LOGMEIN, INC., 10-Q filed on 4/24/2020
Quarterly Report
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
Apr. 20, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Trading Symbol LOGM  
Entity File Number 001-34391  
Entity Tax Identification Number 20-1515952  
Entity Address, Address Line One 320 Summer Street  
Entity Address, City or Town Boston  
Entity Address, Postal Zip Code 02210  
City Area Code 781  
Local Phone Number 638-9050  
Entity Address, State or Province MA  
Entity Registrant Name LOGMEIN, INC.  
Entity Central Index Key 0001420302  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Shell Company false  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Current Reporting Status Yes  
Entity Common Stock, Shares Outstanding   48,770,832
Document Quarterly Report true  
Document Transition Report false  
Entity Incorporation, State or Country Code DE  
Entity Interactive Data Current Yes  
Security Exchange Name NASDAQ  
Title of 12(b) Security Common Stock, $0.01 par value per share  
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 189,550 $ 128,005
Accounts receivable (net of allowances of $3,744 and $4,245 as of December 31, 2019 and March 31, 2020, respectively) 106,541 107,595
Prepaid expenses and other current assets 104,283 89,351
Total current assets 400,374 324,951
Property and equipment, net 98,449 99,157
Operating lease assets 99,067 99,026
Restricted cash 1,808 1,883
Intangibles, net 787,091 840,427
Goodwill 2,413,611 2,414,287
Other assets 71,435 68,272
Deferred tax assets 8,364 7,994
Total assets 3,880,199 3,855,997
Current liabilities:    
Accounts payable 45,478 52,104
Current operating lease liabilities 18,979 18,470
Accrued liabilities 158,465 161,996
Deferred revenue, current portion 437,266 390,087
Total current liabilities 660,188 622,657
Long-term debt 200,000 200,000
Deferred revenue, net of current portion 13,992 18,076
Deferred tax liabilities 161,200 170,482
Non-current operating lease liabilities 88,735 88,674
Other long-term liabilities 15,878 15,400
Total liabilities 1,139,993 1,115,289
Commitments and contingencies (Note 11)
Preferred stock, $0.01 par value — 5,000 shares authorized, 0 shares outstanding as of December 31, 2019 and March 31, 2020
Equity:    
Common stock, $0.01 par value—145,000 shares authorized; 57,294 and 57,340 shares issued; and 48,573 and 48,619 outstanding as of December 31, 2019 and March 31, 2020, respectively 573 573
Additional paid-in capital 3,384,902 3,369,893
Retained earnings (accumulated deficit) (6,354) 4,931
Accumulated other comprehensive income (loss) (3,542) 684
Treasury stock, at cost - 8,721 shares (635,373) (635,373)
Total equity 2,740,206 2,740,708
Total liabilities and equity $ 3,880,199 $ 3,855,997
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 4,245 $ 3,744
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 145,000,000 145,000,000
Common stock, shares issued 57,340,000 57,294,000
Common stock, shares outstanding 48,619,000 48,573,000
Treasury stock, shares 8,721,000 8,721,000
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenue $ 322,383 $ 307,700
Cost of revenue 84,878 77,688
Gross profit 237,505 230,012
Operating expenses    
Research and development 39,879 40,717
Sales and marketing 126,210 114,634
General and administrative 33,699 33,886
Restructuring charge 18,541 8,474
Amortization of acquired intangibles 33,328 39,499
Total operating expenses 251,657 237,210
Income (loss) from operations (14,152) (7,198)
Interest income 267 661
Interest expense (1,680) (2,143)
Other income (expense), net 439 (260)
Income (loss) before income taxes (15,126) (8,940)
(Provision for) benefit from income taxes 3,841 (99)
Net income (loss) $ (11,285) $ (9,039)
Net income (loss) per share:    
Basic $ (0.23) $ (0.18)
Diluted $ (0.23) $ (0.18)
Weighted average shares outstanding:    
Basic 48,600 50,639
Diluted 48,600 50,639
Cash dividends declared and paid per share:   $ 0.325
v3.20.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement Of Income And Comprehensive Income [Abstract]    
Net income (loss) $ (11,285) $ (9,039)
Other comprehensive gain (loss):    
Net translation gains (losses) (4,226) (2,625)
Comprehensive income (loss) $ (15,511) $ (11,664)
v3.20.1
Condensed 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, 2018 $ 2,974,688 $ 567 $ 3,316,603 $ 84,043 $ 2,133 $ (428,658)
Balance, shares at Dec. 31, 2018   50,692,000        
Issuance of common stock upon exercise of stock options 41   41      
Issuance of common stock upon exercise of stock options, shares   1,000        
Net issuance of common stock upon vesting of restricted stock units (8,811) $ 2 (8,813)      
Net issuance of common stock upon vesting of restricted stock units, shares   187,000        
Stock-based compensation 15,031   15,031      
Treasury stock $ (57,832)         (57,832)
Treasury stock, shares (713,985) (714,000)        
Dividends on common stock $ (16,517)     (16,517)    
Net income (loss) (9,039)     (9,039)    
Cumulative translation adjustments (2,625)       (2,625)  
Balance at Mar. 31, 2019 2,894,936 $ 569 3,322,862 58,487 (492) (486,490)
Balance, shares at Mar. 31, 2019   50,166,000        
Balance at Dec. 31, 2019 2,740,708 $ 573 3,369,893 4,931 684 (635,373)
Balance, shares at Dec. 31, 2019   48,573,000        
Issuance of common stock upon exercise of stock options 85   85      
Issuance of common stock upon exercise of stock options, shares   4,000        
Net issuance of common stock upon vesting of restricted stock units (1,937)   (1,937)      
Net issuance of common stock upon vesting of restricted stock units, shares   42,000        
Stock-based compensation 16,861   16,861      
Net income (loss) (11,285)     (11,285)    
Cumulative translation adjustments (4,226)       (4,226)  
Balance at Mar. 31, 2020 $ 2,740,206 $ 573 $ 3,384,902 $ (6,354) $ (3,542) $ (635,373)
Balance, shares at Mar. 31, 2020   48,619,000        
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2019
Cash flows from operating activities          
Net income (loss) $ (11,285)     $ (9,039)  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Stock-based compensation 16,861     15,031  
Depreciation and amortization 69,245     75,944  
Benefit from deferred income taxes (9,781)     (11,651)  
Other, net 521     337  
Changes in assets and liabilities, excluding effect of acquisitions:          
Accounts receivable (986)     6,024  
Prepaid expenses and other current assets (16,547)     2,883  
Other assets (4,262)     (6,674)  
Accounts payable (8,605)     9,344  
Accrued liabilities 3,603     19,350  
Deferred revenue 48,526     23,820  
Other long-term liabilities 709     (5,719)  
Net cash provided by (used in) operating activities 87,999     119,650  
Cash flows from investing activities          
Purchases of property and equipment (8,401)     (12,187)  
Intangible asset additions (10,319)     (8,915)  
Cash paid for acquisitions, net of cash acquired       (22,463)  
Net cash provided by (used in) investing activities (18,720)     (43,565)  
Cash flows from financing activities          
Proceeds from issuance of common stock upon option exercises 85     41  
Payments of withholding taxes in connection with restricted stock unit vesting (1,937)     (7,789)  
Payment of contingent consideration (1,294)        
Dividends paid on common stock   $ (15,900) $ (16,200) (16,517) $ (64,600)
Purchase of treasury stock       (54,067)  
Net cash provided by (used in) financing activities (3,146)     (78,332)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash (4,663)     (1,385)  
Net increase (decrease) in cash, cash equivalents and restricted cash 61,470     (3,632)  
Cash, cash equivalents and restricted cash, beginning of period 129,888   $ 146,860 150,492 150,492
Cash, cash equivalents and restricted cash, end of period 191,358 $ 129,888   146,860 $ 129,888
Supplemental disclosure of cash flow information          
Cash paid for interest 2,705     1,906  
Cash paid (refunds received) from income taxes 19,457     (313)  
Noncash investing and financing activities          
Purchases of property and equipment included in accounts payable and accrued liabilities 7,907     7,704  
Withholding taxes in connection with restricted stock unit vesting in accrued liabilities       1,023  
Purchases of treasury stock included in accrued liabilities       5,554  
Fair value of contingent consideration in connection with acquisition, included in accrued liabilities       3,170  
Lease assets obtained (relieved) and related operating lease liabilities $ 5,849     $ (3,503)  
v3.20.1
Nature of the Business
3 Months Ended
Mar. 31, 2020
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.

In December 2019, the Company entered into an Agreement and Plan of Merger, or the Merger Agreement, with Logan Parent, LLC, or Parent, and Logan Merger Sub, Inc., a wholly owned subsidiary of Parent, or Merger Sub. Pursuant to the terms of the Merger Agreement, Merger Sub would merge with and into LogMeIn, which the Company refers to herein as the Merger. Parent and Merger Sub are controlled by Francisco Partners, a technology-focused global private equity firm, and Evergreen Coast Capital Corp., the technology-focused global private equity affiliate of Elliott Management Corporation, an investment management firm. Assuming the satisfaction of the remaining outstanding conditions set forth in the Merger Agreement, the Merger is currently expected to close in mid-2020. The Company recorded $2.3 million in general and administrative expense for Merger-related costs during the three months ended March 31, 2020.

The Company is closely monitoring the impact of the 2019 novel coronavirus, or COVID-19, on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency. While the COVID-19 pandemic has not had a material adverse impact on the Company’s operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may materially and adversely affect the Company’s results of operations, cash flows and financial position as well as its customers. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Quarterly Report on Form 10-Q. Refer to Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for a complete description of the material risks that the Company currently faces.

v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

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

Unaudited Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated financial statements and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited and have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read along with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 14, 2020. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results for the interim periods presented are not necessarily indicative of future results. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

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

 

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

The Company determines revenue recognition through the following five steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

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

 

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

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

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

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

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

United States

 

$

241,294

 

 

$

252,947

 

International

 

 

66,406

 

 

 

69,436

 

Total revenue

 

$

307,700

 

 

$

322,383

 

 

The Company’s revenue by product grouping is as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

Unified communications and collaboration

 

$

169,957

 

 

$

173,687

 

Identity and access management

 

 

94,179

 

 

 

105,581

 

Customer engagement and support

 

 

43,564

 

 

 

43,115

 

Total revenue

 

$

307,700

 

 

$

322,383

 

 

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 $7.7 million and $9.6 million are included in this balance at December 31, 2019 and March 31, 2020, respectively. The payment of consideration related to these unbilled receivables is subject only to the passage of time. As of December 31, 2019 and March 31, 2020, lease receivables totaled $10.0 million (of which, $5.1 million was long term and in other assets), and $10.8 million (of which, $5.8 million was long term and in other assets), respectively.

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

Contract Assets — Contract assets primarily relate to unbilled amounts typically resulting from sales contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. The contract assets are transferred to accounts receivable when the rights become unconditional. The Company had contract assets of $7.9 million as of December 31, 2019 ($4.4 million included in prepaid and other current assets and $3.5 million included in other assets) and $9.9 million as of March 31, 2020 ($5.2 million included in prepaid and other current assets and $4.7 million included in other assets).

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

For the three months ended March 31, 2020, revenue recognized related to deferred revenue at January 1, 2020 was approximately $172 million. As of March 31, 2020, approximately $735 million of revenue is expected to be recognized from remaining performance obligations, including backlog, primarily over the next two years.

Changes in contract liabilities for the three months ended March 31, 2020 are as follows:

 

 

 

Deferred Revenue

 

 

 

Current

 

 

Non-

Current

 

 

Total

 

 

 

(In thousands)

 

Balance as of January 1, 2020

 

$

390,087

 

 

$

18,076

 

 

$

408,163

 

Increase (decrease), net

 

 

47,179

 

 

 

(4,084

)

 

 

43,095

 

Balance as of March 31, 2020

 

$

437,266

 

 

$

13,992

 

 

$

451,258

 

 

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 expected credit losses. The Company also reserves against its lease receivables and contract assets for expected losses. To date, losses resulting from uncollected receivables have not exceeded management’s expectations.

For the three months ended March 31, 2019 and 2020, no customer accounted for more than 10% of revenue. As of December 31, 2019 and March 31, 2020, no customer accounted for more than 10% of accounts receivable.

Costs to Obtain and Fulfill a Contract — The Company’s incremental costs of obtaining a contract consist of sales commissions and their related fringe benefits. Sales commissions and fringe benefits paid on renewals are not commensurate with sales commissions paid on the initial contract, but they are commensurate with each other. Sales commissions and fringe benefits are deferred and amortized on a straight-line basis over the period of benefit, which the Company has estimated to be three to four years for initial contracts and amortized over the renewal period for renewal contracts, typically one year. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and the Company’s ability to retain customers. Deferred commissions are classified as current or noncurrent assets based on the timing the expense will be recognized. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and other assets, respectively, in the Company’s condensed consolidated balance sheets. As of December 31, 2019 and March 31, 2020, the Company had $49.7 million of current deferred commissions and $53.1 million of noncurrent deferred commissions, and $54.2 million of current deferred commissions and $54.4 million of noncurrent deferred commissions, respectively. Commissions expense is primarily included in sales and marketing expense on the condensed consolidated statements of operations. The Company had amortization expense of $8.5 million and $14.3 million related to deferred commissions during the three months ended March 31, 2019 and 2020, respectively. Other costs incurred to fulfill contracts have been immaterial to date.

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

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill but performs an impairment test of goodwill annually or whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. As of November 30, 2019, our measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. As of March 31, 2020, the fair value of the Company as a whole continued to exceed the carrying amount of the Company.  

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 March 31, 2020, the Company recorded no material impairments.

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

Derivative Financial Instruments — The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses foreign currency forward contracts to manage exposure to fluctuations in foreign currency 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, 2019 and March 31, 2020, the Company had outstanding forward contracts with notional amounts equivalent to the following:

 

 

 

December 31,

2019

 

 

March 31,

2020

 

Currency Hedged

 

(In thousands)

 

Euro / U.S. Dollar

 

$

3,503

 

 

$

4,794

 

British Pound / U.S. Dollar

 

 

858

 

 

 

594

 

Euro / Hungarian Forint

 

 

3,139

 

 

 

3,364

 

U.S. Dollar / Canadian Dollar

 

 

1,810

 

 

 

1,987

 

Total

 

$

9,310

 

 

$

10,739

 

 

Net realized and unrealized foreign currency gains and losses was a net loss of $0.3 million for the three months ended March 31, 2019, and a net gain of $0.4 million for the three months ended March 31, 2020, which are included in other income (expense), net in the condensed consolidated statements of operations. Excluding the underlying foreign currency exposure being hedged, net realized and unrealized gains and losses on forward contracts included in foreign currency gains and losses was a net loss of $0.5 million and $0.1 million for the three months ended March 31, 2019 and 2020, respectively.

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

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

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

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

In the ordinary course of business, the Company enters into agreements with certain customers that contractually obligate the Company to provide indemnifications of varying scope and terms with respect to certain matters including, but not limited to, losses arising out of the breach of such agreements, from the services provided by the Company or claims alleging that the Company’s products infringe third-party patents, copyrights, or trademarks. The term of these indemnification obligations is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is, in many cases, unlimited. Through March 31, 2020, the Company has not experienced any losses related to these indemnification obligations.

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

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

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

 

 

(In thousands)

 

Options to purchase common shares

 

 

44

 

 

 

35

 

Restricted stock units

 

 

1,335

 

 

 

1,706

 

Total options and restricted stock units

 

 

1,379

 

 

 

1,741

 

 

Basic and diluted net income (loss) per share was calculated as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

 

 

(In thousands, except per share data)

 

Net income (loss)

 

$

(9,039

)

 

$

(11,285

)

Basic:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

50,639

 

 

 

48,600

 

Net income (loss) per share, basic

 

$

(0.18

)

 

$

(0.23

)

Diluted:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

50,639

 

 

 

48,600

 

Add: Common stock equivalents

 

 

 

 

 

 

Weighted average common shares outstanding, diluted

 

 

50,639

 

 

 

48,600

 

Net income (loss) per share, diluted

 

$

(0.18

)

 

$

(0.23

)

 

Recently Adopted Accounting Pronouncements — On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), referred to herein as ASU 2016-13, which changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated balance sheets, statements of operations, financial positions or cash flows.

v3.20.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

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

 

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

 

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

 

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

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

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

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

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

The Company’s Level 3 liability at December 31, 2019 related to a 2019 acquisition, described further in Note 4 below. The remaining contingent consideration liability of $2.0 million was based on the achievement of certain development milestones and was paid in January 2020.

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

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

1,183

 

 

$

 

 

$

 

 

$

1,183

 

Forward contracts ($9.3 million notional amount)

 

$

 

 

$

20

 

 

$

 

 

$

20

 

Contingent consideration liability

 

$

 

 

$

 

 

$

(2,000

)

 

$

(2,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

5,379

 

 

$

 

 

$

 

 

$

5,379

 

Forward contracts ($10.7 million notional amount)

 

$

 

 

$

79

 

 

$

 

 

$

79

 

 

v3.20.1
Acquisitions
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions

4. Acquisitions

Acquisition-Related Costs

Acquisition-related costs were $3.9 million and $2.5 million for the three months ended March 31, 2019 and 2020, respectively, and included $3.0 million and $2.5 million of acquired company retention-based bonuses for the three months ended March 31, 2019 and 2020, respectively, and $0.9 million of transaction, transition and integration-related costs for the three months ended March 31, 2019.

2019 Acquisitions

On February 6, 2019, the Company acquired substantially all of the assets of an Israeli-based company specializing in artificial intelligence, or A.I., and speech-to-text recognition, pursuant to an asset purchase agreement. The Company completed the acquisition for $5.0 million in cash and potential acquisition-related contingent consideration totaling up to $4.0 million contingent upon the achievement of certain development milestones. This contingent consideration liability was recorded at an estimated fair value of $3.2 million at the acquisition date. The Company paid $2.0 million of the contingent consideration in 2019 and paid the remaining $2.0 million in January 2020. The Company accounted for the acquisition as a business combination. Assets acquired were primarily intellectual property. The Company’s purchase price allocation of the $8.2 million purchase consideration was $5.1 million of completed technology and $3.1 million of goodwill. Additionally, the Company expects to pay up to $2.0 million in retention-based bonus payments to certain employees upon the achievement of specified retention milestones over the two-year period following the closing of the transaction, of which $1.0 million has been paid as of March 31, 2020.

On February 21, 2019, the Company acquired a California-based provider of multi-factor and single-sign-on, or SSO, services pursuant to a stock purchase agreement dated February 13, 2019 for $17.5 million, net of cash acquired. The Company accounted for the acquisition as a business combination. The Company’s purchase price allocation of the $17.5 million purchase consideration was $11.8 million of completed technology, $8.7 million of goodwill and $0.1 million of other current assets partially offset by $0.3 million of current liabilities and $2.9 million of a long-term deferred tax liability primarily related to the amortization of intangible assets which cannot be deducted for tax purposes. Additionally, the Company expects to pay up to $4.4 million in retention-based bonus payments to certain employees upon the achievement of specified retention milestones over a three-year period following the closing of the transaction, of which $1.9 million has been paid as of March 31, 2020.

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

v3.20.1
Goodwill and Intangible Assets
3 Months Ended
Mar. 31, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill during the three months ended March 31, 2020 are primarily due to foreign currency translation adjustments.

Changes in goodwill for the three months ended March 31, 2020 are as follows (in thousands):

 

Balance, January 1, 2020

 

$

2,414,287

 

Foreign currency translation adjustments

 

 

(676

)

Balance, March 31, 2020

 

$

2,413,611

 

 

Intangible assets consist of the following (in thousands):

 

 

 

December 31, 2019

 

 

March 31, 2020

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Weighted

Average

Life

Remaining

(in years)

 

Identifiable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

918,234

 

 

$

440,496

 

 

$

477,738

 

 

$

915,860

 

 

$

470,210

 

 

$

445,650

 

 

 

5.4

 

Technology

 

 

497,892

 

 

 

216,318

 

 

 

281,574

 

 

 

496,563

 

 

 

235,110

 

 

 

261,453

 

 

 

5.9

 

Trade names and trademarks

 

 

70,778

 

 

 

30,780

 

 

 

39,998

 

 

 

70,584

 

 

 

33,047

 

 

 

37,537

 

 

 

5.8

 

Other

 

 

3,575

 

 

 

1,639

 

 

 

1,936

 

 

 

3,571

 

 

 

1,716

 

 

 

1,855

 

 

 

5.8

 

Internally developed software

 

 

104,410

 

 

 

65,229

 

 

 

39,181

 

 

 

114,636

 

 

 

74,040

 

 

 

40,596

 

 

 

1.5

 

 

 

$

1,594,889

 

 

$

754,462

 

 

$

840,427

 

 

$

1,601,214

 

 

$

814,123

 

 

$

787,091

 

 

 

 

 

 

During the three months ended March 31, 2019, the Company capitalized $16.9 million for technology as intangible assets in connection with its 2019 acquisitions. The Company capitalized $8.9 million and $10.3 million during the three months ended March 31, 2019 and 2020, respectively, of costs related to internally developed software to be sold as a service incurred during the application development stage and is amortizing these costs over the expected lives of the related services.

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

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

 

 

(In thousands)

 

Cost of revenue:

 

 

 

 

 

 

 

 

Amortization of internally developed software

 

$

8,034

 

 

$

8,864

 

Amortization of acquired intangibles (1)

 

 

20,970

 

 

 

19,358

 

Sub-Total amortization of intangibles in cost of revenue

 

 

29,004

 

 

 

28,222

 

Amortization of acquired intangibles (1)

 

 

39,499

 

 

 

33,328

 

Total amortization of intangibles

 

$

68,503

 

 

$

61,550

 

 

(1)

Total amortization of acquired intangibles was $60.5 million and $52.7 million for the three months ended March 31, 2019 and 2020, respectively.

 

Future estimated amortization expense for intangible assets at March 31, 2020 is as follows (in thousands):

 

Amortization Expense (Years Ending December 31)

 

Amount

 

2020 (nine months ending December 31)

 

$

181,209

 

2021

 

 

195,590

 

2022

 

 

146,039

 

2023

 

 

115,153

 

2024

 

 

89,985

 

Thereafter

 

 

59,115

 

Total

 

$

787,091

 

 

v3.20.1
Accrued Liabilities
3 Months Ended
Mar. 31, 2020
Payables And Accruals [Abstract]  
Accrued Liabilities

6. Accrued Liabilities

Accrued liabilities consisted of the following:

 

 

 

December 31,

2019

 

 

March 31,

2020

 

 

 

(In thousands)

 

Marketing programs

 

$

11,748

 

 

$

20,549

 

Compensation and benefits-related

 

 

44,631

 

 

 

45,399

 

Merger and acquisition-related (1)

 

 

23,065

 

 

 

10,941

 

Restructuring-related

 

 

693

 

 

 

15,870

 

Other accrued liabilities

 

 

81,859

 

 

 

65,706

 

Total accrued liabilities

 

$

161,996

 

 

$

158,465

 

 

(1)

Merger and acquisition-related costs include transaction, transition and integration-related fees and expenses and acquisition retention-based bonus costs.

v3.20.1
Restructuring Charges
3 Months Ended
Mar. 31, 2020
Restructuring And Related Activities [Abstract]  
Restructuring Charges

7. Restructuring Charges

On February 11, 2019, the Company’s Board of Directors approved a global restructuring plan, including a reduction in force and the consolidation of certain leased facilities. This restructuring plan was completed in 2019 and resulted in restructuring charges of $14.5 million for termination benefits associated with approximately 110 employees. 

On February 7, 2020, the Company’s Board of Directors approved a global restructuring plan, including a reduction in force which will result in the termination of approximately 7% of the Company’s workforce and the consolidation of certain leased facilities. By restructuring, the Company intends to streamline its organization and reallocate resources to better align with the Company’s current strategic goals. The Company expects to incur pre-tax restructuring charges of approximately $22 million and to substantially complete the restructuring by the end of fiscal year 2020. The pre-tax restructuring charges are comprised of approximately $20 million in one-time employee termination benefits and $2 million for facilities-related and other costs.

For the three months ended March 31, 2019, the Company recorded restructuring charges of $8.5 million for termination benefits associated with approximately 110 employees and related costs. For the three months ended March 31, 2020, the Company recorded restructuring charges of $18.5 million for termination benefits and related costs associated with approximately 265 employees.   

The following table summarizes restructuring activity, included in accrued liabilities and operating lease assets, for the three months ended March 31, 2020 (in thousands):

 

 

 

2019 Restructuring Plan

 

 

2020 Restructuring Plan

 

 

Total

 

Balance, January 1, 2020

 

$

693

 

 

$

 

 

$

693

 

Charges to operations, net

 

 

(7

)

 

 

18,548

 

 

 

18,541

 

Cash disbursements

 

 

(421

)

 

 

(2,939

)

 

 

(3,360

)

Foreign exchange impact and other

 

 

1

 

 

 

(5

)

 

 

(4

)

Balance, March 31, 2020

 

$

266

 

 

$

15,604

 

 

$

15,870

 

 

At the end of July 2019, the Company vacated its Mountain View, California office however, the existing lease space will not expire until July 2023. In 2019, the Company recorded $3.2 million for the impairment of property and equipment and $1.1 million for the impairment of the operating lease asset. In the first quarter of 2020, the Company sublet its Mountain View lease. The operating lease asset of $3.4 million as of March 31, 2020 reflects the committed sublease proceeds. The operating lease liability related to this facility was $4.9 million as of March 31, 2020. In addition to the cash disbursements of $3.4 million in the above table, the Company made $0.3 million of lease payments, net of sublease receipts, for this facility in the three months ended March 31, 2020.

 

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

8. Income Taxes

For the three months ended March 31, 2019 and 2020, the Company recorded a provision for federal, state and foreign taxes of $0.1 million on a loss before income taxes of $8.9 million and a benefit of $3.8 million on a loss before income taxes of $15.1 million, respectively. The effective income tax rates for the three months ended March 31, 2019 and 2020 were impacted by profits earned in certain foreign jurisdictions which are subject to lower tax rates than the U.S. federal statutory rate. The effective income tax rate for the three months ended March 31, 2020 was also impacted by $2.3 million of Merger-related costs which are expected to be non-deductible for tax purposes. The Company recorded a discrete provision of $0.5 million related to these costs in the period.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act, referred to herein as the CARES Act, as a response to the economic uncertainty resulting from the 2019 novel coronavirus pandemic. The CARES Act includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense for tax, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, referred to herein as the U.S. Tax Act, for qualified improvement property. As of March 31, 2020, the Company expects that these provisions will not have a material impact as the Company has no net operating losses or AMT credits that would fall under these provisions and does not expect interest expense to be limited. The ultimate impact of the CARES Act may differ from this estimate due to changes in interpretations and assumptions, guidance that may be issued and actions the Company may take in response to the CARES Act. The CARES Act is highly detailed and the Company will continue to assess the impact that various provisions will have on its business.

Deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, the Company estimates deferred tax assets, current tax liabilities and deferred tax liabilities, and the Company assesses temporary differences resulting from differing treatment of items for tax and accounting purposes. As of March 31, 2020, the Company maintained a full valuation allowance against the deferred tax assets of its Hungarian subsidiary (this entity has historical tax losses) and for a portion of its California and Massachusetts state net operating losses. The Company concluded it was not more likely than not that these deferred tax assets are realizable.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the United States. The United States federal income tax returns are open to examination from 2017. The Company regularly assesses the likelihood of additional assessments by tax authorities and provides for these matters as appropriate. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits.

Although the Company believes its tax estimates are appropriate, the final determination of tax audits could result in material changes in its estimates. The Company has recorded a liability related to uncertain tax positions of $10.3 million and $10.9 million as of December 31, 2019 and March 31, 2020, 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, which was $44,000 and $0.3 million of interest expense for the three months ended March 31, 2019 and 2020, respectively.

v3.20.1
Common Stock and Equity
3 Months Ended
Mar. 31, 2020
Federal Home Loan Banks [Abstract]  
Common Stock and Equity

9. Common Stock and Equity

On February 23, 2017, the Company’s Board of Directors approved a three-year capital return plan intended to return up to $700 million to stockholders through a combination of share repurchases and dividends. The capital return plan expired on December 31, 2019. Pursuant to the terms of the Merger Agreement, from the date of the Merger Agreement until the earlier of the effective time of the Merger or the termination of the Merger Agreement, the Company may not repurchase any shares or declare or pay dividends to its common stockholders without Parent’s written consent and Parent has indicated that it does not intend to provide such consent.

The Company paid cash dividends per share during the year ended December 31, 2019 as follows:

 

 

 

Year Ended December 31, 2019

 

 

 

Dividends

Per Share

 

 

Amount

(in millions)

 

First quarter

 

$

0.325

 

 

$

16.5

 

Second quarter

 

 

0.325

 

 

 

16.2

 

Third quarter

 

 

0.325

 

 

 

16.0

 

Fourth quarter

 

 

0.325

 

 

 

15.9

 

Total cash dividends paid

 

$

1.30

 

 

$

64.6

 

 

For the three months ended March 31, 2019, the Company repurchased 713,985 shares of its common stock at an average price of $81.00 per share, for a total cost of $57.8 million.

v3.20.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

10. Stock-Based Compensation

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

 

As of March 31, 2020, 35,039 stock options were outstanding with a weighted average exercise price of $30.09, aggregate intrinsic value of $1.9 million and weighted average remaining contractual term of approximately two years. The aggregate intrinsic value was calculated based on the positive differences between the fair value of the Company’s common stock of $83.28 per share on March 31, 2020 and the exercise price of the options.

During the three months ended March 31, 2020, the Company granted the following restricted stock unit awards:

 

 

 

Number of

Restricted

Stock Units

 

Type of Award

 

(In thousands)

 

Time-based (1)

 

 

46

 

 

(1)

Time-based restricted stock units generally vest one-third every year for three years and are valued on the grant date using the grant date closing price of the underlying shares.

The following table summarizes restricted stock unit activity during the three months ended March 31, 2020 (shares in thousands):

 

 

 

Number of

Restricted

Stock Units

 

 

Weighted Average

Grant Date Fair

Value

 

Unvested as of January 1, 2020

 

 

1,787

 

 

$

88.93

 

Restricted stock units granted

 

 

46

 

 

 

85.40

 

Restricted stock units vested

 

 

(65

)

 

 

94.10

 

Restricted stock units forfeited

 

 

(62

)

 

 

89.66

 

Unvested as of March 31, 2020

 

 

1,706

 

 

$

88.62

 

 

Included in the table above are 143,711 restricted stock units with market-based vesting conditions and 58,636 restricted stock units with performance-based vesting conditions outstanding as of March 31, 2020.

 

For restricted stock units, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally three years. For performance-based restricted stock units, the Company is required to estimate the attainment expected to be achieved related to the defined performance goals and the number of performance-based restricted stock units that will ultimately be awarded in order to recognize the stock-based compensation expense over the vesting period. For market-based restricted stock units, stock-based compensation expense is recognized on a straight-line basis over the requisite service period and is recognized, regardless of the actual number of awards that are earned, based on the fair value of the market-based restricted stock units at the date of grant.

2019 Employee Stock Purchase Plan

In May 2019, the Company’s Board of Directors adopted the 2019 Employee Stock Purchase Plan, or ESPP, which was approved by the Company’s stockholders at its Annual Meeting of Stockholders on May 30, 2019. Pursuant to the ESPP, certain employees of the Company, excluding consultants and non-employee directors, are eligible to purchase common stock of the Company at a reduced rate during offering periods. The ESPP permits participants to purchase common stock using funds contributed through payroll deductions, subject to a calendar year limit of $25,000 and at a purchase price of 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the applicable purchase date, which will be the final trading day of the applicable purchase period.  

 

The Company used the Black-Scholes-Merton (BSM) option valuation model to estimate the fair value of the purchase right under the ESPP on the date of grant using the following assumptions:

 

 

 

 

For the Offering Period

 

 

 

Dec 1, 2019 - May 31, 2020

 

Expected volatility factor

 

32.06%

 

Risk free interest rate

 

1.61%

 

Expected dividend yield

 

1.67%

 

Expected life (in years)

 

 

0.5

 

 

 

Expected volatility is based on the historical volatility of the Company’s common stock for a period of years corresponding with the expected life of the option. The risk-free interest rate is based on the U.S Treasury yield curve at the time of grant for securities with a maturity period similar to the expected life of the option. The expected dividend yield is based on the Company’s annual dividend yield payout to the extent it pays a quarterly dividend on its common stock. The expected life is based on the term of the purchase period for the grants made under the ESPP. The Company uses the straight-line attribution approach to record the expense over the offering period. Stock-based compensation expense for the ESPP for the three months ended March 31, 2020 was $0.9 million.

 

As of March 31, 2020, 5.1 million shares remained available for grant under the 2009 plan and 1.4 million shares for issuance under the ESPP.

Stock-based Compensation Expense

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

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

 

 

(In thousands)

 

Cost of revenue

 

$

980

 

 

$

1,258

 

Research and development (1)

 

 

4,075

 

 

 

4,656

 

Sales and marketing (1)

 

 

3,778

 

 

 

4,473

 

General and administrative

 

 

6,198

 

 

 

6,474

 

Total stock-based compensation expense

 

$

15,031

 

 

$

16,861

 

 

(1)

The stock-based compensation expense disclosure reported in the table above for the three months ended March 31, 2019 includes a disclosure correction from research and development to sales and marketing of $0.630 million.

 

As of March 31, 2020, there was approximately $93.4 million of total unrecognized share-based compensation cost related to unvested restricted stock awards which are expected to be recognized over a weighted average period of 1.0 year.

 

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

11. Commitments and Contingencies

LitigationThe 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.

Since the announcement of the Merger, six putative class action complaints have been filed by and purportedly on behalf of alleged Company stockholders – three in the United States District Court for the District of Delaware, captioned Stein v. LogMeIn, Inc., et al., (Case No. 1:20-cv-00098), filed January 22, 2020; Carter v. LogMeIn, Inc., et al., (Case No. 1:20-cv-00124), filed January 24, 2020; and Thompson v. LogMeIn, Inc., et. al., (Case No. 1:20-cv-00129), filed January 27, 2020, and two in the United States District Court for the Southern District of New York, captioned Ford v. LogMeIn, Inc., et al., (Case No. 1:20-cv-00582), filed January 22, 2020; and Rosenfeld v. LogMeIn, Inc. et. al., (Case No. 1:20-cv-00981), filed February 5, 2020; and one in the United States District Court for the District of Massachusetts, captioned Abrams v. LogMeIn, Inc., et al., (Case No. 1:20-cv-10272), filed February 12, 2020 (together, the “Actions”). The Actions name as defendants, the Company, its President and Chief Executive Officer and its Board of Directors. The Actions allege, among other things, that all defendants violated provisions of the Exchange Act insofar as the proxy statement preliminarily filed by the Company on January 17, 2020 or the definitive proxy statement on Schedule 14A filed by the Company on February 7, 2020 (together, the “Proxy Statement”) allegedly omitted material information with respect to the transactions contemplated therein, thereby rendering the Proxy Statement false and misleading. The Actions seek, among other things, injunctive relief, rescissory damages, declaratory judgment and an award of plaintiffs’ fees and expenses. On March 2, 2020, prior to the Company’s Special Meeting of Stockholders held on March 12, 2020, the Company filed a Current Report on Form 8-K which supplemented the disclosure provided in the Proxy Statement as had been requested by the plaintiffs. On March 17, 2020, the complaint entitled Abrams v. LogMeIn, Inc. was voluntarily dismissed by the plaintiff. The Company continues to believe the claims asserted in the remaining complaints are without merit and intends to defend them vigorously.

On August 31, 2017, 9Six Comercio e Serviços de Telecomunicações Ltda., or 9Six, filed a claim against Jive Telecomunicações do Brasil Ltda., or Jive Brasil, a subsidiary of Jive Communications, Inc., or Jive USA, in the 27th Civil Court of Sao Paulo. The claim relates to a commercial dispute regarding unpaid commission fees arising from a reseller agreement executed between 9Six and Jive Brasil in September 2016.  In February 2018, 9Six filed additional claims against Jive Brasil alleging lost profits and punitive damages resulting from Jive Brasil’s termination of the reseller agreement. In April 2018, the Company acquired Jive USA. As a result, Jive Brasil became an indirect subsidiary of the Company, and the Company inherited this litigation. On June 7, 2019, the 27th Civil Court in Sao Paulo, Brazil awarded damages against Jive Brasil in the amount of approximately R$46.3 million Brazilian reais plus interest and attorneys’ fees, or approximately $10.7 million USD as of March 31, 2020. On August 8, 2019, the Company filed an appeal of the court’s decision with the Sao Paulo State Court of Appeal. The Company continues to believe that Jive Brasil has meritorious defenses to these claims and intends to vigorously defend against these claims on appeal. Due to the court’s June 7, 2019 decision, the Company now believes that a loss contingency in the range of zero to $10.7 million USD as of March 31, 2020 is reasonably possible. However, as the Company believes the loss contingency is not probable, no accrual has been recorded as of March 31, 2020. The Company has notified the shareholder representative for Jive USA that it intends to seek indemnification for this matter, which the Company believes is available pursuant to the terms of the merger agreement entered into between the Company and Jive USA in February 2018.  

On August 20, 2018, a securities class action lawsuit, referred to herein as the Securities Class Action, was initiated by purported stockholders of the Company in the U.S. District Court for the Central District of California against the Company and certain of its officers, entitled Wasson v. LogMeIn, Inc. et al. (Case No. 2:18-cv-07285). On November 6, 2018, the case was transferred to the District of Massachusetts (Case No. 1:18-cv-12330). The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 based on alleged misstatements or omissions concerning renewal rates for the Company’s subscription contracts. The Company believes the lawsuit lacks merit and intends to defend it vigorously.

On January 30, 2019, a derivative action, referred to herein as the Derivative Action, was filed in the District of Massachusetts against the Company’s Board of Directors, entitled Schlagel v. Wagner et al. (Case No. 1:19-cv-10204) alleging breach of fiduciary duty, waste of corporate assets, and violation of Sections 10(b) and 14(a) of the Securities and Exchange Act of 1934 related to the same allegations as the Securities Class Action.  The complaint seeks unspecified damages, fees and costs. The Derivative Action is currently stayed during the pleadings phase of the Securities Class Action. The Company intends to defend the lawsuit vigorously.

On July 25, 2019, a securities class action lawsuit alleging violations of the Securities Act of 1933, referred to herein as the ’33 Act Claim, was initiated in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida against the Company, Citrix Systems, Inc. and certain officers and directors of both LogMeIn and Citrix, entitled Plumbers and Pipefitters Local Union 719 Pension Trust Fund v. Citrix Systems, Inc., LogMeIn, Inc. et al. (Case No. 502019CA009587XXXXMB Div AK, 9:19-cv-81155).  The lawsuit, which arises from substantially the same set of facts as the Securities Class Action and the Derivative Action, was purportedly filed on behalf of current and former Citrix stockholders who acquired LogMeIn common stock in connection with the Company’s January 2017 acquisition of the GoTo Business from Citrix and asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, based on alleged misstatements or omissions made in the Company’s Registration Statement on Form S-4 and the related prospectus as filed with the Securities and Exchange Commission in December 2016. The complaint seeks unspecified damages, fees and costs. The Company believes the lawsuit lacks merit and intends to defend it vigorously.

Given the inherent unpredictability of litigation and the fact that the Securities Class Action, the Derivative Action and the ’33 Act Claim are still in early stages, the Company is unable to predict the outcome of these actions or reasonably estimate a possible loss or range of loss associated with them 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, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. Actual claims could settle or be adjudicated against the Company in the future for materially different amounts than the Company has accrued due to the inherently unpredictable nature of litigation. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matter as appropriate and in compliance with ASC 450, Contingencies. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. 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 consolidated financial statements.

v3.20.1
Accumulated Other Comprehensive Income (Loss)
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Accumulated Other Comprehensive Income (Loss)

12. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists of foreign currency translation. The Company has determined that the undistributed earnings related to outside basis differences inherent in its foreign subsidiaries will continue to be indefinitely reinvested outside of the United States. The Company has also determined that 100% of the current and prior year earnings and foreign currency translation adjustments related to those earnings of its foreign subsidiaries will not be permanently invested outside the United States (except for India). Accumulated other comprehensive income (loss) is reported as a component of stockholders’ equity and, as of December 31, 2019 and March 31, 2020, was comprised of cumulative translation adjustment gains of $0.7 million and cumulative translation losses of $3.5 million, respectively. There were no material reclassifications to earnings in the three months ended March 31, 2019 and 2020.

v3.20.1
Credit Facility
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Credit Facility

13. Credit Facility

On February 1, 2017, the Company entered into an Amended and Restated Credit Agreement, or the Amended Credit Agreement, which increased the Company’s secured revolving credit facility from $150 million to $400 million in the aggregate and permits the Company to increase the revolving credit facility and/or enter into one or more tranches of term loans up to an additional $200 million. O