LOGMEIN, INC., 10-K filed on 2/20/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Feb. 13, 2015
Jun. 30, 2014
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
LOGM 
 
 
Entity Registrant Name
LogMeIn, Inc. 
 
 
Entity Central Index Key
0001420302 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
24,463,959 
 
Entity Public Float
 
 
$ 872,638,381 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 100,960 
$ 89,257 
Marketable securities
100,209 
100,299 
Accounts receivable (net of allowance for doubtful accounts of $269 and $301 as of December 31, 2013 and December 31, 2014, respectively)
18,286 
12,957 
Prepaid expenses and other current assets
4,545 
6,508 
Restricted cash, current portion
1,492 
23 
Deferred income tax assets
5,403 
3,053 
Total current assets
230,895 
212,097 
Property and equipment, net
13,476 
13,198 
Restricted cash, net of current portion
2,531 
3,902 
Intangibles, net
18,983 
16,886 
Goodwill
37,928 
18,712 
Other assets
4,756 
5,348 
Deferred income tax assets
9,280 
9,470 
Total assets
317,849 
279,613 
Current liabilities:
 
 
Accounts payable
7,055 
6,390 
Accrued liabilities
29,482 
20,110 
Deferred revenue, current portion
101,672 
82,496 
Total current liabilities
138,209 
108,996 
Deferred revenue, net of current portion
3,578 
2,667 
Other long-term liabilities
2,218 
611 
Total liabilities
144,005 
112,274 
Commitments and contingencies (Note 11)
   
   
Preferred stock, $0.01 par value - 5,000,000 shares authorized, 0 shares outstanding as of December 31, 2013 and December 31, 2014
   
   
Equity:
 
 
Common stock, $0.01 par value - 75,000,000 shares authorized as of December 31, 2013 and December 31, 2014; 25,371,844 and 26,530,977 shares issued as of December 31, 2013 and December 31, 2014, respectively; 24,103,201 and 24,418,760 outstanding as of December 31, 2013 and December 31, 2014, respectively
267 
254 
Additional paid-in capital
237,203 
200,235 
(Accumulated deficit) retained earnings
6,516 
(1,439)
Accumulated other comprehensive loss
(3,117)
(1,186)
Treasury stock, at cost - 1,268,643 and 2,112,217 shares as of December 31, 2013 and December 31, 2014, respectively
(67,025)
(30,525)
Total equity
173,844 
167,339 
Total liabilities and equity
$ 317,849 
$ 279,613 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 301 
$ 269 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000,000 
5,000,000 
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
75,000,000 
75,000,000 
Common stock, shares issued
26,530,977 
25,371,844 
Common stock, shares outstanding
24,418,760 
24,103,201 
Treasury stock, shares
2,112,217 
1,268,643 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Income Statement [Abstract]
 
 
 
Revenue
$ 221,956 
$ 166,258 
$ 138,837 
Cost of revenue
28,732 
18,816 
14,504 
Gross profit
193,224 
147,442 
124,333 
Operating expenses
 
 
 
Research and development
33,516 
29,023 
26,361 
Sales and marketing
119,508 
88,794 
70,058 
General and administrative
30,526 
29,181 
21,338 
Legal Settlements
 
1,688 
 
Amortization of acquired intangibles
987 
682 
565 
Total operating expenses
184,537 
149,368 
118,322 
Income (loss) from operations
8,687 
(1,926)
6,011 
Interest income, net
602 
547 
887 
Other (expense) income
105 
(89)
(641)
Income (loss) before income taxes
9,394 
(1,468)
6,257 
Provision for income taxes
(1,439)
(6,214)
(2,691)
Net income (loss)
$ 7,955 
$ (7,682)
$ 3,566 
Net income (loss) per share:
 
 
 
Basic
$ 0.33 
$ (0.32)
$ 0.14 
Diluted
$ 0.31 
$ (0.32)
$ 0.14 
Weighted average shares outstanding:
 
 
 
Basic
24,385,297 
24,350,913 
24,711,242 
Diluted
25,386,199 
24,350,913 
25,356,305 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Statement of Comprehensive Income [Abstract]
 
 
 
Net income (loss)
$ 7,955 
$ (7,682)
$ 3,566 
Other comprehensive gain (loss):
 
 
 
Net unrealized gains (losses) on marketable securities, net of tax
(107)
(25)
57 
Net translation gains (losses)
(1,824)
(761)
1,100 
Total other comprehensive gain (loss)
(1,931)
(786)
1,157 
Comprehensive income (loss)
$ 6,024 
$ (8,468)
$ 4,723 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Balance at Jan. 01, 2012
$ 155,806 
$ 246 
$ 154,440 
$ 2,677 
$ (1,557)
 
Balance, shares at Jan. 01, 2012
 
24,551,641 
 
 
 
 
Issuance of common stock upon exercise of stock options
2,681 
2,679 
 
 
 
Issuance of common stock upon exercise of stock options, shares
 
262,366 
 
 
 
 
Income tax benefit from stock options exercises
6,635 
 
6,635 
 
 
 
Stock-based compensation
14,792 
 
14,792 
 
 
 
Net income (loss)
3,566 
 
 
3,566 
 
 
Unrealized gain (loss) on available-for-sale securities, net of tax
57 
 
 
 
57 
 
Cumulative translation adjustments
1,100 
 
 
 
1,100 
 
Balance at Dec. 31, 2012
184,637 
248 
178,546 
6,243 
(400)
 
Balance, shares at Dec. 31, 2012
 
24,814,007 
 
 
 
 
Issuance of common stock upon exercise of stock options
3,798 
3,794 
 
 
 
Issuance of common stock upon exercise of stock options, shares
 
373,761 
 
 
 
 
Net issuance of common stock upon vesting of restricted stock units
(1,834)
(1,836)
 
 
 
Net issuance of common stock upon vesting of restricted stock units, shares
 
184,076 
 
 
 
 
Income tax benefit from stock options exercises
17 
 
17 
 
 
 
Stock-based compensation
19,714 
 
19,714 
 
 
 
Treasury stock
(30,525)
 
 
 
 
(30,525)
Treasury stock, shares
 
(1,268,643)
 
 
 
 
Net income (loss)
(7,682)
 
 
(7,682)
 
 
Unrealized gain (loss) on available-for-sale securities, net of tax
(25)
 
 
 
(25)
 
Cumulative translation adjustments
(761)
 
 
 
(761)
 
Balance at Dec. 31, 2013
167,339 
254 
200,235 
(1,439)
(1,186)
(30,525)
Balance, shares at Dec. 31, 2013
 
24,103,201 
 
 
 
 
Issuance of common stock upon exercise of stock options
17,595 
17,586 
 
 
 
Issuance of common stock upon exercise of stock options, shares
859,000 
858,988 
 
 
 
 
Net issuance of common stock upon vesting of restricted stock units
(5,766)
(5,770)
 
 
 
Net issuance of common stock upon vesting of restricted stock units, shares
 
300,145 
 
 
 
 
Income tax benefit from stock options exercises
383 
 
383 
 
 
 
Stock-based compensation
24,769 
 
24,769 
 
 
 
Treasury stock
(36,500)
 
 
 
 
(36,500)
Treasury stock, shares
 
(843,574)
 
 
 
 
Net income (loss)
7,955 
 
 
7,955 
 
 
Unrealized gain (loss) on available-for-sale securities, net of tax
(107)
 
 
 
(107)
 
Cumulative translation adjustments
(1,824)
 
 
 
(1,824)
 
Balance at Dec. 31, 2014
$ 173,844 
$ 267 
$ 237,203 
$ 6,516 
$ (3,117)
$ (67,025)
Balance, shares at Dec. 31, 2014
 
24,418,760 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash flows from operating activities
 
 
 
Net income (loss)
$ 7,955 
$ (7,682)
$ 3,566 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
 
Depreciation and amortization
11,137 
7,704 
6,100 
Amortization of premium on investments
224 
198 
54 
Provision for bad debts
102 
116 
100 
Gain on sales of marketable securities
(5)
 
 
(Benefit from) provision for deferred income taxes
(2,707)
926 
(831)
Income tax benefit from the exercise of stock options
(383)
(17)
(6,635)
Stock-based compensation
24,769 
19,714 
14,792 
Loss on disposal of equipment
26 
 
12 
Changes in assets and liabilities:
 
 
 
Accounts receivable
(5,804)
302 
(4,471)
Prepaid expenses and other current assets
1,822 
(2,986)
(1,070)
Other assets
476 
(3,764)
(1,308)
Accounts payable
1,727 
(2,233)
1,552 
Accrued liabilities
9,234 
3,457 
5,854 
Deferred revenue
23,983 
14,493 
10,960 
Other long-term liabilities
1,597 
(208)
(418)
Net cash provided by operating activities
74,153 
30,020 
28,257 
Cash flows from investing activities
 
 
 
Purchases of marketable securities
(95,342)
(90,376)
(135,085)
Proceeds from maturities of marketable securities
75,000 
90,000 
130,000 
Proceeds from sale of marketable securities
20,045 
 
 
Purchases of property and equipment
(7,471)
(10,938)
(5,277)
Intangible asset additions
(2,529)
(13,061)
(1,049)
Cash paid for acquisition, net of cash acquired
(22,449)
 
(14,831)
(Increase) decrease in restricted cash and deposits
(196)
(3,558)
Net cash used in investing activities
(32,942)
(24,368)
(29,800)
Cash flows from financing activities
 
 
 
Proceeds from issuance of common stock upon option exercises
17,595 
3,798 
2,682 
Income tax benefit from the exercise of stock options
383 
17 
6,634 
Payment of contingent consideration
 
(104)
(89)
Common stock withheld to satisfy income tax withholdings for restricted stock unit vesting
(5,766)
(1,834)
 
Purchase of treasury stock
(36,500)
(30,525)
 
Net cash provided by (used in) financing activities
(24,288)
(28,648)
9,227 
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(5,220)
321 
644 
Net increase (decrease) in cash and cash equivalents
11,703 
(22,675)
8,328 
Cash and cash equivalents, beginning of period
89,257 
111,932 
103,604 
Cash and cash equivalents, end of period
100,960 
89,257 
111,932 
Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
 
Cash paid for income taxes
1,489 
10,094 
1,802 
Noncash investing and financing activities
 
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
1,032 
1,510 
742 
Fair value of contingent consideration in connection with acquisition included in accrued liabilities and other long term liabilities
249 
 
161 
Deferred financing costs included in accounts payable and accrued liabilities
$ 13 
 
 
Nature of the Business
Nature of the Business
1. Nature of the Business

LogMeIn, Inc. (the “Company”) provides a portfolio of cloud-based service offerings which make it possible for people and businesses to simply and securely connect to their workplace, colleagues and customers. The Company’s product line includes AppGuru™, BoldChat® , Cubby™, join.me® , LogMeIn Pro® , LogMeIn ® Central™, LogMeIn Rescue®, LogMeIn® Rescue+Mobile™, LogMeIn Backup®, LogMeIn for iOS, LogMeIn Hamachi®, MeldiumTM, Xively™ and RemotelyAnywhere®. The Company is headquartered in Boston, Massachusetts with wholly-owned subsidiaries located in Hungary, The Netherlands, Australia, the United Kingdom, Brazil, Bermuda,  Japan, Ireland, and India.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
2. Summary of Significant Accounting Policies

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

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

Cash Equivalents — Cash equivalents consist of highly liquid investments with an original or remaining maturity of less than three months at the date of purchase. Cash equivalents consist of investments in money market funds which primarily invest in U.S. Treasury obligations. Cash equivalents are stated at cost, which approximates fair value.

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2013 and 2014, marketable securities consisted of U.S. government agency securities and corporate bonds that have remaining maturities within two years and have an aggregate amortized cost of $100.3 million. The securities have an aggregate fair value of $100.3 million and $100.2 million, including $67,000 and $9,000 of unrealized gains and $28,000 and $138,000 of unrealized losses, at December 31, 2013 and 2014 respectively.

Restricted Cash — In May 2013, $125,000 of restricted cash associated with the Company’s Woburn, Massachusetts office lease was returned to the Company in connection with the expiration of the lease. In April 2012, the Company entered into a lease for a new corporate headquarters located in Boston, Massachusetts. The lease required a security deposit of approximately $3.3 million in the form of an irrevocable standby letter of credit which is collateralized by a bank deposit in the amount of approximately $3.5 million or 105 percent of the security deposit. Such amounts are classified as restricted cash in the accompanying consolidated balance sheets. In addition, the Company has made security deposits for various other leased facilities, which are also classified as restricted cash.

Accounts Receivable — The Company reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Estimates are used to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value. The estimates are based on an analysis of past due receivables, historical bad debt trends, current economic conditions, and customer specific information. After the Company has exhausted all collection efforts, the outstanding receivable balance relating to services provided is written off against the allowance and the balance related to services not yet delivered is charged as an offset to deferred revenue.

 

Activity in the allowance for doubtful accounts was as follows (in thousands):

 

     December 31,  
     2012      2013      2014  

Balance, beginning

   $ 109       $ 180       $ 269   

Provision for bad debt

     100         116         102   

Uncollectible accounts written off

     29         27         70   
  

 

 

    

 

 

    

 

 

 

Balance, ending

   $ 180       $ 269       $ 301   
  

 

 

    

 

 

    

 

 

 

Property and Equipment — Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is reflected in the consolidated statements of operations. Expenditures for maintenance and repairs are charged to expense as incurred.

Estimated useful lives of assets are as follows:

 

Computer equipment and software

     2 —3 years   

Office equipment

     3 years   

Furniture and fixtures

     5 years   

Leasehold Improvements

    
 
Shorter of lease term
or estimated useful life
  
  

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 December 31, 2014, the fair value of the Company as a whole significantly exceeds the carrying amount of the Company. Through December 31, 2014, no impairments have occurred.

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 from four months to eight years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through December 31, 2014, the Company recorded no material impairments.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services and to a lesser extent, the delivery of professional services, primarily related to its Xively business.

Revenue from the Company’s LogMeIn premium services is recognized on a daily basis over the subscription term as the services are delivered, provided that there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is deemed reasonably assured. Subscription periods range from monthly to five years, but are generally one year in duration. The Company’s software cannot be run on another entity’s hardware nor do customers have the right to take possession of the software and use it on their own or another entity’s hardware.

The Company’s multi-element arrangements typically include subscription and professional services, which may include development services. The Company evaluates each element within the arrangement to determine if they can be accounted for as separate units of accounting. If the delivered item or items have value to the customer on a standalone basis, either because they are sold separately by any vendor or the customer could resell the delivered item or items on a standalone basis, the Company has determined that the deliverables within these arrangements qualify for treatment as separate units of accounting. Accordingly, the Company recognizes revenue for each delivered item or items as a separate earnings process commencing when all of the significant performance obligations have been performed and when all of the revenue recognition criteria have been met. Professional services revenue recognized as a separate earnings process under multi-element arrangements has been immaterial to date. In cases where the Company has determined that the delivered items within its multi-element arrangements do not have value to the customer on a stand-alone basis, the arrangement is accounted for as a single unit of accounting and the related consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met.

The Company currently only offers free versions of its iPhone, iPad and Android software products. The Company had formerly sold these iPhone, iPad and Android software products as perpetually licensed software, the revenue from which was recognized when there was persuasive evidence of an arrangement, the product had been provided to the customer, the collection of the fee was probable, and the amount of fees to be paid by the customer was fixed or determinable.

Revenues are reported net of applicable sales and use tax, value-added tax, and other transaction taxes imposed on the related transaction.

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 products and services in advance on a monthly and annual basis. Deferred revenue to be recognized in the next twelve months is included in current deferred revenue, and the remaining amounts are included in long-term deferred revenue in the consolidated balance sheets.

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, marketable securities, 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 and custody of its marketable securities is with an accredited financial institution. To manage accounts receivable credit risk, the Company regularly evaluates the creditworthiness of its customers and maintains allowances for potential credit losses. To date, losses resulting from uncollected receivables have not exceeded management’s expectations.

As of December 31, 2013 no customers accounted for more than 10% of accounts receivable and there were no customers that represented 10% or more of revenue for the years ended December 31, 2012, 2013, or 2014. As of December 31, 2014, one customer accounted for 15% of accounts receivable.

Legal Costs — Legal expenditures are expensed as incurred.

Research and Development — Research and development expenditures are expensed as incurred.

Software Development Costs — The Company has determined that technological feasibility of its software products that are sold as a perpetual license is reached shortly before their introduction to the marketplace.

The Company capitalizes certain direct costs to develop functionality as well as certain upgrades and enhancements of its on-demand products that are probable to result in additional functionality. The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized as part of intangible assets until the software is substantially complete and ready for its intended use. Internally developed software costs that are capitalized are classified as intangible assets and amortized over a three year period.

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. The Company had foreign currency losses of approximately $641,000, and $89,000 for the years ended December 31, 2012 and 2013, and Foreign currency gains of approximately $105,000 for the year ended December 31 2014 included in other (expense) income in the consolidated statements of operations.

Stock-Based Compensation — The Company values all stock-based compensation, including grants of stock options and 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 of the award, for those awards expected to vest, on a straight-line basis. The Company uses the with-or-without method to determine when it will realize excess tax benefits from stock based compensation. Under this method, the Company will realize these excess tax benefits only after it realizes the tax benefits of net operating losses from operations.

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 carry-forwards 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. As of December 31, 2014, the Company has provided a liability for approximately $652,000 for uncertain tax positions. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2012, 2013, and 2014 was approximately $23.8 million, $27.8 million, and $36.8 million respectively, which consisted primarily of online paid searches, banner advertising, and other online marketing and is included in sales and marketing expense in the accompanying consolidated statements of operations.

Comprehensive Income (Loss) — Comprehensive income (loss) is the change in stockholders’ equity during a period relating to transactions and other events and circumstances from non-owner sources and currently consists of net income, foreign currency translation adjustments, and unrealized gains and losses, net of tax on available-for-sale securities. Accumulated comprehensive loss was approximately $1.2 million at December 31, 2013 and consisted of $1.2 million related to foreign currency translation adjustments offset by $25,000 of unrealized losses, net of tax on available-for sale securities. Accumulated comprehensive income was approximately $3.1 million at December 31, 2014 and consisted of $3.0 million related to foreign currency translation adjustments in addition to $82,000 in unrealized losses, net of tax on available-for sale securities.

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.

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

 

The Company’s revenue (based on customer address) and long-lived assets by geography are as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Revenues:

        

United States

   $ 90,233       $ 109,444       $ 148,532   

United Kingdom

     12,846         15,058         19,452   

International — all other

     35,758         41,756         53,972   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 138,837       $ 166,258       $ 221,956   
  

 

 

    

 

 

    

 

 

 

Long-lived assets:

        

United States

   $ 4,129       $ 10,207       $ 9,731   

Hungary

     1,599         1,224         2,018   

Ireland

     234         1,057         1,139   

International — all other

     614         710         588   
  

 

 

    

 

 

    

 

 

 

Total long-lived assets

   $ 6,576       $ 13,198       $ 13,476   
  

 

 

    

 

 

    

 

 

 

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 the weighted average number of potential common shares outstanding from the assumed exercise of stock options and the vesting of restricted stock units. For the year ended December 31, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for each period were identical.

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

 

     Years Ended December 31,  
       2012          2013          2014    

Options to purchase common shares

     1,679         2,389         57   

Restricted stock units

     147         1,192         18   
  

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     1,826         3,581         75   
  

 

 

    

 

 

    

 

 

 

 

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

 

     Year Ended
December 31, 2012
 

Basic:

  

Net income

   $ 3,566   
  

 

 

 

Weighted average common shares outstanding, basic

     24,711,242   
  

 

 

 

Net income, basic

   $ 0.14   
  

 

 

 

Diluted:

  

Net income

   $ 3,566   
  

 

 

 

Weighted average common shares outstanding

     24,711,242   

Add: Options to purchase common shares and restricted stock units

     645,063   
  

 

 

 

Weighted average common shares outstanding, diluted

     25,356,305   
  

 

 

 

Net income, diluted

   $ 0.14   
  

 

 

 

 

     Year Ended
December 31, 2013
 

Basic and Diluted Net Loss per Share:

  

Net loss

   $ (7,682
  

 

 

 

Weighted average common shares outstanding

     24,350,913   
  

 

 

 

Basic and diluted net loss per share

   $ (0.32
  

 

 

 

 

     Year Ended
December 31, 2014
 

Basic:

  

Net income

   $ 7,955   
  

 

 

 

Weighted average common shares outstanding, basic

     24,385,297   
  

 

 

 

Net income, basic

   $ 0.33   
  

 

 

 

Diluted:

  

Net income

   $ 7,955   
  

 

 

 

Weighted average common shares outstanding

     24,385,297   

Add: Options to purchase common shares and restricted stock units

     1,000,902   
  

 

 

 

Weighted average common shares outstanding, diluted

     25,386,199   
  

 

 

 

Net income, diluted

   $ 0.31   
  

 

 

 

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 by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s insurance coverage that the Company believes limits its exposure and enables it to recover a portion of any future amounts paid.

 

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims, including 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 unlimited. Through December 31, 2014, the Company has not experienced any losses related to these indemnification obligations.

In November 2012, the Company filed suit against Pragmatus Telecom LLC (“Pragmatus”), seeking declaratory judgment after certain of the Company’s customers received letters from Pragmatus claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. The Company paid Pragmatus a one-time licensing fee in April 2013, after a portion of the fee was reimbursed in March 2013 from a designated escrow arrangement associated with a prior acquisition. The Company recorded approximately $1.2 million of expense related to this matter in general and administrative expenses in March 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013.

Recently Issued Accounting Pronouncements — On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), its final standard on revenue from contracts with customers. ASU 2014-9 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations in the contract and recognizes revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of ASU 2014-09’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (i.e., property plant and equipment; real estate; or intangible assets). Existing accounting guidance applicable to these transfers has been amended or superseded. ASU 2014-09 also requires significantly expanded disclosures about revenue recognition. ASU 2014-09 is effective for the Company on January 1, 2017. The Company is currently assessing the potential impact of the adoption of ASU 2014-09 on its consolidated financial statements.

On June 19, 2014, the FASB issued ASU 2014-12, Stock Compensation (“ASU 2014-12”), providing guidance on accounting for share-based payment awards when the terms of an award provide that a performance target could be achieved after the requisite service period. The update clarifies that performance targets that can be achieved after the requisite service period of a share-based payment award be treated as performance conditions that affect vesting. These awards should be accounted for under Accounting Standards Codification Topic 718, Compensation — Stock Compensation, and existing guidance should be applied as it relates to awards with performance conditions that affect vesting. The update is effective for the Company for the interim and annual periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this standard, if any, on its consolidated financial statements.

On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The standard requires that the Company evaluates, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect to early adopt ASU 2014-15, which will be effective for its fiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its financial statements.

On January 9, 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). The standard eliminates the requirement of Extraordinary Items to be separately classified on the income statement. ASU 2015-01 is effective for annual periods ending after December 15, 2015, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect to early adopt ASU 2015-01, which will be effective for its fiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its consolidated financial statements.

Fair Value of Financial Instruments
Fair Value of Financial Instruments
3. Fair Value of Financial Instruments

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

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

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

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

The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

 

       Fair Value Measurements at December 31, 2013 Using     
       Level 1          Level 2          Level 3          Total    

Financial Assets:

           

Cash equivalents — money market funds

   $ 28,210       $       $       $ 28,210   

Cash equivalents — bank deposits

             5,001                 5,001   

Short-term marketable securities — U.S. government agency securities

     75,288         25,011                 100,299   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 103,498       $ 30,012       $      —       $ 133,510   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

       Fair Value Measurements at December 31, 2014 Using     
       Level 1          Level 2          Level 3          Total    

Financial Assets:

           

Cash equivalents — money market funds

   $ 13,139       $       $       $ 13,139   

Cash equivalents — bank deposits

             5,003                 5,003   

Short-term marketable securities — U.S. government agency securities

     59,903         19,950                 79,853   

Corporate bond securities

             20,356                 20,356   

Contingent consideration liability

                     249         249   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 73,042       $ 45,309       $      249       $ 118,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

Bank deposits, corporate bonds and certain U.S. government agency securities are classified within the second level of the fair value hierarchy as the fair value of those assets are determined based upon quoted prices for similar assets.

The Level 3 liability consists of contingent consideration related to the August 27, 2014 acquisition of Meldium and the September 5, 2014 acquisition of a San Francisco-based collaboration software provider. The fair value of the contingent consideration was estimated by applying a probability based model, which utilizes significant inputs that are unobservable in the market. Key assumptions include a 12% discount rate and an assumption that the earn-out will be achieved. The current portion of contingent consideration is included in Accrued liabilities and the non-current portion is included in Other long-term liabilities. A reconciliation of the beginning and ending Level 3 liability is as follows (in thousands):

 

     Years Ended
December 31,
 
       2013          2014    

Balance beginning of period

   $ 161       $   

Additions to Level 3

             239   

Payments

     (178        

Change in fair value of contingent consideration liability

     17         10   
  

 

 

    

 

 

 

Balance end of period

   $       $ 249   
  

 

 

    

 

 

 
Acquisitions
Acquisitions
4. Acquisitions

On March 7, 2014, the Company acquired all of the outstanding capital stock of Ionia Corporation, or Ionia, a Boston, Massachusetts based systems integrator, for a cash purchase price of $7.5 million plus contingent retention-based bonuses totaling up to $4.0 million, which are expected to be paid over a two-year period from the date of acquisition. The operating results, which are comprised of approximately $2.1 million of revenue, as well as $5.4 million of expenses for the year ended December 31, 2014, are included in the condensed consolidated financial statements beginning on the acquisition date.

The acquisition has been accounted for as a business combination. The assets acquired and the liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company retained an independent third party valuation firm to assist in the determination of the fair value of the intangible assets with estimates and assumptions provided by Company management. The excess of the purchase price over the tangible net assets and identifiable intangible assets was recorded as goodwill.

The purchase price was allocated as follows (in thousands):

 

     Amount  

Cash

   $ 67   

Current assets

     296   

Other assets

     26   

Deferred revenue

     (70

Other liabilities

     (864

Customer backlog

     120   

Trade name and trademark

     10   

Customer relationships

     1,340   

Documented know-how

     280   

Goodwill

     6,295   
  

 

 

 

Total purchase price

   $ 7,500   
  

 

 

 

The pro forma results of operations for the years ended December 31, 2013 and 2014, assuming the Company had acquired Ionia on January 1, 2013, do not differ materially from those reported in the Company’s consolidated statement of operations for those years.

The stock purchase agreement included a contingent, retention-based bonus program provision requiring the Company to make additional payments to employees, including former Ionia stockholders now employed by the Company, on the first and second anniversaries of the acquisition, contingent upon their continued employment and achievement of certain bookings goals. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $4.0 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The Company expects to pay $2.0 million in March 2015 and the remainder in March 2016.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to the Company’s ability to leverage its Xively platform, customer base, sales force and Internet of Things business plan with Ionia’s 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 of approximately $700,000 related to the amortization of intangible assets which cannot be deducted for tax purposes and is included in the accompanying table above as Other liabilities.

On August 27, 2014, the Company acquired BBA, Inc., d/b/a Meldium, a San Francisco, California-based provider of single sign-on password management software, through a merger transaction for a cash purchase price of $10.6 million plus contingent bonuses totaling up to $4.6 million, which are expected to be paid over a two-year period from the date of acquisition. Meldium’s operating results, which are comprised of approximately $1.8 million of expenses during the year ended December 31, 2014, are included in the condensed consolidated financial statements beginning on the acquisition date.

The acquisition has been accounted for as a business combination. The assets acquired and the liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company retained an independent third party valuation firm to assist in the determination of the fair value of the intangible assets with estimates and assumptions provided by Company management. The excess of the purchase price over the tangible net assets and identifiable intangible assets was recorded as goodwill.

The following table summarizes the fair value (in thousands) of the assets acquired and liabilities assumed at the date of acquisition:

 

     Amount  

Cash

   $ 120   

Current assets

     90   

Other assets

     436   

Deferred revenue

     (5

Other liabilities

     (935

Completed technology

     1,580   

Trade name and trademark

     30   

Customer relationships

     100   

Goodwill

     9,437   
  

 

 

 

Total purchase price

     10,853   
  

 

 

 

Liability for contingent consideration

     (216 )
  

 

 

 

Cash paid

   $ 10,637   
  

 

 

 

 

The Company’s pro forma results of operations for the year ended December 31, 2013 and 2014, assuming the Company had acquired Meldium on January 1, 2013, do not differ materially from those reported in the Company’s consolidated statement of operations for those years.

The merger agreement included a contingent, retention-based bonus program requiring the Company to make additional payments to employees, including former Meldium stockholders now employed by the Company, in the first quarter of 2015 and on the first and second anniversaries of the date of acquisition, contingent upon their continued employment and achievement of certain product integration goals. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $4.3 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The contingent bonus program also includes payments to non-employee stockholders for an amount between $0 and $226,000, which the Company has concluded is contingent consideration and is part of the purchase price. This contingent liability was recorded at its fair value of $216,000 at the acquisition date. The Company continues to re-measure the fair value of the contingent consideration at each subsequent reporting period and recognizes any adjustments to fair value as part of earnings. The Company paid approximately $1.0 million of contingent payments in February 2015.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to the Company’s ability to leverage its IT management offerings, customer base, sales force and IT management business plan with Meldium’s product, technical expertise and customer base. All goodwill and intangible assets acquired are not deductible for income tax purposes.

The Company recorded both a current and a long-term deferred tax asset of approximately $88,000 and $433,000, respectively, primarily related to net operating losses that were acquired as a part of the acquisition and are shown in the accompanying table above as Current assets and Other assets respectively. The Company also recorded a long-term deferred tax liability of approximately $694,000 related to the amortization of intangible assets which cannot be deducted for tax purposes and are included in the accompanying table above as Other liabilities.

On September 5, 2014, the Company acquired all of the outstanding capital stock of a San Francisco, California-based collaboration software provider, for a cash purchase price of $4.5 million plus contingent bonuses totaling up to $1.5 million, which are expected to be paid two years from the date of acquisition. The acquired company’s operating results, which are comprised of approximately $490,000 of expenses during the year ended December 31, 2014 are included in the consolidated financial statements beginning on the acquisition date.

This acquisition has been accounted for as a business combination. The assets acquired and the liabilities assumed were recorded at their estimated fair values as of the acquisition date. The Company retained an independent third party valuation firm to assist in the determination of the fair value of the intangible assets with estimates and assumptions provided by Company management. The excess of the purchase price over the tangible net assets and identifiable intangible assets was recorded as goodwill.

The following table summarizes the fair value (in thousands) of the assets acquired and liabilities assumed at the date of acquisition:

 

     Amount  

Cash

   $ 2   

Current assets

     13   

Other assets

     404   

Other liabilities

     (439

Completed technology

     960   

Trade name and trademark

     100   

Goodwill

     3,484   
  

 

 

 

Total purchase price

     4,524   

Liability for contingent consideration

     (24 )
  

 

 

 

Cash paid

   $ 4,500   
  

 

 

 

 

 

The Company’s pro forma results of operations for the year ended December 31, 2013 and 2014, assuming the Company had acquired the San Francisco, California-based collaboration software company on January 1, 2013, do not differ materially from those reported in the Company’s consolidated statement of operations for those years.

The stock purchase agreement included a contingent, retention-based bonus program provision requiring the Company to make additional payments to employees, including former stockholders now employed by the Company, on the second anniversary of the acquisition, contingent upon their continued employment and achievement of certain product integration goals. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $1.5 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The contingent bonus program also includes payments to non-employee stockholders for an amount between $0 and $30,000, which the Company has concluded is contingent consideration and is part of the purchase price. This contingent liability was recorded at its fair value of $24,000 at the acquisition date. The Company continues to re-measure the fair value of the contingent consideration at each subsequent reporting period and recognizes any adjustments to fair value as part of earnings.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to the Company’s ability to leverage its join.me product, customer base, sales force and join.me business plan with the collaboration software provider’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 asset of approximately $402,000 related to net operating losses that were acquired as a part of the acquisition, which is included in the accompanying table above as Other assets. The Company also recorded a long-term deferred tax liability of approximately $430,000 related to the amortization of intangible assets which cannot be deducted for tax purposes and is included in the accompanying table above as Other liabilities.

For the year ended December 31, 2014, the Company incurred approximately $356,000 of acquisition-related costs for the three acquisitions that closed in 2014 and these costs are included in general and administrative expense.

Goodwill and Intangible Assets
Goodwill and Intangible Assets
5. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill for the years ended December 31, 2013 and 2014 are due to the addition of goodwill resulting from the acquisitions of Ionia, Meldium and the San Francisco-based collaboration software provider (See Note 4 to the Consolidated Financial Statements).

Changes in goodwill for the years ended December 31, 2013 and 2014 are as follows (in thousands):

 

Balance, December 31, 2012

  $ 18,883   

Foreign currency translation adjustments

    (171 )
 

 

 

 

Balance, December 31, 2013

  $ 18,712   

Goodwill related to the acquisition of Ionia

    6,295   

Goodwill related to the acquisition of Meldium

    9,437   

Goodwill related to the acquisition of the San Francisco-based collaboration software provider

    3,484   
 

 

 

 

Balance, December 31, 2014

  $ 37,928   
 

 

 

 

 

Intangible assets consist of the following (in thousands):

 

           December 31, 2013     December 31, 2014  
     Estimated
Useful
Life
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Identifiable intangible assets:

              

Trade names and trademarks

     1-5 years      $ 666      $ 666      $      $ 806      $ 682      $ 124   

Customer relationships

     5-8 years        3,789        1,901        1,888        5,229        2,546        2,683   

Customer backlog

     4 months                             120        120          

Domain names

     5 years        894        341        553        907        507        400   

Software

     4 years        299        299               299        299          

Completed technology

     3-8 years        13,963        1,835        12,128        16,903        3,981        12,922   

Technology and know-how

     3 years        3,176        2,597        579        3,176        3,176          

Documented know-how

     4 years                             280        57        223   

Non-Compete agreements

     5 years        162        34        128        162        71        91   

Internally developed software

     3 years        2,485        875        1,610        4,591        2,051        2,540   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     $ 25,434      $ 8,548      $ 16,886      $ 32,473      $ 13,490      $ 18,983   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As a result of the acquisition of Ionia, the Company capitalized $120,000 of customer backlog, $280,000 of documented know-how, $10,000 of trade name and trademark, and $1.3 million of customer relationships as intangible assets. As a result of the acquisition of Meldium, the Company capitalized $1.6 million of completed technology, $30,000 of trade name and trademark, and $100,000 of customer relationships. As a result of the acquisition of the San Francisco-based collaboration software provider, the Company capitalized $960,000 of completed technology and $100,000 of trade name and trademark. Changes in the gross carrying amount of domain names are due to foreign currency translation adjustments. The Company is amortizing the 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. The intangible assets have estimated useful lives which range from four months to eight years.

On November 6, 2013, the Company purchased a software asset for $11.5 million which is classified as technology. During 2014, the Company incurred an additional $500,000 to develop this technology. The technology will be incorporated into certain of the Company’s products, and is being amortized straight-line over its estimated useful life of 5 years.

The Company capitalized costs related to internally developed computer software to be sold as a service incurred during the application development stage of $1.2 million and $2.1 million during 2013 and 2014, respectively, and is amortizing these costs over the expected lives of the related services. The Company paid $358,000 and $22,000 during 2013 and 2014, respectively, to acquire domain names.

 

The Company is amortizing the intangible assets over the estimated useful lives noted above. Amortization expense for intangible assets was $2.1 million, $2.5 million and $4.9 million for the years ended December 31, 2012, 2013 and 2014, respectively. Amortization relating to software, technology and know-how, documented know-how, and internally developed software is recorded within cost of revenues and the amortization of tradename and trademark, customer base, customer backlog, domain names, and non-compete agreements is recorded within operating expenses. Future estimated amortization expense for intangible assets is as follows at December 31, 2014 (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2015

   $ 5,037   

2016

     4,609   

2017

     4,270   

2018

     3,435   

2019

     1,096   

Thereafter

     536   
  

 

 

 

Total

   $ 18,983   
  

 

 

 

 

Property and Equipment
Property and Equipment
6. Property and Equipment

Property and equipment consisted of the following (in thousands):

 

     December 31,  
     2013      2014  

Computer equipment and software

   $ 22,276       $ 24,968   

Office equipment

     3,235         3,624   

Furniture & fixtures

     3,083         4,075   

Construction in progress

     456         684   

Leasehold improvements

     2,967         3,752   
  

 

 

    

 

 

 

Total property and equipment

     32,017         37,103   

Less accumulated depreciation and amortization

     (18,819      (23,627
  

 

 

    

 

 

 

Property and equipment, net

   $ 13,198       $ 13,476   
  

 

 

    

 

 

 

Depreciation expense for property and equipment was $4.0 million, $5.2 million and $6.2 million for the years ended December 31, 2012, 2013 and 2014.

Accrued Liabilities
Accrued Liabilities
7. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2013
     December 31,
2014
 

Marketing programs

   $ 4,631       $ 7,626   

Payroll and payroll related

     9,719         14,873   

Professional fees

     1,064         1,961   

Other accrued liabilities

     4,696         5,022   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 20,110       $ 29,482   
  

 

 

    

 

 

 
Income Taxes
Income Taxes
8. Income Taxes

The domestic and foreign components of income before provision for income taxes are as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Domestic

   $ 7,789       $ 10,389       $ (4,462 )

Foreign

     (1,532 )      (11,857      13,856   
  

 

 

    

 

 

    

 

 

 

Total income (loss) before provision for income taxes

   $ 6,257       $ (1,468    $ 9,394   
  

 

 

    

 

 

    

 

 

 

The provision for income taxes is as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Current

        

Federal

   $ 8,324       $ 5,480       $ 2,804   

State

     1,181         1,346         1,184   

Foreign

     126         952         1,052   
  

 

 

    

 

 

    

 

 

 

Total

     9,631         7,778         5,040   
  

 

 

    

 

 

    

 

 

 

Deferred

        

Federal

     (4,926 )      (1,379      (3,069

State

     44         (177      (748

Foreign

     (2,058      (8      216   
  

 

 

    

 

 

    

 

 

 

Total

     (6,940 )      (1,564      (3,601
  

 

 

    

 

 

    

 

 

 

Total provision for income taxes

   $ 2,691       $ 6,214       $ 1,439   
  

 

 

    

 

 

    

 

 

 

A reconciliation of the Company’s effective tax rate to the statutory federal income tax rate is as follows:

 

     For the Years Ended December 31,  
         2012             2013             2014      

Statutory tax rate

     35.0 %     35.0 %     35.0 %

Change in valuation allowance

     (10.8 )              

Impact of permanent differences

     15.6        (82.3 )     16.2   

Foreign tax rate differential

     (11.5 )     (346.9 )     (39.1 )

Research and development credits

            23.1        (2.6 )

State taxes, net of federal benefit

     13.8        (51.9 )     2.9   

Impact of uncertain tax positions

     0.8        (3.6 )     3.8   

Other

     0.1        3.4        (0.8 )
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     43.0 %     (423.2 )%     15.4 %
  

 

 

   

 

 

   

 

 

 

For the year ended December 31, 2012, the Company recorded a tax provision for income taxes of $2.7 million on profit before income taxes of $6.3 million. The Company recorded a provision as a result of taxable income generated in the United States. The Company’s effective tax rate for the year ended December 31, 2012 was impacted by permanent differences related to certain non-deductible stock based compensation and the release of a valuation allowance related to our Xively subsidiary.

For the year ended December 31, 2013, the Company recorded a tax provision for income taxes of $6.2 million on a loss before income taxes of $1.5 million. The Company recorded a provision as a result of the taxable income generated in the United States, while certain foreign jurisdictions incurred losses before income taxes without related tax benefits. The Company’s effective tax rate for the year ended December 31, 2013 was impacted by these foreign losses and by permanent differences related to certain non-deductible and stock based compensation.

 

For the year ended December 31, 2014, the Company recorded a tax provision for income taxes of $1.4 million on profit before income taxes of $9.4 million. The Company recorded a provision as a result of taxable income generated in the United States as well as in certain foreign jurisdictions. The Company’s effective tax rate for the year ended December 31, 2014 is lower than the U.S. federal statutory rate of 35% due to profits earned in certain foreign jurisdictions, primarily by our Irish subsidiaries, which are subject to significantly lower tax rates than the U.S. federal statutory rate.

The Company has deferred tax assets related to temporary differences and operating loss carryforwards as follows (in thousands):

 

     December 31,  
     2013      2014  

Deferred tax assets:

     

Net operating loss carryforwards

   $ 2,375       $ 2,783   

Deferred revenue

     627         775   

Amortization

     1,211         1,806   

Research and development credit carryforwards

     404         12   

Bad debt reserves

     56         79   

Stock compensation associated with non-qualified awards

     10,423         11,584   

Accrued Bonus

     1,530         3,579   

Depreciation

     326         171   

Other

     839         1,016   
  

 

 

    

 

 

 

Total deferred tax assets

     17,791         21,805   

Deferred tax asset valuation allowance

     (2,836 )      (2,203 )
  

 

 

    

 

 

 

Net deferred tax assets

     14,955         19,602   
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Depreciation

     (1,212 )      (1,234 )

Goodwill amortization

     (1,236 )      (3,640 )

Other

     (14      (45 )
  

 

 

    

 

 

 

Total deferred tax liabilities

     (2,462 )      (4,919 )
  

 

 

    

 

 

 

Total

   $ 12,493       $ 14,683   
  

 

 

    

 

 

 

At December 31, 2013 and 2014, deferred tax liabilities of approximately $15,000 and $1,000 respectively, are included in accrued liabilities, and approximately $15,000 and $3,000 respectively, are included in long term liabilities.

Deferred tax assets, related valuation allowances, current tax liabilities, and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we estimate deferred tax assets, current tax liabilities, and deferred tax liabilities, and we assess temporary differences resulting from differing treatment of items for tax and accounting purposes. During 2012, the Company reassessed the need for a valuation allowance against its deferred tax assets relating to its Xively subsidiary and concluded that it was more likely than not that it would be able to realize its deferred tax assets as a result of forecasted future earnings. Accordingly, the Company reversed the valuation allowance related to its Xively deferred tax assets of approximately $677,000. As of December 31, 2014, the Company maintained a full valuation allowance against the deferred tax assets of its Hungarian subsidiary. This entity has historical losses and the Company concluded it was not more likely than not that these deferred tax assets are realizable. The valuation allowance decreased by approximately $633,000 primarily as a result of the expiration of research and development tax credits.

As of December 31, 2014, the Company had federal, state, and foreign net operating loss carryforwards of approximately $1,559,000, $1,551,000 and $21,480,000, respectively. The Company’s federal and state net operating loss carryforwards are subject to limitation under Section 382 of the Internal Revenue Code. As of December 31, 2014, all federal and state net operating loss carryforwards are expected to be utilized before expiration. The Company’s foreign net operating loss carryforwards are not subject to expiration. The Company recognized a full valuation allowance against its Hungarian net operating loss carryfowards.

As of December 31, 2014, the Company had federal, state and foreign research and development credit carryforwards of approximately $0, $12,000 and $0, respectively, which are available to offset future state taxes.

The Company generally considers all earnings generated outside of the U.S. to be indefinitely reinvested offshore. Therefore, the Company does not accrue U.S. tax for the repatriation of the foreign earnings it considers to be indefinitely reinvested outside the U.S. As of December 31, 2014, the Company has not provided for federal income tax on approximately $14,000,000 of accumulated undistributed earnings of its foreign subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on the undistributed foreign earnings.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations in the Company’s various tax jurisdictions remain open for various periods between 2004 and the present.

As of December 31, 2013 and 2014, the Company has provided a liability of $304,000 and $652,000 respectively for uncertain tax positions. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

The Company has provided liabilities for uncertain tax provisions as follows (in thousands):

 

     Years Ended
December 31,
 
     2013      2014  

Beginning balance

   $ 251       $ 304   

Gross decreases — tax positions in prior period

             (56 )

Gross increases — tax positions in current period

     53         404   
  

 

 

    

 

 

 

Ending balance

   $ 304       $ 652   
  

 

 

    

 

 

 

The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision. The Company recognized approximately $4,000 and $15,000 of interest expense during the years ended December 31, 2013 and 2014, respectively.

Common Stock and Equity
Common Stock and Equity
9. Common Stock and Equity

Authorized Shares — On June 9, 2009, the Company’s Board of Directors approved a Restated Certificate of Incorporation to be effective upon the closing of the Company’s IPO. This Restated Certificate of Incorporation, among other things, increased the Company’s authorized common shares to 75,000,000 and authorized 5,000,000 shares of undesignated preferred stock.

Common Stock Reserved — As of December 31, 2013 and 2014, the Company has reserved the following number of shares of common stock for the exercise of stock options and restricted stock units (in thousands):

 

     Number of Shares as of  
     December 31,
2013
     December 31,
2014
 

Common stock options and restricted stock units

     5,231         4,906   
  

 

 

    

 

 

 

Total reserved

     5,231         4,906   
  

 

 

    

 

 

 

In February 2013, the Company’s board of directors approved a $25 million share repurchase program. On August 13, 2013, the board of directors approved a new $50 million share repurchase program, which replaced the previous $25 million share repurchase program. On October 20, 2014, the Board of Directors approved a new $75 million share repurchase program. This new share repurchase program is in addition to the Company’s existing $50 million share repurchase program. Share repurchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise, in accordance with applicable securities laws and regulations. The timing and amount of any share repurchases are determined by the Company’s management based on its evaluation of market conditions, the trading price of the stock, regulatory requirements and other factors. The share repurchase program may be suspended, modified or discontinued at any time at the Company’s discretion without prior notice.

During the year ended December 31, 2013 and 2014, the Company repurchased 1,268,643 and 843,574 shares of its common stock at an average price of $24.06 and $43.27 per share for a total cost of approximately $30.5 million and $36.5 million, respectively. At December 31, 2014, approximately $74.4 million remained available under the Company’s current share repurchase program.

Stock Incentive Plan
Stock Incentive Plan
10. Stock Incentive Plan

The Company’s 2009 Stock Incentive Plan (“2009 Plan”) is administered by the Board of Directors and Compensation Committee, which have the authority to designate participants and determine the number and type of awards to be granted and any other terms or conditions of the awards. Options generally vest over a four-year period and expire ten years from the date of grant. Restricted stock units with service-based vesting conditions generally vest over a three-year period while restricted stock units with market-based vesting conditions generally vest over two or three-year periods. Certain stock-based awards provide for accelerated vesting if there is a change in control. On May 22, 2014, the Company’s stockholders approved an amendment to the 2009 Plan that increased the shares available to grant under the plan by 1,200,000 shares. As of December 31, 2014, there were 2,220,348 shares available for grant under the 2009 Plan.

The Company generally issues previously unissued shares of common stock for the exercise of stock options and restricted stock units. The Company received $2.7 million, $3.8 million and $17.6 million in cash from stock option exercises during the years ended December 31, 2012, 2013 and 2014, respectively.

The Company uses the Black-Scholes option-pricing model to estimate the grant date fair value of stock options. The Company estimates the expected volatility of its common stock at the date of grant based on the historical volatility of comparable public companies over the option’s expected term as well as its own stock price volatility since the Company’s IPO. The Company estimates expected term based on historical exercise activity and giving consideration to the contractual term of the options, vesting schedules, employee turnover, and expectation of employee exercise behavior. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the estimated life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. Historical employee turnover data is used to estimate pre-vesting stock option forfeiture rates. The compensation expense is amortized on a straight-line basis over the requisite service period of the stock award, which is generally four years for options.

The Company used the following assumptions to apply the Black-Scholes option-pricing model:

 

     Years Ended December 31,
     2012    2013    2014

Expected dividend yield

   0.00%    0.00%    0.00%

Risk-free interest rate

   0.64% - 0.87%    0.87 - 1.36%    1.48%

Expected term (in years)

   5.56 - 6.25    6.25    6.25

Volatility

   55% - 60%    55%    55%

 

The following table summarizes stock option activity (shares and intrinsic value in thousands):

 

     Number
of Options
    Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
(Years)
     Aggregate
Intrinsic
Value
 

Outstanding, January 1, 2014

     2,389      $ 26.85         6.4      
       

 

 

    

Granted

     35        41.03         

Exercised

     (859     20.48          $ 20,566   
          

 

 

 

Forfeited

     (158     36.40         
  

 

 

   

 

 

       

Outstanding, December 31, 2014

     1,407      $ 30.02         6.2       $ 27,186   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2014

     957      $ 28.24         5.7       $ 20,190   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested or expected to vest at December 31, 2014

     1,389      $ 30.05         6.2       $ 26,805   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value was calculated based on the positive differences between the estimated fair value of the Company’s common stock on December 31, 2014 of $49.34 per share or at time of exercise, and the exercise price of the options.

The weighted average grant date fair value of stock options issued was $18.57, $11.60 and $21.78 per share for the years ended December 31, 2012, 2013 and 2014, respectively.

During the year ended December 31, 2014, the Company granted 633,696 restricted stock units, containing time-based vesting conditions. Restricted stock units with time-based vesting conditions are valued on the grant date using the grant date closing price of the underlying shares. The Company recognizes the expense on a straight-line basis over the requisite service period of the restricted stock unit, which is generally three years.

In August 2013 and May 2014, the Company granted 74,000 and 71,000 restricted stock units with market-based vesting conditions, respectively, which were tied to the Company’s achievement of a relative total shareholder return target measured over an applicable performance period which ranges from two to three years (the “TSR Units”). The number of shares underlying these TSR Units that will vest upon the conclusion of the applicable performance periods can range from 0% of the shares awarded to 200% of the shares awarded, or up to 148,000 shares and 142,000 shares for the August 2013 grant and May 2014 grant, respectively. Vesting of such shares is also contingent upon the continued employment of the participant throughout the vesting period. All TSR Units granted by the Company are valued using a Monte Carlo simulation model. The number of awards expected to be earned is factored into the grant date Monte Carlo valuation for the TSR Unit. Compensation cost is recognized regardless of the actual number of awards that are earned based on the market condition. Expected volatility is based on the Company’s historical volatility. The risk-free interest rate is based upon U.S. Treasury securities with a term similar to the vesting term of the TSR Units.

The assumptions used in the Monte Carlo simulation model include (but are not limited to) the following:

 

     August 2013 Grant     May 2014 Grant  

Risk-free interest rate

     0.62     0.78

Volatility

     54     54

Compensation cost is recognized on a straight-line basis over the requisite service period. At December 31, 2014, all of the TSR Units granted in August 2013 and May 2014 remain outstanding.

 

The following table summarizes all restricted stock unit activity, including performance-based restricted stock units (shares in thousands):

 

     Number of shares
Underlying Restricted
Stock Units
     Weighted Average
Grant Date
Fair Value
 

Unvested as of January 1, 2014

     1,192       $ 28.47   

Restricted stock units granted

     705         44.63   

Restricted stock units vested

     (430      27.63   

Restricted stock units forfeited

     (188 )      30.10   
  

 

 

    

 

 

 

Unvested as of December 31, 2014

     1,279       $ 37.42   
  

 

 

    

 

 

 

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

 

     Years Ended December 31,  
     2012      2013      2014  

Cost of revenue

   $ 484       $ 706       $ 1,107   

Research and development

     2,826         3,761         3,653   

Sales and marketing

     4,962         7,242         9,033   

General and administrative

     6,520         8,005         10,976   
  

 

 

    

 

 

    

 

 

 
   $ 14,792       $ 19,714       $ 24,769   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2014, there was approximately $37.3 million of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested stock awards which are expected to be recognized over a weighted average period of 1.9 years. The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.

Commitments and Contingencies
Commitments and Contingencies
11. Commitments and Contingencies

Operating Leases — The Company has operating lease agreements for offices in the United States, Hungary, Australia, the United Kingdom, Ireland and India that expire through 2028.

In December 2014, the Company entered into a lease for new office space in Boston, Massachusetts. The landlord is obligated to rehabilitate the existing building and the Company expects that the lease term will begin in November 2015 and extend through April 2028. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $47.0 million. Pursuant to the terms of the lease, the landlord is responsible for making certain improvements to the leased space up to an agreed upon cost to the landlord. Any excess costs for these improvements will be billed by the landlord to the Company as additional rent. The Company estimates these excess costs to be approximately $7.0 million. The lease required a security deposit of approximately $3.3 million in the form of an irrevocable, unsecured standby letter of credit. The lease includes an option to extend the original term of the lease for two successive five year periods.

In December 2014, the Company entered into a lease for new office space in San Francisco, California. The term of the new office space begins in February 2015 and extends through December 2019. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $2.4 million. The lease required a security deposit of approximately $41,000. The security deposit is classified as a long-term deposit.

In October 2014, the Company entered into a lease for new office space in Dublin, Ireland. The term of the new office space began in October 2014 and extends through September 2024. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $5.8 million (EUR 4.8 million).

In April 2014, the Company amended its current lease for its Budapest, Hungary office space to provide for an expansion of leased space and to extend the term of the lease. The term of the amended lease began in July 2014 and will extend through June 2019. The aggregate amount of minimum lease payments to be made over the term of the lease increased to approximately $6.9 million (EUR 5.7 million). The amended lease agreement required a bank guarantee of approximately $430,000 (EUR 354,000). The bank guarantee is classified as restricted cash.

Rent expense under all leases was approximately $3.2 million, $6.0 million and $7.1 million for the years ended December 31, 2012, 2013 and 2014, respectively. The Company records rent expense on a straight-line basis for leases with scheduled escalation clauses or free rent periods.

The Company also enters into hosting services agreements with third-party data centers and internet service providers that are subject to annual renewal. Hosting fees incurred under these arrangements aggregated approximately $3.2 million, $4.7 million and $5.1 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Future minimum lease payments under non-cancelable operating leases including one year commitments associated with the Company’s hosting services arrangements are approximately as follows at December 31, 2014 (in thousands):

 

Years Ending December 31

      

2015

   $ 10,347   

2016

     9,501   

2017

     10,090   

2018

     10,453   

2019

     9,837   

Thereafter

     53,252   
  

 

 

 

Total minimum lease payments

   $ 103,480   
  

 

 

 

Litigation — On September 8, 2010, 01 Communique Laboratory, Inc., or 01, filed a complaint that named the Company as a defendant in a lawsuit in the U.S. District Court for the Eastern District of Virginia (Civil Action No. 1:10cv1007) alleging that the Company infringed U.S. Patent No. 6,928,479, or the ‘479 Patent, which is owned by 01 and has claims directed to a particular application or system for providing a private communication portal from one computer to a second computer. The complaint sought damages in an unspecified amount and injunctive relief. The trial commenced on March 18, 2013 and on March 26, 2013, a jury in the Eastern District of Virginia found that the Company’s products do not infringe the ‘479 Patent as previously asserted by 01. 01 appealed the jury’s non-infringement verdict and on June 9, 2014, the jury’s non-infringement verdict was affirmed by the U.S. Court of Appeals for the Federal Circuit. On November 21, 2014, the U.S. District Court for the Eastern District of Virginia issued its final order, awarding costs to the Company, which 01 paid on December 3, 2014, formally concluding this matter.

On November 21, 2012, the Company filed suit against Pragmatus Telecom LLC, or Pragmatus, in the U.S. District Court for the District of Delaware (Civil Action No. 12-1507) seeking a declaratory judgment that the Company’s products do not infringe three patents allegedly owned by Pragmatus after certain of the Company’s customers received letters from Pragmatus claiming that their use of certain LogMeIn services infringed upon those patents. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. The Company paid Pragmatus a one-time license fee in connection with the License Agreement in April 2013. As a result, the Company’s declaratory judgment action was dismissed by the court on May 3, 2013.

On August 26, 2014, Sensory Technologies, LLC, or Sensory, filed a complaint against the Company in the U.S. District Court for the Southern District of Indiana (Case No. 1:14-cv-1406). The complaint alleges, among other things, that the Company has infringed upon Sensory’s JOIN® trademark, which is registered to Sensory under U.S. Trademark Registration No. 3622883. The complaint seeks damages in an unspecified amount and injunctive relief. The Company believes it has meritorious defenses to the claims and intends to defend the lawsuit vigorously. Given the inherent unpredictability of litigation and the fact that this litigation is still in its early stages, the Company is unable to predict the outcome of this litigation or reasonably estimate a possible loss or range of loss associated with this litigation at this time.

 

On August 28, 2014, a putative class action complaint was filed against the Company in the U.S. District Court for the Eastern District of California (Case No. 1:14-cv-01355) by an individual on behalf of himself and on behalf of all other similarly situated individuals, or collectively, the Plaintiffs.  After the Company filed a motion to dismiss the complaint on January 30, 2015, the Plaintiffs filed an amended complaint  on February 17, 2015. The amended complaint includes claims made under California’s False Advertising Act and Unfair Competition Law and relates to the Company’s sale of its Ignition for iOS application, or the App, and the Plaintiffs’ continued use of the App. The Plaintiffs’ complaint seeks restitution, damages in an unspecified amount, attorney's fees and costs, and unspecified equitable and injunctive relief. The Company believes it has meritorious defenses to the claims and intends to defend the lawsuit vigorously. Given the inherent unpredictability of litigation and the fact that this litigation is still in its early stages, the Company is unable to predict the outcome of this litigation or reasonably estimate a possible loss or range of loss associated with this litigation at this time.

The Company is from time to time subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. The Company routinely assesses its current litigation and/or threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable. While the outcome of these other claims cannot be predicted with certainty, management does not believe that the outcome of any of these other legal matters will have a material adverse effect on the Company’s consolidated financial statements.

 

401(k) Plan
401(k) Plan
12. 401(k) Plan

On January 1, 2007, the Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan is available to all employees upon employment and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company may contribute to the plan at the discretion of the Board of Directors. The Company has not made any contributions to the plan through December 31, 2014.

Subsequent Event
Subsequent Event
13. Subsequent Event

On February 18, 2015, the Company entered into a multi-currency credit agreement with a syndicated bank group for which JPMorgan Chase Bank, N.A. acts as administrative agent. The credit agreement provides for a secured revolving credit facility of up to $100 million, and may be increased by an additional $50 million subject to further commitment from the lenders. The credit facility matures on  February 18, 2020 and includes certain financial covenants with which the Company must comply. The Company and its subsidiaries expect to use the credit facility for general corporate purposes, including the potential acquisition of complementary products or businesses, share repurchases, as well as for working capital.

Quarterly Information (Unaudited)
Quarterly Information (Unaudited)
14. Quarterly Information (Unaudited)

 

    For the Three Months Ended,  
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    March 31,
2014
    June 30,
2014
    September 30,
2014
    December 31,
2014
 
    (in thousands, except for per share data)  

Statement of Operations Data:

               

Revenue

  $ 37,437      $ 40,670      $ 42,970      $ 45,181      $ 49,020      $ 54,975      $ 58,062      $ 59,899   

Gross profit

    33,028        35,894        38,285        40,235        42,900        47,578        50,728        52,018   

(Loss) income from operations

    (6,630 )     (123 )     2,191        2,636        1,598        782        2,771        3,536   

Net (loss) income

    (5,807 )     (1,360 )     (56 )     (459 )     1,004        1,330        2,308        3,313   

Net (loss) income per share-basic

    (0.24 )     (0.06 )     0.00        (0.02 )     0.04        0.05        0.09        0.14   

Net (loss) income per share-diluted

    (0.24 )     (0.06 )     0.00        (0.02 )     0.04        0.05        0.09        0.14  
Summary of Significant Accounting Policies (Policies)

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

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

Cash Equivalents — Cash equivalents consist of highly liquid investments with an original or remaining maturity of less than three months at the date of purchase. Cash equivalents consist of investments in money market funds which primarily invest in U.S. Treasury obligations. Cash equivalents are stated at cost, which approximates fair value.

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2013 and 2014, marketable securities consisted of U.S. government agency securities and corporate bonds that have remaining maturities within two years and have an aggregate amortized cost of $100.3 million. The securities have an aggregate fair value of $100.3 million and $100.2 million, including $67,000 and $9,000 of unrealized gains and $28,000 and $138,000 of unrealized losses, at December 31, 2013 and 2014 respectively.

Restricted Cash — In May 2013, $125,000 of restricted cash associated with the Company’s Woburn, Massachusetts office lease was returned to the Company in connection with the expiration of the lease. In April 2012, the Company entered into a lease for a new corporate headquarters located in Boston, Massachusetts. The lease required a security deposit of approximately $3.3 million in the form of an irrevocable standby letter of credit which is collateralized by a bank deposit in the amount of approximately $3.5 million or 105 percent of the security deposit. Such amounts are classified as restricted cash in the accompanying consolidated balance sheets. In addition, the Company has made security deposits for various other leased facilities, which are also classified as restricted cash.

Accounts Receivable — The Company reviews accounts receivable on a periodic basis to determine if any receivables will potentially be uncollectible. Estimates are used to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value. The estimates are based on an analysis of past due receivables, historical bad debt trends, current economic conditions, and customer specific information. After the Company has exhausted all collection efforts, the outstanding receivable balance relating to services provided is written off against the allowance and the balance related to services not yet delivered is charged as an offset to deferred revenue.

 

Activity in the allowance for doubtful accounts was as follows (in thousands):

 

     December 31,  
     2012      2013      2014  

Balance, beginning

   $ 109       $ 180       $ 269   

Provision for bad debt

     100         116         102   

Uncollectible accounts written off

     29         27         70   
  

 

 

    

 

 

    

 

 

 

Balance, ending

   $ 180       $ 269       $ 301   
  

 

 

    

 

 

    

 

 

 

Property and Equipment — Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is reflected in the consolidated statements of operations. Expenditures for maintenance and repairs are charged to expense as incurred.

Estimated useful lives of assets are as follows:

 

Computer equipment and software

     2 —3 years   

Office equipment

     3 years   

Furniture and fixtures

     5 years   

Leasehold Improvements

    
 
Shorter of lease term
or estimated useful life
  
  

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 December 31, 2014, the fair value of the Company as a whole significantly exceeds the carrying amount of the Company. Through December 31, 2014, no impairments have occurred.

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 from four months to eight years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through December 31, 2014, the Company recorded no material impairments.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services and to a lesser extent, the delivery of professional services, primarily related to its Xively business.

Revenue from the Company’s LogMeIn premium services is recognized on a daily basis over the subscription term as the services are delivered, provided that there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is deemed reasonably assured. Subscription periods range from monthly to five years, but are generally one year in duration. The Company’s software cannot be run on another entity’s hardware nor do customers have the right to take possession of the software and use it on their own or another entity’s hardware.

The Company’s multi-element arrangements typically include subscription and professional services, which may include development services. The Company evaluates each element within the arrangement to determine if they can be accounted for as separate units of accounting. If the delivered item or items have value to the customer on a standalone basis, either because they are sold separately by any vendor or the customer could resell the delivered item or items on a standalone basis, the Company has determined that the deliverables within these arrangements qualify for treatment as separate units of accounting. Accordingly, the Company recognizes revenue for each delivered item or items as a separate earnings process commencing when all of the significant performance obligations have been performed and when all of the revenue recognition criteria have been met. Professional services revenue recognized as a separate earnings process under multi-element arrangements has been immaterial to date. In cases where the Company has determined that the delivered items within its multi-element arrangements do not have value to the customer on a stand-alone basis, the arrangement is accounted for as a single unit of accounting and the related consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met.

The Company currently only offers free versions of its iPhone, iPad and Android software products. The Company had formerly sold these iPhone, iPad and Android software products as perpetually licensed software, the revenue from which was recognized when there was persuasive evidence of an arrangement, the product had been provided to the customer, the collection of the fee was probable, and the amount of fees to be paid by the customer was fixed or determinable.

Revenues are reported net of applicable sales and use tax, value-added tax, and other transaction taxes imposed on the related transaction.

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 products and services in advance on a monthly and annual basis. Deferred revenue to be recognized in the next twelve months is included in current deferred revenue, and the remaining amounts are included in long-term deferred revenue in the consolidated balance sheets.

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, marketable securities, 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 and custody of its marketable securities is with an accredited financial institution. To manage accounts receivable credit risk, the Company regularly evaluates the creditworthiness of its customers and maintains allowances for potential credit losses. To date, losses resulting from uncollected receivables have not exceeded management’s expectations.

As of December 31, 2013 no customers accounted for more than 10% of accounts receivable and there were no customers that represented 10% or more of revenue for the years ended December 31, 2012, 2013, or 2014. As of December 31, 2014, one customer accounted for 15% of accounts receivable.

Legal Costs — Legal expenditures are expensed as incurred.

Research and Development — Research and development expenditures are expensed as incurred.

Software Development Costs — The Company has determined that technological feasibility of its software products that are sold as a perpetual license is reached shortly before their introduction to the marketplace.

The Company capitalizes certain direct costs to develop functionality as well as certain upgrades and enhancements of its on-demand products that are probable to result in additional functionality. The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized as part of intangible assets until the software is substantially complete and ready for its intended use. Internally developed software costs that are capitalized are classified as intangible assets and amortized over a three year period.

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. The Company had foreign currency losses of approximately $641,000, and $89,000 for the years ended December 31, 2012 and 2013, and Foreign currency gains of approximately $105,000 for the year ended December 31 2014 included in other (expense) income in the consolidated statements of operations.

Stock-Based Compensation — The Company values all stock-based compensation, including grants of stock options and 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 of the award, for those awards expected to vest, on a straight-line basis. The Company uses the with-or-without method to determine when it will realize excess tax benefits from stock based compensation. Under this method, the Company will realize these excess tax benefits only after it realizes the tax benefits of net operating losses from operations.

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 carry-forwards 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. As of December 31, 2014, the Company has provided a liability for approximately $652,000 for uncertain tax positions. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2012, 2013, and 2014 was approximately $23.8 million, $27.8 million, and $36.8 million respectively, which consisted primarily of online paid searches, banner advertising, and other online marketing and is included in sales and marketing expense in the accompanying consolidated statements of operations.

Comprehensive Income (Loss) — Comprehensive income (loss) is the change in stockholders’ equity during a period relating to transactions and other events and circumstances from non-owner sources and currently consists of net income, foreign currency translation adjustments, and unrealized gains and losses, net of tax on available-for-sale securities. Accumulated comprehensive loss was approximately $1.2 million at December 31, 2013 and consisted of $1.2 million related to foreign currency translation adjustments offset by $25,000 of unrealized losses, net of tax on available-for sale securities. Accumulated comprehensive income was approximately $3.1 million at December 31, 2014 and consisted of $3.0 million related to foreign currency translation adjustments in addition to $82,000 in unrealized losses, net of tax on available-for sale securities.

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.

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

 

The Company’s revenue (based on customer address) and long-lived assets by geography are as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Revenues:

        

United States

   $ 90,233       $ 109,444       $ 148,532   

United Kingdom

     12,846         15,058         19,452   

International — all other

     35,758         41,756         53,972   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 138,837       $ 166,258       $ 221,956   
  

 

 

    

 

 

    

 

 

 

Long-lived assets:

        

United States

   $ 4,129       $ 10,207       $ 9,731   

Hungary

     1,599         1,224         2,018   

Ireland

     234         1,057         1,139   

International — all other

     614         710         588   
  

 

 

    

 

 

    

 

 

 

Total long-lived assets

   $ 6,576       $ 13,198       $ 13,476   
  

 

 

    

 

 

    

 

 

 

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 the weighted average number of potential common shares outstanding from the assumed exercise of stock options and the vesting of restricted stock units. For the year ended December 31, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for each period were identical.

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

 

     Years Ended December 31,  
       2012          2013          2014    

Options to purchase common shares

     1,679         2,389         57   

Restricted stock units

     147         1,192         18   
  

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     1,826         3,581         75   
  

 

 

    

 

 

    

 

 

 

 

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

 

     Year Ended
December 31, 2012
 

Basic:

  

Net income

   $ 3,566   
  

 

 

 

Weighted average common shares outstanding, basic

     24,711,242   
  

 

 

 

Net income, basic

   $ 0.14   
  

 

 

 

Diluted:

  

Net income

   $ 3,566   
  

 

 

 

Weighted average common shares outstanding

     24,711,242   

Add: Options to purchase common shares and restricted stock units

     645,063   
  

 

 

 

Weighted average common shares outstanding, diluted

     25,356,305   
  

 

 

 

Net income, diluted

   $ 0.14   
  

 

 

 

 

     Year Ended
December 31, 2013
 

Basic and Diluted Net Loss per Share:

  

Net loss

   $ (7,682
  

 

 

 

Weighted average common shares outstanding

     24,350,913   
  

 

 

 

Basic and diluted net loss per share

   $ (0.32
  

 

 

 

 

     Year Ended
December 31, 2014
 

Basic:

  

Net income

   $ 7,955   
  

 

 

 

Weighted average common shares outstanding, basic

     24,385,297   
  

 

 

 

Net income, basic

   $ 0.33   
  

 

 

 

Diluted:

  

Net income

   $ 7,955   
  

 

 

 

Weighted average common shares outstanding

     24,385,297   

Add: Options to purchase common shares and restricted stock units

     1,000,902   
  

 

 

 

Weighted average common shares outstanding, diluted

     25,386,199   
  

 

 

 

Net income, diluted

   $ 0.31   
  

 

 

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 by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s insurance coverage that the Company believes limits its exposure and enables it to recover a portion of any future amounts paid.

 

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims, including 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 unlimited. Through December 31, 2014, the Company has not experienced any losses related to these indemnification obligations.

In November 2012, the Company filed suit against Pragmatus Telecom LLC (“Pragmatus”), seeking declaratory judgment after certain of the Company’s customers received letters from Pragmatus claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. The Company paid Pragmatus a one-time licensing fee in April 2013, after a portion of the fee was reimbursed in March 2013 from a designated escrow arrangement associated with a prior acquisition. The Company recorded approximately $1.2 million of expense related to this matter in general and administrative expenses in March 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013.

Recently Issued Accounting Pronouncements — On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), its final standard on revenue from contracts with customers. ASU 2014-9 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations in the contract and recognizes revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of ASU 2014-09’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (i.e., property plant and equipment; real estate; or intangible assets). Existing accounting guidance applicable to these transfers has been amended or superseded. ASU 2014-09 also requires significantly expanded disclosures about revenue recognition. ASU 2014-09 is effective for the Company on January 1, 2017. The Company is currently assessing the potential impact of the adoption of ASU 2014-09 on its consolidated financial statements.

On June 19, 2014, the FASB issued ASU 2014-12, Stock Compensation (“ASU 2014-12”), providing guidance on accounting for share-based payment awards when the terms of an award provide that a performance target could be achieved after the requisite service period. The update clarifies that performance targets that can be achieved after the requisite service period of a share-based payment award be treated as performance conditions that affect vesting. These awards should be accounted for under Accounting Standards Codification Topic 718, Compensation — Stock Compensation, and existing guidance should be applied as it relates to awards with performance conditions that affect vesting. The update is effective for the Company for the interim and annual periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this standard, if any, on its consolidated financial statements.

On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The standard requires that the Company evaluates, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect to early adopt ASU 2014-15, which will be effective for its fiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its financial statements.

On January 9, 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). The standard eliminates the requirement of Extraordinary Items to be separately classified on the income statement. ASU 2015-01 is effective for annual periods ending after December 15, 2015, and for annual and interim periods thereafter, and early adoption is permitted. The Company does not expect to early adopt ASU 2015-01, which will be effective for its fiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its consolidated financial statements.

Summary of Significant Accounting Policies (Tables)

Activity in the allowance for doubtful accounts was as follows (in thousands):

 

     December 31,  
     2012      2013      2014  

Balance, beginning

   $ 109       $ 180       $ 269   

Provision for bad debt

     100         116         102   

Uncollectible accounts written off

     29         27         70   
  

 

 

    

 

 

    

 

 

 

Balance, ending

   $ 180       $ 269       $ 301   
  

 

 

    

 

 

    

 

 

 

Estimated useful lives of assets are as follows:

 

Computer equipment and software

     2 —3 years   

Office equipment

     3 years   

Furniture and fixtures

     5 years   

Leasehold Improvements

    
 
Shorter of lease term
or estimated useful life
  
  

The Company’s revenue (based on customer address) and long-lived assets by geography are as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Revenues:

        

United States

   $ 90,233       $ 109,444       $ 148,532   

United Kingdom

     12,846         15,058         19,452   

International — all other

     35,758         41,756         53,972   
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 138,837       $ 166,258       $ 221,956   
  

 

 

    

 

 

    

 

 

 

Long-lived assets:

        

United States

   $ 4,129       $ 10,207       $ 9,731   

Hungary

     1,599         1,224         2,018   

Ireland

     234         1,057         1,139   

International — all other

     614         710         588   
  

 

 

    

 

 

    

 

 

 

Total long-lived assets

   $ 6,576       $ 13,198       $ 13,476   
  

 

 

    

 

 

    

 

 

 

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

 

     Years Ended December 31,  
       2012          2013          2014    

Options to purchase common shares

     1,679         2,389         57   

Restricted stock units

     147         1,192         18   
  

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     1,826         3,581         75   
  

 

 

    

 

 

    

 

 

 

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

 

     Year Ended
December 31, 2012
 

Basic:

  

Net income

   $ 3,566   
  

 

 

 

Weighted average common shares outstanding, basic

     24,711,242   
  

 

 

 

Net income, basic

   $ 0.14   
  

 

 

 

Diluted:

  

Net income

   $ 3,566   
  

 

 

 

Weighted average common shares outstanding

     24,711,242   

Add: Options to purchase common shares and restricted stock units

     645,063   
  

 

 

 

Weighted average common shares outstanding, diluted

     25,356,305   
  

 

 

 

Net income, diluted

   $ 0.14   
  

 

 

 

 

     Year Ended
December 31, 2013
 

Basic and Diluted Net Loss per Share:

  

Net loss

   $ (7,682
  

 

 

 

Weighted average common shares outstanding

     24,350,913   
  

 

 

 

Basic and diluted net loss per share

   $ (0.32
  

 

 

 

 

     Year Ended
December 31, 2014
 

Basic:

  

Net income

   $ 7,955   
  

 

 

 

Weighted average common shares outstanding, basic

     24,385,297   
  

 

 

 

Net income, basic

   $ 0.33   
  

 

 

 

Diluted:

  

Net income

   $ 7,955   
  

 

 

 

Weighted average common shares outstanding

     24,385,297   

Add: Options to purchase common shares and restricted stock units

     1,000,902   
  

 

 

 

Weighted average common shares outstanding, diluted

     25,386,199   
  

 

 

 

Net income, diluted

   $ 0.31   
  

 

 

Fair Value of Financial Instruments (Tables)

The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

 

       Fair Value Measurements at December 31, 2013 Using     
       Level 1          Level 2          Level 3          Total    

Financial Assets:

           

Cash equivalents — money market funds

   $ 28,210       $       $       $ 28,210   

Cash equivalents — bank deposits

             5,001                 5,001   

Short-term marketable securities — U.S. government agency securities

     75,288         25,011                 100,299   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 103,498       $ 30,012       $      —       $ 133,510   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

       Fair Value Measurements at December 31, 2014 Using     
       Level 1          Level 2          Level 3          Total    

Financial Assets:

           

Cash equivalents — money market funds

   $ 13,139       $       $       $ 13,139   

Cash equivalents — bank deposits

             5,003                 5,003   

Short-term marketable securities — U.S. government agency securities

     59,903         19,950                 79,853   

Corporate bond securities

             20,356                 20,356   

Contingent consideration liability

                     249         249   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 73,042       $ 45,309       $      249       $ 118,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

A reconciliation of the beginning and ending Level 3 liability is as follows (in thousands):

 

     Years Ended
December 31,
 
       2013          2014    

Balance beginning of period

   $ 161       $   

Additions to Level 3

             239   

Payments

     (178        

Change in fair value of contingent consideration liability

     17         10   
  

 

 

    

 

 

 

Balance end of period

   $       $ 249   
  

 

 

    

 

 

 
Acquisitions (Tables)

The purchase price was allocated as follows (in thousands):

 

     Amount  

Cash

   $ 67   

Current assets

     296   

Other assets

     26   

Deferred revenue

     (70

Other liabilities

     (864

Customer backlog

     120   

Trade name and trademark

     10   

Customer relationships

     1,340   

Documented know-how

     280   

Goodwill

     6,295   
  

 

 

 

Total purchase price

   $ 7,500   
  

 

 

 

The following table summarizes the fair value (in thousands) of the assets acquired and liabilities assumed at the date of acquisition:

 

     Amount  

Cash

   $ 120   

Current assets

     90   

Other assets

     436   

Deferred revenue

     (5

Other liabilities

     (935

Completed technology

     1,580   

Trade name and trademark

     30   

Customer relationships

     100   

Goodwill

     9,437   
  

 

 

 

Total purchase price

     10,853   
  

 

 

 

Liability for contingent consideration

     (216 )
  

 

 

 

Cash paid

   $ 10,637   
  

 

 

 

The following table summarizes the fair value (in thousands) of the assets acquired and liabilities assumed at the date of acquisition:

 

     Amount  

Cash

   $ 2   

Current assets

     13   

Other assets

     404   

Other liabilities

     (439

Completed technology

     960   

Trade name and trademark

     100   

Goodwill

     3,484   
  

 

 

 

Total purchase price

     4,524   

Liability for contingent consideration

     (24 )
  

 

 

 

Cash paid

   $ 4,500   
  

 

 

 
Goodwill and Intangible Assets (Tables)

Changes in goodwill for the years ended December 31, 2013 and 2014 are as follows (in thousands):

 

Balance, December 31, 2012

  $ 18,883   

Foreign currency translation adjustments

    (171 )
 

 

 

 

Balance, December 31, 2013

  $ 18,712   

Goodwill related to the acquisition of Ionia

    6,295   

Goodwill related to the acquisition of Meldium

    9,437   

Goodwill related to the acquisition of the San Francisco-based collaboration software provider

    3,484   
 

 

 

 

Balance, December 31, 2014

  $ 37,928   
 

 

 

 

Intangible assets consist of the following (in thousands):

 

           December 31, 2013     December 31, 2014  
     Estimated
Useful
Life
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Identifiable intangible assets:

              

Trade names and trademarks

     1-5 years      $ 666      $ 666      $      $ 806      $ 682      $ 124   

Customer relationships

     5-8 years        3,789        1,901        1,888        5,229        2,546        2,683   

Customer backlog

     4 months                             120        120          

Domain names

     5 years        894        341        553        907        507        400   

Software

     4 years        299        299               299        299          

Completed technology

     3-8 years        13,963        1,835        12,128        16,903        3,981        12,922   

Technology and know-how

     3 years        3,176        2,597        579        3,176        3,176          

Documented know-how

     4 years                             280        57        223   

Non-Compete agreements

     5 years        162        34        128        162        71        91   

Internally developed software

     3 years        2,485        875        1,610        4,591        2,051        2,540   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     $ 25,434      $ 8,548      $ 16,886      $ 32,473      $ 13,490      $ 18,983   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Future estimated amortization expense for intangible assets is as follows at December 31, 2014 (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2015

   $ 5,037   

2016

     4,609   

2017

     4,270   

2018

     3,435   

2019

     1,096   

Thereafter

     536   
  

 

 

 

Total

   $ 18,983   
  

 

 

 
Property and Equipment (Tables)
Schedule of Property and Equipment

Property and equipment consisted of the following (in thousands):

 

     December 31,  
     2013      2014  

Computer equipment and software

   $ 22,276       $ 24,968   

Office equipment

     3,235         3,624   

Furniture & fixtures

     3,083         4,075   

Construction in progress

     456         684   

Leasehold improvements

     2,967         3,752   
  

 

 

    

 

 

 

Total property and equipment

     32,017         37,103   

Less accumulated depreciation and amortization

     (18,819      (23,627
  

 

 

    

 

 

 

Property and equipment, net

   $ 13,198       $ 13,476   
  

 

 

    

 

 

 
Accrued Liabilities (Tables)
Summary of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2013
     December 31,
2014
 

Marketing programs

   $ 4,631       $ 7,626   

Payroll and payroll related

     9,719         14,873   

Professional fees

     1,064         1,961   

Other accrued liabilities

     4,696         5,022   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 20,110       $ 29,482   
  

 

 

    

 

 

 
Income Taxes (Tables)

The domestic and foreign components of income before provision for income taxes are as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Domestic

   $ 7,789       $ 10,389       $ (4,462 )

Foreign

     (1,532 )      (11,857      13,856   
  

 

 

    

 

 

    

 

 

 

Total income (loss) before provision for income taxes

   $ 6,257       $ (1,468    $ 9,394   
  

 

 

    

 

 

    

 

 

 

The provision for income taxes is as follows (in thousands):

 

     Years Ended December 31,  
     2012      2013      2014  

Current

        

Federal

   $ 8,324       $ 5,480       $ 2,804   

State

     1,181         1,346         1,184   

Foreign

     126         952         1,052   
  

 

 

    

 

 

    

 

 

 

Total

     9,631         7,778         5,040   
  

 

 

    

 

 

    

 

 

 

Deferred

        

Federal

     (4,926 )      (1,379      (3,069

State

     44         (177      (748

Foreign

     (2,058      (8      216   
  

 

 

    

 

 

    

 

 

 

Total

     (6,940 )      (1,564      (3,601
  

 

 

    

 

 

    

 

 

 

Total provision for income taxes

   $ 2,691       $ 6,214       $ 1,439   
  

 

 

    

 

 

    

 

 

 

A reconciliation of the Company’s effective tax rate to the statutory federal income tax rate is as follows:

 

     For the Years Ended December 31,  
         2012             2013             2014      

Statutory tax rate

     35.0 %     35.0 %     35.0 %

Change in valuation allowance

     (10.8 )              

Impact of permanent differences

     15.6        (82.3 )     16.2   

Foreign tax rate differential

     (11.5 )     (346.9 )     (39.1 )

Research and development credits

            23.1        (2.6 )

State taxes, net of federal benefit

     13.8        (51.9 )     2.9   

Impact of uncertain tax positions

     0.8        (3.6 )     3.8   

Other

     0.1        3.4