LOGMEIN, INC., 10-Q filed on 10/26/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 22, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Trading Symbol LOGM  
Entity Registrant Name LogMeIn, Inc.  
Entity Central Index Key 0001420302  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   51,162,182
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 167,626 $ 252,402
Accounts receivable (net of allowance of $2,031 and $3,102 as of December 31, 2017 and September 30, 2018, respectively) 87,673 93,949
Prepaid expenses and other current assets 61,926 52,473
Total current assets 317,225 398,824
Property and equipment, net 92,866 92,154
Restricted cash, net of current portion 1,825 1,795
Intangibles, net 1,119,867 1,149,597
Goodwill 2,404,279 2,208,725
Other assets 38,006 6,483
Deferred tax assets 719 530
Total assets 3,974,787 3,858,108
Current liabilities:    
Accounts payable 36,658 22,232
Accrued liabilities 112,210 82,426
Deferred revenue, current portion 364,867 340,570
Total current liabilities 513,735 445,228
Long-term debt 200,000  
Deferred revenue, net of current portion 8,455 6,735
Deferred tax liabilities 218,396 221,407
Other long-term liabilities 25,465 20,997
Total liabilities 966,051 694,367
Commitments and contingencies (Note 11)
Preferred stock, $0.01 par value — 5,000 shares authorized, 0 shares outstanding as of December 31, 2017 and September 30, 2018
Equity:    
Common stock, $0.01 par value—150,000 shares authorized; 56,043 and 56,676 shares issued; and 52,564 and 51,331 outstanding as of December 31, 2017 and September 30, 2018, respectively 567 560
Additional paid-in capital 3,300,815 3,276,891
Retained earnings (accumulated deficit) 73,957 50,445
Accumulated other comprehensive income (loss) 5,790 15,570
Treasury stock, at cost - 3,479 and 5,344 shares as of December 31, 2017 and September 30, 2018, respectively (372,393) (179,725)
Total equity 3,008,736 3,163,741
Total liabilities and equity $ 3,974,787 $ 3,858,108
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 3,102 $ 2,031
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 150,000,000 150,000,000
Common stock, shares issued 56,676,000 56,043,000
Common stock, shares outstanding 51,331,000 52,564,000
Treasury stock, shares 5,344,000 3,479,000
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]        
Revenue $ 308,927 $ 269,267 $ 893,794 $ 713,750
Cost of revenue 72,853 55,605 208,628 147,780
Gross profit 236,074 213,662 685,166 565,970
Operating expenses        
Research and development 42,220 42,603 129,256 116,435
Sales and marketing 95,041 89,379 282,599 258,616
General and administrative 37,441 37,906 111,990 120,460
Gain on disposition of assets     (33,910)  
Amortization of acquired intangibles 44,268 36,613 128,698 97,187
Total operating expenses 218,970 206,501 618,633 592,698
Income (loss) from operations 17,104 7,161 66,533 (26,728)
Interest income 293 405 1,335 924
Interest expense (2,033) (294) (4,213) (1,088)
Other income (expense), net (77) 51 (403) (27)
Income (loss) before income taxes 15,287 7,323 63,252 (26,919)
(Provision for) benefit from income taxes (2,570) 2,597 (14,269) 33,121
Net income (loss) $ 12,717 $ 9,920 $ 48,983 $ 6,202
Net income (loss) per share:        
Basic $ 0.25 $ 0.19 $ 0.94 $ 0.12
Diluted $ 0.24 $ 0.19 $ 0.93 $ 0.12
Weighted average shares outstanding:        
Basic 51,652 52,706 52,090 49,697
Diluted 52,066 53,606 52,829 50,735
Cash dividend declared per common share $ 0.30 $ 0.25 $ 0.90 $ 1.00
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]        
Net income (loss) $ 12,717 $ 9,920 $ 48,983 $ 6,202
Other comprehensive gain (loss):        
Net unrealized gain on marketable securities, (net of tax provision of $7 and $5 for the three and nine months ended September 30, 2017, respectively)   11   9
Net translation gains (losses) (1,214) 5,996 (9,780) 17,429
Total other comprehensive gain (loss) (1,214) 6,007 (9,780) 17,438
Comprehensive income (loss) $ 11,503 $ 15,927 $ 39,203 $ 23,640
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]    
Net unrealized gains (losses) on marketable securities, tax (benefit) provision $ 7 $ 5
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities    
Net income (loss) $ 48,983 $ 6,202
Adjustments to reconcile net income to net cash provided by operating activities:    
Stock-based compensation 48,820 49,255
Depreciation and amortization 223,181 158,761
Gain on disposition of assets, excluding transaction costs (36,281)  
Benefit from deferred income taxes (34,062) (47,659)
Other, net 1,282 1,606
Changes in assets and liabilities, excluding effect of acquisitions and dispositions:    
Accounts receivable 16,301 (6,480)
Prepaid expenses and other current assets 8,474 (4,607)
Other assets (12,830) 991
Accounts payable 13,575 10,154
Accrued liabilities 21,113 36,586
Deferred revenue 28,031 75,135
Other long-term liabilities 4,277 3,316
Net cash provided by operating activities 330,864 283,260
Cash flows from investing activities    
Proceeds from sale or disposal or maturity of marketable securities   41,603
Purchases of property and equipment (21,590) (23,322)
Intangible asset additions (26,138) (21,893)
Cash paid for acquisitions, net of cash acquired (342,072) (19,160)
Restricted cash acquired through acquisitions   988
Proceeds from disposition of assets 42,394  
Net cash used in investing activities (347,406) (21,784)
Cash flows from financing activities    
Borrowings (repayments) under credit facility 200,000 (30,000)
Proceeds from issuance of common stock upon option exercises 3,831 6,363
Payments of withholding taxes in connection with restricted stock unit vesting (29,490) (32,189)
Payment of debt issuance costs   (1,993)
Dividends paid on common stock (46,900) (39,117)
Purchase of treasury stock (190,230) (51,075)
Net cash used in financing activities (62,789) (148,011)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (5,427) 7,130
Net increase (decrease) in cash, cash equivalents and restricted cash (84,758) 120,595
Cash, cash equivalents and restricted cash, beginning of period 254,209 143,335
Cash, cash equivalents and restricted cash, end of period 169,451 263,930
Supplemental disclosure of cash flow information    
Cash paid for interest 2,877 201
Cash paid for income taxes 18,690 22,272
Noncash investing and financing activities    
GoTo Business purchase consideration paid in equity   2,921,179
Purchases of property and equipment included in accounts payable and accrued liabilities 5,504 $ 7,006
Purchases of treasury stock included in accrued liabilities $ 2,438  
v3.10.0.1
Nature of the Business
9 Months Ended
Sep. 30, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of the Business

1. Nature of the Business

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

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

v3.10.0.1
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
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 20, 2018. 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.

Recently Adopted Accounting Pronouncements

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

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

Cash and cash equivalents subject to contractual restrictions and not readily available for use are classified as restricted cash. The Company’s restricted cash balances are primarily made up of cash posted as collateral for its worldwide facility leases. The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the condensed consolidated balance sheet as of December 31, 2015, 2016 and 2017 and September 30, 2017 and 2018, to the total of the amounts reported in the condensed consolidated statement of cash flows included herein (in thousands):

 

 

 

As of December 31,

 

 

As of September 30,

 

 

 

2015

 

 

2016

 

 

2017

 

 

2017

 

 

2018

 

Cash and cash equivalents

 

$

123,143

 

 

$

140,756

 

 

$

252,402

 

 

$

262,051

 

 

$

167,626

 

Restricted cash, current, included in prepaid expenses and

   other current assets

 

 

 

 

 

98

 

 

 

12

 

 

 

218

 

 

 

 

Restricted cash, net of current portion

 

 

2,468

 

 

 

2,481

 

 

 

1,795

 

 

 

1,661

 

 

 

1,825

 

Cash, cash equivalents and restricted cash

 

$

125,611

 

 

$

143,335

 

 

$

254,209

 

 

$

263,930

 

 

$

169,451

 

 

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

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

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

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

The following tables summarize the impact of adopting ASC 606 on the Company’s condensed consolidated financial statements during the three and nine months ended September 30, 2018 (in thousands, except per share data):

 

 

 

As of September 30, 2018

 

 

 

As

Reported

 

 

Adjustments

 

 

Balance

Without

Adoption of

ASC 606

 

Condensed Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

61,926

 

 

$

(26,633

)

 

$

35,293

 

Other assets

 

 

38,006

 

 

 

(28,331

)

 

 

9,675

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

$

218,396

 

 

$

(13,013

)

 

$

205,383

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings (accumulated deficit)

 

$

73,957

 

 

$

(41,951

)

 

$

32,006

 

 

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

 

As

Reported

 

 

Adjustments

 

 

Balance

Without

Adoption of

ASC 606

 

 

As

Reported

 

 

Adjustments

 

 

Balance

Without

Adoption of

ASC 606

 

Condensed Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

$

95,041

 

 

$

12,018

 

 

$

107,059

 

 

$

282,599

 

 

$

27,648

 

 

$

310,247

 

(Provision for) benefit from income taxes

 

$

(2,570

)

 

$

2,942

 

 

$

372

 

 

$

(14,269

)

 

$

6,577

 

 

$

(7,692

)

Net income (loss)

 

$

12,717

 

 

$

(9,077

)

 

$

3,640

 

 

$

48,983

 

 

$

(21,072

)

 

$

27,911

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

(0.18

)

 

$

0.07

 

 

$

0.94

 

 

$

(0.40

)

 

$

0.54

 

Diluted

 

$

0.24

 

 

$

(0.17

)

 

$

0.07

 

 

$

0.93

 

 

$

(0.40

)

 

$

0.53

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

As

Reported

 

 

Adjustments

 

 

Balance

Without

Adoption of

ASC 606

 

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

48,983

 

 

$

(21,072

)

 

$

27,911

 

Benefit from deferred income taxes

 

 

(34,062

)

 

 

(6,577

)

 

 

(40,639

)

Prepaid expenses and other current assets

 

 

8,474

 

 

 

16,395

 

 

 

24,869

 

Other assets

 

 

(12,830

)

 

 

11,254

 

 

 

(1,576

)

Net cash provided by operating activities

 

 

330,864

 

 

 

 

 

 

330,864

 

 

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 years, for initial contracts and are 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 September 30, 2018, the Company had $26.6 million of current deferred commissions and $28.3 million of noncurrent deferred commissions. Commissions expense is primarily included in sales and marketing expense on the condensed consolidated statements of operations. The Company had amortization expense of $5.8 million and $13.5 million related to deferred commissions during the three and nine months ended September 30, 2018, respectively. Other costs incurred to fulfill contracts have been immaterial to date.

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

The Company determines revenue recognition through the following five steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

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

 

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

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

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

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

204,831

 

 

$

241,630

 

 

$

545,117

 

 

$

690,097

 

United Kingdom

 

 

13,371

 

 

 

13,883

 

 

 

37,318

 

 

 

42,336

 

International — all other

 

 

51,065

 

 

 

53,414

 

 

 

131,315

 

 

 

161,361

 

Total revenue

 

$

269,267

 

 

$

308,927

 

 

$

713,750

 

 

$

893,794

 

 

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications and collaboration

 

$

146,808

 

 

$

175,045

 

 

$

377,780

 

 

$

498,142

 

Identity and access

 

 

76,380

 

 

 

89,762

 

 

 

208,487

 

 

 

262,197

 

Customer engagement and support

 

 

46,079

 

 

 

44,120

 

 

 

127,483

 

 

 

133,455

 

Total revenue

 

$

269,267

 

 

$

308,927

 

 

$

713,750

 

 

$

893,794

 

 

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 our service is made available to the customer. Subscription periods range from monthly to multi-year, with the majority of contracts being one year, billed annually in advance and 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 recognize revenue as each distinct service period is performed (i.e., recognized as incurred).

Accounts Receivable, Net — Accounts receivable, net, are amounts due from customers where there is an unconditional right to consideration. Unbilled receivables of $5.1 million and $3.2 million are included in this balance at December 31, 2017 and September 30, 2018, respectively. The payment of consideration related to these unbilled receivables is subject only to the passage of time.

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

Contract Assets — Contract assets primarily relate to unbilled amounts typically resulting from sales contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. The contract assets are transferred to accounts receivable when the rights become unconditional. The Company had no contract assets as of December 31, 2017 and $1.1 million of contract assets as of September 30, 2018, of which $0.6 million is included in prepaid and other current assets and $0.5 million is included in other assets.

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

For the three and nine months ended September 30, 2018, revenue recognized related to deferred revenue at January 1, 2018 was approximately $62 million and $312 million, respectively. Approximately $493 million of revenue is expected to be recognized from remaining performance obligations as of September 30, 2018.

Changes in contract balances for the nine months ended September 30, 2018 are as follows (in thousands):

 

 

 

Deferred Revenue

 

 

 

Current

 

 

Non-Current

 

Balance as of January 1, 2018

 

$

340,570

 

 

$

6,735

 

Increase (decrease), net

 

 

24,297

 

 

 

1,720

 

Balance as of September 30, 2018

 

$

364,867

 

 

$

8,455

 

 

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.

For the three and nine months ended September 30, 2017 and 2018, no customer accounted for more than 10% of revenue. As of December 31, 2017 and September 30, 2018, no customer accounted for more than 10% of accounts receivable.

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.

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At September 30, 2017, marketable securities consisted of U.S. government agency securities and corporate bonds that had remaining maturities within two years and have an aggregate amortized cost and an aggregate fair value of $14.0 million, including $11,000 of unrealized losses. The Company did not have any marketable securities as of December 31, 2017 or September 30, 2018.

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, 2017, our measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through September 30, 2018, 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 September 30, 2018, 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 it is 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 net foreign currency gains and losses.

As of December 31, 2017 and September 30, 2018, the Company had outstanding forward contracts with notional amounts equivalent to the following (in thousands):

 

Currency Hedged

 

December 31,

2017

 

 

September 30,

2018

 

Euro / Canadian Dollar

 

$

556

 

 

$

456

 

Euro / U.S. Dollar

 

 

4,208

 

 

 

4,038

 

Euro / British Pound

 

 

5,926

 

 

 

5,199

 

British Pound / U.S. Dollar

 

 

 

 

 

638

 

Israeli Shekel / Hungarian Forint

 

 

8,008

 

 

 

 

U.S. Dollar / Brazilian Real

 

 

 

 

 

2,488

 

U.S. Dollar / Canadian Dollar

 

 

 

 

 

4,385

 

Total

 

$

18,698

 

 

$

17,204

 

 

Net realized and unrealized foreign currency gains and losses was a net gain of $47,000 and a net loss of $28,000 for the three and nine months ended September 30, 2017, respectively, and net losses of $0.1 million and $0.4 million for the three and nine months ended September 30, 2018, respectively, 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 $0.4 million and $0.3 million for the three and nine months ended September 30, 2017, respectively, and a net loss of $40,000 and a net gain of $0.5 million for the three and nine months ended September 30, 2018, 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 September 30, 2018, 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 (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

Options to purchase common shares

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units

 

 

36

 

 

 

853

 

 

 

59

 

 

 

113

 

Total options and restricted stock units

 

 

36

 

 

 

853

 

 

 

59

 

 

 

113

 

 

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

Net income (loss)

 

$

9,920

 

 

$

12,717

 

 

$

6,202

 

 

$

48,983

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

52,706

 

 

 

51,652

 

 

 

49,697

 

 

 

52,090

 

Net income (loss) per share, basic

 

$

0.19

 

 

$

0.25

 

 

$

0.12

 

 

$

0.94

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

52,706

 

 

 

51,652

 

 

 

49,697

 

 

 

52,090

 

Add: Common stock equivalents

 

 

900

 

 

 

414

 

 

 

1,038

 

 

 

739

 

Weighted average common shares outstanding, diluted

 

 

53,606

 

 

 

52,066

 

 

 

50,735

 

 

 

52,829

 

Net income (loss) per share, diluted

 

$

0.19

 

 

$

0.24

 

 

$

0.12

 

 

$

0.93

 

 

Recently Issued Accounting Pronouncements

On February 25, 2016, the FASB issued ASU 2016-02, Leases, or ASU 2016-02, which will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. In general, lease arrangements exceeding a twelve-month term must now be recognized as assets and liabilities on the balance sheet. Under ASU 2016-02, a right of use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. This guidance is effective for the Company as of the first quarter of its fiscal year ending December 31, 2019. Along with ASU 2016-02, the Company is also evaluating Accounting Standards Update 2018-10, Codification Improvements to Topic 842 Leases, or ASU 2018-10, and Accounting Standards Update 2018-11, Targeted Improvements to Topic 842 Leases, or ASU 2018-11, which allows the new lease standard to be applied as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings rather than retroactive restatement of all periods presented. Upon adoption, the Company also expects to elect the transition package of practical expedients permitted within the new standard, which among other things, allows the carryforward of the historical lease classification. The Company has formed a project team focused on the implementation of the new accounting standard. The Company continues to evaluate which other, if any, practical expedients will be elected and is currently formalizing processes and controls to identify, classify, and measure its leases in accordance with ASU 2016-02. While the Company continues to evaluate the effect of adopting this guidance on its consolidated financial statements and related disclosures, it is expected that at a minimum, the obligations under existing operating leases, as disclosed in Note 11 to the condensed consolidated financial statements, will be reported in the consolidated balance sheet upon adoption.

On February 15, 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), or ASU 2018-02, which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, or the U.S. Tax Act. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the potential impact of adoption of ASU 2018-02 on its condensed consolidated financial statements and related disclosures.

 

v3.10.0.1
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

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

 

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

 

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

 

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

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

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

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

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

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

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

148,120

 

 

$

10,000

 

 

$

 

 

$

158,120

 

Forward contracts ($18.7 million notional amount)

 

$

 

 

$

29

 

 

$

 

 

$

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 30, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

7,900

 

 

$

 

 

$

 

 

$

7,900

 

Forward contracts ($17.2 million notional amount)

 

$

 

 

$

(122

)

 

$

 

 

$

(122

)

 

v3.10.0.1
Acquisitions
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Acquisitions

4. Acquisitions

Acquisition-Related Costs

Acquisition-related costs were $51.4 million and $19.1 million for the nine months ended September 30, 2017 and 2018, respectively. Acquisition-related costs are associated with the acquisitions of businesses and intellectual property and include transaction, transition and integration-related charges (including legal, accounting and other professional fees, severance, and retention bonuses) and subsequent adjustments to the Company’s initial estimated amount of contingent consideration associated with acquisitions. Acquisition-related costs for the nine months ended September 30, 2017 were primarily related to the Merger and included $26.2 million in transaction, transition and integration-related expenses, $10.1 million in integration-related severance costs and $15.1 million of retention-based bonuses, of which $9.7 million was related to the Merger. Acquisition-related costs for the nine months ended September 30, 2018 were primarily related to $7.6 million of transaction and integration-related costs, primarily for the acquisition of Jive Communications, Inc., which closed on April 3, 2018, $3.5 million of integration-related severance costs, and $8.0 million of retention-based bonuses primarily related to the Jive Communications, Inc. and Nanorep Technologies Ltd. acquisitions described below.

2018 Acquisition

Jive Communications, Inc.

On April 3, 2018, the Company acquired all of the outstanding equity of Jive Communications, Inc., or Jive, a provider of cloud-based phone systems and Unified Communications services for a purchase price of $342.1 million in cash, which includes a $1.3 million working capital adjustment received during the third quarter of 2018. The Company funded the purchase price through a combination of existing cash on-hand and a $200 million revolving loan borrowed pursuant to its existing credit agreement.

Additionally, the Company is expected to pay up to $15 million in contingent cash retention payments to certain employees of Jive upon the achievement of specified retention milestones over the two-year period following the closing of the transaction, of which $0.4 million has been paid as of September 30, 2018. At the time of closing, Jive had approximately 700 employees and fiscal year 2017 revenue was approximately $80 million. The operating results of Jive have been included in the Company’s results since the date of the acquisition. During the nine months ended September 30, 2018, the Company recorded revenue of $50.3 million, including a $0.7 million effect of acquisition accounting on the fair value of acquired deferred revenue, and expenses of $75.8 million, including amortization of acquired intangibles of $6.4 million, acquisition-related transaction and integration-related costs of $6.9 million, integration-related severance costs of $0.9 million and retention-based bonus expense of $5.3 million.

The acquisition is being accounted for under the acquisition method of accounting. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The preliminary determination of the fair value of assets acquired and liabilities assumed has been recognized based on management’s estimates and assumptions using the information about facts and circumstances that existed at the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The allocation of the purchase price is preliminary for income taxes and the valuation of intangible assets as the Company is still gathering information. The Company expects to finalize the purchase price allocation by the end of 2018.

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

 

Cash

 

$

2,571

 

Accounts receivable

 

 

11,986

 

Property and equipment

 

 

2,492

 

Prepaid expenses and other current assets

 

 

2,511

 

Other assets

 

 

2,255

 

Intangible assets:

 

 

 

 

Completed technology (9 years) (1)

 

 

34,200

 

Customer relationships (10 years) (1)

 

 

114,800

 

Trade name (2 years)

 

 

900

 

Deferred revenue

 

 

(5,498

)

Accounts payable and accrued liabilities (1)

 

 

(7,685

)

Deferred tax liabilities, net (1)

 

 

(24,721

)

Goodwill (1)

 

 

210,832

 

Total purchase consideration

 

 

344,643

 

Less: cash acquired

 

 

(2,571

)

Total purchase consideration, net of cash acquired

 

$

342,072

 

 

(1)

During the three months ended September 30, 2018, the Company identified measurement period adjustments that impacted the estimated fair value of the assets and liabilities assumed as of the date of acquisition. The table above, which summarizes the allocation of the purchase price for the entities acquired, has been updated to reflect these measurement period adjustments. The total measurement period adjustments resulted in an increase in intangible assets of $1.5 million ($1.4 million in completed technology and $0.1 million in customer relationships), an increase in accrued liabilities of $0.4 million, an increase in deferred tax liabilities, net, of $0.4 million, and a decrease in goodwill of $0.7 million. This change to the provisional fair value amounts of the assets and liabilities assumed had no impact on the Company’s results of operations for the three months ended September 30, 2018.

 

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

The Company recorded a long-term deferred tax liability, net, of $24.7 million primarily related to the amortization of 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. We have excluded 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 U.S. Tax Act enacted on December 22, 2017. 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)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

(unaudited)

 

 

(unaudited)

 

 

 

2017

 

 

2017

 

 

2018

 

Pro forma revenue

 

$

289.4

 

 

$

770.6

 

 

$

917.7

 

Pro forma net income (loss)

 

$

2.6

 

 

$

(18.1

)

 

$

39.7

 

Pro forma net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

(0.36

)

 

$

0.76

 

Diluted

 

$

0.05

 

 

$

(0.36

)

 

$

0.75

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

52.7

 

 

 

49.7

 

 

 

52.1

 

Diluted

 

 

53.6

 

 

 

49.7

 

 

 

52.8

 

 

2017 Acquisitions

Nanorep Technologies Ltd.

On July 31, 2017, the Company acquired all of the outstanding equity interests in Nanorep Technologies Ltd., or Nanorep, an Israeli provider of artificial intelligence, chatbot and virtual assistant services, for $43.2 million, net of cash acquired. Additionally, the Company expects to pay up to $5 million in cash to certain employees of Nanorep contingent upon their continued service over the two-year period following the closing of the acquisition and, in some cases, the achievement of specified performance conditions, of which $2.4 million has been paid as of September 30, 2018. At the time of the acquisition, Nanorep had approximately 55 employees and annualized revenue of approximately $5 million. The operating results of Nanorep, which have been included in the Company’s results since the date of the acquisition are not material. Accordingly, pro forma financial information for the business combination has not been presented.

GoTo Merger

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

The operations of the GoTo Business are included in the Company’s operating results since the date of acquisition. Since the Merger, the operating costs of the GoTo Business have been integrated with the operating costs of the Company and therefore, the Company has not provided operating income for the GoTo Business. Further, in 2018, stand-alone GoTo Business revenue will not be reported as the Company’s continued integration of its go-to-market strategy has made this metric not comparable to prior periods. During the nine months ended September 30, 2017 and 2018, the Company recorded amortization of acquired intangibles of $119.8 million and $168.3 million, respectively, and acquisition-related transaction, transition and integration costs directly attributable to the Merger of $41.5 million and $3.2 million, respectively, within its condensed consolidated financial statements.

The unaudited financial information in the table below summarizes the combined results of operations for the Company and the GoTo Business, on a pro forma basis, as though the Merger had been consummated as of the beginning of 2016, including amortization charges from acquired intangible assets, the effect of acquisition accounting on the fair value of acquired deferred revenue, the inclusion of expense related to retention-based bonuses assuming full achievement of the retention requirements, the reclassification of all acquisition-related costs incurred by the Company and the GoTo Business as of the beginning of 2016 through the first quarter of 2017 (the quarter the 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)

 

 

 

Nine Months Ended

September 30, 2017

 

 

 

(unaudited)

 

 

 

As Reported

 

 

Pro Forma

 

Revenue

 

$

713.8

 

 

$

784.7

 

Net income (loss)

 

$

6.2

 

 

$

36.0

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.68

 

Diluted

 

$

0.12

 

 

$

0.67

 

Pro forma weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

49.7

 

 

 

52.7

 

Diluted

 

 

50.7

 

 

 

53.7

 

 

v3.10.0.1
Divestitures
9 Months Ended
Sep. 30, 2018
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 $7.5 million receivable, due in September 2019, was recorded at a net present value of $7.3 million, which was reclassified from other assets to prepaids and other current assets on the condensed consolidated balance sheet during the quarter.

The Xively disposition resulted in a gain of $33.9 million recorded in the first quarter of 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. In fiscal year 2017, the Company recorded approximately $3 million of revenue and $13 million of operating expense directly related to its 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.

v3.10.0.1
Goodwill and Intangible Assets
9 Months Ended
Sep. 30, 2018
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

6. Goodwill and Intangible Assets