LOGMEIN, INC., 10-K filed on 2/21/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 19, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol LOGM    
Entity Registrant Name LogMeIn, Inc.    
Entity Central Index Key 0001420302    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   50,839,497  
Entity Public Float     $ 4,671,763,901
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 148,652 $ 252,402
Accounts receivable (net of allowances of $2,031 and $2,785 as of December 31, 2017 and 2018, respectively) 95,354 93,949
Prepaid expenses and other current assets 83,887 52,473
Total current assets 327,893 398,824
Property and equipment, net 98,238 92,154
Restricted cash, net of current portion 1,840 1,795
Intangibles, net 1,059,988 1,149,597
Goodwill 2,400,390 2,208,725
Other assets 41,545 6,483
Deferred tax assets 6,059 530
Total assets 3,935,953 3,858,108
Current liabilities:    
Accounts payable 35,447 22,232
Accrued liabilities 119,379 82,426
Deferred revenue, current portion 369,780 340,570
Total current liabilities 524,606 445,228
Long-term debt 200,000  
Deferred revenue, net of current portion 9,518 6,735
Deferred tax liabilities 201,212 221,407
Other long-term liabilities 25,929 20,997
Total liabilities 961,265 694,367
Commitments and contingencies (Note 12)
Preferred stock, $0.01 par value — 5,000 shares authorized, 0 shares outstanding as of December 31, 2017 and December 31, 2018, respectively
Equity:    
Common stock, $0.01 par value—150,000 shares authorized; 56,043 and 56,703 shares issued; and 52,564 and 50,692 outstanding as of December 31, 2017 and December 31, 2018, respectively 567 560
Additional paid-in capital 3,316,603 3,276,891
Retained earnings (accumulated deficit) 84,043 50,445
Accumulated other comprehensive income (loss) 2,133 15,570
Treasury stock, at cost—3,479 and 6,011 shares as of December 31, 2017 and December 31, 2018, respectively (428,658) (179,725)
Total equity 2,974,688 3,163,741
Total liabilities and equity $ 3,935,953 $ 3,858,108
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowances for doubtful accounts $ 2,785 $ 2,031
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 56,703,000 56,043,000
Common stock, shares outstanding 50,692,000 52,564,000
Treasury stock, shares 6,011,000 3,479,000
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Revenue $ 1,203,992 $ 989,786 $ 336,068
Cost of revenue 281,481 203,203 45,501
Gross profit 922,511 786,583 290,567
Operating expenses:      
Research and development 169,409 156,731 57,193
Sales and marketing 382,997 346,961 162,811
General and administrative 145,453 160,366 60,693
Gain on disposition of assets (33,910)    
Amortization of acquired intangibles 172,539 134,342 5,457
Total operating expenses 836,488 798,400 286,154
Income (loss) from operations 86,023 (11,817) 4,413
Interest income 1,671 1,389 698
Interest expense (6,342) (1,408) (1,403)
Other income (expense), net (556) (141) (500)
Income (loss) before income taxes 80,796 (11,977) 3,208
(Provision for) benefit from income taxes (6,425) 111,500 (570)
Net income (loss) $ 74,371 $ 99,523 $ 2,638
Net income (loss) per share:      
Basic $ 1.44 $ 1.97 $ 0.10
Diluted $ 1.42 $ 1.93 $ 0.10
Weighted average shares outstanding:      
Basic 51,814 50,433 25,305
Diluted 52,496 51,463 26,164
Cash dividends declared and paid per share $ 1.20 $ 1.25 $ 1.00
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) $ 74,371 $ 99,523 $ 2,638
Other comprehensive gain (loss):      
Net unrealized gains on marketable securities, (net of tax provision of $6 and $9 for the years ended December 31, 2016 and 2017, respectively)   16 11
Net translation gains (losses) (13,437) 22,172 (1,413)
Total other comprehensive gain (loss) (13,437) 22,188 (1,402)
Comprehensive income (loss) $ 60,934 $ 121,711 $ 1,236
v3.10.0.1
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Statement Of Income And Comprehensive Income [Abstract]    
Net unrealized gains (losses) on marketable securities, tax (benefit) provision $ 9 $ 6
v3.10.0.1
Consolidated Statements of Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Income Loss [Member]
Treasury Stock [Member]
Balance at Dec. 31, 2015 $ 207,811 $ 275 $ 276,793 $ 21,074 $ (5,216) $ (85,115)
Balance, shares at Dec. 31, 2015   25,130        
Issuance of common stock upon exercise of stock options 11,753 $ 4 11,749      
Issuance of common stock upon exercise of stock options, shares   409        
Net issuance of common stock upon vesting of restricted stock units (14,445) $ 5 (14,450)      
Net issuance of common stock upon vesting of restricted stock units, shares   456        
Excess tax benefits realized from stock-based awards 2,258   2,258      
Stock-based compensation 38,350   38,350      
Treasury stock $ (25,381)         (25,381)
Treasury stock, shares (443,159) (443)        
Dividends on common stock $ (25,466)     (25,466)    
Net income 2,638     2,638    
Unrealized gain on available-for-sale securities 11       11  
Cumulative translation adjustments (1,413)       (1,413)  
Balance at Dec. 31, 2016 196,116 $ 284 314,700 (1,754) (6,618) (110,496)
Balance, shares at Dec. 31, 2016   25,552        
Issuance of common stock upon exercise of stock options 6,511 $ 2 6,509      
Issuance of common stock upon exercise of stock options, shares   181        
Net issuance of common stock upon vesting of restricted stock units (35,245) $ 5 (35,250)      
Net issuance of common stock upon vesting of restricted stock units, shares   589        
Shares issued as Merger purchase consideration 2,904,487 $ 269 2,904,218      
Shares issued as Merger purchase consideration, shares   26,868        
Restricted stock units issued as Merger purchase consideration 16,692   16,692      
Stock-based compensation 67,292   67,292      
Treasury stock $ (69,229)         (69,229)
Treasury stock, shares (626,154) (626)        
Dividends on common stock $ (52,269)     (52,269)    
Net income 99,523     99,523    
Unrealized gain on available-for-sale securities 16       16  
Cumulative translation adjustments 22,172       22,172  
Balance at Dec. 31, 2017 3,163,741 $ 560 3,276,891 50,445 15,570 (179,725)
Balance, shares at Dec. 31, 2017   52,564        
Adoption of ASU | Adoption of ASU 2016-16 [Member] 82     82    
Adoption of ASU | Adoption of ASU 2016-09 [Member] 7,593   2,730 4,863    
Issuance of common stock upon exercise of stock options $ 3,831 $ 1 3,830      
Issuance of common stock upon exercise of stock options, shares 126,000 126        
Net issuance of common stock upon vesting of restricted stock units $ (29,846) $ 6 (29,852)      
Net issuance of common stock upon vesting of restricted stock units, shares   534        
Stock-based compensation 65,734   65,734      
Treasury stock $ (248,933)         (248,933)
Treasury stock, shares (2,531,877) (2,532)        
Dividends on common stock $ (62,202)     (62,202)    
Net income 74,371     74,371    
Cumulative translation adjustments (13,437)       (13,437)  
Balance at Dec. 31, 2018 2,974,688 $ 567 $ 3,316,603 84,043 $ 2,133 $ (428,658)
Balance, shares at Dec. 31, 2018   50,692        
Adoption of ASU | ASU 2014-09 [Member] $ 21,429     $ 21,429    
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income $ 74,371 $ 99,523 $ 2,638
Adjustments to reconcile net income to net cash provided by operating activities:      
Stock-based compensation 65,734 67,292 38,350
Depreciation and amortization 301,071 221,321 21,505
Gain on disposition of assets, excluding transaction costs (36,281)    
Benefit from deferred income taxes (57,456) (156,831) (3,304)
Excess tax benefits realized from stock-based awards     (6,467)
Other, net 1,771 2,266 1,275
Changes in assets and liabilities, excluding effect of acquisitions:      
Accounts receivable 7,751 (16,618) (10,214)
Prepaid expenses and other current assets (13,671) (22,819) 5,996
Other assets (16,596) 1,569 1,490
Accounts payable 11,104 (5,004) 6,149
Accrued liabilities 26,811 15,354 8,353
Deferred revenue 35,416 93,036 26,953
Other long-term liabilities 4,014 17,108 (409)
Net cash provided by operating activities 404,039 316,197 92,315
Cash flows from investing activities      
Purchases of marketable securities     (35,609)
Proceeds from sale or disposal or maturity of marketable securities   55,598 64,756
Purchases of property and equipment (30,965) (36,635) (14,015)
Intangible asset additions (34,219) (29,706) (1,559)
Cash paid for acquisition, net of cash acquired (342,072) (22,348) (6,083)
Restricted cash acquired through acquisitions   1,181  
Proceeds from disposition of assets 42,394    
Net cash provided by (used in) investing activities (364,862) (31,910) 7,490
Cash flows from financing activities      
Borrowings under credit facility 200,000    
Repayments under credit facility   (30,000) (30,000)
Proceeds from issuance of common stock upon option exercises 3,831 6,511 11,753
Excess tax benefits realized from stock-based awards     6,467
Payments of withholding taxes in connection with restricted stock unit vesting (30,617) (34,474) (14,445)
Payment of debt issuance costs   (2,032) (346)
Payment of contingent consideration     (2,030)
Dividends paid on common stock (62,202) (52,269) (25,466)
Purchase of treasury stock (247,144) (69,229) (25,381)
Net cash provided by (used in) financing activities (136,132) (181,493) (79,448)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (6,762) 8,080 (2,633)
Net increase (decrease) in cash, cash equivalents and restricted cash (103,717) 110,874 17,724
Cash, cash equivalents and restricted cash, beginning of period 254,209 143,335 125,611
Cash, cash equivalents and restricted cash, end of period 150,492 254,209 143,335
Supplemental disclosure of cash flow information      
Cash paid for interest on borrowings 4,734 201 937
Cash paid (refunds received) for income taxes 48,244 55,730 (5,439)
Noncash investing and financing activities      
Purchase consideration of the GoTo Business paid in equity   2,921,179  
Purchases of property and equipment included in accounts payable and accrued liabilities 9,109 3,522 $ 1,023
Purchases of treasury stock included in accrued liabilities $ 1,789    
Withholding taxes in connection with restricted stock unit vesting in accrued liabilities   $ 771  
v3.10.0.1
Nature of the Business
12 Months Ended
Dec. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of the Business

1.

Nature of the Business

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

On January 31, 2017, the Company completed a merger with a wholly-owned subsidiary of Citrix Systems, Inc., or Citrix, pursuant to which the Company combined with Citrix’s GoTo family of service offerings known as the GoTo Business, in a Reverse Morris Trust transaction which is referred to herein as the Merger. On April 3, 2018, the Company completed its acquisition of Jive Communications, Inc., or Jive, a provider of cloud-based phone systems and unified communications services. For additional information regarding the Jive acquisition and the Merger, see Note 4 to the Consolidated Financial Statements.

v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.

Summary of Significant Accounting Policies

Principles of Consolidation — The accompanying 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 Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, or GAAP.

Use of Estimates — The preparation of 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.

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board, or FASB, issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, referred to herein as ASU 2017-04, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity’s testing of reporting units for goodwill impairment, and that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual reporting periods beginning after January 1, 2020 and interim periods within those fiscal years. The Company elected to early adopt this standard as of April 1, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

On January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB’s EITF), referred to herein as ASU 2016-18, which requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. The adoption of ASU 2016-18 impacted the presentation of the consolidated statement of cash flows with the inclusion of restricted cash for each of the presented periods.

Cash and cash equivalents subject to contractual restrictions and not readily available for use are classified as restricted cash. The Company’s restricted cash balances are primarily made up of cash posted as collateral for its worldwide facility leases. The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the consolidated balance sheets, to the total of the amounts reported in the consolidated statements of cash flows included herein (in thousands):

 

 

 

December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

Cash and cash equivalents

 

$

123,143

 

 

$

140,756

 

 

$

252,402

 

 

$

148,652

 

Restricted cash, current, included in prepaid

   expenses and other current assets

 

 

 

 

 

98

 

 

 

12

 

 

 

 

Restricted cash, net of current portion

 

 

2,468

 

 

 

2,481

 

 

 

1,795

 

 

 

1,840

 

Cash, cash equivalents and restricted cash

 

$

125,611

 

 

$

143,335

 

 

$

254,209

 

 

$

150,492

 

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and has since issued several additional amendments thereto (collectively referred to herein as ASC 606) which became effective for the Company on January 1, 2018. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes Accounting Standards Codification Topic 605, Revenue Recognition, including industry-specific guidance. The new standard requires entities to apportion consideration from contracts to performance obligations on a relative standalone selling price basis, based on a five-step model. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, ASC 606 also includes subtopic ASC 340-40, Other Assets and Deferred Costs—Contracts with Customers, referred to herein as ASC 340-40, which provides guidance on accounting for certain revenue related costs including costs associated with obtaining and fulfilling a contract, discussed further below.

Revenue recognition from the Company’s primary revenue streams remained substantially unchanged following adoption of ASC 606 and therefore did not have a material impact on its revenues. The Company also considered the impact of ASC 606 subtopic ASC 340-40. Prior to the adoption of ASC 606, the Company expensed commission costs and related fringe benefits as incurred. Under ASC 340-40, the Company is required to capitalize and amortize incremental costs of obtaining a contract, such as sales commissions and related fringe benefits, over the period of benefit, which the Company has calculated to be three years. Incremental costs of obtaining a contract are recognized as an asset if the costs are expected to be recovered. The period of benefit was determined based on an average customer contract term, technology changes, and the company’s ability to retain customers. Sales commissions for renewal contracts are deferred and amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in sales and marketing expense on the consolidated statements of operations.

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective transition method which resulted in an adjustment to retained earnings for the cumulative effect of applying the standard to all contracts not completed as of the adoption date. Upon adoption, prepaid expenses and other current assets increased by $10.7 million due to the capitalization of the current portion of sales commissions and other assets increased by $17.3 million due to the capitalization of the noncurrent portion of sales commissions. Deferred tax liabilities increased by $6.6 million due to temporary differences between the accounting and tax carrying values of the capitalized commissions. Retained earnings increased by $21.4 million as a net result of these adjustments. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The Company has elected the use of practical expedients in its adoption of the new standard, which includes continuing to record revenue reported net of applicable taxes imposed on the related transaction and the application of the standard to all contracts not completed as of the adoption date.

The following tables summarize the impact of adopting ASC 606 on the Company’s Consolidated Financial Statements during the year ended December 31, 2018 (in thousands, except per share data):

 

 

 

December 31, 2018

 

 

 

As

Reported

 

 

Adjustments

 

 

Balance

Without

Adoption of

ASC 606

 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

83,887

 

 

$

(33,675

)

 

$

50,212

 

Other assets

 

 

41,545

 

 

 

(31,181

)

 

 

10,364

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

$

201,212

 

 

$

(15,429

)

 

$

185,783

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings (accumulated deficit)

 

$

84,043

 

 

$

(49,427

)

 

$

34,616

 

 

 

 

Year Ended December 31, 2018

 

 

 

As

Reported

 

 

Adjustments

 

 

Balance

Without

Adoption of

ASC 606

 

Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

$

382,997

 

 

$

37,734

 

 

$

420,731

 

(Provision for) benefit from income taxes

 

$

(6,425

)

 

$

9,016

 

 

$

2,591

 

Net income (loss)

 

$

74,371

 

 

$

(28,718

)

 

$

45,653

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.44

 

 

$

(0.55

)

 

$

0.88

 

Diluted

 

$

1.42

 

 

$

(0.55

)

 

$

0.87

 

 

The adoption of ASC 606 did not affect the Company's reported total amounts of cash flows from operating, investing or financing activities in its consolidated statements of cash flows.

 

Costs to Obtain and Fulfill a Contract — The Company’s incremental costs of obtaining a contract consist of sales commissions and their related fringe benefits. Sales commissions and fringe benefits paid on renewals are not commensurate with sales commissions paid on the initial contract, but they are commensurate with each other. Sales commissions and fringe benefits are deferred and amortized on a straight-line basis over the period of benefit, which the Company has estimated to be three to four years, for initial contracts and amortized over the renewal period for renewal contracts, typically one year. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and the Company’s ability to retain customers. Deferred commissions are classified as current or noncurrent assets based on the timing the expense will be recognized. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and other assets, respectively, in the Company’s consolidated balance sheets. As of December 31, 2018, the Company had $33.7 million of current deferred commissions and $31.2 million of noncurrent deferred commissions. Commissions expense is primarily included in sales and marketing expense on the consolidated statements of operations. The Company had amortization expense of $20.6 million related to deferred commissions during the year ended December 31, 2018. Other costs incurred to fulfill contracts have been immaterial to date.

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

The Company determines revenue recognition through the following five steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

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

 

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

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

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

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

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

240,469

 

 

$

755,220

 

 

$

933,135

 

United Kingdom

 

 

25,738

 

 

 

51,328

 

 

 

55,799

 

International — all other

 

 

69,861

 

 

 

183,238

 

 

 

215,058

 

Total revenue

 

$

336,068

 

 

$

989,786

 

 

$

1,203,992

 

 

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

 

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Unified communications and collaboration

 

$

40,616

 

 

$

527,412

 

 

$

672,339

 

Identity and access management

 

 

196,952

 

 

 

289,181

 

 

 

353,887

 

Customer engagement and support

 

 

98,500

 

 

 

173,193

 

 

 

177,766

 

Total revenue

 

$

336,068

 

 

$

989,786

 

 

$

1,203,992

 

 

Performance Obligations

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

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

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

Accounts Receivable, Net — Accounts receivable, net, are amounts due from customers where there is an unconditional right to consideration. Unbilled receivables of $5.1 million and $5.4 million are included in this balance at December 31, 2017 and 2018, respectively. The payment of consideration related to these unbilled receivables is subject only to the passage of time.

The Company reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Estimates are used to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value. The estimates are based on an analysis of past due receivables, historical bad debt trends, current economic conditions, and customer specific information. After the Company has exhausted all collection efforts, the outstanding receivable balance relating to services provided is written off against the allowance and the balance related to services not yet delivered is charged as an offset to deferred revenue. Additions to the provision for bad debt are charged to expense.

Activity in the provision for bad debt accounts was as follows for the years ended December 31, 2016, 2017 and 2018 (in thousands):

 

 

 

December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Balance beginning of period

 

$

274

 

 

$

245

 

 

$

631

 

Provision for bad debt

 

 

37

 

 

 

614

 

 

 

1,206

 

Uncollectible accounts written off

 

 

(66

)

 

 

(228

)

 

 

(1,269

)

Balance end of period

 

$

245

 

 

$

631

 

 

$

568

 

 

As of December 31, 2017 and 2018, the Company also had a sales returns allowance of $1.4 million and $2.2 million, respectively. Additions to the provision for sales returns are charged against revenues. For the years ended December 31, 2017 and 2018, the provision for sales returns was $4.1 million and $3.9 million and write-offs were $2.7 million and $3.1 million, respectively.

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

Contract Assets — Contract assets primarily relate to unbilled amounts typically resulting from sales contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. The contract assets are transferred to accounts receivable when the rights become unconditional. The Company had no contract assets as of December 31, 2017 and $2.3 million of contract assets as of December 31, 2018, of which $1.3 million is included in prepaid and other current assets and $1.0 million is included in other assets.

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

For the year ended December 31, 2018, revenue recognized related to deferred revenue at January 1, 2018 was approximately $341 million. As of December 31, 2018, approximately $527 million of revenue is expected to be recognized from remaining performance obligations, including backlog, primarily over the next two years.

Changes in contract balances for the year ended December 31, 2018 are as follows (in thousands):

 

 

 

Deferred Revenue

 

 

 

Current

 

 

Non-

Current

 

 

Total

 

Balance as of January 1, 2018

 

$

340,570

 

 

$

6,735

 

 

$

347,305

 

Increase (decrease), net

 

 

29,210

 

 

 

2,783

 

 

 

31,993

 

Balance as of December 31, 2018

 

$

369,780

 

 

$

9,518

 

 

$

379,298

 

 

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

As of December 31, 2017 and 2018, no customers accounted for more than 10% of accounts receivable and there were no customers that represented 10% or more of revenue for the years ended December 31, 2016, 2017 and 2018.

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

The Company’s long-lived assets by geography are as follows (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2018

 

Long-lived assets:

 

 

 

 

 

 

 

 

United States

 

$

78,342

 

 

$

75,161

 

International

 

 

13,812

 

 

 

23,077

 

Total long-lived assets

 

$

92,154

 

 

$

98,238

 

 

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. The Company did not have any marketable securities as of December 31, 2017 or 2018.

Restricted Cash — In April 2012, the Company entered into a lease for its corporate headquarters located in Boston, Massachusetts. The lease required a security deposit of $3.3 million in the form of an irrevocable standby letter of credit which was collateralized by a bank deposit in the amount of $3.5 million or 105 percent of the security deposit in accordance with the lease, which was classified as restricted cash. In 2015 and 2017, $1.5 million and $2.0 million, respectively, of the security deposit was returned to the Company due to a planned decrease in the security deposit obligation. In addition, the Company has made security deposits for various other leased facilities, which are also classified as restricted cash. As of December 31, 2017 and 2018, restricted cash totaled $1.8 million.

Property and Equipment — Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is reflected in the consolidated statements of operations. Expenditures for maintenance and repairs are charged to expense as incurred. Estimated useful lives of assets are as follows:

 

Buildings

 

30 years

Site and building improvements

 

5 — 10 years

Computer equipment

 

2 — 3 years

Software

 

2 — 5 years

Office equipment

 

3 years

Furniture and fixtures

 

5 years

Leasehold improvements

 

Shorter of lease term

or estimated useful life

 

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill, but performs an impairment test of goodwill annually or whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. As of November 30, 2018, the Company’s measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through December 31, 2018, no impairments have occurred.

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

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through December 31, 2018, the Company recorded no material impairments.

Legal Costs — Legal expenditures are expensed as incurred.  

Research and Development — Research and development expenditures are expensed as incurred.

Software Development Costs — The Company capitalizes certain direct costs to develop functionality as well as certain upgrades and enhancements of its on-demand products that are probable to result in additional functionality. The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized as part of intangible assets until the software is substantially complete and ready for its intended use. Internally developed software costs that are capitalized are classified as intangible assets and amortized over a period of two to three years.

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

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

As of December 31, 2017 and 2018, the Company had outstanding forward contracts with notional amounts equivalent to the following (in thousands):

 

 

 

December 31,

 

Currency Hedged

 

2017

 

 

2018

 

Euro / Canadian Dollar

 

$

556

 

 

$

537

 

Euro / U.S. Dollar

 

 

4,208

 

 

 

5,203

 

Euro / British Pound

 

 

5,926

 

 

 

3,809

 

British Pound / U.S. Dollar

 

 

 

 

 

563

 

Israeli Shekel / Hungarian Forint

 

 

8,008

 

 

 

 

U.S. Dollar / Canadian Dollar

 

 

 

 

 

4,504

 

Total

 

$

18,698

 

 

$

14,616

 

 

Net realized and unrealized foreign currency gains and losses were net losses of $0.5 million, $0.1 million and $0.6 million for the years ended December 31, 2016, 2017 and 2018, respectively, which are included in other income (expense), net in the consolidated statements of operations. Excluding the underlying foreign currency exposure being hedged, net realized and unrealized gains and losses on forward contracts included in foreign currency gains and losses was a net loss of $0.3 million for the year ended December 31, 2017 and a net gain of $0.5 million for the year ended December 31, 2018. The Company did not enter into any forward contracts in 2016.

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 on a straight-line basis.

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

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

Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2016, 2017 and 2018 was approximately $29.2 million, $100.2 million and $112.8 million, respectively, which consisted primarily of online paid searches, banner advertising and other online marketing and is included in sales and marketing expense in the accompanying consolidated statements of operations.

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

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

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Options to purchase common shares

 

 

 

 

 

 

 

 

 

Restricted stock units

 

 

114

 

 

 

65

 

 

 

150

 

Total options and restricted stock units

 

 

114

 

 

 

65

 

 

 

150

 

 

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

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,638

 

 

$

99,523

 

 

$

74,371

 

Weighted average common shares outstanding, basic

 

 

25,305

 

 

 

50,433

 

 

 

51,814

 

Net income per share, basic

 

$

0.10

 

 

$

1.97

 

 

$

1.44

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,638

 

 

$

99,523

 

 

$

74,371

 

Weighted average common shares outstanding

 

 

25,305

 

 

 

50,433

 

 

 

51,814

 

Add: Common stock equivalents

 

 

859

 

 

 

1,030

 

 

 

682

 

Weighted average common shares outstanding,

   diluted

 

 

26,164

 

 

 

51,463

 

 

 

52,496

 

Net income per share, diluted

 

$

0.10

 

 

$

1.93

 

 

$

1.42

 

 

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

In the ordinary course of business, the Company enters into agreements with certain customers that contractually obligate the Company to provide indemnifications of varying scope and terms with respect to certain matters including, but not limited to, losses arising out of the breach of such agreements, from the services provided by the Company or claims alleging that the Company’s products infringe third-party patents, copyrights, or trademarks. The term of these indemnification obligations is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is, in many cases, unlimited. Through December 31, 2018, the Company has not experienced any losses related to these indemnification obligations.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, referred to herein as ASU 2016-02, which will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. In general, lease arrangements exceeding a twelve-month term must now be recognized as assets and liabilities on the balance sheet. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. This guidance is effective for the Company as of January 1, 2019. Along with ASU 2016-02, the Company is also evaluating Accounting Standards Update 2018-10, Codification Improvements to Topic 842 Leases and Accounting Standards Update 2018-11, Targeted Improvements to Topic 842 Leases which allows the new lease standard to be applied as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings rather than retroactive restatement of all periods presented. Upon adoption, the Company also expects to elect the transition package of practical expedients permitted within the new standard, which among other things, allows the carryforward of the historical lease classification. The Company has formed a project team focused on the implementation of the new accounting standard. The Company continues to evaluate which other, if any, practical expedients will be elected and is currently formalizing processes and controls to identify, classify, and measure its leases in accordance with ASU 2016-02. While the Company continues to evaluate the effect of adopting this guidance on its Consolidated Financial Statements and related disclosures, it is expected that at a minimum, the obligations under existing operating leases, as disclosed in Note 12 to the Consolidated Financial Statements, will be reported in the consolidated balance sheet upon adoption.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software: Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, referred to herein as ASU 2018-15. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. ASU 2018-15 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the potential impact of the adoption of ASU 2018-15 on its Consolidated Financial Statements.

v3.10.0.1
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3.

Fair Value of Financial Instruments

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

 

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

 

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

 

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

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

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

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

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

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

 

 

 

Fair Value Measurements

December 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

148,120

 

 

$

10,000

 

 

$

 

 

$

158,120

 

Forward contracts ($18.7 million notional amount)

 

$

 

 

$

29

 

 

$

 

 

$

29

 

 

 

 

 

Fair Value Measurements

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

7,207

 

 

$

19,943

 

 

$

 

 

$

27,150

 

Forward contracts ($14.6 million notional amount)

 

$

 

 

$

5

 

 

$

 

 

$

5

 

 

v3.10.0.1
Acquisitions
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions

4.

Acquisitions

In 2018, the Company completed the acquisition of Jive Communications, Inc., or Jive, on April 3, 2018. In 2017, the Company completed its Merger with Citrix Systems, Inc.’s wholly-owned subsidiary on January 31, 2017 and the acquisition of Nanorep Technologies Ltd, or Nanorep, on July 31, 2017. In 2016, the Company completed the acquisition of AuthAir, Inc., or AuthAir, on October 31, 2016.

The results of operations of these acquired businesses have been included in the Company’s Consolidated Financial Statements beginning on their respective acquisition dates.

These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of the acquired companies and the Company. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

In the years ended December 31, 2016, 2017 and 2018, acquisition-related costs were $25.1 million, $59.8 million and $22.9 million, respectively. Acquisition-related costs are associated with the acquisitions of businesses and intellectual property and include transaction, transition and integration-related charges (including legal, accounting and other professional fees, severance and retention bonuses) and subsequent adjustments to the Company’s initial estimated amount of contingent consideration associated with acquisitions. Acquisition-related costs for the year ended December 31, 2016 were primarily related to the Merger and also included $8.2 million of retention-based bonus expense related to the Company’s acquisitions, which are typically earned over the first two years following the acquisition. Acquisition-related costs for the year ended December 31, 2017 were also primarily related to the Merger and included $29.4 million in transaction, transition and integration-related expenses, $12.8 million in integration-related severance costs, and $16.6 million of retention-based bonuses, of which $10.0 million was related to the Merger. Acquisition-related costs for the year ended December 31, 2018 consisted of $8.2 million of transaction, transition and integration-related expenses, primarily for the acquisition of Jive, $3.5 million of integration-related severance costs, and $11.2 million of retention-based bonuses primarily related to the Jive and Nanorep acquisitions described below.

2018 Acquisition

Jive Communications, Inc.

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

Additionally, the Company expects to pay up to $15 million in contingent cash retention payments to certain employees of Jive upon the achievement of specified retention milestones over the two-year period following the closing of the transaction, of which $0.7 million has been paid as of December 31, 2018. At the time of closing, Jive had approximately 700 employees and fiscal year 2017 revenue was approximately $80 million. The operating results of Jive have been included in the Company’s results since the date of the acquisition. During the year ended December 31, 2018, the Company recorded revenue of approximately $78 million, including a $0.7 million effect of acquisition accounting on the fair value of acquired deferred revenue, and expenses of $114.1 million, including amortization of acquired intangibles of $9.9 million, acquisition-related transaction, transition and integration-related costs of $7.4 million, integration-related severance costs of $1.2 million and retention-based bonus expense of $7.7 million.  The Company continues to integrate Jive into its business and has begun selling new bundled product offerings.

The acquisition is being accounted for under the acquisition method of accounting. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The fair value of assets acquired and liabilities assumed has been recognized based on management’s estimates and assumptions using the information about facts and circumstances that existed at the acquisition date. The Company finalized the allocation of purchase price in the fourth quarter of 2018.

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

 

Cash

 

$

2,571

 

Accounts receivable

 

 

11,986

 

Property and equipment

 

 

2,492

 

Prepaid expenses and other current assets

 

 

2,511

 

Other assets

 

 

2,255

 

Intangible assets:

 

 

 

 

Completed technology (9 years) (1)

 

 

35,200

 

Customer relationships (10 years) (1)

 

 

117,500

 

Trade name (2 years)

 

 

900

 

Deferred revenue

 

 

(5,498

)

Accounts payable and accrued liabilities (1)

 

 

(7,685

)

Deferred tax liabilities, net (1)

 

 

(25,223

)

Goodwill (1)

 

 

207,634

 

Total purchase consideration

 

 

344,643

 

Less: cash acquired

 

 

(2,571

)

Total purchase consideration, net of cash acquired

 

$

342,072

 

 

(1)

Since the second quarter of 2018, the Company identified measurement period adjustments that impacted the initial estimated fair value of the assets and liabilities assumed as of the date of acquisition. The table above, which summarizes the allocation of the purchase price for the entities acquired, has been updated to reflect these measurement period adjustments. The total measurement period adjustments resulted in an increase in intangible assets of $5.2 million ($2.4 million in completed technology and $2.8 million in customer relationships), an increase in accrued liabilities of $0.4 million, an increase in deferred tax liabilities, net, of $0.9 million, and a decrease in goodwill of $3.9 million. This change to the provisional fair value amounts of the assets and liabilities assumed occurred within the year ended December 31, 2018.

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

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

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

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

 

 

 

Years Ended December 31,

 

 

 

(unaudited)

 

 

 

2017

 

 

2018

 

Pro forma revenue

 

$

1,067.7

 

 

$

1,227.9

 

Pro forma net income (loss)

 

$

68.7

 

 

$

65.0

 

Pro forma net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.36

 

 

$

1.26

 

Diluted

 

$

1.34

 

 

$

1.24

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

50.4

 

 

 

51.8

 

Diluted

 

 

51.5

 

 

 

52.5

 

 

2017 Acquisitions

Nanorep Technologies Ltd.

On July 31, 2017, the Company acquired all of the outstanding equity interests in Nanorep Technologies Ltd., or Nanorep, an Israeli provider of artificial intelligence, chatbot and virtual assistant services, for $43.2 million, net of cash acquired. Additionally, the Company expects to pay up to $5 million in cash to certain employees of Nanorep contingent upon their continued service over the two-year period following the closing of the acquisition and, in some cases, the achievement of specified performance conditions, of which $2.5 million has been paid as of December 31, 2018. At the time of the acquisition, Nanorep had approximately 55 employees and annualized revenue of approximately $5 million. The operating results of Nanorep, which have been included in the Company’s results since the date of the acquisition are not material. Accordingly, pro forma financial information for the business combination has not been presented.

GoTo Business

On January 31, 2017, the Company completed its Merger with a wholly-owned subsidiary of Citrix, pursuant to which the Company acquired Citrix’s GoTo Business. In connection with the Merger, the Company issued 26.9 million shares of its common stock to Citrix stockholders and an additional 0.4 million of the Company’s restricted stock units in substitution for certain outstanding Citrix restricted stock units held by the GoTo Business employees. Based on the Company’s closing stock price of $108.10 on January 31, 2017 as reported by the NASDAQ Global Select Market, the total value of the shares of LogMeIn common stock issued to Citrix stockholders in connection with the Merger was $2.9 billion. In October 2017, pursuant to the terms of the merger agreement, the Company paid $3.3 million of additional purchase price for final adjustments related to defined targets for cash and cash equivalents and non-cash working capital.

As of the date of the Merger, the operations of the GoTo Business have been included in the Company’s operating results. Since the Merger, the operating costs of the GoTo Business have been integrated with the operating costs of the Company and therefore, the Company has not provided operating income for the GoTo Business. Further, in 2018, stand-alone GoTo Business revenue was not reported because the Company’s continued integration of its go-to-market strategy made this metric incomparable to prior periods. During the years ended December 31, 2017 and 2018, the Company recorded amortization of acquired intangibles of $172.6 million and $224.1 million, respectively, and acquisition-related transaction, transition and integration-related costs directly attributable to the Merger of $46.0 million and $2.9 million, respectively, within its Consolidated Financial Statements.

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

 

Purchase consideration:

 

 

 

 

     Company common shares issued (1)

 

$

2,904,487

 

     Restricted stock units issued (2)

 

 

16,692

 

     Cash consideration paid (3)

 

 

3,317

 

Total purchase consideration

 

$

2,924,496

 

Estimated fair value of assets acquired and liabilities assumed:

 

 

 

 

Cash

 

 

24,215

 

Accounts receivable

 

 

48,957

 

Property and equipment

 

 

59,715

 

Prepaid expense and other current assets

 

 

21,824

 

Other assets

 

 

4,448

 

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

 

 

 

 

Completed technology (9 years)

 

 

385,600

 

Customer relationships (8 years)

 

 

756,700

 

Tradenames and trademark (9 years)

 

 

65,100

 

Accounts payable

 

 

(11,030

)

Accrued liabilities

 

 

(26,886

)

Deferred revenue, current and noncurrent

 

 

(82,643

)

Other long-term liabilities

 

 

(996

)

Deferred tax liabilities, net

 

 

(379,871