LOGMEIN, INC., 10-Q filed on 7/26/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 19, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol LOGM  
Entity File Number 001-34391  
Entity Tax Identification Number 201515952  
Entity Address, Address Line One 320 Summer Street  
Entity Address, City or Town Boston  
Entity Address, Postal Zip Code 02210  
City Area Code 781  
Local Phone Number 638-9050  
Entity Address, State or Province MA  
Entity Registrant Name LogMeIn, Inc.  
Entity Central Index Key 0001420302  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Shell Company false  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Current Reporting Status Yes  
Entity Common Stock, Shares Outstanding   49,435,988
v3.19.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 111,565 $ 148,652
Accounts receivable (net of allowances of $2,785 and $3,979 as of December 31, 2018 and June 30, 2019, respectively) 90,412 95,354
Prepaid expenses and other current assets 79,151 83,887
Total current assets 281,128 327,893
Property and equipment, net 101,878 98,238
Operating lease assets (Note 9) 105,144  
Restricted cash, net of current portion 1,831 1,840
Intangibles, net 958,057 1,059,988
Goodwill 2,413,655 2,400,390
Other assets 53,950 41,545
Deferred tax assets 6,064 6,059
Total assets 3,921,707 3,935,953
Current liabilities:    
Accounts payable 50,805 35,447
Current operating lease liabilities (Note 9) 16,753  
Accrued liabilities 140,687 119,379
Deferred revenue, current portion 399,393 369,780
Total current liabilities 607,638 524,606
Long-term debt 200,000 200,000
Deferred revenue, net of current portion 9,691 9,518
Deferred tax liabilities 181,607 201,212
Non-current operating lease liabilities (Note 9) 94,865  
Other long-term liabilities 9,461 25,929
Total liabilities 1,103,262 961,265
Commitments and contingencies (Note 13)
Preferred stock, $0.01 par value — 5,000 shares authorized, 0 shares outstanding as of December 31, 2018 and June 30, 2019
Equity:    
Common stock, $0.01 par value—145,000 shares authorized; 56,703 and 57,129 shares issued; and 50,692 and 49,566 outstanding as of December 31, 2018 and June 30, 2019, respectively 571 567
Additional paid-in capital 3,332,239 3,316,603
Retained earnings 35,783 84,043
Accumulated other comprehensive income (loss) 2,380 2,133
Treasury stock, at cost - 6,011 and 7,564 shares as of December 31, 2018 and June 30, 2019, respectively (552,528) (428,658)
Total equity 2,818,445 2,974,688
Total liabilities and equity $ 3,921,707 $ 3,935,953
v3.19.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 3,979 $ 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 57,129,000 56,703,000
Common stock, shares outstanding 49,566,000 50,692,000
Treasury stock, shares 7,564,000 6,011,000
v3.19.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Revenue $ 313,064 $ 305,650 $ 620,764 $ 584,867
Cost of revenue 80,767 72,833 158,455 135,775
Gross profit 232,297 232,817 462,309 449,092
Operating expenses        
Research and development 40,379 43,920 81,096 87,036
Sales and marketing 120,825 99,343 235,459 187,558
General and administrative 34,539 39,106 68,425 74,549
Restructuring charge 956   9,430  
Gain on disposition of assets       (33,910)
Amortization of acquired intangibles 39,390 43,347 78,889 84,430
Total operating expenses 236,089 225,716 473,299 399,663
Income (loss) from operations (3,792) 7,101 (10,990) 49,429
Interest income 415 369 1,076 1,042
Interest expense (2,126) (1,854) (4,269) (2,180)
Other income (expense), net (107) (86) (367) (326)
Income (loss) before income taxes (5,610) 5,530 (14,550) 47,965
(Provision for) benefit from income taxes (912) 1,024 (1,011) (11,699)
Net income (loss) $ (6,522) $ 6,554 $ (15,561) $ 36,266
Net income (loss) per share:        
Basic $ (0.13) $ 0.13 $ (0.31) $ 0.69
Diluted $ (0.13) $ 0.12 $ (0.31) $ 0.68
Weighted average shares outstanding:        
Basic 49,768 52,170 50,201 52,313
Diluted 49,768 52,875 50,201 53,160
Cash dividends declared and paid per share $ 0.325 $ 0.30 $ 0.65 $ 0.60
v3.19.2
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Net income (loss) $ (6,522) $ 6,554 $ (15,561) $ 36,266
Other comprehensive gain (loss):        
Net translation gains (losses) 2,872 (14,022) 247 (8,565)
Comprehensive income (loss) $ (3,650) $ (7,468) $ (15,314) $ 27,701
v3.19.2
Condensed Consolidated Statements of Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
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 1,022   1,022      
Issuance of common stock upon exercise of stock options, shares   29,000        
Net issuance of common stock upon vesting of restricted stock units (27,184) $ 5 (27,189)      
Net issuance of common stock upon vesting of restricted stock units, shares   455,000        
Stock-based compensation 33,132   33,132      
Treasury stock $ (117,539)         (117,539)
Treasury stock, shares (1,018,873) (1,019,000)        
Dividends on common stock $ (31,377)     (31,377)    
Net income (loss) 36,266     36,266    
Cumulative translation adjustments (8,565)       (8,565)  
Balance at Jun. 30, 2018 3,070,925 $ 565 3,283,856 76,763 7,005 (297,264)
Balance, shares at Jun. 30, 2018   52,029,000        
Balance at Mar. 31, 2018 3,160,362 $ 562 3,281,688 85,849 21,027 (228,764)
Balance, shares at Mar. 31, 2018   52,347,000        
Issuance of common stock upon exercise of stock options 959   959      
Issuance of common stock upon exercise of stock options, shares   25,000        
Net issuance of common stock upon vesting of restricted stock units (15,954) $ 3 (15,957)      
Net issuance of common stock upon vesting of restricted stock units, shares   272,000        
Stock-based compensation 17,166   17,166      
Treasury stock $ (68,500)         (68,500)
Treasury stock, shares (614,851) (615,000)        
Dividends on common stock $ (15,640)     (15,640)    
Net income (loss) 6,554     6,554    
Cumulative translation adjustments (14,022)       (14,022)  
Balance at Jun. 30, 2018 3,070,925 $ 565 3,283,856 76,763 7,005 (297,264)
Balance, shares at Jun. 30, 2018   52,029,000        
Adoption of ASC | ASU 2014-09 [Member] 21,429     21,429    
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 82   82      
Issuance of common stock upon exercise of stock options, shares   2,000        
Net issuance of common stock upon vesting of restricted stock units (17,676) $ 4 (17,680)      
Net issuance of common stock upon vesting of restricted stock units, shares   425,000        
Stock-based compensation 33,234   33,234      
Treasury stock $ (123,870)         (123,870)
Treasury stock, shares (1,552,896) (1,553,000)        
Dividends on common stock $ (32,699)     (32,699)    
Net income (loss) (15,561)     (15,561)    
Cumulative translation adjustments 247       247  
Balance at Jun. 30, 2019 2,818,445 $ 571 3,332,239 35,783 2,380 (552,528)
Balance, shares at Jun. 30, 2019   49,566,000        
Balance at Mar. 31, 2019 2,894,936 $ 569 3,322,862 58,487 (492) (486,490)
Balance, shares at Mar. 31, 2019   50,166,000        
Issuance of common stock upon exercise of stock options 41   41      
Issuance of common stock upon exercise of stock options, shares   1,000        
Net issuance of common stock upon vesting of restricted stock units (8,865) $ 2 (8,867)      
Net issuance of common stock upon vesting of restricted stock units, shares   238,000        
Stock-based compensation 18,203   18,203      
Treasury stock $ (66,038)         (66,038)
Treasury stock, shares (838,911) (839,000)        
Dividends on common stock $ (16,182)     (16,182)    
Net income (loss) (6,522)     (6,522)    
Cumulative translation adjustments 2,872       2,872  
Balance at Jun. 30, 2019 $ 2,818,445 $ 571 $ 3,332,239 $ 35,783 $ 2,380 $ (552,528)
Balance, shares at Jun. 30, 2019   49,566,000        
v3.19.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Cash flows from operating activities                  
Net income (loss)             $ (15,561) $ 36,266  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                  
Stock-based compensation $ 18,203       $ 17,166   33,234 33,132  
Depreciation and amortization             152,333 146,361  
Gain on disposition of assets, excluding transaction costs               (36,281)  
Change in fair value of contingent consideration liability             192    
Benefit from deferred income taxes             (22,786) (22,030)  
Other, net             939 793  
Changes in assets and liabilities, excluding effect of acquisitions and dispositions:                  
Accounts receivable             4,110 22,730  
Prepaid expenses and other current assets             4,777 7,955  
Other assets             (13,546) (7,934)  
Accounts payable             15,507 11,503  
Accrued liabilities             16,226 22,961  
Deferred revenue             30,250 35,784  
Other long-term liabilities             (2,308) 5,962  
Net cash provided by operating activities             203,367 257,202  
Cash flows from investing activities                  
Purchases of property and equipment             (22,081) (13,629)  
Intangible asset additions             (18,745) (17,862)  
Cash paid for acquisitions, net of cash acquired             (22,463) (343,351)  
Proceeds from disposition of assets               42,394  
Net cash provided by (used in) investing activities             (63,289) (332,448)  
Cash flows from financing activities                  
Borrowings (repayments) under credit facility               200,000  
Proceeds from issuance of common stock upon option exercises             82 1,022  
Payments of withholding taxes in connection with restricted stock unit vesting             (17,676) (27,954)  
Payment of contingent consideration             (1,857)    
Dividends paid on common stock (16,200) $ (16,500) $ (15,300) $ (15,500) (15,600) $ (15,700) (32,699) (31,377) $ (62,200)
Purchase of treasury stock             (124,232) (115,103)  
Net cash provided by (used in) financing activities             (176,382) 26,588  
Effect of exchange rate changes on cash, cash equivalents and restricted cash             (792) (4,890)  
Net increase (decrease) in cash, cash equivalents and restricted cash             (37,096) (53,548)  
Cash, cash equivalents and restricted cash, beginning of period   $ 150,492   $ 200,661   $ 254,209 150,492 254,209 254,209
Cash, cash equivalents and restricted cash, end of period $ 113,396   $ 150,492   $ 200,661   113,396 200,661 $ 150,492
Supplemental disclosure of cash flow information                  
Cash paid for interest             3,218 1,098  
Cash paid (refunds received) from income taxes             4,258 13,751  
Noncash investing and financing activities                  
Purchases of property and equipment included in accounts payable and accrued liabilities             5,659 4,892  
Purchases of treasury stock included in accrued liabilities             1,427 2,436  
Fair value of contingent consideration in connection with acquisition, included in accrued liabilities             $ 1,347    
Purchase price adjustment receivable in prepaid and other current assets               $ 1,297  
v3.19.2
Nature of the Business
6 Months Ended
Jun. 30, 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.

v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
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 21, 2019. 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.

 

Costs to Obtain and Fulfill a Contract — The Company’s incremental costs of obtaining a contract consist of sales commissions and their related fringe benefits. Sales commissions and fringe benefits paid on renewals are not commensurate with sales commissions paid on the initial contract, but they are commensurate with each other. Sales commissions and fringe benefits are deferred and amortized on a straight-line basis over the period of benefit, which the Company has estimated to be three to four years for initial contracts and amortized over the renewal period for renewal contracts, typically one year. The period of benefit was determined based on an average customer contract term, expected contract renewals, changes in technology and the Company’s ability to retain customers. Deferred commissions are classified as current or noncurrent assets based on the timing the expense will be recognized. The current and noncurrent portions of deferred commissions are included in prepaid expenses and other current assets and other assets, respectively, in the Company’s condensed consolidated balance sheets. As of December 31, 2018 and June 30, 2019, the Company had $33.7 million of current deferred commissions and $31.2 million of noncurrent deferred commissions, and $38.0 million of current deferred commissions and $40.9 million of noncurrent deferred commissions, respectively. Commissions expense is primarily included in sales and marketing expense on the condensed consolidated statements of operations. The Company had amortization expense of $4.5 million and $7.8 million related to deferred commissions during the three and six months ended June 30, 2018, respectively, and $9.4 million and $17.9 million during the three and six months ended June 30, 2019, 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 and 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 (in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

236,713

 

 

$

247,570

 

 

$

448,467

 

 

$

488,864

 

International

 

 

68,937

 

 

 

65,494

 

 

 

136,400

 

 

 

131,900

 

Total revenue

 

$

305,650

 

 

$

313,064

 

 

$

584,867

 

 

$

620,764

 

 

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unified communications and collaboration

 

$

173,190

 

 

$

171,817

 

 

$

323,097

 

 

$

341,774

 

Identity and access management

 

 

87,765

 

 

 

98,266

 

 

 

172,435

 

 

 

192,445

 

Customer engagement and support

 

 

44,695

 

 

 

42,981

 

 

 

89,335

 

 

 

86,545

 

Total revenue

 

$

305,650

 

 

$

313,064

 

 

$

584,867

 

 

$

620,764

 

 

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 $6.3 million are included in this balance at December 31, 2018 and June 30, 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 June 30, 2019, lease receivables totaled $4.9 million (of which, $2.8 million was long term and in other assets), and $7.2 million (of which, $4.1 million was long term and in other assets), respectively.

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

Contract Assets — Contract assets primarily relate to unbilled amounts typically resulting from sales contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. The contract assets are transferred to accounts receivable when the rights become unconditional. The Company had contract assets of $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 $4.2 million as of June 30, 2019 ($2.4 million included in prepaid and other current assets and $1.8 million included in other assets).

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

For the three and six months ended June 30, 2019, revenue recognized related to deferred revenue at January 1, 2019 was approximately $104 million and $267 million, respectively. As of June 30, 2019, approximately $603.0 million of revenue is expected to be recognized from remaining performance obligations, including backlog, primarily over the next two years.

Changes in contract liabilities for the six months ended June 30, 2019 are as follows (in thousands):

 

 

 

Deferred Revenue

 

 

 

Current

 

 

Non-

Current

 

 

Total

 

Balance as of January 1, 2019

 

$

369,780

 

 

$

9,518

 

 

$

379,298

 

Increase (decrease), net

 

 

29,613

 

 

 

173

 

 

 

29,786

 

Balance as of June 30, 2019

 

$

399,393

 

 

$

9,691

 

 

$

409,084

 

 

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 six months ended June 30, 2018 and 2019, no customer accounted for more than 10% of revenue. As of December 31, 2018 and June 30, 2019, 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.

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill but performs an impairment test of goodwill annually or whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. As of November 30, 2018, our measurement date, the fair value of the Company as a whole exceeded the carrying amount of the Company. Through June 30, 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 June 30, 2019, the Company recorded no material impairments.

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

Derivative Financial Instruments — The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses foreign currency forward contracts to manage exposure to fluctuations in foreign 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 June 30, 2019, the Company had outstanding forward contracts with notional amounts equivalent to the following (in thousands):

 

Currency Hedged

 

December 31,

2018

 

 

June 30,

2019

 

Euro / Canadian Dollar

 

$

537

 

 

$

 

Euro / U.S. Dollar

 

 

5,203

 

 

 

3,593

 

Euro / British Pound

 

 

3,809

 

 

 

1,268

 

British Pound / U.S. Dollar

 

 

563

 

 

 

 

Euro / Hungarian Forint

 

 

 

 

 

2,203

 

U.S. Dollar / Israeli Shekel

 

 

 

 

 

1,665

 

U.S. Dollar / Canadian Dollar

 

 

4,504

 

 

 

1,806

 

Total

 

$

14,616

 

 

$

10,535

 

 

Net realized and unrealized foreign currency gains and losses was a net loss of $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively, and a net loss of $0.1 million and $0.4 million for the three and six months ended June 30, 2019, 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 gain of $0.2 million and $0.5 million for the three and six months ended June 30, 2018, respectively, and a net gain of $0.1 million and a net loss of $0.4 million for the three and six months ended June 30, 2019, 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 June 30, 2019, 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Options to purchase common shares

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Restricted stock units

 

 

102

 

 

 

1,816

 

 

 

102

 

 

 

1,816

 

Total options and restricted stock units

 

 

102

 

 

 

1,859

 

 

 

102

 

 

 

1,859

 

 

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net income (loss)

 

$

6,554

 

 

$

(6,522

)

 

$

36,266

 

 

$

(15,561

)

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

52,170

 

 

 

49,768

 

 

 

52,313

 

 

 

50,201

 

Net income (loss) per share, basic

 

$

0.13

 

 

$

(0.13

)

 

$

0.69

 

 

$

(0.31

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

52,170

 

 

 

49,768

 

 

 

52,313

 

 

 

50,201

 

Add: Common stock equivalents

 

 

705

 

 

 

 

 

 

847

 

 

 

 

Weighted average common shares outstanding, diluted

 

 

52,875

 

 

 

49,768

 

 

 

53,160

 

 

 

50,201

 

Net income (loss) per share, diluted

 

$

0.12

 

 

$

(0.13

)

 

$

0.68

 

 

$

(0.31

)

 

Recently Adopted Accounting Pronouncements

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 Financial Accounting Standards Board, or 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 right-of-use 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 related costs, which are typically variable in nature and are expensed in the period incurred.

The Company accounts for a contract as a lease when it 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 right-of-use 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 assured 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 reasonably assured 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 June 30, 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.

Recently Issued Accounting Pronouncements

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

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. Early adoption is permitted. The Company is currently assessing the potential impact of the adoption of ASU 2016-13 on its condensed consolidated financial statements.

v3.19.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 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 and the debt outstanding under the variable-rate credit facility approximates fair value. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:

 

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

 

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

 

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

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

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

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

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

The Company’s Level 3 liability at June 30, 2019 consisted of contingent consideration related to a 2019 acquisition, as described further in Note 4 below. The remaining contingent consideration liability of up to $2.0 million is based on the achievement of certain development milestones, the fair value of which is estimated at $1.3 million as of June 30, 2019. The fair value of contingent consideration was estimated by applying a probability-based model, which utilized inputs that were unobservable in the market.

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, 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 at June 30, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents — money market funds

 

$

1,102

 

 

$

 

 

$

 

 

$

1,102

 

Forward contracts ($10.5 million notional amount)

 

$

 

 

$

(91

)

 

$

 

 

$

(91

)

Contingent consideration liability

 

$

 

 

$

 

 

$

(1,347

)

 

$

(1,347

)

 

v3.19.2
Acquisitions
6 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Acquisitions

4. Acquisitions

Acquisition-Related Costs

Acquisition-related costs were $14.4 million and $6.9 million for the six months ended June 30, 2018 and 2019, 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 six months ended June 30, 2018 were primarily related to $2.6 million in integration-related severance costs, $7.1 million of transaction, transition and integration-related expenses largely related to the acquisition of Jive Communications, Inc., or Jive, which closed on April 3, 2018, and $4.8 million of retention-based bonuses primarily related to the Jive and Nanorep Technologies Ltd. acquisitions. Acquisition-related costs for the six months ended June 30, 2019 were primarily related to $1.2 million of transaction, transition and integration-related costs and $5.6 million of retention-based bonuses primarily related to the Jive and 2019 acquisitions described below.

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 payable in 2019 and 2020 contingent upon the achievement of certain development milestones. This contingent liability was recorded at an estimated fair value of $3.2 million at the acquisition date. In the second quarter of 2019, the Company paid $2.0 million of the contingent consideration for the achievement of the first development milestone and the Company recorded $0.2 million of expense related to the change in fair value of the contingent consideration liability. As of June 30, 2019, the fair value of the remaining $2.0 million contingent consideration liability was $1.3 million. The Company will re-measure the fair value of the contingent consideration at each subsequent reporting period and recognize any adjustments to fair value as part of earnings. 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. 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.

On February 21, 2019, the Company acquired a California-based provider of multi-factor and single-sign-on, or SSO, services pursuant to a stock purchase agreement dated February 13, 2019 for $17.5 million, net of cash acquired. 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 Company accounted for the acquisition as a business combination. The Company’s preliminary purchase price allocation of the $17.5 million purchase consideration was $11.8 million of completed technology, $9.0 million of goodwill and $0.1 million of other current assets partially offset by $0.3 million of current liabilities and $3.1 million of a long-term deferred tax liability primarily related to the amortization of intangible assets which cannot be deducted for tax purposes. 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 plans to finalize the preliminary purchase price allocation in the third quarter of 2019.

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 $4.5 million has been paid as of June 30, 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)

 

 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

 

Reported

 

 

Pro Forma

 

 

Reported

 

 

Pro Forma

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenue

 

$

305.7

 

 

$

307.0

 

 

$

584.9

 

 

$

608.8

 

Net income

 

$

6.6

 

 

$

7.2

 

 

$

36.2

 

 

$

27.1

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.14

 

 

$

0.69

 

 

$

0.52

 

Diluted

 

$

0.12

 

 

$

0.14

 

 

$

0.68

 

 

$

0.51

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

52.2

 

 

 

52.2

 

 

 

52.3

 

 

 

52.3

 

Diluted

 

 

52.9

 

 

 

52.9

 

 

 

53.2

 

 

 

53.2

 

 

v3.19.2
Divestitures
6 Months Ended
Jun. 30, 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 $7.5 million receivable, due in September 2019, had a net present value of $7.4 million as of June 30, 2019, and is included in prepaids and other current assets on the condensed consolidated balance sheet.

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.

v3.19.2
Goodwill and Intangible Assets
6 Months Ended
Jun. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

6. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill during the six months ended June 30, 2019 are primarily due to the 2019 acquisitions. For additional information regarding these acquisitions, see Note 4 to the condensed consolidated financial statements.

Changes in goodwill for the six months ended June 30, 2019 are as follows (in thousands):

 

Balance, January 1, 2019

 

$

2,400,390

 

Goodwill resulting from 2019 acquisitions

 

 

12,040

 

Foreign currency translation adjustments

 

 

1,225

 

Balance, June 30, 2019

 

$

2,413,655

 

 

Intangible assets consist of the following (in thousands):

 

 

 

December 31, 2018

 

 

June 30, 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

 

 

$

919,677

 

 

$

367,691

 

 

$

551,986

 

 

 

6.1

 

Technology

 

 

481,776

 

 

 

132,895

 

 

 

348,881

 

 

 

498,520

 

 

 

174,837

 

 

 

323,683

 

 

 

6.6

 

Trade names and trademarks

 

 

70,985

 

 

 

20,685

 

 

 

50,300

 

 

 

70,916

 

 

 

25,752

 

 

 

45,164

 

 

 

6.5

 

Other

 

 

3,577

 

 

 

1,319

 

 

 

2,258

 

 

 

3,576

 

 

 

1,479

 

 

 

2,097

 

 

 

6.5

 

Internally developed software

 

 

66,361

 

 

 

33,715

 

 

 

32,646

 

 

 

84,597

 

 

 

49,470

 

 

 

35,127

 

 

 

1.4

 

 

 

$

1,542,964

 

 

$

482,976

 

 

$

1,059,988

 

 

$

1,577,286

 

 

$

619,229

 

 

$

958,057

 

 

 

 

 

 

During the six months ended June 30, 2019, the Company capitalized $16.9 million for technology as intangible assets in connection with its 2019 acquisitions. The Company also capitalized $8.1 million and $9.9 million during the three months ended June 30, 2018 and 2019, respectively, and $15.2 million and $18.8 million during the six months ended June 30, 2018 and 2019, respectively, of costs related to internally developed software to be sold as a service incurred during the application development stage and is amortizing these costs over the expected lives of the related services.

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

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of internally developed software

 

$

5,054

 

 

$

8,264

 

 

$

9,449

 

 

$

16,298

 

Amortization of acquired intangibles (1)

 

 

18,287

 

 

 

21,038