodwill for the nine months ended September 30, 2014, are as follows (in thousands):

 

Balance, December 31, 2013

   $  18,712   

Goodwill related to the acquisition of Ionia

     6,295   

Goodwill related to the acquisition of Meldium

     9,433   

Goodwill related to the acquisition of a collaboration software provider

     3,476   
  

 

 

 

Balance, September 30, 2014

   $ 37,916   
  

 

 

 

 

Intangible assets consist of the following (in thousands):

 

            December 31, 2013      September 30, 2014  
     Estimated
Useful Life
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Trade names and trademarks

     1-5 years       $ 666       $ 666       $ —        $ 806       $ 674       $ 132   

Customer relationships

     5-8 years         3,789         1,901         1,888         5,229         2,371         2,858   

Customer backlog

     4 months         —          —          —          120         120         —    

Domain names

     5 years         894         341         553         904         466         438   

Software

     4 years         299         299         —          299         299         —    

Completed technology

     3-8 years         13,963         1,835         12,128         16,903         3,516         13,387   

Technology and know-how

     3 years         3,176         2,597         579         3,176         3,176         —    

Documented know-how

     4 years         —          —          —          280         39         241   

Non-compete agreements

     5 years         162         34         128         162         62         100   

Internally developed software

     3 years         2,485         875         1,610         3,834         1,502         2,332   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 25,434       $ 8,548       $ 16,886       $ 31,713       $ 12,225       $ 19,488   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As a result of the acquisition of Ionia, the Company capitalized $120,000 of customer backlog, $280,000 of documented know-how, $10,000 of trade name and trademark, and $1.3 million of customer relationships as intangible assets. As a result of the acquisition of Meldium, the Company capitalized $1.6 million of completed technology, $30,000 of trade name and trademark, and $100,000 of customer relationships. As a result of the acquisition of the San Francisco-based collaboration software provider, the Company capitalized $960,000 of completed technology and $100,000 of trade name and trademark. Changes in the gross carrying amount of domain names is due to foreign currency translation adjustments. The Company is amortizing the intangible assets based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives. The intangible assets have estimated useful lives which range from four months to eight years.

On November 6, 2013, the Company purchased a software asset for $11.5 million. This software asset is recorded as an intangible asset and classified as technology and will be amortized using the straight-line method over an estimated useful life of five years, beginning in February 2014 when the product was made available to customers. In May 2014, the Company paid the remaining $500,000 for the statement of work in accordance with the agreement. The Company capitalized $400,000 as completed technology and $100,000 was expensed as consulting work.

The Company capitalized $205,000 and $445,000 during the three months ended September 30, 2013 and 2014, respectively, and $781,000 and $1.3 million during the nine months ended September 30, 2013 and 2014, 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 lives noted above. Amortization expense for intangible assets was $630,000 and $1.2 million for the three months ended September 30, 2013 and 2014, respectively, and $1.9 million and $3.7 million for the nine months ended September 30, 2013 and 2014, respectively. Amortization relating to software, technology and know-how, documented know-how, and internally developed software is recorded within cost of revenues and the amortization of trade name and trademark, customer base, customer backlog, domain names, and non-compete agreements is recorded within operating expenses. Future estimated amortization expense for intangible assets is as follows at September 30, 2014 (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2014 (Three months ending December 31)

     1,173   

2015

     4,953   

2016

     4,492   

2017

     4,013   

2018

     3,423   

Thereafter

     1,434   
  

 

 

 

Total

   $ 19,488   
  

 

 

 

Accrued Liabilities
Accrued Liabilities

6. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2013
     September 30,
2014
 

Marketing programs

   $ 4,631       $ 6,304   

Payroll and payroll related

     9,719         10,800   

Professional fees

     1,064         1,716   

Other accrued liabilities

     4,696         5,084   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 20,110       $ 23,904   
  

 

 

    

 

 

 

Income Taxes
Income Taxes

7. Income Taxes

The Company recorded a provision for federal, state and foreign income taxes of approximately $2.2 million and $636,000 for the three months ended September 30, 2013 and 2014, respectively, and a provision for federal, state and foreign income taxes of approximately $3.4 million and $1.1 million for the nine months ended September 30, 2013 and 2014, respectively. The tax provision for the three and nine months ended September 30, 2014, decreased compared to the prior comparable periods as a result of a loss before income taxes incurred in the United States which offset increased profitability in certain foreign jurisdictions, primarily our Irish subsidiaries, which have significantly lower tax rates than the U.S. statutory rate.

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 files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s income tax returns since inception are open to examination by federal, state, and foreign tax authorities. The Company has recorded a liability related to uncertain tax provisions of approximately $304,000 and $572,000 as of December 31, 2013 and September 30, 2014, 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 did not recognize any interest or penalties in its statement of operations during the three or nine months ended September 30, 2013. The Company recognized approximately $5,000 of interest expense for the three months ended September 30, 2014.

Common Stock and Equity
Common Stock and Equity

8. Common Stock and Equity

In February 2013, the Company’s board of directors approved a $25 million share repurchase program. On August 13, 2013, the board of directors approved a new $50 million share repurchase program, which replaced the previous $25 million share repurchase program. Share repurchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise, in accordance with applicable securities laws and regulations. The timing and amount of any share repurchases are determined by the Company’s management based on its evaluation of market conditions, the trading price of the stock, regulatory requirements and other factors. The share repurchase program may be suspended, modified or discontinued at any time at the Company’s discretion without prior notice.

For the three months ended September 30, 2013 and 2014, the Company repurchased 188,258 and 432,832 shares of its common stock at an average price of $30.20 and $44.11 per share for a total cost of approximately $5.7 million and $19.1 million, respectively. For the nine months ended September 30, 2013 and 2014, the Company repurchased 948,743 and 627,843 shares of its common stock at an average price of $21.39 and $41.48 per share for a total cost of approximately $20.3 million and $26.0 million, respectively. At September 30, 2014, approximately $9.9 million remained available under the Company’s share repurchase program.

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. Options generally vest over a four-year period and expire ten years from the date of grant. Restricted stock units with service-based vesting conditions generally vest over a three-year period while restricted stock units with market-based vesting conditions generally vest over two or three-year periods. Certain stock-based awards provide for accelerated vesting if there is a change in control. On May 22, 2014, the Company’s stockholders approved an amendment to the 2009 Plan that increased the shares available to grant under the plan by 1,200,000 shares. There were 2,102,377 shares available for grant under the 2009 Plan as of September 30, 2014.

The Company uses the Black-Scholes option-pricing model to estimate the grant date fair value of stock options. The Company estimates the expected volatility of its common stock at the date of grant based on the historical volatility of comparable public companies over the option’s expected term as well as its own stock price volatility since the Company’s IPO. The Company estimates expected term based on historical exercise activity and giving consideration to the contractual term of the options, vesting schedules, employee turnover, and expectation of employee exercise behavior. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the estimated life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. Historical employee turnover data is used to estimate pre-vesting stock option forfeiture rates. The compensation expense is amortized on a straight-line basis over the requisite service period of the stock option, which is generally four years.

The Company used the following assumptions to apply the Black-Scholes option-pricing model:

 

     Three Months Ended September 30,     Nine Months Ended September 30,
     2013     2014(1)     2013    2014

Expected dividend yield

     0.00     —     0.00%    0.00%

Risk-free interest rate

     1.36     —     0.87% - 1.36%    1.48%

Expected term (in years)

     6.25        —       6.25    6.25   

Volatility

     55     —     55%        55%

 

  (1) There were no stock options granted during the three months ended September 30, 2014.

The following table summarizes stock option activity, including performance-based options (shares and intrinsic value in thousands):

 

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

Outstanding at January 1, 2014

     2,389      $ 26.85         6.4       $ 22,330   
          

 

 

 

Granted

     35        41.03         

Exercised

     (661 )     19.63          $ 15,355   
          

 

 

 

Forfeited

     (90 )     33.11         
  

 

 

   

 

 

       

Outstanding at September 30, 2014

     1,673      $ 29.66         6.1       $ 27,439   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2013

     1,451      $ 23.45         5.4       $ 17,855   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2014

     1,189      $ 28.05         5.5       $ 21,427   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value was calculated based on the positive differences between the fair value of the Company’s common stock of $33.55 on December 31, 2013 and $46.07 per share on September 30, 2014, or at time of exercise, and the exercise price of the options.

The weighted average grant date fair value of stock options issued was $11.60 per share for the year ended December 31, 2013, and $21.78 for the nine months ended September 30, 2014.

 

During the three and nine months ended September 30, 2014, the Company granted 75,325 and 614,721 restricted stock units, respectively, containing time-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.

In August 2013 and May 2014, the Company granted 74,000 and 71,000 restricted stock units with market-based vesting conditions, respectively, which were tied to the Company’s achievement of a relative total shareholder return target measured over an applicable performance period which ranges from two to three years (the “TSR Units”). The number of shares underlying these TSR Units that will vest upon the conclusion of the applicable performance periods can range from 0% of the shares awarded to 200% of the shares awarded, or up to 148,000 shares and 142,000 shares for the August 2013 grant and May 2014 grant, respectively. Vesting of such shares is also contingent upon the continued employment of the participant throughout the vesting period. All TSR Units granted by the Company are valued using a Monte Carlo simulation model. The number of awards expected to be earned is factored into the grant date Monte Carlo valuation for the TSR Unit. Compensation cost is recognized regardless of the actual number of awards that are earned based on the market condition. Expected volatility is based on the Company’s historical volatility. The risk-free interest rate is based upon U.S. Treasury securities with a term similar to the vesting term of the TSR Units.

The assumptions used in the Monte Carlo simulation model include (but are not limited to) the following:

 

     August 2013 Grant     May 2014 Grant  

Risk-free interest rate

     0.62 %     0.78 %

Volatility

     54 %     54 %

Compensation cost is recognized on a straight-line basis over the requisite service period. At September 30, 2014, all of the TSR Units granted in August 2013 and May 2014 remain outstanding.

The following table summarizes restricted stock unit activity (shares in thousands):

 

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

Unvested as of January 1, 2014

     1,192      $ 28.47   

Restricted stock units granted

     686        44.48   

Restricted stock units vested

     (401     27.66   

Restricted stock units forfeited

     (148     29.51   
  

 

 

   

 

 

 

Unvested as of September 30, 2014

     1,329      $ 36.86   
  

 

 

   

 

 

 

 

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 September 30,      Nine Months Ended September 30,  
         2013              2014              2013              2014      

Cost of revenue

   $ 158       $ 295       $ 542       $ 804   

Research and development

     835         863         2,897         2,647   

Sales and marketing

     1,594         2,202         5,821         7,059   

General and administrative

     2,026         2,910         5,635         7,911   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,613       $ 6,270       $ 14,895       $ 18,421   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2014, there was approximately $43.5 million of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested stock awards which are expected to be recognized over a weighted average period of 2.0 years. The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.

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, Australia, the United Kingdom, Ireland and India that expire through 2024.

In October 2014, the Company entered into a lease for new office space in Dublin, Ireland. The term of the new office space began in October 2014 and extends through September 2024. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $6.1 million (EUR 4.8 million).

In April 2014, the Company amended its current lease for its Budapest, Hungary office space to provide for an expansion of leased space and to extend the term of the lease. The term of the amended lease began in July 2014 and will extend through June 2019. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $7.2 million (EUR 5.7 million). The amended lease agreement required a bank guarantee of approximately $449,000 (EUR 354,000). The bank guarantee is classified as restricted cash.

Rent expense under all leases was approximately $1.6 million and $1.8 million for the three months ended September 30, 2013 and 2014, respectively, and $4.3 million and $5.2 million for the nine month ended September 30, 2013 and 2014, 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 aggregated approximately $1.1 million and $1.3 million for the three months ended September 30, 2013 and 2014, respectively, and $3.4 million and $3.7 million for the nine months ended September 30, 2013 and 2014, 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 at September 30, 2014 (in thousands):

 

Years Ending December 31

      

2014 (Three months ending December 31)

   $ 2,726   

2015

     8,635   

2016

     6,625   

2017

     6,251   

2018

     6,595   

Thereafter

     24,953   
  

 

 

 

Total minimum lease payments

   $ 55,785   
  

 

 

 

 

Litigation — On September 8, 2010, 01 Communique Laboratory, Inc., or 01, filed a complaint that named the Company as a defendant in a lawsuit in the U.S. District Court for the Eastern District of Virginia (Civil Action No. 1:10cv1007) alleging that the Company infringed U.S. Patent No. 6,928,479, or the ‘479 Patent, which is owned by 01 and has claims directed to a particular application or system for providing a private communication portal from one computer to a second computer. The complaint sought damages in an unspecified amount and injunctive relief. On April 1, 2011, the U.S. District Court for the Eastern District of Virginia granted the Company’s motion for summary judgment of non-infringement. The court issued a written order regarding this decision on May 4, 2011. On May 13, 2011, 01 filed a notice of appeal appealing the court’s ruling granting summary judgment. On July 31, 2012, the U.S. Court of Appeals for the Federal Circuit vacated the lower court’s summary judgment of non-infringement ruling and remanded the case back to the U.S. District Court for the Eastern District of Virginia with revised claim construction. The trial commenced on March 18, 2013 and on March 26, 2013, a jury in the Eastern District of Virginia found that the Company’s products do not infringe the ‘479 Patent as previously asserted by 01. The court issued a written order regarding this decision on April 2, 2013. On June 26, 2013, 01 filed a notice of appeal seeking to appeal the jury’s non-infringement verdict. On June 9, 2014, the U.S. Court of Appeals for the Federal Circuit affirmed the jury’s non-infringement verdict. The period of time for 01 to further appeal the non-infringement verdict has lapsed and while certain post-trial motions remain pending before the U.S. District Court for the Eastern District of Virginia, the Company does not believe that any loss associated with this litigation is probable at this time.

On November 21, 2012, the Company filed suit against Pragmatus Telecom LLC, or Pragmatus, in the U.S. District Court for the District of Delaware (Civil Action No. 12-1507) seeking a declaratory judgment that the Company’s products do not infringe three patents allegedly owned by Pragmatus after certain of the Company’s customers received letters from Pragmatus claiming that their use of certain LogMeIn services infringed upon those patents. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. The Company paid Pragmatus a one-time license fee in connection with the License Agreement in April 2013. As a result, the Company’s declaratory judgment action was dismissed by the court on May 3, 2013.

On August 26, 2014, Sensory Technologies, LLC, or Sensory, filed a complaint against the Company in the U.S. District Court for the Southern District of Indiana (Case No. 1:14-cv-1406). The complaint alleges, among other things, that the Company has infringed upon Sensory’s JOIN® trademark, which is registered to Sensory under U.S. Trademark Registration No. 3622883. The complaint seeks damages in an unspecified amount and injunctive relief. 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.

On August 28, 2014, a putative class action complaint was filed against the Company in the U.S. District Court for the Eastern District of California (Case No. 1:14-cv-01355) by an individual on behalf of himself and on behalf of all other similarly situated individuals, or collectively, the Plaintiffs. The complaint includes claims made under California’s Unfair Competition Law and Business and Professions Code and relates to the Company’s sale of its perpetually licensed Ignition for iOS application, or the App, and the Plaintiffs’ continued use of the App. The Plaintiffs’ complaint seeks damages in an unspecified amount and injunctive relief. 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.

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. 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. 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.

Subsequent Event
Subsequent Event

11. Subsequent Event

On October 23, 2014, the Company announced that its board of directors approved a $75 million share repurchase program. This new share repurchase program is in addition to the Company’s existing $50 million share repurchase program, pursuant to which the Company has spent approximately $40 million to date. Any share repurchases made pursuant to the new program will be made from time-to-time in the open market, in privately negotiated transactions or otherwise, in accordance with applicable securities laws and regulations. The timing and amount of any share repurchases will be determined by the Company’s management based on its evaluation of market conditions, the trading price of the stock, regulatory requirements and other factors. The share repurchase program may be suspended, modified or discontinued at any time at the Company’s discretion without prior notice.

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 10, 2014. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited condensed consolidated 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 income 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, 2013 and September 30, 2014, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of approximately $100.3 million and $100.1 million and an aggregate fair value of approximately $100.3 million and $100.0 million, including approximately $67,000 and $36,000 of unrealized gains and approximately $28,000 and $106,000 of unrealized losses, respectively.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services and the delivery of professional services, primarily related to its Xively business.

Revenue from the Company’s LogMeIn 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 five years, but are generally one year in duration. The Company’s software cannot be run on another entity’s hardware nor do customers have the right to take possession of the software and use it on their own or another entity’s hardware.

        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.

 

The Company currently only offers free versions of its iPhone, iPad and Android software products. The Company had formerly sold these iPhone, iPad and Android software products as perpetually licensed software, the revenue from which was recognized when there was persuasive evidence of an arrangement, the product had been provided to the customer, the collection of the fee was probable, and the amount of fees to be paid by the customer was fixed or determinable.

Revenues are reported net of applicable sales and use tax, value-added tax, and other transaction taxes imposed on the related transaction.

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.

As of December 31, 2013, no customers accounted for 10% or more of accounts receivable and no customers accounted for 10% or more of revenue for the three and nine months ended September 30, 2013 or 2014. As of September 30, 2014, there were two customers that accounted for 14% and 10% of accounts receivable, respectively.

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 annual impairment test of goodwill on the last day of its fiscal year and 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. Through September 30, 2014, no impairments have occurred.

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their estimated fair values at the date of acquisition. Intangible assets are 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. The Company’s intangible assets have estimated useful lives which range from four months to eight years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through September 30, 2014, no impairments have occurred.

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. The Company had foreign currency losses of approximately $141,000 for the three months ended September 30, 2013 and foreign currency gains of approximately $313,000 for the nine months ended September 30, 2013 and foreign currency gains of approximately $5,000 and $202,000 for the three and nine months ended September 30, 2014, respectively.

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. The Company uses the with-or-without method to determine when it will realize excess tax benefits from stock based compensation. Under this method, the Company will realize these excess tax benefits only after it realizes the tax benefits of net operating losses from operations.

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. As of December 31, 2013 and September 30, 2014, the Company has provided a liability for approximately $304,000 and $572,000 for uncertain tax positions, respectively. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

Segment Data — Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision making group, in making decisions regarding resource allocation and assessing performance. The Company, which 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 September 30,      Nine Months Ended September 30,  
              2013                        2014                        2013                        2014           

Revenues:

           

United States

   $ 28,292       $ 38,831       $ 79,775       $ 107,701   

United Kingdom

     3,852         5,028         10,958         14,353   

International — all other

     10,826         14,203         30,344         40,003   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 42,970       $ 58,062       $ 121,077       $ 162,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims, including 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 unlimited. Through September 30, 2014, the Company has not experienced any losses related to these indemnification obligations.

In November 2012, the Company filed suit against Pragmatus Telecom LLC (“Pragmatus”), seeking declaratory judgment after certain of the Company’s customers received letters from Pragmatus claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. The Company paid Pragmatus a one-time licensing fee in April 2013, after a portion of the fee was reimbursed in March 2013 from a designated escrow arrangement associated with a prior acquisition. The Company recorded approximately $1.2 million of expense related to this matter in general and administrative expenses in March 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013.

Net (Loss) Income Per Share — Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the sum of the weighted average number of common shares outstanding during the period and 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 three and nine months ended September 30, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were 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) income per share either because they had an anti-dilutive impact or because the Company had a net loss in the period (in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
         2013              2014              2013              2014      

Options to purchase common shares

     2,598         55         2,598         418   

Restricted stock units

     1,214         146         1,214         75   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     3,812         201         3,812         493   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended
September 30, 2013
    Nine Months Ended
September 30, 2013
 

Basic and Diluted Net Loss per Share:

    

Net loss

   $ (56 )   $ (7,223 )
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,248,893        24,403,549   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.00 )   $ (0.30 )
  

 

 

   

 

 

 

 

     Three Months Ended
September 30, 2014
     Nine Months Ended
September 30, 2014
 

Basic:

     

Net income

   $ 2,308       $ 4,642   
  

 

 

    

 

 

 

Weighted average common shares outstanding, basic

     24,592,053         24,381,859   
  

 

 

    

 

 

 

Net income per share, basic

   $ 0.09       $ 0.19   
  

 

 

    

 

 

 

Diluted:

     

Net income

   $ 2,308       $ 4,642   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     24,592,053         24,381,859   

Add: Options to purchase common shares and restricted stock units

     611,541         723,305   
  

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     25,203,594         25,105,164   
  

 

 

    

 

 

 

Net income per share, diluted

   $ 0.09       $ 0.18   
  

 

 

    

 

 

 

Recently Issued Accounting Pronouncements — On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), its final standard on revenue from contracts with customers. ASU 2014-9 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 is effective for the Company on January 1, 2017. The Company is currently assessing the potential impact of the adoption of ASU 2014-09 on its condensed consolidated financial statements.

On June 19, 2014, the FASB issued ASU 2014-12, Stock Compensation (“ASU 2014-12”), providing guidance on accounting for share-based payment awards when the terms of an award provide that a performance target could be achieved after the requisite service period. The update clarifies that performance targets that can be achieved after the requisite service period of a share-based payment award be treated as performance conditions that affect vesting. These awards should be accounted for under Accounting Standards Codification Topic 718, Compensation — Stock Compensation, and existing guidance should be applied as it relates to awards with performance conditions that affect vesting. The update is effective for the Company for the interim and annual periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this standard, if any, on its consolidated financial statements.

On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The standard requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect to early adopt ASU 2014-15, which will be effective for the Company’s fiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its 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 September 30,      Nine Months Ended September 30,  
              2013                        2014                        2013                        2014           

Revenues:

           

United States

   $ 28,292       $ 38,831       $ 79,775       $ 107,701   

United Kingdom

     3,852         5,028         10,958         14,353   

International — all other

     10,826         14,203         30,344         40,003   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 42,970       $ 58,062       $ 121,077       $ 162,057   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
         2013              2014              2013              2014      

Options to purchase common shares

     2,598         55         2,598         418   

Restricted stock units

     1,214         146         1,214         75   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     3,812         201         3,812         493   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended
September 30, 2013
    Nine Months Ended
September 30, 2013
 

Basic and Diluted Net Loss per Share:

    

Net loss

   $ (56 )   $ (7,223 )
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,248,893        24,403,549   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.00 )   $ (0.30 )
  

 

 

   

 

 

 

 

     Three Months Ended
September 30, 2014
     Nine Months Ended
September 30, 2014
 

Basic:

     

Net income

   $ 2,308       $ 4,642   
  

 

 

    

 

 

 

Weighted average common shares outstanding, basic

     24,592,053         24,381,859   
  

 

 

    

 

 

 

Net income per share, basic

   $ 0.09       $ 0.19   
  

 

 

    

 

 

 

Diluted:

     

Net income

   $ 2,308       $ 4,642   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     24,592,053         24,381,859   

Add: Options to purchase common shares and restricted stock units

     611,541         723,305   
  

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     25,203,594         25,105,164   
  

 

 

    

 

 

 

Net income per share, diluted

   $ 0.09       $ 0.18   
  

 

 

    

 

 

 

Fair Value of Financial Instruments (Tables)

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

 

     Basis of Fair Value Measurements  
     Balance      Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Balance at December 31, 2013

           

Cash equivalents — money market funds

   $ 28,210       $ 28,210       $ —        $ —     

Cash equivalents — bank deposits

     5,001         —          5,001         —    

Short-term marketable securities — U.S. government agency securities

     100,299         75,288         25,011         —    

Balance at September 30, 2014

           

Cash equivalents—money market funds

     12,730         12,730         —          —    

Cash equivalents—bank deposits

     5,002         —          5,002         —    

Short-term marketable securities — U.S. government agency securities

     99,985         85,012         14,973         —    

Contingent Consideration Liability

     242         —           —           242  

A reconciliation of the beginning and ending Level 3 liability is as follows:

 

     Three Months
Ended
September 30,
2014
 

Balance beginning of period

   $ —     

Transfers into Level 3

     239   

Payments

     —     

Change in fair value

     3   
  

 

 

 

Balance end of period

   $ 242   
  

 

 

 

Acquisitions (Tables)

The purchase price was allocated as follows (in thousands):

 

     Amount  

Cash

   $ 67   

Current assets

     296   

Other assets

     26   

Deferred revenue

     (70 )

Other liabilities

     (864 )

Customer backlog

     120   

Trade name and trademark

     10   

Customer relationships

     1,340   

Documented know-how

     280   

Goodwill

     6,295   
  

 

 

 

Total purchase price

   $ 7,500   
  

 

 

 

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

 

     Amount  

Cash

   $ 120   

Current assets

     90   

Other assets

     440   

Deferred revenue

     (5 )

Other liabilities

     (935 )

Completed Technology

     1,580   

Trade name and trademark

     30   

Customer relationships

     100   

Goodwill

     9,433   
  

 

 

 

Total purchase price

     10,853   
  

 

 

 

Liability for contingent consideration

     (216
  

 

 

 

Cash Paid

   $ 10,637   
  

 

 

 

 

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

 

     Amount  

Cash

   $ 2   

Current assets

     13   

Other assets

     412   

Other liabilities

     (439 )

Completed Technology

     960   

Trade name and trademark

     100   

Goodwill

     3,476   
  

 

 

 

Total purchase price

     4,524   

Liability for contingent consideration

     (24

Cash Paid

   $ 4,500   
  

 

 

 

Goodwill and Intangible Assets (Tables)

Changes in goodwill for the nine months ended September 30, 2014, are as follows (in thousands):

 

Balance, December 31, 2013

   $  18,712   

Goodwill related to the acquisition of Ionia

     6,295   

Goodwill related to the acquisition of Meldium

     9,433   

Goodwill related to the acquisition of a collaboration software provider

     3,476   
  

 

 

 

Balance, September 30, 2014

   $ 37,916   
  

 

 

 

Intangible assets consist of the following (in thousands):

 

            December 31, 2013      September 30, 2014  
     Estimated
Useful Life
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Trade names and trademarks

     1-5 years       $ 666       $ 666       $ —        $ 806       $ 674       $ 132   

Customer relationships

     5-8 years         3,789         1,901         1,888         5,229         2,371         2,858   

Customer backlog

     4 months         —          —          —          120         120         —    

Domain names

     5 years         894         341         553         904         466         438   

Software

     4 years         299         299         —          299         299         —    

Completed technology

     3-8 years         13,963         1,835         12,128         16,903         3,516         13,387   

Technology and know-how

     3 years         3,176         2,597         579         3,176         3,176         —    

Documented know-how

     4 years         —          —          —          280         39         241   

Non-compete agreements

     5 years         162         34         128         162         62         100   

Internally developed software

     3 years         2,485         875         1,610         3,834         1,502         2,332   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 25,434       $ 8,548       $ 16,886       $ 31,713       $ 12,225       $ 19,488   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Future estimated amortization expense for intangible assets is as follows at September 30, 2014 (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2014 (Three months ending December 31)

     1,173   

2015

     4,953   

2016

     4,492   

2017

     4,013   

2018

     3,423   

Thereafter

     1,434   
  

 

 

 

Total

   $ 19,488   
  

 

 

 

Accrued Liabilities (Tables)
Summary of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2013
     September 30,
2014
 

Marketing programs

   $ 4,631       $ 6,304   

Payroll and payroll related

     9,719         10,800   

Professional fees

     1,064         1,716   

Other accrued liabilities

     4,696         5,084   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 20,110       $ 23,904   
  

 

 

    

 

 

 

 

Stock Incentive Plan (Tables)

The Company used the following assumptions to apply the Black-Scholes option-pricing model:

 

     Three Months Ended September 30,     Nine Months Ended September 30,
     2013     2014(1)     2013    2014

Expected dividend yield

     0.00     —     0.00%    0.00%

Risk-free interest rate

     1.36     —     0.87% - 1.36%    1.48%

Expected term (in years)

     6.25        —       6.25    6.25   

Volatility

     55     —     55%        55%

 

  (1) There were no stock options granted during the three months ended September 30, 2014.

The following table summarizes stock option activity, including performance-based options (shares and intrinsic value in thousands):

 

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

Outstanding at January 1, 2014

     2,389      $ 26.85         6.4       $ 22,330   
          

 

 

 

Granted

     35        41.03         

Exercised

     (661 )     19.63          $ 15,355   
          

 

 

 

Forfeited

     (90 )     33.11         
  

 

 

   

 

 

       

Outstanding at September 30, 2014

     1,673      $ 29.66         6.1       $ 27,439   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2013

     1,451      $ 23.45         5.4       $ 17,855   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2014

     1,189      $ 28.05         5.5       $ 21,427   
  

 

 

   

 

 

    

 

 

    

 

 

 

The assumptions used in the Monte Carlo simulation model include (but are not limited to) the following:

 

     August 2013 Grant     May 2014 Grant  

Risk-free interest rate

     0.62 %     0.78 %

Volatility

     54 %     54 %

The following table summarizes restricted stock unit activity (shares in thousands):

 

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

Unvested as of January 1, 2014

     1,192      $ 28.47   

Restricted stock units granted

     686        44.48   

Restricted stock units vested

     (401     27.66   

Restricted stock units forfeited

     (148     29.51   
  

 

 

   

 

 

 

Unvested as of September 30, 2014

     1,329      $ 36.86   
  

 

 

   

 

 

 

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 September 30,      Nine Months Ended September 30,  
         2013              2014              2013              2014      

Cost of revenue

   $ 158       $ 295       $ 542       $ 804   

Research and development

     835         863         2,897         2,647   

Sales and marketing

     1,594         2,202         5,821         7,059   

General and administrative

     2,026         2,910         5,635         7,911   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,613       $ 6,270       $ 14,895       $ 18,421   
  

 

 

    

 

 

    

 

 

    

 

 

 
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 at September 30, 2014 (in thousands):

 

Years Ending December 31

      

2014 (Three months ending December 31)

   $ 2,726   

2015

     8,635   

2016

     6,625   

2017

     6,251   

2018

     6,595   

Thereafter

     24,953   
  

 

 

 

Total minimum lease payments

   $ 55,785  
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
0 Months Ended 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended 9 Months Ended
Nov. 21, 2012
Patents
Nov. 30, 2012
Patents
Sep. 30, 2014
Customer
Sep. 30, 2013
Customer
Sep. 30, 2014
Customer
Segment
Sep. 30, 2013
Customer
Dec. 31, 2013
Customer
Mar. 31, 2013
License Agreements [Member]
Sep. 30, 2014
Minimum [Member]
Sep. 30, 2014
Maximum [Member]
Sep. 30, 2014
Weighted Average [Member]
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Marketable securities, maturities remaining
 
 
 
 
2 years 
 
 
 
 
 
 
Marketable securities, amortized cost
 
 
$ 100,100,000 
 
$ 100,100,000 
 
$ 100,300,000 
 
 
 
 
Marketable securities
 
 
99,985,000 
 
99,985,000 
 
100,299,000 
 
 
 
 
Marketable securities, unrealized gains
 
 
36,000 
 
36,000 
 
67,000 
 
 
 
 
Marketable securities, unrealized losses
 
 
106,000 
 
106,000 
 
28,000 
 
 
 
 
Revenue subscription period
 
 
 
 
 
 
 
 
1 month 
5 years 
1 year 
Accounts receivable, customers accounted description
 
 
 
 
14% and 10% of accounts receivable 
 
10% or more of accounts receivable 
 
 
 
 
Accounts receivable, number of customers accounted
 
 
 
 
 
 
 
 
Revenue, customers accounted description
 
 
 
 
10% or more of revenue 
 
 
 
 
 
 
Revenue, number of customers accounted
 
 
 
 
 
 
 
Number of reporting unit
 
 
 
 
 
 
 
 
 
 
Goodwill impairments
 
 
 
 
 
 
 
 
 
 
Intangible assets, estimated useful life
 
 
 
 
 
 
 
 
4 months 
8 years 
 
Long-lived asset impairment
 
 
 
 
 
 
 
 
 
 
Foreign currency gains
 
 
5,000 
 
202,000 
313,000 
 
 
 
 
 
Foreign currency losses
 
 
 
141,000 
 
 
 
 
 
 
 
Uncertain tax positions
 
 
572,000 
 
572,000 
 
304,000 
 
 
 
 
Number of patents involved in infringement lawsuit
 
 
 
 
 
 
 
 
 
General and administrative expense
 
 
$ 7,887,000 
$ 5,913,000 
$ 22,012,000 
$ 23,785,000 
 
$ 1,200,000 
 
 
 
Summary of Significant Accounting Policies - Schedule of Revenue by Geographic Areas (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
$ 58,062 
$ 42,970 
$ 162,057 
$ 121,077 
United States [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
38,831 
28,292 
107,701 
79,775 
United Kingdom [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
5,028 
3,852 
14,353 
10,958 
International - All Other [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
$ 14,203 
$ 10,826 
$ 40,003 
$ 30,344 
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 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
201 
3,812 
493 
3,812 
Options to Purchase Common Shares [Member]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
55 
2,598 
418 
2,598 
Restricted Stock Units [Member]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
146 
1,214 
75 
1,214 
Summary of Significant Accounting Policies - Reconciliation of Basic and Diluted Net (Loss) Income per Share (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Basic and Diluted Net Loss per Share:
 
 
 
 
Net income (loss)
$ 2,308 
$ (56)
$ 4,642 
$ (7,223)
Weighted average common shares outstanding
 
24,248,893 
 
24,403,549 
Basic and diluted net loss per share
 
$ 0.00 
 
$ (0.30)
Basic:
 
 
 
 
Net income
2,308 
(56)
4,642 
(7,223)
Weighted average common shares outstanding, basic
24,592,053 
24,248,893 
24,381,859 
24,403,549 
Net income per share, basic
$ 0.09 
$ 0.00 
$ 0.19 
$ (0.30)
Diluted:
 
 
 
 
Net income
$ 2,308 
$ (56)
$ 4,642 
$ (7,223)
Weighted average common shares outstanding
24,592,053 
24,248,893 
24,381,859 
24,403,549 
Add: Options to purchase common shares and restricted stock units
611,541 
 
723,305 
 
Weighted average common shares outstanding, diluted
25,203,594 
24,248,893 
25,105,164 
24,403,549 
Net income per share, diluted
$ 0.09 
$ 0.00 
$ 0.18 
$ (0.30)
Fair Value of Financial Instruments - Summary of Company's Financial Assets Carried at Fair Value (Detail) (Recurring [Member], USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Contingent Consideration Liability
$ 242 
 
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
12,730 
28,210 
Bank Deposits [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
5,002 
5,001 
U.S. Government Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Short-term marketable securities - U.S. government agency securities
99,985 
100,299 
Quoted Prices in Active Markets for Identical Items (Level 1) [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Contingent Consideration Liability
   
 
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] |
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
12,730 
28,210 
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] |
Bank Deposits [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
   
   
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] |
U.S. Government Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Short-term marketable securities - U.S. government agency securities
85,012 
75,288 
Significant Other Observable Inputs (Level 2) [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Contingent Consideration Liability
   
 
Significant Other Observable Inputs (Level 2) [Member] |
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
   
   
Significant Other Observable Inputs (Level 2) [Member] |
Bank Deposits [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
5,002 
5,001 
Significant Other Observable Inputs (Level 2) [Member] |
U.S. Government Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Short-term marketable securities - U.S. government agency securities
14,973 
25,011 
Significant Unobservable Inputs (Level 3) [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Contingent Consideration Liability
242 
 
Significant Unobservable Inputs (Level 3) [Member] |
Money Market Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
   
   
Significant Unobservable Inputs (Level 3) [Member] |
Bank Deposits [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Cash equivalents
   
   
Significant Unobservable Inputs (Level 3) [Member] |
U.S. Government Agency Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Short-term marketable securities - U.S. government agency securities
   
   
Fair Value of Financial Instruments - Additional Information (Detail)
9 Months Ended
Sep. 30, 2014
Debt Instrument Fair Value Carrying Value [Abstract]
 
Fair value, discount rate
12.00% 
Fair Value of Financial Instruments - Reconciliation of Beginning and Ending Level 3 Liability (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Sep. 30, 2014
Debt Instrument Fair Value Carrying Value [Abstract]
 
Balance beginning of period
   
Transfers into Level 3
239 
Payments
   
Change in fair value
Balance end of period
$ 242 
Acquisitions - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended 0 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended 3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Jun. 30, 2014
Dec. 31, 2013
Mar. 7, 2014
Ionia [Member]
Sep. 30, 2014
Ionia [Member]
Jun. 30, 2014
Ionia [Member]
Sep. 30, 2014
Ionia [Member]
Mar. 7, 2014
Ionia [Member]
Aug. 27, 2014
BBA, Inc., "Meldium" [Member]
Sep. 30, 2014
BBA, Inc., "Meldium" [Member]
Sep. 30, 2014
BBA, Inc., "Meldium" [Member]
Aug. 27, 2014
BBA, Inc., "Meldium" [Member]
Sep. 5, 2014
San Francisco, California-based collaboration software provider [Member]
Sep. 30, 2014
San Francisco, California-based collaboration software provider [Member]
Sep. 30, 2014
San Francisco, California-based collaboration software provider [Member]
Sep. 5, 2014
San Francisco, California-based collaboration software provider [Member]
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial cash payment
 
 
 
 
 
 
$ 7,500,000 
 
 
 
 
$ 10,600,000 
 
$ 10,637,000 
 
$ 4,500,000 
 
$ 4,500,000 
 
Contingent payment
242,000 
 
242,000 
 
   
 
 
 
 
 
4,000,000 
 
216,000 
216,000 
4,600,000 
 
24,000 
24,000 
1,500,000 
Maturity period for contingent payment
 
 
 
 
 
 
 
 
 
2 years 
 
 
 
2 years 
 
 
 
2 years 
 
Operating revenues
58,062,000 
42,970,000 
162,057,000 
121,077,000 
 
 
 
679,000 
 
1,500,000 
 
 
 
10,000 
 
 
1,000 
 
 
Operating expenses
47,957,000 
36,094,000 
136,055,000 
111,769,000 
 
 
 
1,700,000 
 
3,800,000 
 
 
469,000 
 
 
 
96,000 
 
 
Range of contingent payments, Minimum
 
 
 
 
 
 
 
 
 
 
 
 
 
Range of contingent payments, Maximum
 
 
 
 
 
 
 
4,000,000 
 
4,000,000 
 
 
4,300,000 
4,300,000 
 
 
1,500,000 
1,500,000 
 
Increase in goodwill
 
 
 
 
 
 
 
 
700,000 
 
 
 
 
 
 
 
 
 
 
Deferred tax liability, intangible assets
 
 
 
 
 
 
 
 
700,000 
 
 
 
694,000 
694,000 
 
 
430,000 
430,000 
 
Contingent payment provision to a non-employee shareholder, Minimum
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent payment provision to a non-employee shareholder, Maximum
 
 
 
 
 
 
 
 
 
 
 
 
 
226,000 
 
 
 
30,000 
 
Deferred income tax assets
3,011,000 
 
3,011,000 
 
 
3,053,000 
 
 
 
 
 
 
88,000 
88,000 
 
 
 
 
 
Deferred tax asset related to operating losses
8,100,000 
 
8,100,000 
 
 
9,470,000 
 
 
 
 
 
 
438,000 
438,000 
 
 
410,000 
410,000 
 
Acquisition-related costs
$ 250,000 
 
$ 350,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions - Purchase Price Allocation (Detail) (USD $)
0 Months Ended 0 Months Ended 9 Months Ended 0 Months Ended 9 Months Ended
Sep. 30, 2014
Jun. 30, 2014
Dec. 31, 2013
Mar. 7, 2014
Ionia [Member]
Sep. 30, 2014
Ionia [Member]
Mar. 7, 2014
Ionia [Member]
Sep. 30, 2014
Ionia [Member]
Customer Backlog [Member]
Sep. 30, 2014
Ionia [Member]
Trade Name and Trademark [Member]
Sep. 30, 2014
Ionia [Member]
Customer Relationships [Member]
Sep. 30, 2014
Ionia [Member]
Documented Know-how [Member]
Aug. 27, 2014
BBA, Inc., "Meldium" [Member]
Sep. 30, 2014
BBA, Inc., "Meldium" [Member]
Aug. 27, 2014
BBA, Inc., "Meldium" [Member]
Sep. 30, 2014
BBA, Inc., "Meldium" [Member]
Trade Name and Trademark [Member]
Sep. 30, 2014
BBA, Inc., "Meldium" [Member]
Customer Relationships [Member]
Sep. 30, 2014
BBA, Inc., "Meldium" [Member]
Completed Technology [Member]
Sep. 5, 2014
San Francisco, California-based collaboration software provider [Member]
Sep. 30, 2014
San Francisco, California-based collaboration software provider [Member]
Sep. 5, 2014
San Francisco, California-based collaboration software provider [Member]
Sep. 30, 2014
San Francisco, California-based collaboration software provider [Member]
Trade Name and Trademark [Member]
Sep. 30, 2014
San Francisco, California-based collaboration software provider [Member]
Completed Technology [Member]
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
 
 
 
$ 67,000 
 
 
 
 
 
 
$ 120,000 
 
 
 
 
 
$ 2,000 
 
 
 
Current assets
 
 
 
 
296,000 
 
 
 
 
 
 
90,000 
 
 
 
 
 
13,000 
 
 
 
Other assets
 
 
 
 
26,000 
 
 
 
 
 
 
440,000 
 
 
 
 
 
412,000 
 
 
 
Deferred revenue
 
 
 
 
(70,000)
 
 
 
 
 
 
(5,000)
 
 
 
 
 
 
 
 
 
Other liabilities
 
 
 
 
(864,000)
 
 
 
 
 
 
(935,000)
 
 
 
 
 
(439,000)
 
 
 
Business acquisition, Intangible assets
 
 
 
 
 
 
120,000 
10,000 
1,340,000 
280,000 
 
 
 
30,000 
100,000 
1,580,000 
 
 
 
100,000 
960,000 
Goodwill
37,916,000 
 
18,712,000 
 
6,295,000 
 
 
 
 
 
 
9,433,000 
 
 
 
 
 
3,476,000 
 
 
 
Total purchase price
 
 
 
 
7,500,000 
 
 
 
 
 
 
10,853,000 
 
 
 
 
 
4,524,000 
 
 
 
Liability for contingent consideration
(242,000)
   
 
 
 
(4,000,000)
 
 
 
 
 
(216,000)
(4,600,000)
 
 
 
 
(24,000)
(1,500,000)
 
 
Cash Paid
 
 
 
$ 7,500,000 
 
 
 
 
 
 
$ 10,600,000 
$ 10,637,000 
 
 
 
 
$ 4,500,000 
$ 4,500,000 
 
 
 
Goodwill and Intangible Assets - Changes in Goodwill (Detail) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Sep. 30, 2014
Ionia [Member]
Sep. 30, 2014
Meldium [Member]
Sep. 30, 2014
San Francisco, California-based collaboration software provider [Member]
Goodwill [Line Items]
 
 
 
 
 
Beginning balance
$ 37,916 
$ 18,712 
 
 
 
Goodwill related to the acquisition
 
 
6,295 
9,433 
3,476 
Ending balance
$ 37,916 
$ 18,712 
$ 6,295 
 
$ 3,476 
Goodwill and Intangible Assets - Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Sep. 30, 2014
Trade Name and Trademark [Member]
Dec. 31, 2013
Trade Name and Trademark [Member]
Sep. 30, 2014
Customer Relationships [Member]
Dec. 31, 2013
Customer Relationships [Member]
Sep. 30, 2014
Customer Backlog [Member]
Sep. 30, 2014
Domain Names [Member]
Dec. 31, 2013
Domain Names [Member]
Sep. 30, 2014
Software [Member]
Dec. 31, 2013
Software [Member]
Sep. 30, 2014
Completed Technology [Member]
Dec. 31, 2013
Completed Technology [Member]
Sep. 30, 2014
Technology and Know-how [Member]
Dec. 31, 2013
Technology and Know-how [Member]
Sep. 30, 2014
Documented Know-how [Member]
Sep. 30, 2014
Non-compete Agreements [Member]
Dec. 31, 2013
Non-compete Agreements [Member]
Sep. 30, 2014
Internally Developed Software [Member]
Dec. 31, 2013
Internally Developed Software [Member]
Sep. 30, 2014
Minimum [Member]
Dec. 31, 2013
Minimum [Member]
Trade Name and Trademark [Member]
Dec. 31, 2013
Minimum [Member]
Customer Relationships [Member]
Dec. 31, 2013
Minimum [Member]
Completed Technology [Member]
Sep. 30, 2014
Maximum [Member]
Dec. 31, 2013
Maximum [Member]
Trade Name and Trademark [Member]
Dec. 31, 2013
Maximum [Member]
Customer Relationships [Member]
Dec. 31, 2013
Maximum [Member]
Customer Backlog [Member]
Dec. 31, 2013
Maximum [Member]
Domain Names [Member]
Dec. 31, 2013
Maximum [Member]
Software [Member]
Dec. 31, 2013
Maximum [Member]
Completed Technology [Member]
Dec. 31, 2013
Maximum [Member]
Technology and Know-how [Member]
Dec. 31, 2013
Maximum [Member]
Documented Know-how [Member]
Dec. 31, 2013
Maximum [Member]
Non-compete Agreements [Member]
Dec. 31, 2013
Maximum [Member]
Internally Developed Software [Member]
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets, estimated useful life
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4 months 
1 year 
5 years 
3 years 
8 years 
5 years 
8 years 
4 months 
5 years 
4 years 
8 years 
3 years 
4 years 
5 years 
3 years 
Gross Carrying Amount
$ 31,713 
$ 25,434 
$ 806 
$ 666 
$ 5,229 
$ 3,789 
$ 120 
$ 904 
$ 894 
$ 299 
$ 299 
$ 16,903 
$ 13,963 
$ 3,176 
$ 3,176 
$ 280 
$ 162 
$ 162 
$ 3,834 
$ 2,485 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Amortization
12,225 
8,548 
674 
666 
2,371 
1,901 
120 
466 
341 
299 
299 
3,516 
1,835 
3,176 
2,597 
39 
62 
34 
1,502 
875 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Carrying Amount
$ 19,488 
$ 16,886 
$ 132 
 
$ 2,858 
$ 1,888 
 
$ 438 
$ 553 
 
 
$ 13,387 
$ 12,128 
 
$ 579 
$ 241