CASTLIGHT HEALTH, INC., 10-K filed on 2/28/2020
Annual Report
v3.19.3.a.u2
Cover Page - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Feb. 25, 2020
Jun. 30, 2019
Class of Stock [Line Items]      
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity Registrant Name CASTLIGHT HEALTH, INC.    
Trading Symbol CSLT    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 395.0
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001433714    
Current Fiscal Year End Date --12-31    
Class A      
Class of Stock [Line Items]      
Entity Common Stock, Shares Outstanding   35,032,053  
Class B      
Class of Stock [Line Items]      
Entity Common Stock, Shares Outstanding   114,227,876  
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 43,017 $ 66,005
Marketable securities 16,411 11,327
Accounts receivable and other, net 31,397 26,816
Prepaid expenses and other current assets 4,645 3,680
Total current assets 95,470 107,828
Property and equipment, net 4,856 3,963
Restricted cash, non-current 1,144 1,325
Deferred commissions 14,718 20,142
Deferred professional service costs 6,711 10,133
Intangible assets, net 12,178 16,209
Goodwill 91,785 91,785
Operating lease right-of-use assets, net 13,906  
Other assets 2,016 2,129
Total assets 242,784 253,514
Current liabilities:    
Accounts payable 19,596 9,556
Accrued expenses and other current liabilities 10,454 15,454
Accrued compensation 8,770 5,975
Deferred revenue 10,173 20,193
Operating lease liabilities 5,914  
Total current liabilities 54,907 51,178
Deferred revenue, non-current 572 1,030
Debt, non-current 1,395 3,254
Operating lease liabilities, non-current 11,823  
Other liabilities, non-current 1,213 3,381
Total liabilities 69,910 58,843
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of December 31, 2019 and 2018; no shares issued and outstanding as of December 31, 2019 and 2018 0 0
Additional paid-in capital 627,899 609,697
Accumulated other comprehensive income 2 0
Accumulated deficit (455,042) (415,040)
Total stockholders’ equity 172,874 194,671
Total liabilities and stockholders’ equity 242,784 253,514
Class A    
Stockholders’ equity:    
Common stock value issued 4 4
Class B    
Stockholders’ equity:    
Common stock value issued $ 11 $ 10
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Preferred Stock    
Par value (in USD per share) $ 0.0001 $ 0.0001
Shares authorized (in shares) 10,000,000 10,000,000
Shares issued (in shares) 0 0
Shares outstanding (in shares) 0 0
Class A    
Common Stock    
Par value (in USD per share) $ 0.0001 $ 0.0001
Shares authorized (in shares) 200,000,000 200,000,000
Shares issued (in shares) 35,032,053 37,576,324
Shares outstanding (in shares) 35,032,053 37,576,324
Class B    
Common Stock    
Par value (in USD per share) $ 0.0001 $ 0.0001
Shares authorized (in shares) 800,000,000 800,000,000
Shares issued (in shares) 113,177,162 104,350,881
Shares outstanding (in shares) 113,177,162 104,350,881
v3.19.3.a.u2
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenue:      
Total revenue, net $ 143,308 $ 156,404 $ 132,020
Cost of revenue:      
Total cost of revenue 59,074 60,189 46,652
Gross profit 84,234 96,215 85,368
Operating expenses:      
Selling and marketing [1] 38,597 49,134 59,767
Research and development [1] 58,994 61,355 54,502
General and administrative [1] 27,981 25,620 28,825
Total operating expenses 125,572 136,109 143,094
Operating loss (41,338) (39,894) (57,726)
Other income, net 1,336 188 618
Loss before income tax benefit (40,002) (39,706) (57,108)
Income tax benefit 0 0 (5,206)
Net loss $ (40,002) $ (39,706) $ (51,902)
Net loss per share, basic and diluted (in usd per share) $ (0.28) $ (0.29) $ (0.41)
Weighted-average shares used to compute basic and diluted net loss per share (in shares) 145,172 137,686 125,534
Subscription      
Revenue:      
Total revenue, net $ 137,393 $ 143,901 $ 121,368
Cost of revenue:      
Total cost of revenue [1] 34,067 34,691 28,410
Professional services and other      
Revenue:      
Total revenue, net 5,915 12,503 10,652
Cost of revenue:      
Total cost of revenue [1] $ 25,007 $ 25,498 $ 18,242
[1] Includes stock-based compensation expense as follows:
 Year Ended December 31,
 201920182017
Cost of revenue:
Cost of subscription$774  $1,017  $888  
Cost of professional services and other953  1,177  1,081  
Sales and marketing2,142  3,770  9,665  
Research and development6,100  7,214  7,415  
General and administrative5,034  4,954  4,954  
v3.19.3.a.u2
Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Subscription      
Allocated share-based compensation expense $ 774 $ 1,017 $ 888
Professional services and other      
Allocated share-based compensation expense 953 1,177 1,081
Sales and marketing      
Allocated share-based compensation expense 2,142 3,770 9,665
Research and development      
Allocated share-based compensation expense 6,100 7,214 7,415
General and administrative      
Allocated share-based compensation expense $ 5,034 $ 4,954 $ 4,954
v3.19.3.a.u2
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Consolidated Statement of Comprehensive Loss:      
Net loss $ (40,002) $ (39,706) $ (51,902)
Other comprehensive income (loss):      
Net change in unrealized gain (loss) on available-for-sale marketable securities 2 22 (22)
Other comprehensive income (loss) 2 22 (22)
Comprehensive loss $ (40,000) $ (39,684) $ (51,924)
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Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Beginning balance (in shares) at Dec. 31, 2016   104,310,923      
Beginning balance at Dec. 31, 2016 $ 134,528 $ 10 $ 457,950 $ 0 $ (323,432)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock related to acquisition, net (in shares) 25,054,049        
Issuance of common stock related to acquisition, net $ 100,290 $ 2 100,288    
Vesting of restricted stock units (in shares)   3,956,495      
Vesting of restricted stock units 0        
Exercise of stock options, net (in shares)   1,217,808      
Exercise of stock options, net 2,356 $ 1 2,355    
Stock-based compensation 24,578   24,578    
SAP warrant modification 1,729   1,729    
Comprehensive income (loss) (51,924)     (22) (51,902)
Ending balance (in shares) at Dec. 31, 2017   134,539,275      
Ending balance at Dec. 31, 2017 211,557 $ 13 586,900 (22) (375,334)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Vesting of restricted stock units (in shares)   4,131,967      
Vesting of restricted stock units 0        
Exercise of stock options, net (in shares)   3,255,963      
Exercise of stock options, net 4,480 $ 1 4,479    
Stock-based compensation 18,318   18,318    
Comprehensive income (loss) (39,684)     22 (39,706)
Ending balance (in shares) at Dec. 31, 2018   141,927,205      
Ending balance at Dec. 31, 2018 194,671 $ 14 609,697 0 (415,040)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Vesting of restricted stock units (in shares)   4,075,341      
Vesting of restricted stock units 0        
Exercise of stock options, net (in shares)   2,206,669      
Exercise of stock options, net 3,060 $ 1 3,059    
Stock-based compensation 15,143   15,143    
Comprehensive income (loss) (40,000)     2 (40,002)
Ending balance (in shares) at Dec. 31, 2019   148,209,215      
Ending balance at Dec. 31, 2019 $ 172,874 $ 15 $ 627,899 $ 2 $ (455,042)
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Operating activities:      
Net loss $ (40,002) $ (39,706) $ (51,902)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 5,920 6,858 6,613
Stock-based compensation 15,003 18,132 24,003
Amortization and impairment of deferred commissions 10,768 13,105 10,026
Amortization and impairment of deferred professional service costs 5,242 5,268 4,225
Non-cash operating lease expense 5,315    
Release of deferred tax valuation allowance due to business combination 0 0 (5,206)
Lease exit and related charges 0 2,634 0
Change in fair value of contingent consideration liability 0 0 (671)
Accretion and amortization of marketable securities (238) (516) (83)
Expense related to expiration of SAP warrant 0 0 1,132
Gain on sale of investment in related party 0 0 (1,375)
Changes in operating assets and liabilities:      
Accounts receivable and other, net (4,581) (4,883) (2,799)
Deferred commissions (5,344) (5,735) (9,888)
Deferred professional service costs (1,686) (2,735) (4,181)
Prepaid expenses and other assets 102 178 1,645
Accounts payable 9,278 5,744 764
Operating lease liabilities (5,726)    
Accrued expenses and other liabilities (3,760) 290 3,493
Deferred revenue (10,478) (9,219) (1,943)
Accrued compensation 2,795 (7,966) 2,690
Net cash used in operating activities (17,392) (18,551) (23,457)
Investing activities:      
Proceeds from sale of investment in related party 0 0 5,500
Purchase of property and equipment, net (1,953) (2,014) (2,544)
Purchase of marketable securities (30,589) (31,974) (62,658)
Maturities of marketable securities 25,745 53,210 96,576
Business combination, net of cash acquired 0 0 (2,264)
Net cash (used in) provided by investing activities (6,797) 19,222 34,610
Financing activities:      
Proceeds from exercise of stock options 3,060 4,480 2,356
Principal payments on long-term debt (1,859) (465) 0
Payments of issuance costs related to equity 0 0 (731)
Net cash provided by financing activities 1,201 4,015 1,625
Net (decrease) increase in cash, cash equivalents and restricted cash (22,988) 4,686 12,778
Cash, cash equivalents and restricted cash at beginning of period 67,330 62,644 49,866
Cash, cash equivalents and restricted cash at end of period 44,342 67,330 62,644
Total cash, cash equivalents and restricted cash 67,330 62,644 62,644
Supplemental cash flow information:      
Cash paid for interest 188 215 117
Non-cash purchase consideration related to acquisition of Jiff 0 0 101,692
Purchase of property and equipment, accrued but not paid 854 93 188
Right-of-use assets obtained in exchange for new operating lease liabilities, net $ 1,950 $ 0 $ 0
v3.19.3.a.u2
Organization and Description of Business
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of Business Organization and Description of Business Castlight Health, Inc. (“Castlight”, “the Company” or “we”) provides health navigation solutions for large U.S. employers and health plans (“customers”) and their respective employees and members (“users”). Castlight’s offerings deliver a personalized and simplified user experience that helps connect individuals with the right provider or available benefit at the right time. Castlight’s navigation offerings have demonstrated measurable results, driving increased levels of user satisfaction and program utilization and lower healthcare costs for its customers and millions of users. The Company was incorporated in the State of Delaware in January 2008. The Company's principal executive offices are located in San Francisco, California.
v3.19.3.a.u2
Accounting Standards and Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Accounting Standards and Significant Accounting Policies Accounting Standards and Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, the information herein reflects all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations, financial position, stockholders' equity and cash flows. The consolidated financial statements include the results of Castlight and its wholly-owned U.S. subsidiaries.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to the determination of:

Variable consideration included in the transaction price of the Company’s contracts with customers;
The standalone selling price of the performance obligations in the Company’s contracts with customers;
Assumptions used in the valuation of certain equity awards;
The amortization period for deferred commissions and deferred professional services costs; and
Assumptions used in the calculation of right-of-use (“ROU”) assets and lease liabilities for operating leases, including lease terms and the Company’s incremental borrowing rate.

Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.

Segment Information
The Company's chief operating decision maker, its CEO, reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company's financial performance. Accordingly, the Company has determined that it operates in a single reportable segment, cloud-based products.

Revenue Recognition
Revenues are derived primarily from contracts with customers for subscription services and professional services. Revenues are 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. Revenues do not include sales taxes.
We determine revenue recognition through the following 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; and
Recognition of revenue when, or as, the Company satisfies a performance obligation.
Subscription Revenue. Subscription revenue recognition commences on the date that the Company’s subscription services are made available to the customer, which the Company considers to be the launch date, and subscription revenue is generally recognized over the contract term. Subscription contracts are generally three years in length and certain contracts include termination provisions.
Some of the Company’s subscription contracts include performance incentives that are generally based on engagement. Additionally, some of the Company’s subscription contracts include audit provisions. The Company considers fees related to performance incentives and audit provisions to be variable consideration. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance as well as other information available to the Company. The Company reassesses its estimates related to variable consideration each reporting period and records adjustments when appropriate.
Professional Services and Other Revenue. Professional services and other revenue is primarily comprised of implementation services and communication services related to the Company's subscription service. Nearly all of the Company's professional services are sold on a fixed-fee basis.

The Company determined its implementation services are not capable of being distinct. Accordingly, the Company recognizes implementation services revenue in the same manner as the subscription service, beginning on the launch date. The Company determined its communication services are distinct and the associated revenue is recognized over time from the commencement of the communication services through the end of the contractual term.
Professional services and other revenue also includes revenue from products sold through the Company’s online marketplace and add-on subscription services made available from other ecosystem partners. These revenues are recognized on a net basis primarily because the Company acts as an agent in these contracts.

Contracts with Multiple Performance Obligations. Most of the Company’s contracts have multiple performance obligations consisting of subscription services and professional services, including implementation services and communication services. For arrangements with multiple performance obligations, the Company evaluates whether the individual performance obligations are distinct. If the performance obligations are distinct, revenue is recognized for the respective performance obligation separately. If one or more of the performance obligations are not distinct, the performance obligations that are not distinct are combined with the Company's subscription service, and revenue for the combined performance obligation is recognized over the term of the subscription service commencing on the launch date.

The Company has concluded that its subscription services and its communication services are distinct. Conversely, the Company has concluded that its implementation services are not distinct, primarily because these services are not capable of being distinct as the customer cannot benefit from the implementation services on their own. Accordingly, the Company considers the separate performance obligations in its multiple performance obligation contracts to be communication services and a combined performance obligation comprised of subscription services and implementation services.

The transaction price for arrangements with multiple performance obligations is allocated to the separate performance obligations based on their standalone selling price. The Company determines standalone selling prices based on its overall pricing objectives taking into consideration market conditions and other factors, including the value of the contracts, the subscription services sold, and customer demographics.
Contract Balances

The Company records a contract asset when revenue is recognized prior to invoicing. Contract assets are presented within accounts receivable and other in the accompanying consolidated balance sheet. A contract liability represents deferred revenue.

Deferred revenue consists of professional services and cloud-based subscription services that have been billed in advance of revenue being recognized. The Company invoices its customers for its cloud-based subscription services based on the terms of the contract, which can be annual, quarterly or monthly installments. Deferred revenue that is anticipated to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current.

Costs of Revenue

Cost of revenue consists of cost of subscription revenue and cost of professional services and other revenue.

Cost of subscription revenue primarily consists of data fees, employee-related expenses (including salaries, bonuses, benefits and stock-based compensation), hosting costs of its cloud-based subscription service, cost of subcontractors, expenses for service delivery (which includes call center support), allocated overhead, costs of data center capacity, amortization of internal-use software, depreciation of certain owned computer equipment and software, and amortization of intangibles related to developed technology and backlog.

Cost of professional services and other revenue consists primarily of employee-related expenses (including salaries, bonuses, benefits and stock-based compensation) associated with these services, cost of subcontractors, deferred and amortized professional services costs, travel costs and allocated overhead. The time and costs of the Company's customer implementations vary based on the source and condition of the data the Company receives from third parties, the configurations that the Company agrees to provide and the size of the customer.

Cost of subscription revenue is expensed as the Company incurs the costs. Cost of professional services and other revenue, to the extent it is incurred and is directly attributable to fulfillment of performance obligations under a customer contract, is deferred and amortized over the benefit period of five years.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Company's cash and cash equivalents generally consist of investments in money market mutual funds and U.S. agency obligations. Cash and cash equivalents are stated at fair value.

Marketable Securities

The Company's marketable securities consist of U.S. agency obligations and U.S. treasury securities, with maturities at the time of purchase of greater than three months. Marketable securities with remaining maturities in excess of one year are classified as non-current. The Company classifies its marketable securities as available-for-sale at the time of purchase based on its intent and are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive loss. The Company evaluates its investments to assess whether those with unrealized loss positions are other than temporarily impaired. The Company consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely it will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in other income, net in the consolidated statements of operations.

Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded when invoiced and at the invoiced amount, net of allowances for doubtful accounts. When accounts receivable are recorded, the related revenue may not commence until a later date depending on the nature of the services invoiced. The allowance for doubtful accounts is based on the Company's assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each
outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. For all periods presented, the allowance for doubtful accounts was not significant.

Deferred Commissions
Deferred commissions are the incremental costs that are incurred to obtain contracts with customers and consist primarily of sales commissions paid to the Company's sales force and channel partners. The commissions for initial contracts are deferred and amortized on a straight-line basis over a period of benefit that the Company has determined typically to be five years. The Company determined the period of benefit by taking into consideration the expected life of its subscription contracts, the expected life of the technology underlying its subscription services and other factors. Deferred commissions are recoverable through the Company’s future revenues. Amortization of deferred commissions is included in sales and marketing expense in the accompanying consolidated statements of operations. All costs deferred are reviewed for impairment quarterly.

Deferred Professional Service Costs

Deferred professional service costs are the direct costs incurred to fulfill subscription contracts that occur prior to the launch of the Company’s subscription services. Professional service costs, which primarily consist of employee related expenses attributable to launch activities, are deferred and then amortized on a straight-line basis over a period of benefit that the Company has determined typically to be five years for the same reasons as described in the deferred commissions disclosure above. Deferred professional service costs are recoverable through future revenues. Amortization of deferred professional service costs is included in cost of professional services and other revenue in the accompanying consolidated statements of operations. All costs deferred are reviewed for impairment quarterly.

Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows (in years):
Software3-5
Computer equipment3
Furniture and equipment5-7
Leasehold improvementsShorter of the lease term or the estimated useful lives of the improvements
Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations for the period realized.

Internal-Use Software

For the Company's development costs related to its cloud-based subscription service, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project and post-implementation stages are expensed as incurred. Capitalized software development costs are included as part of property and equipment and are amortized on a straight-line basis over the technology's estimated useful life, which is generally three years. The amortization expense is recorded as a component of cost of subscription revenue and was $0.0 million, $0.8 million, and $1.0 million for the years ended December 31, 2019, 2018, and 2017, respectively. The Company capitalized software development costs of $0.3 million for the year ended December 31, 2019. The Company did not capitalize any software development costs for the year ended December 31, 2018. Previously capitalized internal-use software was fully amortized by December 31, 2018.
Restricted Cash

Restricted cash is included in Prepaid expenses and other current assets or Restricted cash, non-current depending on the remaining term of the restriction and consists of letters of credit related to the Company’s leased office spaces.
Business Acquisitions
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users and acquired technology, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill
The Company reviews goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The Company has elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the Company’s single reporting unit is less than its carrying amount. If it is determined that it is more likely than not that its fair value is less than its carrying amount, the Company performs a quantitative impairment test of goodwill, in which the fair value of the Company's single reporting unit is compared to its carrying value. Any excess of the goodwill carrying amount over the fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. As of December 31, 2019, no impairment of goodwill has been identified.
Intangible Assets
Acquired finite-lived intangible assets are amortized over their estimated useful lives. The Company evaluates the recoverability of its intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company has not recorded any such impairment charges.

Leases

The Company determines if an arrangement is a lease and its classification at lease inception. Operating lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the lease commencement date to compute the present value of lease payments when the implicit rate is not readily determinable. ROU assets are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease amounts, less any lease incentives. The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. Lease terms do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Generally, lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company's lease agreements have both lease and non-lease components. The Company has elected to account for lease and non-lease components on a combined basis.

Stock-based Compensation
All stock-based compensation to employees is measured based on the grant-date fair value of the awards and recognized in the Company's consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company accounts for forfeitures as they occur. The options assumed and awarded in connection with the acquisition of Jiff were valued using the Monte Carlo simulation model. The Company estimates the fair value of all other stock options and stock purchase rights under the employee stock purchase plan using the Black-Scholes option valuation model. For restricted stock units, fair value is based on the closing price of the Company's Class B common stock on the grant date. Compensation expense is recognized over the vesting period of the applicable award using the straight-line method. For awards with performance based and service vesting
conditions, compensation expense is recognized over the requisite service period if it is probable that the performance-based condition will be satisfied based on the accelerated attribution method. For awards with market based and service vesting conditions, compensation expense is recognized over the requisite service period using the accelerated attribution method.

Income Taxes
The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. The Company's evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues.

Warranties and Indemnification
The Company's cloud-based subscription service is generally warranted to be performed in a professional manner and in a manner that will comply with the terms of the customer agreements.

The Company's arrangements generally include certain provisions for indemnifying customers against liabilities if there is a breach of a customer’s data or if the Company's service infringes a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in the financial statements. The Company has entered into service-level agreements with certain customers warranting, among other things, defined levels of performance and response times and permitting those customers to receive credits for prepaid amounts related to subscription services in the event that the Company fails to meet those levels. To date, the Company has not experienced any significant failures to meet defined levels of performance and response times as a result of those agreements.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as its director or officer or that person’s services provided to any other company or enterprise at the Company's request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.

Advertising Expenses
Advertising is expensed as incurred. Advertising expense was $0.1 million, $0.3 million and $0.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Concentrations of Risk and Significant Customers
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.
The Company serves its customers and users from outsourced data center facilities located in the United States. The Company has internal procedures to restore all of its production customer facing services in the event of disasters at its facilities. Procedures utilizing currently deployed hardware, software and services at certain of the Company's disaster recovery locations allow its cloud-based service to be restored within 24 hours during the implementation of the procedures to restore services.
Significant customers are direct customers or channel partners that represent more than 10% of the total revenue for the most recent period presented or more than 10% of accounts receivable balance as of the most recent balance sheet date. No single direct customer accounted for more than 10% of total revenue for the year ended December 31, 2019. However, two direct customers accounted for approximately 16% and 14%, respectively, of accounts receivable as of December 31, 2019.  Castlight had one channel partner, Anthem, Inc. (“Anthem”) that represented approximately 27% of total revenue for the year ended December 31, 2019, and approximately 24% of accounts receivable as of December 31, 2019. See Note 3 - Revenue, Deferred Revenue, Contract Balances and Performance Obligations, under the caption “Anthem Agreement” for additional information.
Recently Adopted Accounting Pronouncements
Leases
Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases, and subsequent amendments (“ASC 842”) using the modified retrospective method, and elected to apply the provisions at the beginning of the period of adoption. The guidance requires lessees to put all leases that have a term of more than one year on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a ROU asset for the right to use the underlying asset for the lease term.
As a result of the adoption of ASC 842 as of January 1, 2019, reporting periods beginning on and after January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with prior accounting guidance under ASC 840. In addition, 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 the historical lease classification. As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2019 an operating lease ROU asset of approximately $17.3 million and an operating lease liability of approximately $20.7 million. The difference between the operating lease ROU asset and lease liability resulted from the reclassification of the deferred rent liability to the operating lease ROU asset. The standard did not materially impact the Company’s consolidated statement of operations and had no impact on cash flows. See Note 13 - Leases for more information on leases.
Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”) and subsequent amendments have been issued since then. The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The Company will recognize an allowance for credit losses on available-for-sale securities rather than deductions in amortized cost. The standard is effective for fiscal years and interim periods beginning after December 15, 2019. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software
(“ASU 2018-15”), which aligns 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. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this standard is not expected to have a significant impact on the Company’s financial position or results of operations.
v3.19.3.a.u2
Revenue, Deferred Revenue, Contract Balances and Performance Obligations
12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue, Deferred Revenue, Contract Balances and Performance Obligations Revenue, Deferred Revenue, Contract Balances and Performance Obligations
The Company sells to customers based in the United States through direct sales and indirect channels. Indirect channel revenue represented approximately 28% and 12% of the Company’s total revenue for the years ended December 31, 2019 and 2018, respectively.

Deferred revenue as of December 31, 2019 and December 31, 2018 was $10.7 million and $21.2 million, respectively. Contract assets as of December 31, 2019 and December 31, 2018 were $0.4 million and $1.0 million, respectively.

Revenue of $19.7 million and $28.1 million was recognized during the years ended December 31, 2019 and 2018, respectively, that was included in the deferred revenue balances at the beginning of the respective periods.

The Company recorded favorable cumulative catch-up adjustments to revenue arising from changes in estimates of transaction price of $2.8 million and $1.1 million during the years ended December 31, 2019 and 2018, respectively.

The aggregate balance of remaining performance obligations from non-cancelable contracts with customers as of December 31, 2019 was $253.7 million. The Company expects to recognize approximately 50% of this balance over the next 12 months, with the remaining balance recognized thereafter. Remaining performance obligations are defined as deferred revenue and amounts yet to be billed for the non-cancelable portion of contracts.

Anthem Agreement

In October 2019, Castlight entered into a 30-month enterprise license agreement with Anthem, Inc., effective January 1, 2020, that extends and expands the Company's existing relationship with Anthem first announced in 2015. The agreement includes Castlight’s core care guidance technology, the Engage health navigation platform, and a new, non-exclusive license for some of Castlight’s underlying health navigation platform technology services, such as transparency and personalization. For these services, Anthem will pay the Company license fees of $168 million over 30 months. The Company will begin recognizing subscription revenue starting January 2020. With this new agreement, Anthem has moved from a channel partner for the Engage offering to a health plan customer.
Deferred Costs
Changes in the balance of total deferred commissions and deferred professional service costs for the year ended December 31, 2019 are as follows (in thousands):
As of December 31, 2018Expense recognizedAs of December 31, 2019
Additions
Deferred commissions$20,142  $5,344  $(10,768) $14,718  
Deferred professional service costs  10,133  1,820  (5,242) 6,711  
Total deferred commissions and professional service costs
$30,275  $7,164  $(16,010) $21,429  
 These costs are reviewed for impairment quarterly. Impairment charges were $3.2 million and $1.9 million for the years ended December 31, 2019 and 2018, respectively.
v3.19.3.a.u2
Deferred Costs
12 Months Ended
Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Deferred Costs Revenue, Deferred Revenue, Contract Balances and Performance Obligations
The Company sells to customers based in the United States through direct sales and indirect channels. Indirect channel revenue represented approximately 28% and 12% of the Company’s total revenue for the years ended December 31, 2019 and 2018, respectively.

Deferred revenue as of December 31, 2019 and December 31, 2018 was $10.7 million and $21.2 million, respectively. Contract assets as of December 31, 2019 and December 31, 2018 were $0.4 million and $1.0 million, respectively.

Revenue of $19.7 million and $28.1 million was recognized during the years ended December 31, 2019 and 2018, respectively, that was included in the deferred revenue balances at the beginning of the respective periods.

The Company recorded favorable cumulative catch-up adjustments to revenue arising from changes in estimates of transaction price of $2.8 million and $1.1 million during the years ended December 31, 2019 and 2018, respectively.

The aggregate balance of remaining performance obligations from non-cancelable contracts with customers as of December 31, 2019 was $253.7 million. The Company expects to recognize approximately 50% of this balance over the next 12 months, with the remaining balance recognized thereafter. Remaining performance obligations are defined as deferred revenue and amounts yet to be billed for the non-cancelable portion of contracts.

Anthem Agreement

In October 2019, Castlight entered into a 30-month enterprise license agreement with Anthem, Inc., effective January 1, 2020, that extends and expands the Company's existing relationship with Anthem first announced in 2015. The agreement includes Castlight’s core care guidance technology, the Engage health navigation platform, and a new, non-exclusive license for some of Castlight’s underlying health navigation platform technology services, such as transparency and personalization. For these services, Anthem will pay the Company license fees of $168 million over 30 months. The Company will begin recognizing subscription revenue starting January 2020. With this new agreement, Anthem has moved from a channel partner for the Engage offering to a health plan customer.
Deferred Costs
Changes in the balance of total deferred commissions and deferred professional service costs for the year ended December 31, 2019 are as follows (in thousands):
As of December 31, 2018Expense recognizedAs of December 31, 2019
Additions
Deferred commissions$20,142  $5,344  $(10,768) $14,718  
Deferred professional service costs  10,133  1,820  (5,242) 6,711  
Total deferred commissions and professional service costs
$30,275  $7,164  $(16,010) $21,429  
 These costs are reviewed for impairment quarterly. Impairment charges were $3.2 million and $1.9 million for the years ended December 31, 2019 and 2018, respectively.
v3.19.3.a.u2
Business Combinations
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Combinations Business Combinations
        
        On April 3, 2017, the Company completed its acquisition of Jiff. Jiff provided an enterprise health benefits platform that served as a central hub for employee wellbeing and employee benefit programs and its acquisition by the Company formed the basis for Wellbeing Navigator. The acquisition enabled the Company to develop a product offering that provides the full spectrum of wellbeing, healthcare decision support and an engagement hub all in one complete package. The Company acquired Jiff for approximately 27,000,000 shares and options.

        At the closing on April 3, 2017, Venrock, a holder of more than 5% of the Company’s capital stock, acquired a total of 3,965,979 shares of the Company’s Class B common stock in exchange for its shares of Jiff capital stock. Venrock will also
receive its pro rata share of any additional contingent consideration further described below. Bryan Roberts, the Chairman of the Company’s Board of Directors, is a Partner at Venrock. Accordingly, this was a related party transaction.

        The Company’s Board appointed a Special Committee (comprised solely of disinterested directors) to which it delegated the full and exclusive power, authority and discretion of the Castlight Board to evaluate, assess, and approve the Jiff transaction on its behalf, including retaining a financial advisor for an opinion on the fairness of the financial conditions of the transaction. The transaction was approved solely by the Special Committee which concluded that the transaction terms were fair to Castlight, and the transaction was in the best interests of Castlight and its stockholders.

        As part of the merger, certain stockholders and option holders were to receive an aggregate of 1,000,000 shares of the Company’s Class B common stock or options if the Jiff business achieved at least $25 million in revenue in 2017 and an aggregate of 3,000,000 shares of Class B common stock or options if the Jiff business achieved at least $25 million in net new bookings during 2017 (“the milestones”). As of December 31, 2017, the Company evaluated and determined that both the milestones were not met. Additionally, all options for Jiff common stock held by Jiff employees who became employees of the combined company were converted into options to purchase the Company’s Class B common stock.

        The following table summarizes the components of the purchase consideration transferred based on the closing price of the Company’s stock as of the acquisition date (in thousands):
Fair value
Fair value of Company Class B common stock (25,054,049 shares at $3.65 per share)
$91,447  
Fair value of contingent consideration
671  
Fair value of assumed Jiff options attributable to pre-combination services
9,574  
Transaction costs paid on behalf of Jiff
4,498  
Total purchase price consideration
$106,190  
        
        For the Jiff options assumed as part of the acquisition, the Company applied the ratio of pre-combination service provided, on a grant-by-grant basis, to the total service period and applied this ratio to the acquisition date fair value of the Jiff awards.

        The Company determined that the contingent consideration shares associated with the milestones are one unit of account, and the Company classified the contingent consideration as a liability as the arrangement can be settled in a variable number of shares and is not considered fixed-for-fixed. Based on the probability of completing the milestones and changes in the fair value of the Company’s common stock, the Company used a Monte Carlo simulation model to determine the fair value of the contingent consideration liability which was $0.7 million at the date of acquisition. As of December 31, 2017, the Company reversed the contingent consideration liability as the milestones were not met. As a result, $0.7 million of income was recorded in general and administrative expenses for the year ended December 31, 2017.

        The Company has accounted for this acquisition as a business combination. The method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.  

        The final allocation of purchase consideration to assets acquired and liabilities assumed is reflected below. There were no changes to amounts previously recorded as assets or liabilities that resulted in a corresponding adjustment to goodwill.

        The fair values of the assets acquired and liabilities assumed by major class in the acquisition of Jiff were recognized as follows (in thousands):
Cash
$2,234  
Current assets
5,159  
Other assets
1,971  
Acquired intangible assets
23,900  
Goodwill
91,785  
Total assets acquired
125,049  
Deferred revenue
(1,857) 
Other current liabilities
(6,192) 
Debt
(5,578) 
Non-current liabilities
(5,232) 
Total net assets acquired
$106,190  
        
The fair values assigned to tangible assets acquired, liabilities assumed and identifiable intangible assets are based on management’s estimates and assumptions. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is primarily attributed to the cross-selling opportunities, cost synergies, and a knowledgeable and experienced workforce which play an important role in the integration of the acquired customers and technology. The goodwill balance is not deductible for U.S. income tax purposes.

        The following table sets forth the fair value components of identifiable acquired intangible assets (in thousands) and their estimated useful lives (in years):

Fair Value
Useful Life
Customer relationships
$10,900  10
Developed technology
10,600  5
Backlog
1,500  3
Other acquired intangible assets
900  1
-
3
Total identifiable intangible assets
$23,900  
   
        Customer relationships represent the fair value of projected cash flows that will be derived from the sale of products to Jiff's existing customers based on existing, in-process, and future versions of the underlying technology. Developed technology represents Jiff’s benefits platform. The Company used the relief from royalty method to value the developed technology. To determine the net cash flow that a market participant would expect to realize from licensing the Company's technology, the Company estimated a net royalty rate, which excludes any expenses that would be incurred to maintain the current functionality of the technology.

        The Company has included the financial results of Jiff in the consolidated statements of operations from the date of acquisition. For the year ended December 31, 2017, $10.0 million of revenue, adjusted for the adoption of ASC 606 in 2018, attributable to Jiff was included in the consolidated results of operations, and the associated operating income was immaterial. The Company incurred $3.1 million of acquisition-related costs for the year ended December 31, 2017 that were recognized in general and administrative expenses.

        The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Jiff as if the companies were combined as of the beginning of 2016. The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The unaudited pro forma financial information presented includes the business combination accounting effects resulting from the acquisition, including amortization charges from acquired intangible assets, stock-based compensation, and acquisition-related costs. In addition, the pro forma combined financial statements give effect to the adoption of ASC 606 in 2018.
        The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of 2016 (in thousands):

Year Ended December 31, 2017
Total revenue
$135,588  
Net loss
$(57,398) 

        The pro forma revenue and net loss reflects material, nonrecurring adjustments, such as the tax benefit of $5.2 million recorded in 2017 that resulted from the acquisition, non-recurring acquisition-related compensation expense and non-recurring deferred revenue fair value adjustments.
v3.19.3.a.u2
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets
Goodwill

Currently, all of the Company’s goodwill relates to the acquisition of Jiff. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. There were no changes to goodwill for the years ended December 31, 2019 and 2018.

Intangible assets, net

Identified intangible assets are recorded at their estimated fair values at the date of acquisition and are amortized over their respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are used. Subsequent to the end of the second quarter of 2019, the Company realized elevated churn related to legacy Jiff customers. As a result, the Company performed an analysis of realized churn and future forecasts and updated its estimate of the original useful life of customer relationships and backlog in the third quarter of 2019. The estimated useful life of customer relationships was revised from 10 years to six years, and the estimated useful life of backlog was revised from three years to 2.5 years. These updates in useful lives were accounted for as a change in accounting estimate and were applied prospectively to the remaining carrying amounts.

The following tables set forth the fair value components of identifiable acquired intangible assets (dollars in thousands):
As of December 31, 2019
Useful Life (in years)GrossAccumulated AmortizationNet
Customer relationships6$10,900  $(3,509) $7,391  
Developed technology510,600  (5,830) 4,770  
Backlog2.51,500  (1,500) —  
Other acquired intangible assets1-3900  (883) 17  
Total identifiable intangible assets$23,900  $(11,722) $12,178  

As of December 31, 2018
Useful Life (in years)GrossAccumulated AmortizationNet
Customer relationships10$10,900  $(1,908) $8,992  
Developed technology510,600  (3,710) 6,890  
Backlog31,500  (1,256) 244  
Other acquired intangible assets1-3900  (817) 83  
Total identifiable intangible assets$23,900  $(7,691) $16,209  

Amortization expense from acquired intangible assets for the years ended December 31, 2019, 2018 and 2017 was $4.0 million, $4.0 million and $3.6 million and is included in cost of subscription, general and administrative, and sales and marketing expenses.

Future estimated amortization expense for acquired intangible assets is as follows (in thousands):
2020$4,248  
20214,232  
20222,642  
20231,056  
Total estimated amortization expense$12,178  
v3.19.3.a.u2
Marketable Securities
12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities Marketable Securities
Marketable securities consisted of the following (in thousands):
As of December 31, 2019
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. treasury securities$13,602  $ $—  $13,603  
U.S. agency obligations6,400   —  6,401  
Money market mutual funds8,736  —  —  8,736  
28,738   —  28,740  
Included in cash and cash equivalents12,329  —  —  12,329  
Included in marketable securities$16,409  $ $—  $16,411  

As of December 31, 2018
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
U.S. treasury securities$7,980  $—  $—  $7,980  
U.S. agency obligations18,158  —  —  18,158  
Money market mutual funds7,115  —  —  7,115  
33,253  —  —  33,253  
Included in cash and cash equivalents21,926  —  —  21,926  
Included in marketable securities$11,327  $—  $—  $11,327  
v3.19.3.a.u2
Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires that the Company maximizes the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
The fair value of marketable securities included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from a third-party pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established third-party pricing vendors and broker-dealers.

There have been no changes in valuation techniques in the periods presented. There were no significant transfers between fair value measurement levels for the years ended December 31, 2019 and 2018. As of December 31, 2019 and December 31, 2018, there were no securities within Level 3 of the fair value hierarchy.

The following tables present information about the Company's assets that are measured at fair value on a recurring basis using the above input categories (in thousands):
As of December 31, 2019
Level 1Level 2Total
Cash equivalents:
Money market mutual funds$8,736  $—  $8,736  
U.S. treasury securities—  3,593  3,593  
Marketable securities:
U.S. agency obligations—  6,401  6,401  
U.S. treasury securities—  10,010  10,010  
$8,736  $20,004  $28,740  
 
As of December 31, 2018
Level 1Level 2Total
Cash equivalents:
Money market mutual funds$7,115  $—  $7,115  
U.S. agency obligations—  14,811  14,811  
Marketable securities:
U.S. agency obligations—  3,347  3,347  
U.S. treasury securities—  7,980  7,980  
$7,115  $26,138  $33,253  
Gross unrealized gains and losses for cash equivalents and marketable securities as of December 31, 2019 and December 31, 2018 were not material. The Company does not believe any unrealized losses represent other-than-temporary impairments based on its evaluation of available evidence as of December 31, 2019.
There were no realized gains or losses for the years ended December 31, 2019 and 2018. As of December 31, 2019 and December 31, 2018, all of the Company's marketable securities mature within one year.
v3.19.3.a.u2
Property and Equipment
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment Property and Equipment
Property and equipment consisted of the following (in thousands):
As of December 31,
 20192018
Leasehold improvements$2,834  $3,102  
Computer equipment8,126  6,860  
Software1,110  1,097  
Internal-use software2,925  2,925  
Furniture and equipment1,048  1,018  
Construction in progress1,164  —  
Total17,207  15,002  
Accumulated depreciation(12,351) (11,039) 
Property and equipment, net$4,856  $3,963  
Depreciation and amortization expense for the years ended December 31, 2019, 2018 and 2017 was $1.9 million, $2.8 million and $3.0 million, respectively. Depreciation is recorded on a straight-line basis.
v3.19.3.a.u2
Debt
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Debt Debt
Term Loan

In connection with the Company’s acquisition of Jiff, on April 3, 2017, the Company, Jiff and Silicon Valley Bank (“Bank”) agreed to refinance the existing term loan facility owed by Jiff to the Bank (the “Loan Agreement”) for approximately $5.6 million (the “Term Loan”). The Term Loan required interest-only payments for the period May 2017 through September 2018, followed by 36 monthly payments of principal and interest. Obligations under the Term Loan accrue interest at a floating per annum rate equal to the greater of (i) the prime rate as published in the money rates section of The Wall Street Journal minus 1% or (ii) 0%. The maturity date of the Term Loan is September 1, 2021.

In addition to principal and interest payments, the Company is also required to pay $0.5 million as final payment on the earlier of maturity, termination or prepayment of the Term Loan. The Company accrues for the final payment over the life of the Term Loan using the effective interest method. Interest expense related to the Term Loan was $0.3 million, $0.4 million and $0.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The future maturities of the Term Loan by year as of December 31, 2019 are as follows (in thousands):
2020$1,859  
2021(1)
1,395  
Total future maturities of debt$3,254  
Less current maturities(2)
(1,859) 
Debt, non-current$1,395  
(1) Excludes the $0.5 million required to be paid as final payment on the earlier of maturity, termination or prepayment of the Term Loan.
(2) Classified within accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2019.

Per the Loan Agreement the Company is subject to certain financial and reporting covenants and the debt obligations are secured by a security interest in the assets of the Company, excluding intellectual property and certain other exceptions. As of December 31, 2019, none of the financial covenants, which require the Company to maintain a certain minimum liquidity ratio, are applicable. The Company was in compliance with all reporting covenants in the Loan Agreement related to the outstanding principal balance as of December 31, 2019.

Revolving Line of Credit

The Loan Agreement also provided for an up to $25 million revolving credit facility (the “Revolving Line”). The Revolving Line expired on April 3, 2019, its termination date and no borrowings were made under the Revolving Line through that date.
v3.19.3.a.u2
Related Party Transactions and Variable Interest Entity
12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Related Party Transactions and Variable Interest Entity Related Party Transactions and Variable Interest Entity
In 2015, the Company made a preferred stock investment of $4.1 million and entered into a strategic alliance with Lyra Health (“Lyra”), a related party at the time of the investment. In the fourth quarter of 2017, the Company sold its investment in Lyra to a group of buyers that included related parties.

Lyra was considered a related party to the Company because two of the Company’s directors, Dr. Roberts and Mr. Ebersman, served on the Lyra board of directors and Mr. Ebersman is the Lyra chief executive officer. Prior to the sale of the investment in Lyra, the Company evaluated all its transactions with Lyra and determined that Lyra was a variable interest entity (“VIE”) for the Company but that it was not required to consolidate the operations of the VIE.

Because Lyra was a related party and potential buyers were also related parties, the Company formed an independent committee of the Company's board of directors (the “Independent Committee”), comprised solely of disinterested directors, to approve the sale. The Company engaged an independent third-party valuation expert to assist in determining the fair value of the Company's investment in Lyra. Based in part on the valuation performed, the Company negotiated a selling price of $5.5 million, which the Independent Committee approved after concluding that the transaction terms were fair to the Company. In
2017, the sale resulted in a pre-tax gain of $1.4 million which is recorded in other income, net within the consolidated statements of operations.
v3.19.3.a.u2
Current Liabilities
12 Months Ended
Dec. 31, 2019
Compensation Related Costs [Abstract]  
Current Liabilities Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
 As of December 31,
 20192018
Customer deposits related to online store$786  $5,926  
Other9,668  9,528  
Total$10,454  $15,454  
Accrued compensation consisted of the following (in thousands):
 As of December 31,
 20192018
Accrued commissions$1,091  $379  
Accrued bonuses 5,842  4,293  
Other employee and benefits payable1,837  1,303  
Total$8,770  $5,975  
v3.19.3.a.u2
Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases Leases
The Company’s principal commitments primarily consist of obligations under leases for office space and data centers. The leases expire at various dates through 2025 and, in some cases, include renewal options. The exercise of an option is at the sole discretion of the Company. The Company subleases certain office facilities to third parties. All leases are classified as operating leases and the Company does not have finance leases. Information about these operating leases is disclosed in the following table (dollars in thousands):

Year Ended December 31, 2019
Lease cost:
Operating lease cost$6,674  
Variable lease cost (1)
702  
Short-term lease cost93  
Sublease income(2,693) 
Total lease cost$4,776  
Other information:
Operating cash flows used in the measurement of operating lease liabilities$7,085  
Weighted-average remaining lease term - operating leases (in years)3.3
Weighted-average discount rate - operating leases7.52 %
(1) Includes variable payments such as common area maintenance, property taxes and insurance.

As described in Note 2 - Accounting Standards and Significant Accounting Policies, the Company adopted ASC 842 as of January 1, 2019. As such, reporting periods beginning on and after January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with prior accounting guidance under ASC 840. For these prior years, the Company recognized rent expense on a straight-line basis over the lease period and accrued for rent expense incurred but not paid. Rent expense for the years ended December 31, 2018 and 2017 was $3.5 million and $4.1 million, respectively.
In March 2018, the Company subleased a portion of its engineering office located in Mountain View, California reducing its total rent obligation by $2.4 million and recognized a one-time sublease loss of $0.9 million in research and development expense in the accompanying consolidated statement of operations in 2018.
During 2018, the Company recognized a lease exit charge of approximately $1.3 million related to the remaining engineering office space in Mountain View, California that the Company no longer utilizes. These charges were recorded in research and development expense in the accompanying consolidated statement of operations.
Maturities of Lease Liabilities

As of December 31, 2019, the future minimum lease payments under non-cancellable operating leases are as follows (in thousands):

2020$7,002  
20215,998  
20223,712  
20231,358  
2024 and later2,054  
Total lease payments20,124  
Less: Interest(2,387) 
Present value of lease liabilities17,737  
Less: current portion(5,914) 
Operating lease liabilities, non-current$11,823  

The Company had asset retirement obligations of $0.3 million as of December 31, 2019 and 2018.
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Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Contingencies Contingencies
Legal Matters

From time to time, the Company may become subject to legal proceedings, claims or litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patents or other intellectual property rights. If an unfavorable outcome were to occur in litigation, the impact could be material to the Company’s business, financial condition, cash flow or results of operations, depending on the specific circumstances of the outcome. The Company accrues for loss contingencies when it is both probable that it will incur the loss and when it can reasonably estimate the amount of the loss or range of loss.
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Stockholders' Equity and Stock Compensation
12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stockholders' Equity and Stock Compensation Stockholders' Equity and Stock Compensation
Common Stock

The Company has two classes of common stock, Class A common stock and Class B common stock. Each share of Class A common stock and each share of Class B common stock has one vote per share except in certain circumstances pertaining to change in control, the sale of all or substantially all of our assets and liquidation matters, and on all matters if and when any individual, entity or group has, or has publicly disclosed an intent to have, beneficial ownership of 30% or more of the number of outstanding shares of our Class A and Class B common stock, combined. In such circumstances, holders of our Class A common stock are entitled to ten votes per share and holders of our Class B common stock are entitled to one vote per share.

Each outstanding share of Class A common stock is convertible at any time at the option of the holder into one share of Class B common stock.

Employee Equity Plans

  The Company adopted a 2014 Equity Incentive Plan (“EIP”) that became effective on March 12, 2014 and serves as the successor to the Company's 2008 Stock Incentive Plan. Shares issued under the 2008 Stock Incentive Plan were Class A common stock, and shares issued under the EIP are Class B common stock. The Company's 2014 EIP authorizes the award of stock options, restricted stock awards (“RSAs”), stock appreciation rights (“SARs”), restricted stock units (“RSUs”), performance awards and stock bonuses. The Company began granting RSUs in the fourth quarter of 2014.

The Company adopted a 2014 Employee Stock Purchase Plan (“ESPP”) that became effective on March 13, 2014 that enables eligible employees to purchase shares of the Company's Class B common stock at a discount. A total of 6,000,000 shares of Class B common stock were initially reserved and available for issuance under the ESPP. The ESPP, as amended in 2019, provides for an initial three-month offering period commencing December 1, 2019, and for regular six-month offering periods beginning each March 1 and September 1 thereafter. On each purchase date, ESPP participants will purchase shares of the Company’s Class B common stock at a price per share equal to 85% of the lesser of (i) the fair market value of the Class B common stock on the offering date or (ii) the fair market value of the Class B common stock on the purchase date.

Stock-Based Compensation to Employees
The assumptions used in the Black-Scholes option-pricing model were determined as follows:
Volatility. Volatility is based on the Company's expected volatility over the expected life of its stock awards. In the event that the Company does not have enough trading history for its Class B common stock, the expected volatility was derived from the historical stock volatilities of peer group companies within the Company's industry. In evaluating peer companies, the Company considered factors such as nature of business, customer base, service offerings and markets served.
Expected Life. The expected term represents the period that the Company's stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options.
Risk-Free Interest Rate. The risk-free rate that the Company used is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.
Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future. Therefore, the Company uses an expected dividend yield of zero.

Fair Value of Common Stock. The Company has used the market closing price for its Class B common stock as reported on the New York Stock Exchange to determine the fair value of the Company's common stock.

Except for the stock options assumed and granted related to the Jiff acquisition, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 Year Ended December 31,
 201920182017
Volatility57%  –  58%  57%  61%  
Expected life (in years)6.066.116.066.02
Risk-free interest rate1.62 %–  2.57%  2.72 %–  2.74 %2.03%  
Dividend yield—%  —%  —%  
The options assumed and awarded in connection with the acquisition of Jiff were valued using the Monte Carlo simulation model. The relevant assumptions used in the Monte Carlo simulation model are presented in the table below. The Monte Carlo simulation model considers vesting schedules, stated expiration dates and potential early exercises based on market performance in determining the effective holding period for the options.
 Year Ended December 31,
 201920182017
Volatility  75 %
Risk-free interest rate  2.35 %
Dividend yield  — %
* The Company has not used the Monte Carlo simulation model for stock option valuation after the acquisition of Jiff.

The Company used the following Black-Scholes assumptions in estimating the fair value of the shares under the ESPP:

Year Ended December 31, 2019
Volatility55%  
Expected life equals length of offering period (in years)0.25
Risk-free interest rate1.60%  
Dividend yield—%  
Stock Option Activity

A summary of stock option activity for the year ended December 31, 2019 is as follows:

Number of
Shares
Outstanding
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (in
years)
Aggregate
Intrinsic
Value (in thousands)
Balance at December 31, 20186,265,223  $2.65  4.71$3,499  
Stock options granted4,793,530  $1.58  
Stock options exercised(2,206,669) $1.39  
Stock options forfeited and canceled(1,644,351) $4.37  
Balance at December 31, 20197,207,733  $1.94  7.37$412  
Vested or expected to vest at December 31, 20197,207,733  $1.94  7.37$412  
Exercisable as of December 31, 20192,684,116  $2.50  3.60$412  

The total grant-date fair value of stock options granted, excluding options assumed related to the Jiff acquisition in 2017, during the years ended December 31, 2019, 2018 and 2017 was $4.2 million, $0.3 million and $0.8 million, respectively.

The total grant-date fair value of stock options vested, including options assumed related to the Jiff acquisition in 2017, during the years ended December 31, 2019, 2018 and 2017 was $0.9 million, $3.4 million and $6.7 million, respectively.
The total intrinsic value of the options exercised, including options assumed related to the Jiff acquisition in 2017, during the years ended December 31, 2019, 2018 and 2017, was $2.3 million, $5.7 million and $2.6 million, respectively. The intrinsic value is the difference of the current fair value of the stock and the exercise price of the stock option.

As of December 31, 2019, the Company had $3.8 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 3.6 years.

Restricted Stock Units Activity

A summary of unvested restricted stock unit activity for the year ended December 31, 2019 is as follows:

Number of sharesWeighted Average Grant-Date Fair Value
Balance at December 31, 20189,528,602  $3.54  
Restricted Stock Units granted (1) (2)
10,980,204  $2.32  
Restricted Stock Units vested(4,075,341) $3.59  
Restricted Stock Units forfeited and canceled (2)
(4,817,581) $3.37  
Balance at December 31, 201911,615,884  $2.44  
(1) Includes performance stock units (“PSUs”) that were granted in the current year.
(2) Includes market-based RSUs that were granted in the current year, which were canceled due to employee termination.
The total grant-date fair value of RSUs granted during the years ended December 31, 2019, 2018, and 2017 was $25.5 million, $27.4 million, and $24.0 million respectively.
The total grant-date fair value of RSUs vested during the year ended December 31, 2019, 2018, and 2017 was $14.6 million, $17.3 million, and $19.8 million, respectively.
As of December 31, 2019, the Company had $25.9 million in unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of approximately 2.7 years.
During 2019, the Company granted 0.9 million PSUs to certain employees. The number of shares that will vest, if any, depends on the achievement of certain performance targets, as determined by the compensation committee of the Company's board of directors. The PSUs will vest, subject to recipients' continued service, on the later of (i) the attainment of the performance targets and (ii) a year after the grant date. The compensation expense associated with the PSUs is recognized using the accelerated method. For the year ended December 31, 2019, the Company recognized compensation expense of approximately $0.5 million related to these performance awards and performance awards granted in 2018.

ESPP Activity

Stock-based compensation expense related to the ESPP was immaterial for the year ended December 31, 2019. As of December 31, 2019, the unrecognized stock-based compensation expense related to the ESPP was also immaterial, and is expected to be recognized over the remaining term of the current offering period.
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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Loss before income tax benefit was $40.0 million, $39.7 million and $57.1 million for years ended December 31, 2019, 2018 and 2017, respectively, all from domestic operations.

As a result of the Company's history of net operating losses and full valuation allowance against its net deferred tax assets, there was no current or deferred income tax provision for the years ended December 31, 2019 and 2018. For the year ended December 31, 2017, as a result of the acquisition of Jiff in April 2017, the Company recorded an income tax benefit of $5.2 million. This tax benefit is a result of the partial release of its existing valuation allowance since the acquired deferred tax liabilities from Jiff will provide a source of income for the Company to realize a portion of its deferred tax assets, for which a valuation allowance is no longer needed. 
Reconciliations of the statutory federal income tax benefit and the Company's effective tax benefit consist of the following (in thousands):
 Year Ended December 31,
 201920182017
Tax at federal statutory rate
$(8,400) $(8,338) $(19,417) 
State statutory rate (net of federal benefit)(1,481) (2,279) (2,479) 
Non-deductible stock compensation79  (194) 106  
Effect of U.S. tax law change
—  —  51,203  
Change in valuation allowance
9,522  10,638  (30,974) 
Benefit associated with Jiff Acquisition—  —  (5,206) 
Other280  173  1,561  
Income tax benefit$—  $—  $(5,206) 
Significant components of the Company's net deferred tax assets were as follows (in thousands):
 As of December 31,
20192018
Deferred tax assets:
Net operating loss carryforwards$122,564  $118,477  
Deferred rent—  914  
Operating lease liabilities4,517  —  
Accrued compensation1,949  1,230  
Stock-based compensation5,065  6,014  
Other reserves and accruals518  316  
Property and equipment528  509  
135,141  127,460  
Valuation allowance
(122,995) (115,298) 
Deferred tax assets, net of valuation allowance
12,146  12,162  
Deferred tax liability:
Intangibles(3,156) (4,191) 
Deferred costs
(5,452) (7,971) 
Operating lease right-of-use assets, net
(3,538) —  
Deferred tax liability
(12,146) (12,162) 
Net deferred tax asset/(liability)$—  $—  

The Company provided a full valuation allowance for its net deferred tax assets as of December 31, 2019 and 2018, due to the uncertainty surrounding the future realization of such assets. Therefore, no benefit has been recognized for the net operating loss carryforwards and other deferred tax assets.

The valuation allowance increased by $7.7 million during the year ended December 31, 2019, due to the increase in net operating losses for ongoing operations.

In connection with the adoption of ASC 842 in January 2019, the Company recognized a deferred tax asset in the amount of $4.5 million related lease liabilities and a deferred tax liability in the amount of $3.5 million for the year ended December 31, 2019. The net effect of these adjustments to the deferred tax asset and liability will be offset with an adjustment to the valuation allowance.
As of December 31, 2019, the Company had approximately $488.7 million of federal and $319.1 million of state net operating loss carryforwards available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards begin to expire in 2029.
As of December 31, 2019, the Company also had approximately $12.3 million and $13.3 million of research and development tax credit carryforwards available to reduce future taxable income, if any, for federal and California purposes, respectively. The federal credit carryforwards expire beginning in 2029, and the California research credits do not expire and may be carried forward indefinitely.
The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. In the event the Company should experience an ownership change, as defined under Section 382, utilization of the Company's net operating loss carryforwards and tax credits could be limited.

  The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefit is as follows (in thousands):
 Year Ended December 31,
 201920182017
Gross unrecognized tax benefits at the beginning of the year$22,188  $18,888  $13,568  
Decreases for tax positions of prior years—  —  (626) 
Increases for tax positions related to the current year3,530  3,300  5,946  
Gross unrecognized tax benefits at the end of the year$25,718  $22,188  $18,888  
As of December 31, 2019, all unrecognized tax benefits are subject to a full valuation allowance and, if recognized, will not affect the Company's tax rate.

The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.
The Company's policy is to include interest and penalties related to unrecognized tax benefits within its provision for income taxes. Due to the Company's net operating loss position, the Company has not recorded an accrual for interest or penalties related to uncertain tax positions for the years ended December 31, 2019, 2018 or 2017.
v3.19.3.a.u2
Net Loss per Share
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Net Loss per Share Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including Preferred Stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.
When shares of both Class A and Class B common stock are outstanding, net loss is allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the net loss is allocated on a proportionate basis.
 
The following table presents the calculation of basic and diluted net loss per share for the Company's common stock (in thousands, except per share data):
 Year Ended December 31,
 201920182017
Class A  Class B  Class A  Class B  Class A  Class B  
Net loss$(9,817) $(30,185) $(13,375) $(26,331) $(22,153) $(29,749) 
Weighted-average shares used to compute basic and diluted net loss per share35,627  109,545  46,379  91,307  53,582  71,952  
Basic and diluted net loss per share$(0.28) $