LOGMEIN, INC., 10-Q filed on 7/26/2013
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2013
Jul. 22, 2013
Document Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q2 
 
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
No 
 
Entity Current Reporting Status
Yes 
 
Entity Voluntary Filers
No 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
24,267,108 
Condensed Consolidated Balance Sheets (USD $)
Jun. 30, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 101,077,607 
$ 111,931,599 
Marketable securities
100,357,728 
100,160,889 
Accounts receivable (net of allowance for doubtful accounts of $180,000 and $207,000 as of December 31, 2012 and June 30, 2013, respectively)
9,588,721 
13,231,017 
Prepaid expenses and other current assets
7,008,252 
3,619,864 
Deferred income tax assets
3,222,402 
3,214,311 
Total current assets
221,254,710 
232,157,680 
Property and equipment, net
11,453,318 
6,575,671 
Restricted cash
3,798,044 
3,806,603 
Intangibles, net
5,995,513 
6,368,024 
Goodwill
18,711,947 
18,883,449 
Other assets
3,345,109 
1,550,497 
Deferred income tax assets
9,960,937 
10,195,860 
Total assets
274,519,578 
279,537,784 
Current liabilities:
 
 
Accounts payable
6,117,994 
7,773,102 
Accrued liabilities
18,820,815 
16,656,801 
Deferred revenue, current portion
74,605,632 
65,874,832 
Total current liabilities
99,544,441 
90,304,735 
Deferred revenue, net of current portion
3,095,241 
3,774,049 
Other long-term liabilities
647,858 
821,736 
Total liabilities
103,287,540 
94,900,520 
Commitments and contingencies (Note 10)
   
   
Preferred stock, $0.01 par value - 5,000,000 shares authorized, 0 shares outstanding as of December 31, 2012 and June 30, 2013
   
   
Equity:
 
 
Common stock, $0.01 par value - 75,000,000 shares authorized as of December 31, 2012 and June 30, 2013; 24,814,007 and 24,982,722 shares issued as of December 31, 2012 and June 30, 2013, respectively; 24,814,007 and 24,222,237 outstanding as of December 31, 2012 and June 30, 2013, respectively
250,241 
248,140 
Additional paid-in capital
188,177,527 
178,546,385 
Retained earnings (accumulated deficit)
(923,834)
6,242,762 
Accumulated other comprehensive loss
(1,664,914)
(400,023)
Treasury stock, at cost - 0 and 760,485 shares as of December 31, 2012 and June 30, 2013, respectively
(14,606,982)
 
Total equity
171,232,038 
184,637,264 
Total liabilities and equity
$ 274,519,578 
$ 279,537,784 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Jun. 30, 2013
Dec. 31, 2012
Statement Of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 207,000 
$ 180,000 
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
24,982,722 
24,814,007 
Common stock, shares outstanding
24,222,237 
24,814,007 
Treasury stock, shares
760,485 
Condensed Consolidated Statements of Operations (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Income Statement [Abstract]
 
 
 
 
Revenue
$ 40,669,695 
$ 33,796,581 
$ 78,106,252 
$ 66,484,512 
Cost of revenue
4,775,820 
3,424,728 
9,184,501 
6,842,046 
Gross profit
35,893,875 
30,371,853 
68,921,751 
59,642,466 
Operating expenses
 
 
 
 
Research and development
6,917,933 
6,696,432 
14,308,957 
12,916,403 
Sales and marketing
22,566,866 
16,474,132 
43,134,733 
33,319,955 
General and administrative
6,351,845 
4,799,987 
17,872,172 
9,705,251 
Amortization of acquired intangibles
180,254 
145,680 
359,380 
272,945 
Total operating expenses
36,016,898 
28,116,231 
75,675,242 
56,214,554 
Income (loss) from operations
(123,023)
2,255,622 
(6,753,491)
3,427,912 
Interest income, net
155,254 
217,977 
320,342 
433,467 
Other (expense) income
(198,199)
(269,325)
453,921 
(505,590)
Income (loss) before income taxes
(165,968)
2,204,274 
(5,979,228)
3,355,789 
Provision for income taxes
(1,193,973)
(1,628,597)
(1,187,368)
(2,703,872)
Net income (loss)
$ (1,359,941)
$ 575,677 
$ (7,166,596)
$ 651,917 
Net income (loss) per share:
 
 
 
 
Basic
$ (0.06)
$ 0.02 
$ (0.29)
$ 0.03 
Diluted
$ (0.06)
$ 0.02 
$ (0.29)
$ 0.03 
Weighted average shares outstanding:
 
 
 
 
Basic
24,262,417 
24,677,893 
24,485,429 
24,625,851 
Diluted
24,262,417 
25,367,227 
24,485,429 
25,360,950 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Amounts Reclassified Out Of Accumulated Other Comprehensive Income Loss [Abstract]
 
 
 
 
Net income (loss)
$ (1,359,941)
$ 575,677 
$ (7,166,596)
$ 651,917 
Other comprehensive income (loss):
 
 
 
 
Net unrealized gains (losses) on marketable securities, net of tax
(49,029)
(4,295)
(68,535)
6,438 
Net translation gains (losses)
317,802 
(905,512)
(1,196,356)
130,201 
Total other comprehensive income (loss)
268,773 
(909,807)
(1,264,891)
136,639 
Comprehensive income (loss)
$ (1,091,168)
$ (334,130)
$ (8,431,487)
$ 788,556 
Condensed Consolidated Statements of Cash Flows (USD $)
6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Cash flows from operating activities
 
 
Net income (loss)
$ (7,166,596)
$ 651,917 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
Depreciation and amortization
3,596,005 
2,848,825 
Amortization of premium on investments
76,689 
22,370 
Provision for bad debts
40,929 
55,000 
Provision for deferred income taxes
198,398 
173 
Stock-based compensation
10,281,755 
6,073,007 
Gain on disposal of equipment
(700)
(661)
Changes in assets and liabilities:
 
 
Accounts receivable
3,601,368 
441,348 
Prepaid expenses and other current assets
(3,388,388)
(513,585)
Other assets
(1,794,613)
11,355 
Accounts payable
(2,408,753)
(871,267)
Accrued liabilities
1,997,040 
2,235,628 
Deferred revenue
8,051,992 
4,138,268 
Other long-term liabilities
(173,879)
1,053,721 
Net cash provided by operating activities
12,911,247 
16,146,099 
Cash flows from investing activities
 
 
Purchases of marketable securities
(60,381,150)
(74,987,000)
Proceeds from sale or disposal of marketable securities
60,000,000 
70,000,000 
Purchases of property and equipment
(6,456,043)
(2,284,816)
Intangible asset additions
(914,633)
(566,442)
Cash paid for acquisition, net of cash acquired
   
(14,831,525)
(Increase) decrease in restricted cash and deposits
125,000 
(3,557,760)
Net cash used in investing activities
(7,626,826)
(26,227,543)
Cash flows from financing activities
 
 
Proceeds from issuance of common stock upon option exercises
266,976 
2,012,777 
Income tax benefit from the exercise of stock options
2,000 
2,552,000 
Common stock withheld to satisfy income tax withholdings for restricted stock unit vesting
(917,488)
   
Purchase of treasury stock
(14,606,982)
   
Net cash provided by (used in) financing activities
(15,255,494)
4,564,777 
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(882,919)
356,524 
Net decrease in cash and cash equivalents
(10,853,992)
(5,160,143)
Cash and cash equivalents, beginning of period
111,931,599 
103,603,684 
Cash and cash equivalents, end of period
101,077,607 
98,443,541 
Supplemental disclosure of cash flow information
 
 
Cash paid for interest
73 
215 
Cash paid for income taxes
6,286,667 
380,787 
Noncash investing and financing activities
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
1,514,742 
871,749 
Fair value of contingent consideration in connection with acquisition included in accrued liabilities and other long term liabilities
$ 176,454 
$ 234,568 
Nature of the Business
Nature of the Business

1. Nature of the Business

LogMeIn, Inc. (the “Company”) provides essential cloud-based collaboration, IT management and customer service offerings aimed at addressing the evolving multi-device security, management and accessibility requirements of the new mobile workplace. The Company’s product line includes BoldChat®, Cubby, join.me®, LogMeIn Free®, LogMeIn Pro®, LogMeIn® Central, LogMeIn Rescue®, LogMeIn® Rescue+Mobile, LogMeIn Backup®, LogMeIn Ignition, LogMeIn for iOS, LogMeIn Hamachi®, Xively, AppGuru, and RemotelyAnywhere® The Company is headquartered in Boston, Massachusetts with wholly-owned subsidiaries in Hungary, The Netherlands, Australia, the United Kingdom, Brazil, Japan, India and Ireland.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

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

Unaudited Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated financial statements and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited and have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read along with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 22, 2013. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results for the interim periods presented are not necessarily indicative of future results. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

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

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2012 and June 30, 2013, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of $100,082,602 and $100,387,064 and an aggregate fair value of $100,160,889 and $100,357,728, including $82,787 and $29,692 of unrealized gains and $4,500 and $59,028 of unrealized losses, respectively.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services, the licensing of its Ignition for iPhone, iPad, and Android software products, and from the licensing of its RemotelyAnywhere software and its related maintenance.

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.

Revenue from the sales of the Company’s Ignition for iPhone, iPad and Android software products, which are sold as a perpetual license, is recognized when there is persuasive evidence of an arrangement, the product has been provided to the customer, the collection of the fee is probable, and the amount of fees to be paid by the customer is fixed or determinable.

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. 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 total 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.

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

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, 2012, no customers accounted for 10% or more of accounts receivable and no customers accounted for 10% or more of revenue for the three and six months ended June 30, 2012 or 2013. As of June 30, 2013, one customer accounted for 10% of accounts receivable.

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

In June 2013, the Company received approval of a grant from the Hungarian government which reimburses it for a portion of its Hungarian research and development related costs for a two and a half year period, beginning in April 2013. These reimbursements are recorded as a reduction of research and development expenses and total approximately $35,000 for the three month ended June 30, 2013.

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 annual impairment test of goodwill on the last day of its fiscal year and 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. Through June 30, 2013, no impairments have occurred.

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their estimated fair values at the date of acquisition. Intangible assets are 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. The Company’s intangible assets have estimated useful lives which range from one to seven years.

Foreign Currency Translation — The functional currency of operations outside the United States of America is deemed to be the currency of the local country. 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 $269,000 and $506,000 for the three and six months ended June 30, 2012, respectively, and foreign currency losses of approximately $199,000 for the three months ended June 30, 2013 and foreign currency gains of approximately $454,000 for the six months ended June 30, 2013.

Stock-Based Compensation — Stock-based compensation is measured based upon the grant date fair value and recognized as an expense on a straight-line basis in the financial statements over the vesting period of the award for those awards expected to vest. The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of stock awards. 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 or positions 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. Through December 31, 2012 and June 30, 2013, the Company has provided a liability for approximately $251,000 and $272,000 for uncertain tax positions, respectively. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

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 by geography (based on customer address) is as follows:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Revenues:

           

United States

   $ 21,887,000       $ 26,695,000       $ 43,084,000       $ 51,483,000   

United Kingdom

     3,087,000         3,643,000         6,095,000         7,105,000   

International - all other

     8,823,000         10,332,000         17,306,000         19,518,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 33,797,000       $ 40,670,000       $ 66,485,000       $ 78,106,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 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 June 30, 2013, the Company has not experienced any losses related to these indemnification obligations.

During 2012, certain of the Company’s customers received letters from Pragmatus Telecom LLC, or Pragmatus, claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. In response, the Company filed suit against Pragmatus in the U.S. District Court for the District of Delaware on November 21, 2012 seeking a declaratory judgment that the Company’s products did not infringe the three patents allegedly owned by Pragmatus and further requesting a declaratory judgment that those three patents be declared invalid. 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. In connection with the License Agreement, the Company agreed to pay Pragmatus a one-time licensing fee, a portion of which was reimbursed 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. The reimbursement funds were received by the Company in March 2013 and the licensing fee was paid to Pragmatus in April 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013. For additional information regarding the Pragmatus matter please refer to Part II, Item 1 entitled “Legal Proceedings” and note 10 of the notes to consolidated financial statements.

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 three and six months ended June 30, 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:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Options to purchase common shares

     1,587,310         2,946,607         1,586,910         2,946,607   

Restricted stock units

     141,837         1,134,804         940         1,134,804   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     1,729,147         4,081,411         1,587,850         4,081,411   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Three Months Ended
June 30, 2012
    Six Months Ended
June 30, 2012
 

Basic:

    

Net income

   $ 575,677      $ 651,917   
  

 

 

   

 

 

 

Weighted average common shares outstanding, basic

     24,677,893        24,625,851   
  

 

 

   

 

 

 

Net income, basic

   $ 0.02      $ 0.03   
  

 

 

   

 

 

 

Diluted:

    

Net income

   $ 575,677      $ 651,917   
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,677,893        24,625,851   

Add: Options to purchase common shares

     689,334        735,099   
  

 

 

   

 

 

 

Weighted average common shares outstanding, diluted

     25,367,227        25,360,950   
  

 

 

   

 

 

 

Net income, diluted

   $ 0.02      $ 0.03   
  

 

 

   

 

 

 

 

     Three Months Ended
June 30, 2013
    Six Months Ended
June 30, 2013
 

Basic and diluted net loss per share:

    

Net loss

   $ (1,359,941 )   $ (7,166,596 )
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,262,417        24,485,429   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.06 )   $ (0.29 )
  

 

 

   

 

 

 

Recently Issued Accounting Pronouncements — In February 2013, the FASB issued ASU 2013-02 relating to comprehensive income (FASB ASC Topic 220), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component (the respective line items of net income). This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this ASU and the impact was not material to its disclosures.

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 reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

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

Bank deposits are classified within the second level of the fair value hierarchy and the fair value of those assets are determined based upon quoted prices for similar assets in active markets.

 

     Basis of Fair Value Measurements  
     Balance      Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Balance at December 31, 2012

           

Cash equivalents - money market funds

   $ 49,209,098       $ 49,209,098       $ —        $ —    

Cash equivalents - bank deposits

     5,037,169         —          5,037,169         —    

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

     100,160,889         90,138,019         10,022,870         —    

Contingent consideration liability

     161,494         —          —          161,494   

Balance at June 30, 2013

           

Cash equivalents - money market funds

     48,995,405         48,995,405         —          —    

Cash equivalents - bank deposits

     5,038,325         —          5,038,325         —    

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

     100,357,728         95,358,878         4,998,850         —    

Contingent consideration liability

     176,454         —          —          176,454   

 

The Level 3 liability consists of contingent consideration related to the July 19, 2011 acquisition of Xively, formally known as Cosm. 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 13% 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:

 

     Six
Months Ended
June 30,
2012
     Six
Months Ended
June 30,
2013
 

Balance beginning of period

   $ 212,536       $ 161,494   

Change in fair value (included within research and development expense)

     22,032         14,960   
  

 

 

    

 

 

 

Balance end of period

   $ 234,568       $ 176,454   
  

 

 

    

 

 

 
Acquisitions
Acquisitions

4. Acquisitions

On January 6, 2012, the Company acquired substantially all of the assets of Bold Software, LLC (“Bold”), a Wichita, Kansas-based limited liability corporation, for a cash purchase price of approximately $15.3 million plus contingent, retention-based bonuses totaling $1.5 million, which are expected to be paid over a two year period from the date of acquisition. Bold is a leading provider of web chat and customer communications software.

The Bold 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 calculate 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:

 

     Amount  

Cash

   $ 482,000   

Current assets

     126,000   

Other assets

     19,000   

Deferred revenue

     (424,000 )

Other liabilities

     (107,000 )

Completed technology

     1,090,000   

Trade name and trademark

     30,000   

Customer relationships

     2,760,000   

Non-compete agreements

     160,000   

Goodwill

     11,178,000   
  

 

 

 

Total purchase price

   $ 15,314,000   
  

 

 

 

The asset purchase agreement included a contingent, retention-based bonus program provision requiring the Company to make additional payments to employees, including former Bold owners now employed by the Company, on the first and second anniversaries of the acquisition, contingent upon their continued employment. The range of the contingent, retention-based bonus payments that the Company could pay is between $0 to $1,500,000. 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. As of July 15, 2013, the Company has paid $594,000 in contingent, retention-based bonus payments and expects to pay $888,000 in January 2014.

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 existing sales and marketing capacity and customer base to accelerate BoldChat sales, and the ability to leverage Bold’s technology with the Company’s existing support service. All goodwill acquired is expected to be deductible for income tax purposes.

The Company incurred approximately $0.1 million of acquisition-related costs which are included in general and administrative expense for the three and six months ended June 30, 2012.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

The changes in the carry amounts of goodwill for six months ended June 30, 2013 are due to the impact of foreign currency translation adjustments related to intangible asset balances that are recorded in non-U.S. currencies.

Changes in goodwill for the six months ended June 30, 2013, are as follows:

 

Balance, December 31, 2012

   $ 18,883,449   

Foreign currency translation adjustments

     (171,502 )
  

 

 

 

Balance, June 30, 2013

   $ 18,711,947   

 

Intangible assets consist of the following:

 

            December 31, 2012      June 30, 2013  
     Estimated
Useful Life
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Trademark

     1-5 years       $ 665,844       $ 665,844       $ —        $ 665,844       $ 665,844       $ —    

Customer base

     5-7 years         3,789,117         1,447,297         2,341,820         3,789,117         1,674,063         2,115,054   

Domain names

     5 years         534,257         137,378         396,879         891,076         257,020         634,056   

Software

     4 years         298,977         298,977         —          298,977         298,977         —    

Technology

     4-6 years         2,463,402         1,580,896         882,506         2,463,402         1,708,114         755,288   

Technology and know-how

     3 years         3,256,803         1,576,600         1,680,203         3,176,431         2,067,097         1,109,334   

Non-compete agreements

     5 years         161,691         8,721         152,970         161,691         21,407         140,284   

Internally developed software

     3 years         1,281,589         367,943         913,646         1,837,747         596,250         1,241,497   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 12,451,680       $ 6,083,656       $ 6,368,024       $ 13,284,285       $ 7,288,772       $ 5,995,513   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As a result of the Bold acquisition, the Company capitalized $1,090,000 of technology, $30,000 of trade names and trademarks, $2,760,000 of customer base and $160,000 of non-compete agreements as intangible assets. Changes in the gross carrying amount of the intangible assets 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 one to seven years.

The Company capitalized $186,676 and $317,125 during the three months ended June 30, 2012 and 2013, respectively, and $294,884 and $556,158 during the six months ended June 30, 2012 and 2013, respectively of costs related to internally developed computer software to be sold as a service incurred during the application development stage and is amortizing these costs over the expected lives of the related services. The Company paid $56,250 and $358,475 to acquire domain names in the three and six months ended June 30, 2013.

The Company is amortizing its intangible assets over the estimated lives noted above. Amortization expense for intangible assets was $516,787 and $632,765 for the three months ended June 30, 2012 and 2013, respectively, and $1,025,420 and $1,244,310 for the six months ended June 30, 2012 and 2013, respectively. Amortization relating to software, technology and internally developed software is recorded within cost of revenues and the amortization of trade name and trademark, customer base, domain names, and non-compete agreements is recorded within operating expenses. Future estimated amortization expense for intangible assets is as follows at June 30, 2013:

 

Amortization Expense (Years Ending December 31)

   Amount  

2013 (Six months ending December 31)

     1,263,479   

2014

     2,014,454   

2015

     1,189,926   

2016

     735,490   

2017

     480,534   

Thereafter

     311,630   
  

 

 

 

Total

   $ 5,995,513   
  

 

 

 
Accrued Expenses
Accrued Expenses

6. Accrued Expenses

Accrued expenses consisted of the following:

 

     December 31,
2012
     June 30,
2013
 

Marketing programs

   $ 2,688,818       $ 4,129,788   

Payroll and payroll related

     7,970,443         9,365,205   

Professional fees

     1,711,926         1,200,143   

Other accrued expenses

     4,285,614         4,125,679   
  

 

 

    

 

 

 

Total accrued expenses

   $ 16,656,801       $ 18,820,815   
  

 

 

    

 

 

 
Income Taxes
Income Taxes

7. Income Taxes

The Company recorded a provision for federal, state and foreign income taxes of approximately $1.6 million and $1.2 million for the three months ended June 30, 2012 and 2013, respectively, and $2.7 million and $1.2 million for the six months ended June 30, 2012 and 2013, respectively. The tax provision recorded in the three and six months ended June 30, 2013 is due to generating taxable income primarily in the United States offset by losses in certain foreign jurisdictions where there is no corresponding benefit.

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.

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 in 2012. As of December 31, 2012, and June 30, 2013, 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 Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s income tax returns since inception are open to examination by federal, state, and foreign tax authorities. The Company has recorded a liability related to uncertain tax provisions of approximately $251,000 and $272,000 as of December 31, 2012 and June 30, 2013, respectively. The Company’s policy is to record estimated interest and penalty related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision. The Company recognized approximately $2,000 of interest expense in its statements of income during the three and six months ended June 30, 2012, respectively. The Company did not recognize any interest or penalties in its statement of operations during the three or six months ended June 30, 2013, and there are no accruals for interest or penalties at either December 31, 2012 or June 30, 2013.

The Company has performed an analysis of its ownership changes as defined by Section 382 of the Internal Revenue Code and has determined that an ownership change as defined by Section 382 occurred in October 2004 and March 2010 resulting in approximately $219,000 and $12,800,000, respectively, of net operating losses, or NOLs, being subject to limitation. As of December 31, 2012 and June 30, 2013, the Company believes all NOLs generated by the Company, including those subject to limitation, are available for utilization given the Company’s large annual limitation amount. Subsequent ownership changes as defined by Section 382 could potentially limit the amount of net operating loss carry-forwards that can be utilized annually to offset future taxable income.

Common Stock and Equity
Common Stock and Equity

8. Common Stock and Equity

In February 2013, the Company’s board of directors approved a $25 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.

 

For the three and six months ended June 30, 2013, the Company repurchased 258,663 and 760,485 shares of its common stock at an average price of $21.76 and $19.21 per share at a cost of approximately $5,627,000 and $14,607,000, respectively. At June 30, 2013, approximately $10,393,000 remained available under the Company’s share repurchase program.

Stock Based Awards
Stock Based Awards

9. Stock Based Awards

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 generally vest over a three-year period. Certain stock-based awards provide for accelerated vesting if there is a change in control. On May 23, 2013, the Company’s stockholders approved an amendment to the 2009 Plan that increased the shares available to grant under the plan by 1,400,000 shares. There were 1,703,426 shares available for grant under the 2009 Plan as of June 30, 2013.

The Company uses the Black-Scholes option-pricing model to estimate the grant date fair value of stock awards. 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 award 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 awards 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 and three years for restricted stock units.

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

 

     Three Months Ended June 30,    Six Months Ended June 30,
               2012                         2013               2012    2013

Expected dividend yield

   0.00%    0.00%    0.00%    0.00%

Risk-free interest rate

   0.77%    0.89%    0.77% - 0.87%    0.87% - 0.89%

Expected term (in years)

   5.56 - 6.25    6.25    5.56 - 6.25    6.25

Volatility

   55%    55%    55% - 60%    55%

The following table summarizes stock option activity, including performance-based options:

 

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

Outstanding at January 1, 2013

     2,941,098      $ 25.90         7.2       $ 14,173,945   
          

 

 

 

Granted

     180,375        21.97         

Exercised

     (61,371 )     4.32          $ 945,134   
          

 

 

 

Forfeited

     (113,495 )     33.69         
  

 

 

   

 

 

       

Outstanding at June 30, 2013

     2,946,607      $ 25.84         6.9       $ 15,785,517   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2012

     1,361,728      $ 17.16         5.6       $ 13,090,809   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2013

     1,708,298      $ 21.31         5.9       $ 14,338,894   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value was calculated based on the positive differences between the fair value of the Company’s common stock on December 31, 2012 of $22.41 and $24.46 per share on June 30, 2013, 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 per share for the year ended December 31, 2012, and $11.46 for the six months ended June 30, 2013.

During the three and six months ended June 30, 2013, the Company granted 377,575 and 519,370 restricted stock units, respectively, containing time-based vesting conditions which generally lapse over a three year period. Upon vesting, the restricted stock units entitle the holder to receive one share of common stock for each restricted stock unit. As of June 30, 2013, the Company estimates that 888,236 shares of restricted stock units with an intrinsic value of approximately $23,902,429 and a weighted average remaining contractual term of 2.3 years will ultimately vest.

 

The following table summarizes restricted stock unit activity:

 

     Number of shares
Underlying Restricted
Stock Units
    Weighted Average
Grant Date

Fair Value
 

Unvested as of January 1, 2013

     782,805      $ 31.14   

Restricted stock units granted

     519,370        22.41   

Restricted stock units vested

     (148,766 )     33.12   

Restricted stock units forfeited

     (18,605 )     29.46   
  

 

 

   

 

 

 

Unvested as of June 30, 2013

     1,134,804      $ 26.91   
  

 

 

   

 

 

 

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Cost of revenue

   $ 107,789       $ 180,702       $ 214,970       $ 383,965   

Research and development

     574,452         1,044,848         1,156,167         2,061,654   

Sales and marketing

     900,724         2,145,877         1,850,669         4,226,797   

General and administrative

     1,505,606         1,745,657         2,851,201         3,609,339   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,088,571       $ 5,117,084       $ 6,073,007       $ 10,281,755   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2013, there was approximately $41,479,000 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 2.3 years. The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.

Commitments and Contingencies
Commitments and Contingencies

10. Commitments and Contingencies

Operating Leases — The Company has operating lease agreements for offices in Massachusetts, Hungary, Australia, the United Kingdom, Ireland and India that expire through 2023.

In April 2012, the Company entered into a lease for a new corporate headquarters located in Boston, Massachusetts. The landlord was obligated to rehabilitate the existing building and the lease term began in April 2013 and extends through July 2023. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $41.3 million. Pursuant to the terms of the lease, the landlord was responsible for making certain improvements to the leased space up to an agreed upon cost to the landlord. Any excess costs for these improvements were billed by the landlord to the Company as additional rent. These excess costs total $5.3 million, of which approximately $4.0 million was paid as of June 30, 2013. 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. The security deposit is classified as restricted cash. The lease includes an option to extend the original term of the lease for two successive five year periods.

In October 2012, the Company entered into a lease for new office space in Dublin, Ireland. The term of the new office space began in October 2012 and extends through October 2022. The approximate annual lease payments for the new office space are $159,000 (EUR 122,000). The lease agreement required a security deposit of approximately $243,000 (EUR 187,000) and contains a termination option which allows the Company to terminate the lease pursuant to certain lease provisions.

Rent expense under all leases was approximately $797,000 and $1,588,000 for the three months ended June 30, 2012 and 2013, respectively, and $1,555,000 and $2,652,000 for the six months ended June 30, 2012 and 2013, 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 totaled approximately $632,000 and $1,253,000 for the three months ended June 30, 2012 and 2013, respectively and $1,386,000 and $2,328,000 for the six months ended June 30, 2012 and 2013, respectively.

On July 2, 2013, the Company entered into an agreement to purchase a software asset. The Company will pay between $7.0 and $12.0 million for the asset depending on the type and timing of the final deliverables from the seller. Payment is expected to be made in the fourth quarter of 2013, and the purchased asset will be included in Intangible Assets.

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 June 30, 2013:

 

Years Ending December 31

      

2013 (Six months ending December 31) (1)

   $ 16,828,000   

2014

     6,795,000   

2015

     5,539,000   

2016

     5,513,000   

2017

     4,381,000   

Thereafter

     25,236,000   
  

 

 

 

Total minimum lease payments

   $ 64,292,000   
  

 

 

 

 

(1) Assumes the Company will pay $12.0 million for the purchased software asset in the fourth quarter of 2013.

 

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. On April 1, 2011, the U.S. District Court for the Eastern District of Virginia granted the Company’s motion for summary judgment of non-infringement. The court issued a written order regarding this decision on May 4, 2011. On May 13, 2011, 01 filed a notice of appeal appealing the court’s ruling granting summary judgment. On July 31, 2012, the U.S. Court of Appeals for the Federal Circuit vacated the lower court’s summary judgment of non-infringement ruling and remanded the case back to the U.S. District Court for the Eastern District of Virginia with revised claim construction. 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. The court issued a written order regarding this decision on April 2, 2013. On June 26, 2013, the court issued a written opinion denying all pending post-trial motions, thereby preserving the jury’s non-infringement verdict. On June 26, 2013, 01 filed a notice of appeal seeking to appeal the jury’s non-infringement verdict and on July 18, 2013, the Company filed a notice of cross appeal seeking to appeal the jury’s decisions regarding invalidity and inequitable conduct. A hearing date has not been scheduled at this time.

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 and further requesting a declaratory judgment that those three patents are invalid. The three patents in question are U.S. Patent Nos. 6,311,231, 6,668,286 and 7,159,043, which allegedly are owned by Pragmatus and generally relate to systems for communicating with customers over traditional telephone lines and the Internet. Pragmatus had previously alleged that these patents were infringed upon by certain of the Company’s customers through their use of the Company’s products. On January 11, 2013, Pragmatus answered the Company’s complaint and asserted counterclaims against the Company alleging infringement. On March 29, 2013, the Company entered into a License Agreement with Pragmatus which granted the Company a fully-paid license that covers the patents at issue in this action and mutually released each party from all claims. 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.

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.

Summary of Significant Accounting Policies (Policies)

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

Unaudited Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated financial statements and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited and have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read along with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 22, 2013. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results for the interim periods presented are not necessarily indicative of future results. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

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

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2012 and June 30, 2013, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of $100,082,602 and $100,387,064 and an aggregate fair value of $100,160,889 and $100,357,728, including $82,787 and $29,692 of unrealized gains and $4,500 and $59,028 of unrealized losses, respectively.

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services, the licensing of its Ignition for iPhone, iPad, and Android software products, and from the licensing of its RemotelyAnywhere software and its related maintenance.

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.

Revenue from the sales of the Company’s Ignition for iPhone, iPad and Android software products, which are sold as a perpetual license, is recognized when there is persuasive evidence of an arrangement, the product has been provided to the customer, the collection of the fee is probable, and the amount of fees to be paid by the customer is fixed or determinable.

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. 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 total 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.

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

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, 2012, no customers accounted for 10% or more of accounts receivable and no customers accounted for 10% or more of revenue for the three and six months ended June 30, 2012 or 2013. As of June 30, 2013, one customer accounted for 10% of accounts receivable.

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

In June 2013, the Company received approval of a grant from the Hungarian government which reimburses it for a portion of its Hungarian research and development related costs for a two and a half year period, beginning in April 2013. These reimbursements are recorded as a reduction of research and development expenses and total approximately $35,000 for the three month ended June 30, 2013.

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 annual impairment test of goodwill on the last day of its fiscal year and 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. Through June 30, 2013, no impairments have occurred

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their estimated fair values at the date of acquisition. Intangible assets are 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. The Company’s intangible assets have estimated useful lives which range from one to seven years.

Foreign Currency Translation — The functional currency of operations outside the United States of America is deemed to be the currency of the local country. 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 $269,000 and $506,000 for the three and six months ended June 30, 2012, respectively, and foreign currency losses of approximately $199,000 for the three months ended June 30, 2013 and foreign currency gains of approximately $454,000 for the six months ended June 30, 2013.

Stock-Based Compensation — Stock-based compensation is measured based upon the grant date fair value and recognized as an expense on a straight-line basis in the financial statements over the vesting period of the award for those awards expected to vest. The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of stock awards. 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 or positions 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. Through December 31, 2012 and June 30, 2013, the Company has provided a liability for approximately $251,000 and $272,000 for uncertain tax positions, respectively. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

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 by geography (based on customer address) is as follows:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Revenues:

           

United States

   $ 21,887,000       $ 26,695,000       $ 43,084,000       $ 51,483,000   

United Kingdom

     3,087,000         3,643,000         6,095,000         7,105,000   

International - all other

     8,823,000         10,332,000         17,306,000         19,518,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 33,797,000       $ 40,670,000       $ 66,485,000       $ 78,106,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 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 June 30, 2013, the Company has not experienced any losses related to these indemnification obligations.

During 2012, certain of the Company’s customers received letters from Pragmatus Telecom LLC, or Pragmatus, claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. In response, the Company filed suit against Pragmatus in the U.S. District Court for the District of Delaware on November 21, 2012 seeking a declaratory judgment that the Company’s products did not infringe the three patents allegedly owned by Pragmatus and further requesting a declaratory judgment that those three patents be declared invalid. 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. In connection with the License Agreement, the Company agreed to pay Pragmatus a one-time licensing fee, a portion of which was reimbursed 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. The reimbursement funds were received by the Company in March 2013 and the licensing fee was paid to Pragmatus in April 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013. For additional information regarding the Pragmatus matter please refer to Part II, Item 1 entitled “Legal Proceedings” and note 10 of the notes to consolidated financial statements.

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 three and six months ended June 30, 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:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Options to purchase common shares

     1,587,310         2,946,607         1,586,910         2,946,607   

Restricted stock units

     141,837         1,134,804         940         1,134,804   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     1,729,147         4,081,411         1,587,850         4,081,411   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Three Months Ended
June 30, 2012
    Six Months Ended
June 30, 2012
 

Basic:

    

Net income

   $ 575,677      $ 651,917   
  

 

 

   

 

 

 

Weighted average common shares outstanding, basic

     24,677,893        24,625,851   
  

 

 

   

 

 

 

Net income, basic

   $ 0.02      $ 0.03   
  

 

 

   

 

 

 

Diluted:

    

Net income

   $ 575,677      $ 651,917   
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,677,893        24,625,851   

Add: Options to purchase common shares

     689,334        735,099   
  

 

 

   

 

 

 

Weighted average common shares outstanding, diluted

     25,367,227        25,360,950   
  

 

 

   

 

 

 

Net income, diluted

   $ 0.02      $ 0.03   
  

 

 

   

 

 

 

 

     Three Months Ended
June 30, 2013
    Six Months Ended
June 30, 2013
 

Basic and diluted net loss per share:

    

Net loss

   $ (1,359,941 )   $ (7,166,596 )
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,262,417        24,485,429   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.06 )   $ (0.29 )
  

 

 

   

 

 

 

Recently Issued Accounting Pronouncements — In February 2013, the FASB issued ASU 2013-02 relating to comprehensive income (FASB ASC Topic 220), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component (the respective line items of net income). This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this ASU and the impact was not material to its disclosures.

Summary of Significant Accounting Policies (Tables)

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Revenues:

           

United States

   $ 21,887,000       $ 26,695,000       $ 43,084,000       $ 51,483,000   

United Kingdom

     3,087,000         3,643,000         6,095,000         7,105,000   

International - all other

     8,823,000         10,332,000         17,306,000         19,518,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 33,797,000       $ 40,670,000       $ 66,485,000       $ 78,106,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Options to purchase common shares

     1,587,310         2,946,607         1,586,910         2,946,607   

Restricted stock units

     141,837         1,134,804         940         1,134,804   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     1,729,147         4,081,411         1,587,850         4,081,411   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended
June 30, 2012
    Six Months Ended
June 30, 2012
 

Basic:

    

Net income

   $ 575,677      $ 651,917   
  

 

 

   

 

 

 

Weighted average common shares outstanding, basic

     24,677,893        24,625,851   
  

 

 

   

 

 

 

Net income, basic

   $ 0.02      $ 0.03   
  

 

 

   

 

 

 

Diluted:

    

Net income

   $ 575,677      $ 651,917   
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,677,893        24,625,851   

Add: Options to purchase common shares

     689,334        735,099   
  

 

 

   

 

 

 

Weighted average common shares outstanding, diluted

     25,367,227        25,360,950   
  

 

 

   

 

 

 

Net income, diluted

   $ 0.02      $ 0.03   
  

 

 

   

 

 

 

 

     Three Months Ended
June 30, 2013
    Six Months Ended
June 30, 2013
 

Basic and diluted net loss per share:

    

Net loss

   $ (1,359,941 )   $ (7,166,596 )
  

 

 

   

 

 

 

Weighted average common shares outstanding

     24,262,417        24,485,429   
  

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (0.06 )   $ (0.29 )
  

 

 

   

 

 

 
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:

Bank deposits are classified within the second level of the fair value hierarchy and the fair value of those assets are determined based upon quoted prices for similar assets in active markets.

 

     Basis of Fair Value Measurements  
     Balance      Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Balance at December 31, 2012

           

Cash equivalents - money market funds

   $ 49,209,098       $ 49,209,098       $ —        $ —    

Cash equivalents - bank deposits

     5,037,169         —          5,037,169         —    

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

     100,160,889         90,138,019         10,022,870         —    

Contingent consideration liability

     161,494         —          —          161,494   

Balance at June 30, 2013

           

Cash equivalents - money market funds

     48,995,405         48,995,405         —          —    

Cash equivalents - bank deposits

     5,038,325         —          5,038,325         —    

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

     100,357,728         95,358,878         4,998,850         —    

Contingent consideration liability

     176,454         —          —          176,454   

A reconciliation of the beginning and ending Level 3 liability is as follows:

 

     Six
Months Ended
June 30,
2012
     Six
Months Ended
June 30,
2013
 

Balance beginning of period

   $ 212,536       $ 161,494   

Change in fair value (included within research and development expense)

     22,032         14,960   
  

 

 

    

 

 

 

Balance end of period

   $ 234,568       $ 176,454   
  

 

 

    

 

 

 
Acquisitions (Tables) (Bold [Member])
Purchase Price Allocation

The purchase price was allocated as follows:

 

     Amount  

Cash

   $ 482,000   

Current assets

     126,000   

Other assets

     19,000   

Deferred revenue

     (424,000 )

Other liabilities

     (107,000 )

Completed technology

     1,090,000   

Trade name and trademark

     30,000   

Customer relationships

     2,760,000   

Non-compete agreements

     160,000   

Goodwill

     11,178,000   
  

 

 

 

Total purchase price

   $ 15,314,000   
  

 

 

 
Goodwill and Intangible Assets (Tables)

Changes in goodwill for the six months ended June 30, 2013, are as follows:

 

Balance, December 31, 2012

   $ 18,883,449   

Foreign currency translation adjustments

     (171,502 )
  

 

 

 

Balance, June 30, 2013

   $ 18,711,947   

Intangible assets consist of the following:

 

            December 31, 2012      June 30, 2013  
     Estimated
Useful Life
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Trademark

     1-5 years       $ 665,844       $ 665,844       $ —        $ 665,844       $ 665,844       $ —    

Customer base

     5-7 years         3,789,117         1,447,297         2,341,820         3,789,117         1,674,063         2,115,054   

Domain names

     5 years         534,257         137,378         396,879         891,076         257,020         634,056   

Software

     4 years         298,977         298,977         —          298,977         298,977         —    

Technology

     4-6 years         2,463,402         1,580,896         882,506         2,463,402         1,708,114         755,288   

Technology and know-how

     3 years         3,256,803         1,576,600         1,680,203         3,176,431         2,067,097         1,109,334   

Non-compete agreements

     5 years         161,691         8,721         152,970         161,691         21,407         140,284   

Internally developed software

     3 years         1,281,589         367,943         913,646         1,837,747         596,250         1,241,497   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 12,451,680       $ 6,083,656       $ 6,368,024       $ 13,284,285       $ 7,288,772       $ 5,995,513   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Future estimated amortization expense for intangible assets is as follows at June 30, 2013:

 

Amortization Expense (Years Ending December 31)

   Amount  

2013 (Six months ending December 31)

     1,263,479   

2014

     2,014,454   

2015

     1,189,926   

2016

     735,490   

2017

     480,534   

Thereafter

     311,630   
  

 

 

 

Total

   $ 5,995,513   
  

 

 

 
Accrued Expenses (Tables)
Summary of Accrued Expenses

Accrued expenses consisted of the following:

 

     December 31,
2012
     June 30,
2013
 

Marketing programs

   $ 2,688,818       $ 4,129,788   

Payroll and payroll related

     7,970,443         9,365,205   

Professional fees

     1,711,926         1,200,143   

Other accrued expenses

     4,285,614         4,125,679   
  

 

 

    

 

 

 

Total accrued expenses

   $ 16,656,801       $ 18,820,815   
  

 

 

    

 

 

 
Stock Based Awards (Tables)

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

 

     Three Months Ended June 30,    Six Months Ended June 30,
               2012                         2013               2012    2013

Expected dividend yield

   0.00%    0.00%    0.00%    0.00%

Risk-free interest rate

   0.77%    0.89%    0.77% - 0.87%    0.87% - 0.89%

Expected term (in years)

   5.56 - 6.25    6.25    5.56 - 6.25    6.25

Volatility

   55%    55%    55% - 60%    55%

The following table summarizes stock option activity, including performance-based options:

 

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

Outstanding at January 1, 2013

     2,941,098      $ 25.90         7.2       $ 14,173,945   
          

 

 

 

Granted

     180,375        21.97         

Exercised

     (61,371 )     4.32          $ 945,134   
          

 

 

 

Forfeited

     (113,495 )     33.69         
  

 

 

   

 

 

       

Outstanding at June 30, 2013

     2,946,607      $ 25.84         6.9       $ 15,785,517   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2012

     1,361,728      $ 17.16         5.6       $ 13,090,809   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2013

     1,708,298      $ 21.31         5.9       $ 14,338,894   
  

 

 

   

 

 

    

 

 

    

 

 

 

The following table summarizes restricted stock unit activity:

 

     Number of shares
Underlying Restricted
Stock Units
    Weighted Average
Grant Date

Fair Value
 

Unvested as of January 1, 2013

     782,805      $ 31.14   

Restricted stock units granted

     519,370        22.41   

Restricted stock units vested

     (148,766 )     33.12   

Restricted stock units forfeited

     (18,605 )     29.46   
  

 

 

   

 

 

 

Unvested as of June 30, 2013

     1,134,804      $ 26.91   
  

 

 

   

 

 

 

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

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2013      2012      2013  

Cost of revenue

   $ 107,789       $ 180,702       $ 214,970       $ 383,965   

Research and development

     574,452         1,044,848         1,156,167         2,061,654   

Sales and marketing

     900,724         2,145,877         1,850,669         4,226,797   

General and administrative

     1,505,606         1,745,657         2,851,201         3,609,339   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,088,571       $ 5,117,084       $ 6,073,007       $ 10,281,755   
  

 

 

    

 

 

    

 

 

    

 

 

 
Commitments and Contingencies (Tables)
Schedule of Minimum Future Lease Payments Receivable

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 June 30, 2013:

 

Years Ending December 31

      

2013 (Six months ending December 31) (1)

   $ 16,828,000   

2014

     6,795,000   

2015

     5,539,000   

2016

     5,513,000   

2017

     4,381,000   

Thereafter

     25,236,000   
  

 

 

 

Total minimum lease payments

   $ 64,292,000   
  

 

 

 

 

(1) Assumes the Company will pay $12.0 million for the purchased software asset in the fourth quarter of 2013.
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended
Jun. 30, 2013
Customer
Jun. 30, 2012
Customer
Jun. 30, 2013
Segment
Customer
Jun. 30, 2012
Customer
Dec. 31, 2012
Customer
Nov. 30, 2012
Patents
Nov. 21, 2012
Patents
Mar. 31, 2013
License Agreements [Member]
Jun. 30, 2013
Minimum [Member]
Jun. 30, 2013
Maximum [Member]
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
 
 
 
 
Marketable securities, maturities remaining
 
 
2 years 
 
 
 
 
 
 
 
Marketable securities, amortized cost
$ 100,387,064 
 
$ 100,387,064 
 
$ 100,082,602 
 
 
 
 
 
Marketable securities
100,357,728 
 
100,357,728 
 
100,160,889 
 
 
 
 
 
Marketable securities, unrealized gains
29,692 
 
29,692 
 
82,787 
 
 
 
 
 
Marketable securities, unrealized losses
59,028 
 
59,028 
 
4,500 
 
 
 
 
 
Revenue, subscription period, Minimum
 
 
1 month 
 
 
 
 
 
 
 
Revenue, subscription period, Maximum
 
 
5 years 
 
 
 
 
 
 
 
Average subscription period
 
 
1 year 
 
 
 
 
 
 
 
Accounts receivable, customers accounted description
10% of accounts receivable 
 
10% of accounts receivable 
 
10% or more of accounts receivable 
 
 
 
 
 
Accounts receivable, number of customers accounted
 
 
 
 
 
 
 
Revenue, customers accounted description
10% or more of revenue 
10% or more of revenue 
10% or more of revenue 
10% or more of revenue 
 
 
 
 
 
 
Revenue, number of customers accounted
 
 
 
 
 
 
Reduction in research and development expenses
35,000 
 
 
 
 
 
 
 
 
 
Intangible assets, estimated useful lives
 
 
 
 
 
 
 
 
1 year 
7 years 
Foreign currency losses
199,000 
269,000 
 
506,000 
 
 
 
 
 
 
Foreign currency gains
 
 
454,000 
 
 
 
 
 
 
 
Uncertain tax positions
272,000 
 
272,000 
 
251,000 
 
 
 
 
 
Number of segment
 
 
 
 
 
 
 
 
 
General and administrative expense
$ 6,351,845 
$ 4,799,987 
$ 17,872,172 
$ 9,705,251 
 
 
 
$ 1,200,000 
 
 
Number of patents involved in infringement lawsuit
 
 
 
 
 
 
 
 
Summary of Significant Accounting Policies - Schedule by Geographic Areas (Detail) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
$ 40,670,000 
$ 33,797,000 
$ 78,106,000 
$ 66,485,000 
United States [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
26,695,000 
21,887,000 
51,483,000 
43,084,000 
United Kingdom [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
3,643,000 
3,087,000 
7,105,000 
6,095,000 
International - All Other [Member]
 
 
 
 
Revenue from External Customer [Line Items]
 
 
 
 
Revenue
$ 10,332,000 
$ 8,823,000 
$ 19,518,000 
$ 17,306,000 
Summary of Significant Accounting Policies - Schedule of Options to Purchase Common Shares and Restricted Stock Units (Detail)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
4,081,411 
1,729,147 
4,081,411 
1,587,850 
Options to Purchase Common Shares [Member]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
2,946,607 
1,587,310 
2,946,607 
1,586,910 
Restricted Stock Units [Member]
 
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
 
Total options and restricted stock units
1,134,804 
141,837 
1,134,804 
940 
Summary of Significant Accounting Policies - Reconciliation of Basic and Diluted Net Income per Share (Detail) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Basic and diluted net loss per share:
 
 
 
 
Net loss
$ (1,359,941)
$ 575,677 
$ (7,166,596)
$ 651,917 
Weighted average common shares outstanding
24,262,417 
 
24,485,429 
 
Basic and diluted net loss per share
$ (0.06)
 
$ (0.29)
 
Basic:
 
 
 
 
Net income
(1,359,941)
575,677 
(7,166,596)
651,917 
Weighted average common shares outstanding, basic
24,262,417 
24,677,893 
24,485,429 
24,625,851 
Net income, basic
$ (0.06)
$ 0.02 
$ (0.29)
$ 0.03 
Diluted:
 
 
 
 
Net income
$ (1,359,941)
$ 575,677 
$ (7,166,596)
$ 651,917 
Weighted average common shares outstanding
 
24,677,893 
 
24,625,851 
Add: Options to purchase common shares
 
689,334 
 
735,099 
Weighted average common shares outstanding, diluted
24,262,417 
25,367,227 
24,485,429 
25,360,950 
Net income, diluted
$ (0.06)
$ 0.02 
$ (0.29)
$ 0.03 
Fair Value of Financial Instruments - Summary of Company's Financial Assets Carried at Fair Value (Detail) (USD $)
Jun. 30, 2013
Dec. 31, 2012
Jun. 30, 2012
Jan. 6, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Contingent consideration liability
$ 176,454 
$ 161,494 
$ 234,568 
$ 212,536 
Recurring [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Contingent consideration liability
176,454 
161,494 
 
 
Recurring [Member] |
Money Market Funds [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash equivalents
48,995,405 
49,209,098 
 
 
Recurring [Member] |
Bank Deposits [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash equivalents
5,038,325 
5,037,169 
 
 
Recurring [Member] |
U.S. Government Agency Securities [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term marketable securities - U.S. government agency securities
100,357,728 
100,160,889 
 
 
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] |
Recurring [Member] |
Money Market Funds [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash equivalents
48,995,405 
49,209,098 
 
 
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] |
Recurring [Member] |
U.S. Government Agency Securities [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term marketable securities - U.S. government agency securities
95,358,878 
90,138,019 
 
 
Significant Other Observable Inputs (Level 2) [Member] |
Recurring [Member] |
Bank Deposits [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash equivalents
5,038,325 
5,037,169 
 
 
Significant Other Observable Inputs (Level 2) [Member] |
Recurring [Member] |
U.S. Government Agency Securities [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term marketable securities - U.S. government agency securities
4,998,850 
10,022,870 
 
 
Significant Unobservable Inputs (Level 3) [Member] |
Recurring [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Contingent consideration liability
$ 176,454 
$ 161,494 
 
 
Fair Value of Financial Instruments - Additional Information (Detail)
6 Months Ended
Jun. 30, 2013
Fair Value Disclosures [Abstract]
 
Fair value, discount rate
13.00% 
Fair Value of Financial Instruments - Reconciliation of Beginning and Ending Level 3 Liability (Detail) (USD $)
6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Fair Value Disclosures [Abstract]
 
 
Balance beginning of period
$ 161,494 
$ 212,536 
Change in fair value (included within research and development expense)
14,960 
22,032 
Balance end of period
$ 176,454 
$ 234,568 
Acquisitions - Additional Information (Detail) (Bold [Member], USD $)
1 Months Ended 3 Months Ended 6 Months Ended 1 Months Ended
Jan. 6, 2012
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Jul. 15, 2013
Subsequent Event [Member]
Business Acquisition [Line Items]
 
 
 
 
 
Initial cash payment
$ 15,300,000 
 
 
 
 
Contingent payments
1,500,000 
 
 
 
888,000 
Maturity period for contingent payment
 
 
2 years 
 
 
Range of contingent payments, Minimum
 
 
 
 
Range of contingent payments, Maximum
 
 
1,500,000 
 
 
Actual contingent payment paid
 
 
 
 
594,000 
Acquisition-related costs
 
$ 100,000 
 
$ 100,000 
 
Acquisitions - Purchase Price Allocation (Detail) (USD $)
Jun. 30, 2013
Dec. 31, 2012
Business Acquisition [Line Items]
 
 
Goodwill
$ 18,711,947 
$ 18,883,449 
Bold [Member]
 
 
Business Acquisition [Line Items]
 
 
Cash
482,000 
 
Current assets
126,000 
 
Other assets
19,000 
 
Deferred revenue
(424,000)
 
Other liabilities
(107,000)
 
Goodwill
11,178,000 
 
Total purchase price
15,314,000 
 
Bold [Member] |
Technology [Member]
 
 
Business Acquisition [Line Items]
 
 
Business acquisition, Intangible assets
1,090,000 
 
Bold [Member] |
Trade Name and Trademark [Member]
 
 
Business Acquisition [Line Items]
 
 
Business acquisition, Intangible assets
30,000 
 
Bold [Member] |
Customer Relationships [Member]
 
 
Business Acquisition [Line Items]
 
 
Business acquisition, Intangible assets
2,760,000 
 
Bold [Member] |
Non-Compete Agreements [Member]
 
 
Business Acquisition [Line Items]
 
 
Business acquisition, Intangible assets
$ 160,000 
 
Goodwill and Intangible Assets - Changes in Goodwill (Detail) (USD $)
6 Months Ended
Jun. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
 
Beginning balance
$ 18,883,449 
Foreign currency translation adjustments
(171,502)
Ending balance
$ 18,711,947 
Goodwill and Intangible Assets - Intangible Assets (Detail) (USD $)
6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended 6 Months Ended
Jun. 30, 2013
Dec. 31, 2012
Jun. 30, 2013
Minimum [Member]
Jun. 30, 2013
Maximum [Member]
Jun. 30, 2013
Trademark [Member]
Dec. 31, 2012
Trademark [Member]
Jun. 30, 2013
Trademark [Member]
Minimum [Member]
Jun. 30, 2013
Trademark [Member]
Maximum [Member]
Jun. 30, 2013
Customer Base [Member]
Dec. 31, 2012
Customer Base [Member]
Jun. 30, 2013
Customer Base [Member]
Minimum [Member]
Jun. 30, 2013
Customer Base [Member]
Maximum [Member]
Jun. 30, 2013
Domain Names [Member]
Dec. 31, 2012
Domain Names [Member]
Jun. 30, 2013
Domain Names [Member]
Maximum [Member]
Jun. 30, 2013
Software [Member]
Dec. 31, 2012
Software [Member]
Jun. 30, 2013
Software [Member]
Maximum [Member]
Jun. 30, 2013
Technology [Member]
Dec. 31, 2012
Technology [Member]
Jun. 30, 2013
Technology [Member]
Minimum [Member]
Jun. 30, 2013
Technology [Member]
Maximum [Member]
Jun. 30, 2013
Technology and Know-How [Member]
Dec. 31, 2012
Technology and Know-How [Member]
Jun. 30, 2013
Technology and Know-How [Member]
Maximum [Member]
Jun. 30, 2013
Non-compete Agreements [Member]
Dec. 31, 2012
Non-compete Agreements [Member]
Jun. 30, 2013
Non-compete Agreements [Member]
Maximum [Member]
Jun. 30, 2013
Internally Developed Software [Member]
Dec. 31, 2012
Internally Developed Software [Member]
Jun. 30, 2013
Internally Developed Software [Member]
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets, estimated life
 
 
1 year 
7 years 
 
 
1 year 
5 years 
 
 
5 years 
7 years 
 
 
5 years 
 
 
4 years 
 
 
4 years 
6 years 
 
 
3 years 
 
 
5 years 
 
 
3 years 
Gross Carrying Amount
$ 13,284,285 
$ 12,451,680 
 
 
$ 665,844 
$ 665,844 
 
 
$ 3,789,117 
$ 3,789,117 
 
 
$ 891,076 
$ 534,257 
 
$ 298,977 
$ 298,977 
 
$ 2,463,402 
$ 2,463,402 
 
 
$ 3,176,431 
$ 3,256,803 
 
$ 161,691 
$ 161,691 
 
$ 1,837,747 
$ 1,281,589 
 
Accumulated Amortization
7,288,772 
6,083,656 
 
 
665,844 
665,844 
 
 
1,674,063 
1,447,297 
 
 
257,020 
137,378 
 
298,977 
298,977 
 
1,708,114 
1,580,896 
 
 
2,067,097 
1,576,600 
 
21,407 
8,721 
 
596,250 
367,943 
 
Net Carrying Amount
$ 5,995,513 
$ 6,368,024 
 
 
 
 
 
 
$ 2,115,054 
$ 2,341,820 
 
 
$ 634,056 
$ 396,879 
 
 
 
 
$ 755,288 
$ 882,506 
 
 
$ 1,109,334 
$ 1,680,203 
 
$ 140,284 
$ 152,970 
 
$ 1,241,497 
$ 913,646 
 
Goodwill and Intangible Assets - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Internally developed software
$ 317,125 
$ 186,676 
$ 556,158 
$ 294,884 
Intangible asset additions
 
 
914,633 
566,442 
Total amortization of intangible assets
632,765 
516,787 
1,244,310 
1,025,420 
Maximum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
7 years 
 
Minimum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
1 year 
 
Bold [Member] |
Maximum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
7 years 
 
Bold [Member] |
Minimum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
1 year 
 
Technology [Member] |
Maximum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
6 years 
 
Technology [Member] |
Minimum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
4 years 
 
Technology [Member] |
Bold [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets acquired
1,090,000 
 
1,090,000 
 
Trade Name and Trademark [Member] |
Bold [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets acquired
30,000 
 
30,000 
 
Customer Base [Member] |
Maximum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
7 years 
 
Customer Base [Member] |
Minimum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
5 years 
 
Customer Base [Member] |
Bold [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets acquired
2,760,000 
 
2,760,000 
 
Non-Compete Agreements [Member] |
Bold [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets acquired
160,000 
 
160,000 
 
Domain Names [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible asset additions
$ 56,250 
 
$ 358,475 
 
Domain Names [Member] |
Maximum [Member]
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
Intangible assets, estimated useful life
 
 
5 years 
 
Goodwill and Intangible Assets - Future Estimated Amortization Expense (Detail) (USD $)
Jun. 30, 2013
Dec. 31, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
 
 
2013 (Six months ending December 31)
$ 1,263,479 
 
2014
2,014,454 
 
2015
1,189,926 
 
2016
735,490 
 
2017
480,534 
 
Thereafter
311,630 
 
Net Carrying Amount
$ 5,995,513 
$ 6,368,024 
Accrued Expenses - Summary of Accrued Expenses (Detail) (USD $)
Jun. 30, 2013
Dec. 31, 2012
Payables And Accruals [Abstract]
 
 
Marketing programs
$ 4,129,788 
$ 2,688,818 
Payroll and payroll related
9,365,205 
7,970,443 
Professional fees
1,200,143 
1,711,926 
Other accrued expenses
4,125,679 
4,285,614 
Total accrued expenses
$ 18,820,815 
$ 16,656,801 
Income Taxes - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Dec. 31, 2012
Mar. 31, 2010
Oct. 31, 2004
Income Tax Disclosure [Abstract]
 
 
 
 
 
 
 
Provision for federal, state and foreign income taxes
$ (1,193,973)
$ (1,628,597)
$ (1,187,368)
$ (2,703,872)
 
 
 
Valuation allowance, reversed
 
 
 
 
677,000 
 
 
Uncertain tax provisions
272,000 
 
272,000 
 
251,000 
 
 
Interest expense
 
2,000 
 
2,000 
 
 
 
Net operating loss subject to limitation
 
 
 
 
 
$ 12,800,000 
$ 219,000 
Common Stock and Equity - Additional Information (Detail) (USD $)
1 Months Ended 3 Months Ended 6 Months Ended
Feb. 28, 2013
Jun. 30, 2013
Jun. 30, 2013
Equity [Abstract]
 
 
 
Share repurchase program
$ 25,000,000 
 
 
Number of shares repurchased
 
258,663 
760,485 
Average price of repurchased shares
 
$ 21.76 
$ 19.21 
Total cost of shares repurchased
 
5,627,000 
14,607,000 
Amount available under repurchase program
 
 
$ 10,393,000 
Stock Based Awards - Additional Information (Detail) (USD $)
6 Months Ended 12 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended
Jun. 30, 2013
Dec. 31, 2012
Jun. 30, 2013
Stock Options [Member]
Jun. 30, 2013
Restricted Stock Units [Member]
Jun. 30, 2013
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
Period of options vested
 
 
4 years 
 
3 years 
Period of expiration
 
 
10 years 
 
 
Increased in shares available to grant
1,400,000 
 
 
 
 
Shares available for grant
1,703,426 
 
 
 
 
Requisite service period of compensation expense
 
 
4 years 
 
3 years 
Fair value of common stock
$ 24.46 
$ 22.41 
 
 
 
Weighted average grant date fair value
$ 11.46 
$ 18.57 
 
 
 
Number of restricted stock units, granted
 
 
 
377,575 
519,370 
Number of shares received
 
 
 
 
Number of share expected to vest
 
 
 
888,236 
888,236 
Intrinsic value
 
 
 
$ 23,902,429 
$ 23,902,429 
Remaining contractual life
6 years 10 months 24 days 
7 years 2 months 12 days 
 
 
2 years 3 months 18 days 
Unrecognized share-based compensation cost
$ 41,479,000 
 
 
 
 
Share-based compensation cost not yet recognized period for recognition
2 years 3 months 18 days 
 
 
 
 
Stock Based Awards - Summary of Assumptions to Apply Black-Scholes Option-Pricing Model (Detail)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Expected dividend yield
0.00% 
0.00% 
0.00% 
0.00% 
Risk-free interest rate
0.89% 
0.77% 
 
 
Expected term (in years)
6 years 3 months 0 days 
 
6 years 3 months 0 days 
 
Volatility
55.00% 
55.00% 
55.00% 
 
Minimum [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]