LOGMEIN, INC., 10-K filed on 2/14/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Feb. 10, 2020
Jun. 30, 2019
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
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 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   48,594,419  
Document Annual 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, $.01 par value    
Entity Public Float     $ 3,621,814,817
Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission for the 2019 annual stockholders’ meeting are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K.

   
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 128,005 $ 148,652
Accounts receivable (net of allowances of $2,785 and $3,744 as of December 31, 2018 and 2019, respectively) 107,595 95,354
Prepaid expenses and other current assets 89,351 83,887
Total current assets 324,951 327,893
Property and equipment, net 99,157 98,238
Operating lease assets 99,026  
Restricted cash 1,883 1,840
Intangibles, net 840,427 1,059,988
Goodwill 2,414,287 2,400,390
Other assets 68,272 41,545
Deferred tax assets 7,994 6,059
Total assets 3,855,997 3,935,953
Current liabilities:    
Accounts payable 52,104 35,447
Current operating lease liabilities 18,470  
Accrued liabilities 161,996 119,379
Deferred revenue, current portion 390,087 369,780
Total current liabilities 622,657 524,606
Long-term debt 200,000 200,000
Deferred revenue, net of current portion 18,076 9,518
Deferred tax liabilities 170,482 201,212
Non-current operating lease liabilities 88,674  
Other long-term liabilities 15,400 25,929
Total liabilities 1,115,289 961,265
Commitments and contingencies (Note 14)
Preferred stock, $0.01 par value — 5,000 shares authorized, 0 shares outstanding
Equity:    
Common stock, $0.01 par value—145,000 shares authorized; 56,703 and 57,294 shares issued; and 50,692 and 48,573 outstanding as of December 31, 2018 and 2019, respectively 573 567
Additional paid-in capital 3,369,893 3,316,603
Retained earnings (accumulated deficit) 4,931 84,043
Accumulated other comprehensive income (loss) 684 2,133
Treasury stock, at cost—6,011 and 8,721 shares as of December 31, 2018 and 2019, respectively (635,373) (428,658)
Total equity 2,740,708 2,974,688
Total liabilities and equity $ 3,855,997 $ 3,935,953
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 3,744 $ 2,785
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 145,000,000 145,000,000
Common stock, shares issued 57,294,000 56,703,000
Common stock, shares outstanding 48,573,000 50,692,000
Treasury stock, shares 8,721,000 6,011,000
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Revenue $ 1,260,385 $ 1,203,992 $ 989,786
Cost of revenue 323,665 281,481 203,203
Gross profit 936,720 922,511 786,583
Operating expenses:      
Research and development 160,499 169,409 156,731
Sales and marketing 461,078 382,997 346,961
General and administrative 144,780 145,453 160,366
Restructuring charge 14,468    
Gain on disposition of assets   (33,910)  
Amortization of acquired intangibles 157,569 172,539 134,342
Total operating expenses 938,394 836,488 798,400
Income (loss) from operations (1,674) 86,023 (11,817)
Interest income 1,651 1,671 1,389
Interest expense (8,247) (6,342) (1,408)
Other income (expense), net (588) (556) (141)
Income (loss) before income taxes (8,858) 80,796 (11,977)
(Provision for) benefit from income taxes (5,697) (6,425) 111,500
Net income (loss) $ (14,555) $ 74,371 $ 99,523
Net income (loss) per share:      
Basic $ (0.29) $ 1.44 $ 1.97
Diluted $ (0.29) $ 1.42 $ 1.93
Weighted average shares outstanding:      
Basic 49,586 51,814 50,433
Diluted 49,586 52,496 51,463
Cash dividends declared and paid per share $ 1.30 $ 1.20 $ 1.25
v3.19.3.a.u2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) $ (14,555) $ 74,371 $ 99,523
Other comprehensive gain (loss):      
Net unrealized gains on marketable securities, (net of tax provision of $9)     16
Net translation gains (losses) (1,449) (13,437) 22,172
Total other comprehensive gain (loss) (1,449) (13,437) 22,188
Comprehensive income (loss) $ (16,004) $ 60,934 $ 121,711
v3.19.3.a.u2
Consolidated Statements of Comprehensive Income (Parenthetical)
$ in Thousands
12 Months Ended
Dec. 31, 2017
USD ($)
Statement Of Income And Comprehensive Income [Abstract]  
Net unrealized gains (losses) on marketable securities, tax (benefit) provision $ 9
v3.19.3.a.u2
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, 2016 $ 196,116 $ 284 $ 314,700 $ (1,754) $ (6,618) $ (110,496)
Balance, shares at Dec. 31, 2016   25,552,000        
Issuance of common stock upon exercise of stock options 6,511 $ 2 6,509      
Issuance of common stock upon exercise of stock options, shares   181,000        
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   589,000        
Shares issued as GoTo Merger purchase consideration 2,904,487 $ 269 2,904,218      
Shares issued as GoTo Merger purchase consideration, shares   26,868,000        
Restricted stock units issued as GoTo 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) (626,000)        
Dividends on common stock $ (52,269)     (52,269)    
Adoption of ASU | Adoption of ASU 2016-09 [Member] 7,593   2,730 4,863    
Adoption of ASU | Adoption of ASU 2016-16 [Member] 82     82    
Net income (loss) 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   52,564,000        
Issuance of common stock upon exercise of stock options 3,831 $ 1 3,830      
Issuance of common stock upon exercise of stock options, shares   126,000        
Net issuance of common stock upon vesting of restricted stock units (29,846) $ 6 (29,852)      
Net issuance of common stock upon vesting of restricted stock units, shares   534,000        
Stock-based compensation 65,734   65,734      
Treasury stock $ (248,933)         (248,933)
Treasury stock, shares (2,531,877) (2,532,000)        
Dividends on common stock $ (62,202)     (62,202)    
Adoption of ASU | ASU 2014-09 [Member] 21,429     21,429    
Net income (loss) 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   50,692,000        
Issuance of common stock upon exercise of stock options 217   217      
Issuance of common stock upon exercise of stock options, shares   7,000        
Net issuance of common stock upon vesting of restricted stock units (20,114) $ 5 (20,119)      
Net issuance of common stock upon vesting of restricted stock units, shares   506,000        
Issuance of common stock for employee stock purchase plan 4,987 $ 1 4,986      
Issuance of common stock for employee stock purchase plan, shares   78,000        
Stock-based compensation 68,206   68,206      
Treasury stock $ (206,715)         (206,715)
Treasury stock, shares (2,710,112) (2,710,000)        
Dividends on common stock $ (64,557)     (64,557)    
Net income (loss) (14,555)     (14,555)    
Cumulative translation adjustments (1,449)       (1,449)  
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        
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities      
Net income (loss) $ (14,555) $ 74,371 $ 99,523
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Stock-based compensation 68,206 65,734 67,292
Depreciation and amortization 304,596 301,071 221,321
Gain on disposition of assets, excluding transaction costs   (36,281)  
Change in fair value of contingent consideration liability 849    
Restructuring-related property and equipment charges 3,164    
Benefit from deferred income taxes (35,698) (57,456) (156,831)
Other, net 1,776 1,771 2,266
Changes in assets and liabilities, excluding effect of acquisitions and dispositions:      
Accounts receivable (13,521) 7,751 (16,618)
Prepaid expenses and other current assets (12,998) (13,671) (22,819)
Other assets (27,147) (16,596) 1,569
Accounts payable 17,464 11,104 (5,004)
Accrued liabilities 37,884 26,811 15,354
Deferred revenue 29,047 35,416 93,036
Other long-term liabilities 1,782 4,014 17,108
Net cash provided by operating activities 360,849 404,039 316,197
Cash flows from investing activities      
Proceeds from sale or disposal or maturity of marketable securities     55,598
Purchases of property and equipment (35,438) (30,965) (36,635)
Intangible asset additions (39,789) (34,219) (29,706)
Cash paid for acquisitions, net of cash acquired (22,463) (342,072) (22,348)
Restricted cash acquired through acquisitions     1,181
Proceeds from disposition of assets 7,500 42,394  
Net cash provided by (used in) investing activities (90,190) (364,862) (31,910)
Cash flows from financing activities      
Borrowings under credit facility   200,000  
Repayments under credit facility     (30,000)
Proceeds from issuance of common stock upon option exercises and employee stock purchase plan 5,204 3,831 6,511
Payments of withholding taxes in connection with restricted stock unit vesting (20,114) (30,617) (34,474)
Payment of debt issuance costs     (2,032)
Payment of contingent consideration (1,857)    
Dividends paid on common stock (64,557) (62,202) (52,269)
Purchase of treasury stock (208,504) (247,144) (69,229)
Net cash provided by (used in) financing activities (289,828) (136,132) (181,493)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,435) (6,762) 8,080
Net increase (decrease) in cash, cash equivalents and restricted cash (20,604) (103,717) 110,874
Cash, cash equivalents and restricted cash, beginning of year 150,492 254,209 143,335
Cash, cash equivalents and restricted cash, end of year 129,888 150,492 254,209
Supplemental disclosure of cash flow information      
Cash paid for interest on borrowings 6,318 4,734 201
Cash paid (refunds received) for income taxes 18,585 48,244 55,730
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 7,949 9,109 3,522
Purchases of treasury stock included in accrued liabilities   $ 1,789  
Withholding taxes in connection with restricted stock unit vesting in accrued liabilities     $ 771
Fair value of contingent consideration in connection with acquisition, included in accrued liabilities $ 2,000    
v3.19.3.a.u2
Nature of the Business
12 Months Ended
Dec. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of the Business

1.

Nature of the Business

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

On January 31, 2017, the Company completed its 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 GoTo 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 GoTo Merger, see Note 4 to the Consolidated Financial Statements.

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 conditions set forth in the Merger Agreement, the Merger is currently expected to close in mid-2020. The Company recorded $10.9 million in general and administrative expense for Merger-related costs in 2019, primarily for financial advisor fees.

 

v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
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 August 2018, the Financial Accounting Standards Board, or FASB, issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software: Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, referred to herein as ASU 2018-15. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. ASU 2018-15 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company early adopted ASU 2018-15 on a prospective basis effective July 1, 2019. The adoption of this guidance did not have a significant effect on the Company’s condensed consolidated financial statements.

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

 

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

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

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

Rent expense for operating leases is recognized on a straight-line basis over the lease term based on the total lease payments and is included in operating expense in the condensed consolidated statements of operations. For finance leases, any interest expense is recognized using the effective interest method and is included within interest expense. Amounts related to finance leases were immaterial as of December 31, 2019.

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

Revenue Recognition — The Company derives its revenue primarily from subscription fees for its premium services, usage fees from its 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:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

755,220

 

 

$

933,135

 

 

$

993,525

 

International — all other

 

 

234,566

 

 

 

270,857

 

 

 

266,860

 

Total revenue

 

$

989,786

 

 

$

1,203,992

 

 

$

1,260,385

 

 

 

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

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Unified communications and collaboration

 

$

527,412

 

 

$

672,339

 

 

$

686,499

 

Identity and access management

 

 

289,181

 

 

 

353,887

 

 

 

400,633

 

Customer engagement and support

 

 

173,193

 

 

 

177,766

 

 

 

173,253

 

Total revenue

 

$

989,786

 

 

$

1,203,992

 

 

$

1,260,385

 

 

 

Performance Obligations

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

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

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

Accounts Receivable, Net — Accounts receivable, net, are amounts due from customers where there is an unconditional right to consideration. Unbilled receivables of $5.4 million and $7.7 million are included in this balance at December 31, 2018 and 2019, respectively. The payment of consideration related to these unbilled receivables is subject only to the passage of time. As of December 31, 2018 and 2019, lease receivables totaled $4.9 million (of which, $2.8 million was long-term and in other assets) and $10.0 million (of which, $5.1 million was long-term and in other assets), respectively.

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:

 

 

 

December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

 

(In thousands)

 

Balance beginning of period

 

$

245

 

 

$

631

 

 

$

568

 

Provision for bad debt

 

 

614

 

 

 

1,206

 

 

 

1,219

 

Uncollectible accounts written off

 

 

(228

)

 

 

(1,269

)

 

 

(1,336

)

Balance end of period

 

$

631

 

 

$

568

 

 

$

451

 

 

As of December 31, 2017, 2018 and 2019, the Company also had a sales returns allowance of $1.4 million, $2.2 million and $3.3 million, respectively. Additions to the provision for sales returns are charged against revenues. For the years ended December 31, 2017, 2018 and 2019, the provision for sales returns was $4.1 million, $3.9 million and $2.8 million and write-offs were $2.7 million, $3.1 million and $1.7 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 contract assets of $2.3 million as of December 31, 2018 ($1.3 million included in prepaid and other current assets and $1.0 million included in other assets) and $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).

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. For the year ended December 31, 2019, revenue recognized related to deferred revenue at January 1, 2019 was approximately $368 million. As of December 31, 2019, approximately $663 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, 2019 are as follows:

 

 

 

Deferred Revenue

 

 

 

Current

 

 

Non-

Current

 

 

Total

 

 

 

(In thousands)

 

Balance as of January 1, 2019

 

$

369,780

 

 

$

9,518

 

 

$

379,298

 

Increase (decrease), net

 

 

20,307

 

 

 

8,558

 

 

 

28,865

 

Balance as of December 31, 2019

 

$

390,087

 

 

$

18,076

 

 

$

408,163

 

 

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, 2018 and 2019, 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, 2017, 2018 and 2019.

Costs to Obtain and Fulfill a Contract — The Company’s incremental costs of obtaining a contract consist of sales commissions and the related fringe benefits. Sales commissions and fringe benefits paid on renewals are not commensurate with sales commissions paid on the initial contract. 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 and 2019, the Company had $33.7 million of current deferred commissions and $31.2 million of noncurrent deferred commissions, and $49.7 million of current deferred commissions and $53.1 million of noncurrent deferred commissions, respectively. 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 and $41.8 million related to deferred commissions during the years ended December 31, 2018 and 2019, respectively. Other costs incurred to fulfill contracts have been immaterial to date.

Restricted Cash — As of December 31, 2018 and 2019, restricted cash totaled $1.8 million and $1.9 million, respectively, and related to security deposits for certain leased facilities.

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

 

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

 

 

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:

 

 

 

December 31,

 

 

 

2018

 

 

2019

 

 

 

(In thousands)

 

Long-lived assets:

 

 

 

 

 

 

 

 

United States

 

$

75,161

 

 

$

72,040

 

International

 

 

23,077

 

 

 

27,117

 

Total long-lived assets

 

$

98,238

 

 

$

99,157

 

 

 

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, the Company’s measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through December 31, 2019, no events have been identified indicating an impairment.

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

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through December 31, 2019, the Company recorded no material impairments.

Legal Costs — Legal expenditures are expensed as incurred.  

Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2017, 2018 and 2019 was approximately $100.2 million, $112.8 million and $128.8 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.

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, 2018 and 2019, the Company had outstanding forward contracts with notional amounts equivalent to the following:

 

 

 

December 31,

 

 

 

2018

 

 

2019

 

Currency Hedged

 

(In thousands)

 

Euro / Canadian Dollar

 

$

537

 

 

$

 

Euro / U.S. Dollar

 

 

5,203

 

 

 

3,503

 

Euro / British Pound

 

 

3,809

 

 

 

 

British Pound / U.S. Dollar

 

 

563

 

 

 

858

 

Euro / Hungarian Forint

 

 

 

 

 

3,139

 

U.S. Dollar / Canadian Dollar

 

 

4,504

 

 

 

1,810

 

Total

 

$

14,616

 

 

$

9,310

 

 

Net realized and unrealized foreign currency gains and losses were net losses of $0.1 million, $0.6 million and $0.6 million for the years ended December 31, 2017, 2018 and 2019, 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 both the years ended December 31, 2017 and 2019, and a net gain of $0.5 million for the year ended December 31, 2018.  

Stock-Based Compensation — The Company measures 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.

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 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, the vesting of restricted stock units and the issuance of shares for the 2019 Employee Stock Purchase Plan, or ESPP.

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:

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

 

(In thousands)

 

Options to purchase common shares

 

 

 

 

 

 

 

 

39

 

Restricted stock units

 

 

65

 

 

 

150

 

 

 

1,787

 

Total options and restricted stock units

 

 

65

 

 

 

150

 

 

 

1,826

 

 

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

 

 

 

Years Ended December 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

 

(In thousands, except per share data)

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

99,523

 

 

$

74,371

 

 

$

(14,555

)

Weighted average common shares outstanding, basic

 

 

50,433

 

 

 

51,814

 

 

 

49,586

 

Net income (loss) per share, basic

 

$

1.97

 

 

$

1.44

 

 

$

(0.29

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

99,523

 

 

$

74,371

 

 

$

(14,555

)

Weighted average common shares outstanding

 

 

50,433

 

 

 

51,814

 

 

 

49,586

 

Add: Common stock equivalents

 

 

1,030

 

 

 

682

 

 

 

 

Weighted average common shares outstanding,

   diluted

 

 

51,463

 

 

 

52,496

 

 

 

49,586

 

Net income (loss) per share, diluted

 

$

1.93

 

 

$

1.42

 

 

$

(0.29

)

 

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 December 31, 2019, the Company has not experienced any losses related to these indemnification obligations.

Recently Issued Accounting Pronouncements

 

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

v3.19.3.a.u2
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3.

Fair Value of Financial Instruments

The carrying value of the Company’s financial instruments, including cash equivalents, restricted cash, accounts receivable and accounts payable, approximate their fair values due to their short maturities. 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 significant 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 consisted of contingent consideration related to a 2019 acquisition, as described further in Note 4 below. The remaining contingent consideration liability of $2.0 million is 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

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents - money market funds

 

$

7,207

 

 

$

19,943

 

 

$

 

 

$

27,150

 

Forward contracts ($14.6 million notional

   amount)

 

$

 

 

$

5

 

 

$

 

 

$

5

 

 

 

 

 

Fair Value Measurements

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

)

 

v3.19.3.a.u2
Acquisitions
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisitions

4.

Acquisitions

The Company completed the following acquisitions in 2019, 2018 and 2017:

 

In 2019, the Company completed the acquisition of an Israeli-based company specializing in artificial intelligence on February 6, 2019 and the acquisition of a California-based provider of multi-factor and single-sign-on services on February 21, 2019.

 

In 2018, the Company completed the acquisition of Jive Communications, Inc., or Jive, on April 3, 2018.

 

In 2017, the Company completed its GoTo 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.

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 primarily 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, 2017, 2018 and 2019, acquisition-related costs were $59.8 million, $22.9 million and $12.9 million, respectively, included in general and administrative expenses in the consolidated statements of operations. 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, 2017 were primarily related to the GoTo 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 GoTo Merger. Acquisition-related costs for the year ended December 31, 2018 consisted of $8.2 million in transaction, transition and integration-related expenses, primarily for the acquisition of Jive, $3.5 million in integration-related severance costs, and $11.2 million of retention-based bonuses primarily related to the Jive and Nanorep acquisitions. Acquisition-related costs for the year ended December 31, 2019 consisted of $2.3 million of transaction, transition and integration-related expenses, primarily for the 2019 acquisitions and $10.6 million of retention-based bonuses primarily related to the Jive and the 2019 acquisitions.

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 recorded $0.8 million of expense related to the change in fair value of the contingent consideration liability. The remaining $2.0 million was paid 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. The Company finalized the allocation of the purchase price in the second quarter of 2019. Additionally, the Company expects to pay up to $2.0 million in retention-based bonus payments to certain employees upon the achievement of specified retention milestones over the two-year period following the closing of the transaction.

On February 21, 2019, the Company acquired a California-based provider of multi-factor and single-sign-on, or SSO, services pursuant to a merger 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, net, primarily related to the amortization of intangible assets which cannot be deducted for tax purposes. The Company finalized the allocation of the purchase price in the fourth quarter of 2019. Additionally, the Company expects to pay up to $4.4 million in retention-based bonus payments to certain employees upon the achievement of specified retention milestones over a three-year period following the closing of the transaction.

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

2018 Acquisition

Jive Communications, Inc.

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

Additionally, the Company expects to pay up to $15 million in retention-based bonus payments to certain employees of Jive upon the achievement of specified retention milestones over the two-year period following the closing of the transaction, of which $5.7 million had been paid as of December 31, 2019. At the time of the closing, Jive had approximately 700 employees and fiscal year 2017 revenue was approximately $80 million. The operating results of Jive have been included in the Company’s results since the date of the acquisition. The Company continues to integrate Jive into its business and has begun selling new bundled product offerings. In 2019, stand-alone Jive revenue and operating income are not provided as the continued integration of the business and go-to-market strategy made these metrics incomparable to prior periods.

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

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

 

Cash

 

$

2,571

 

Accounts receivable

 

 

11,986

 

Property and equipment

 

 

2,492

 

Prepaid expenses and other current assets

 

 

2,511

 

Other assets

 

 

2,255

 

Intangible assets:

 

 

 

 

Completed technology (9 years)

 

 

35,200

 

Customer relationships (10 years)

 

 

117,500

 

Trade name (2 years)

 

 

900

 

Deferred revenue

 

 

(5,498

)

Accounts payable and accrued liabilities

 

 

(7,685

)

Deferred tax liabilities, net

 

 

(25,223

)

Goodwill

 

 

207,634

 

Total purchase consideration

 

 

344,643

 

Less: cash acquired

 

 

(2,571

)

Total purchase consideration, net of cash acquired

 

$

342,072

 

 

 

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

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

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

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

 

 

 

Years Ended December 31,

 

 

 

(unaudited)

 

 

 

2017

 

 

2018

 

Pro forma revenue

 

$

1,067.7

 

 

$

1,227.9

 

Pro forma net income

 

$

68.7

 

 

$

65.0

 

Pro forma net income 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 expected 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, all of which had been paid as of December 31, 2019. 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 combined with Citrix’s GoTo family of service offerings known as the GoTo Business. In connection with the GoTo 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 GoTo 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 GoTo Merger, the operations of the GoTo Business have been included in the Company’s operating results. Since the GoTo 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, 2018 and 2019, the Company recorded amortization of acquired intangibles of $172.6 million, $224.1 million and $210.9 million, respectively.

The completion of the GoTo Merger and the acquisition of the GoTo Business has resulted in a combined company with the scale, employees, products and customer base needed to lead large markets, support a more global customer base and compete against a variety of different solution providers of all sizes. Goodwill of $2.1 billion was recognized for the excess purchase consideration over the estimated fair value of the assets acquired, which included $1.2 billion of acquired intangible assets. Goodwill and intangible assets recorded as part of the acquisition are not deductible for tax purposes. The Company also recorded a deferred tax liability, net, which was primarily related to the amortization of intangible assets which cannot be deducted for tax purposes and which was partially offset by deferred tax assets primarily related to the pre-combination services of the Company’s restricted stock units issued in substitution for the outstanding Citrix restricted stock units pursuant to the GoTo Merger agreement.

The unaudited financial information in the table below summarizes the combined results of operations of the Company, including the GoTo Business, on a pro forma basis, as though the GoTo Merger had been consummated as of the beginning of 2016, including amortization charges from acquired intangible assets, the effect of acquisition accounting on the fair value of acquired deferred revenue, the inclusion of expense related to retention-based bonuses assuming full achievement of the retention requirements, the reclassification of all acquisition-related costs incurred by the Company and the GoTo Business as of the beginning of 2016 through the first quarter of 2017 (the quarter the GoTo Merger was completed), and the related tax effects. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2016.

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

 

 

 

Year Ended

December 31, 2017

 

 

 

(unaudited)

 

Pro forma revenue

 

$

1,060.7

 

Pro forma net income

 

$

129.3

 

Pro forma net income per share:

 

 

 

 

Basic

 

$

2.46

 

Diluted

 

$

2.41

 

Pro forma weighted average shares outstanding:

 

 

 

 

Basic

 

 

52.7

 

Diluted

 

 

53.7

 

 

v3.19.3.a.u2
Divestitures
12 Months Ended
Dec. 31, 2019
Divestitures [Abstract]  
Divestitures

5.

Divestitures

Divestiture of Xively

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

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

v3.19.3.a.u2
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

6.

Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill for the years ended December 31, 2018 and 2019 are primarily due to the acquisition of Jive, the reduction of goodwill resulting from the divestiture of the Xively business in 2018, and the 2019 acquisitions. For additional information regarding the acquisitions, see Note 4 to the Consolidated Financial Statements. For additional information regarding the Xively divestiture, see Note 5 to the Consolidated Financial Statements.

Changes in goodwill for the years ended December 31, 2018 and 2019 are as follows (in thousands):

 

Balance, January 1, 2018

 

$

2,208,725

 

Goodwill resulting from the divestiture of Xively

 

 

(14,000

)

Goodwill related to the acquisition of Jive

 

 

207,634

 

Foreign currency translation adjustments

 

 

(1,969

)

Balance, December 31, 2018

 

 

2,400,390

 

Goodwill resulting from 2019 acquisitions

 

 

11,790

 

Foreign currency translation adjustments

 

 

2,107

 

Balance, December 31, 2019

 

$

2,414,287

 

 

Intangible assets consist of the following (in thousands):

 

 

 

December 31, 2018

 

 

December 31, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Weighted

Average Life

Remaining

(in years)

 

Identifiable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

920,265

 

 

$

294,362

 

 

$

625,903

 

 

$

918,234

 

 

$

440,496

 

 

$

477,738

 

 

 

5.6

 

Technology

 

 

481,776

 

 

 

132,895

 

 

 

348,881

 

 

 

497,892