LOGMEIN, INC., 10-K filed on 3/10/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Feb. 28, 2014
Jun. 30, 2013
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
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
 
24,209,056 
 
Entity Public Float
 
 
$ 503,068,233 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 89,257 
$ 111,932 
Marketable securities
100,299 
100,161 
Accounts receivable (net of allowance for doubtful accounts of $180 and $269 as of December 31, 2012 and December 31, 2013, respectively)
12,957 
13,231 
Prepaid expenses and other current assets
6,531 
3,620 
Deferred income tax assets
3,053 
3,214 
Total current assets
212,097 
232,158 
Property and equipment, net
13,198 
6,576 
Restricted cash
3,902 
3,807 
Intangibles, net
16,886 
6,368 
Goodwill
18,712 
18,883 
Other assets
5,348 
1,550 
Deferred income tax assets
9,470 
10,196 
Total assets
279,613 
279,538 
Current liabilities:
 
 
Accounts payable
6,390 
7,773 
Accrued liabilities
20,110 
16,657 
Deferred revenue, current portion
82,496 
65,875 
Total current liabilities
108,996 
90,305 
Deferred revenue, net of current portion
2,667 
3,774 
Other long-term liabilities
611 
822 
Total liabilities
112,274 
94,901 
Commitments and contingencies (Note 11)
   
   
Preferred stock, $0.01 par value - 5,000,000 shares authorized, 0 shares outstanding as of December 31, 2012 and December 31, 2013
   
   
Equity:
 
 
Common stock, $0.01 par value - 75,000,000 shares authorized as of December 31, 2012 and December 31, 2013; 24,814,007 and 25,371,844 shares issued as of December 31, 2012 and December 31, 2013, respectively; 24,814,007 and 24,103,201 outstanding as of December 31, 2012 and December 31, 2013, respectively
254 
248 
Additional paid-in capital
200,235 
178,546 
Retained earnings (accumulated deficit)
(1,439)
6,243 
Accumulated other comprehensive loss
(1,186)
(400)
Treasury stock, at cost - 0 and 1,268,643 shares as of December 31, 2012 and December 31, 2013, respectively
(30,525)
   
Total equity
167,339 
184,637 
Total liabilities and equity
$ 279,613 
$ 279,538 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Statement Of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 269 
$ 180 
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
25,371,844 
24,814,007 
Common stock, shares outstanding
24,103,201 
24,814,007 
Treasury stock, shares
1,268,643 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Income Statement [Abstract]
 
 
 
Revenue
$ 166,258 
$ 138,837 
$ 119,461 
Cost of revenue
18,816 
14,504 
10,574 
Gross profit
147,442 
124,333 
108,887 
Operating expenses
 
 
 
Research and development
29,023 
26,361 
20,780 
Sales and marketing
88,794 
70,058 
57,156 
General and administrative
29,181 
21,338 
19,975 
Legal settlements
1,688 
   
1,250 
Amortization of acquired intangibles
682 
565 
228 
Total operating expenses
149,368 
118,322 
99,389 
Income (loss) from operations
(1,926)
6,011 
9,498 
Interest income
547 
887 
863 
Interest expense
   
   
(1)
Other expense
(89)
(641)
(565)
Income (loss) before income taxes
(1,468)
6,257 
9,795 
Provision for income taxes
(6,214)
(2,691)
(4,034)
Net income (loss)
$ (7,682)
$ 3,566 
$ 5,761 
Net income (loss) per share:
 
 
 
Basic
$ (0.32)
$ 0.14 
$ 0.24 
Diluted
$ (0.32)
$ 0.14 
$ 0.23 
Weighted average shares outstanding:
 
 
 
Basic
24,350,913 
24,711,242 
24,175,621 
Diluted
24,350,913 
25,356,305 
25,154,599 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net income (loss)
$ (7,682)
$ 3,566 
$ 5,761 
Other comprehensive (loss) gain:
 
 
 
Net unrealized (losses) gains on marketable securities, net of tax
(25)
57 
(33)
Net translation (losses) gains
(761)
1,100 
(1,323)
Total other comprehensive (loss) gain
(786)
1,157 
(1,356)
Comprehensive income (loss)
$ (8,468)
$ 4,723 
$ 4,405 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
(Accumulated Deficit) Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock [Member]
Balance at Dec. 31, 2010
$ 130,379 
$ 239 
$ 133,425 
$ (3,084)
$ (201)
 
Balance, shares at Dec. 31, 2010
 
23,858,514 
 
 
 
 
Issuance of common stock upon exercise of stock options
6,207 
6,200 
 
 
 
Issuance of common stock upon exercise of stock options, shares
 
693,127 
 
 
 
 
Income tax benefit from stock options exercises
5,887 
 
5,887 
 
 
 
Stock-based compensation
8,928 
 
8,928 
 
 
 
Net income (loss)
5,761 
 
 
5,761 
 
 
Unrealized loss on available-for-sale securities
(33)
 
 
 
(33)
 
Cumulative translation adjustments
(1,323)
 
 
 
(1,323)
 
Balance at Dec. 31, 2011
155,806 
246 
154,440 
2,677 
(1,557)
 
Balance, shares at Dec. 31, 2011
 
24,551,641 
 
 
 
 
Issuance of common stock upon exercise of stock options
2,681 
2,679 
 
 
 
Issuance of common stock upon exercise of stock options, shares
 
262,366 
 
 
 
 
Income tax benefit from stock options exercises
6,635 
 
6,635 
 
 
 
Stock-based compensation
14,792 
 
14,792 
 
 
 
Net income (loss)
3,566 
 
 
3,566 
 
 
Unrealized loss on available-for-sale securities
57 
 
 
 
57 
 
Cumulative translation adjustments
1,100 
 
 
 
1,100 
 
Balance at Dec. 31, 2012
184,637 
248 
178,546 
6,243 
(400)
 
Balance, shares at Dec. 31, 2012
 
24,814,007 
 
 
 
 
Issuance of common stock upon exercise of stock options
3,798 
3,794 
 
 
 
Issuance of common stock upon exercise of stock options, shares
374,000 
373,761 
 
 
 
 
Net issuance of common stock upon vesting of restricted stock units
(1,834)
(1,836)
 
 
 
Net issuance of common stock upon vesting of restricted stock units, Shares
 
184,076,000 
 
 
 
 
Income tax benefit from stock options exercises
17 
 
17 
 
 
 
Stock-based compensation
19,714 
 
19,714 
 
 
 
Treasury stock
(30,525)
 
 
 
 
(30,525)
Treasury stock, Shares
 
(1,268,643)
 
 
 
 
Net income (loss)
(7,682)
 
 
(7,682)
 
 
Unrealized loss on available-for-sale securities
(25)
 
 
 
(25)
 
Cumulative translation adjustments
(761)
 
 
 
(761)
 
Balance at Dec. 31, 2013
$ 167,339 
$ 254 
$ 200,235 
$ (1,439)
$ (1,186)
$ (30,525)
Balance, shares at Dec. 31, 2013
 
24,103,201 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities
 
 
 
Net income (loss)
$ (7,682)
$ 3,566 
$ 5,761 
Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
7,704 
6,100 
4,403 
Amortization of premium on investments
198 
54 
134 
Provision for bad debts
116 
100 
85 
Provision for (benefit from) deferred income taxes
926 
(831)
3,793 
Income tax benefit from the exercise of stock options
(17)
(6,635)
(5,887)
Stock-based compensation
19,714 
14,792 
8,925 
Loss on disposal of equipment
 
12 
 
Changes in assets and liabilities:
 
 
 
Accounts receivable
302 
(4,471)
(4,088)
Prepaid expenses and other current assets
(2,986)
(1,070)
494 
Other assets
(3,764)
(1,308)
(215)
Accounts payable
(2,233)
1,552 
3,787 
Accrued liabilities
3,457 
5,854 
(531)
Deferred revenue
14,493 
10,960 
15,471 
Other long-term liabilities
(208)
(418)
739 
Net cash provided by operating activities
30,020 
28,257 
32,871 
Cash flows from investing activities
 
 
 
Purchases of marketable securities
(90,376)
(135,085)
(150,066)
Proceeds from sale or disposal of marketable securities
90,000 
130,000 
145,000 
Purchases of property and equipment
(10,938)
(5,277)
(2,322)
Intangible asset additions
(13,061)
(1,049)
(346)
Cash paid for acquisition, net of cash acquired
 
(14,831)
(10,000)
(Increase) decrease in restricted cash and deposits
(3,558)
(26)
Net cash used in investing activities
(24,368)
(29,800)
(17,760)
Cash flows from financing activities
 
 
 
Proceeds from issuance of common stock upon option exercises
3,798 
2,682 
6,207 
Income tax benefit from the exercise of stock options
17 
6,634 
5,887 
Payment of contingent consideration
(104)
(89)
 
Common stock withheld to satisfy income tax withholdings for restricted stock unit vesting
(1,834)
 
 
Purchase of treasury stock
(30,525)
 
 
Net cash provided by (used in) financing activities
(28,648)
9,227 
12,094 
Effect of exchange rate changes on cash and cash equivalents and restricted cash
321 
644 
(881)
Net increase (decrease) in cash and cash equivalents
(22,675)
8,328 
26,324 
Cash and cash equivalents, beginning of period
111,932 
103,604 
77,280 
Cash and cash equivalents, end of period
89,257 
111,932 
103,604 
Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
 
Cash paid for income taxes
10,094 
1,802 
356 
Noncash investing and financing activities
 
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
1,510 
742 
671 
Fair value of contingent consideration in connection with acquisition included in accrued liabilities and other long term liabilities
 
$ 161 
$ 212 
Nature of the Business
Nature of the Business
1. Nature of the Business

LogMeIn, Inc. (the “Company”) provides a portfolio of secure, easy-to-use cloud-based offerings aimed at addressing the evolving needs of businesses, their employees and their customers in today’s universally connected world. The Company’s product line includes AppGuru™, BoldChat®, Cubby™, join.me®, LogMeIn Pro®, LogMeIn® Central™, LogMeIn Rescue®, LogMeIn® Rescue+Mobile™, LogMeIn Backup®, LogMeIn for iOS, LogMeIn Hamachi® , Xively™ 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 consolidated financial statements include the results of operations of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

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

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

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2012 and December 31, 2013, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of $100.1 million and $100.3 million and an aggregate fair value of $100.2 million and $100.3 million, including $83,000 and $67,000 of unrealized gains and $5,000 and $28,000 of unrealized losses, respectively.

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

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

 

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

 

     December 31,  
     2011      2012      2013  

Balance, beginning

   $ 111      $ 109      $ 180  

Provision for bad debt

     85        100        116  

Uncollectible accounts written off

     87        29        27  
  

 

 

    

 

 

    

 

 

 

Balance, ending

   $ 109      $ 180      $ 269  
  

 

 

    

 

 

    

 

 

 

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

Estimated useful lives of assets are as follows:

 

Computer equipment and software

     2 —3 years   

Office equipment

     3 years   

Furniture and fixtures

     5 years   

Leasehold Improvements

    
 
Shorter of lease term
or estimated useful life
  
  

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill, but performs an 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. As of December 31, 2013, the fair value of the Company as a whole significantly exceeds the carrying amount of the Company. Through December 31, 2013, no impairments have occurred.

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their respective estimated fair values at the date of acquisition. Intangible assets are being amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives, which range from one to seven years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through December 31, 2013, no impairments have occurred.

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.

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 related consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met.

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

Deferred Revenue — Deferred revenue primarily consists of billings and payments received in advance of revenue recognition. The Company primarily bills and collects payments from customers for products and services in advance on a monthly and annual basis. Deferred revenue to be recognized in the next twelve months is included in current deferred revenue, and the remaining amounts are included in long-term deferred revenue in the consolidated balance sheets.

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, short term 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 and 2013 no customers accounted for more than 10% of accounts receivable and there were no customers that represented 10% or more of revenue for the years ended December 31, 2011, 2012, or 2013.

Legal Costs — Legal expenditures are expensed as incurred.

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

Software Development Costs — The Company has determined that technological feasibility of its software products that are sold as a perpetual license is reached shortly before their introduction to the marketplace. As a result, development costs incurred after the establishment of technological feasibility and before their release to the marketplace have not been material and such costs have been expensed as incurred.

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

 

Foreign Currency Translation — The functional currency of operations outside the United States of America is deemed to be the currency of the local country, unless otherwise determined that the United States dollar would serve as a more appropriate functional currency given the economic operations of the entity. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars using the period-end exchange rate, and income and expense items are translated using the average exchange rate during the period. Cumulative translation adjustments are reflected as a separate component of equity. Foreign currency transaction gains and losses are charged to operations. The Company had foreign currency losses of approximately $565,000, $641,000, and $89,000 for the years ended December 31, 2011, 2012, and 2013 included in other expense in the consolidated statements of income.

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

Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2011, 2012, and 2013 was approximately $20.5 million, $23.8 million, and $27.8 million respectively, which consisted primarily of online paid searches, banner advertising, and other online marketing and is included in sales and marketing expense in the accompanying consolidated statements of operations.

Comprehensive Income (Loss) — Comprehensive income (loss) is the change in stockholders’ equity during a period relating to transactions and other events and circumstances from non-owner sources and currently consists of net income, foreign currency translation adjustments, and unrealized gains and losses, net of tax on available-for-sale securities. Accumulated comprehensive loss was approximately $400,000 at December 31, 2012 and consisted of $450,000 related to foreign currency translation adjustments offset by $50,000 of unrealized gains, net of tax on available-for sale securities. Accumulated comprehensive loss was approximately $1.2 million at December 31, 2013 and consisted of $1.2 million related to foreign currency translation adjustments offset by $25,000 of unrealized gains, net of tax on available-for sale securities.

Fair Value of Financial Instruments — The carrying value of the Company’s financial instruments, including cash equivalents, restricted cash, accounts receivable, and accounts payable, approximate their fair values due to their short maturities.

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

 

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

 

     Years Ended December 31,  
     2011      2012      2013  

Revenues:

        

United States

   $ 79,050      $ 90,233      $ 109,444  

United Kingdom

     10,652        12,846        15,058  

International — all other

     29,759        35,758        41,756  
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 119,461      $ 138,837      $ 166,258  
  

 

 

    

 

 

    

 

 

 

Long-lived assets:

        

United States

   $ 3,177      $ 4,129      $ 10,207  

Hungary

     1,373        1,599        1,224  

Ireland

             234         1,057   

United Kingdom

     264        530        289  

Australia

     113         75         367   

International — all other

     276         9         54   
  

 

 

    

 

 

    

 

 

 

Total long-lived assets

   $ 5,203      $ 6,576      $ 13,198  
  

 

 

    

 

 

    

 

 

 

Net Income (Loss) Per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding during the period and the weighted average number of potential common shares outstanding from the assumed exercise of stock options and the vesting of restricted stock units. For the year ended December 31, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for each period were identical.

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

 

     Years Ended December 31,  
       2011          2012          2013    

Options to purchase common shares

     984        1,679        2,389  

Restricted stock units

            147        1,192  
  

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     984        1,826        3,581  
  

 

 

    

 

 

    

 

 

 

 

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

 

     Year Ended
December 31, 2011
 

Basic:

  

Net income

   $ 5,761  
  

 

 

 

Weighted average common shares outstanding, basic

     24,176  
  

 

 

 

Net income, basic

   $ 0.24  
  

 

 

 

Diluted:

  

Net income

   $ 5,761  
  

 

 

 

Weighted average common shares outstanding

     24,176  

Add: Options to purchase common shares

     979  
  

 

 

 

Weighted average common shares outstanding, diluted

     25,155  
  

 

 

 

Net income, diluted

   $ 0.23  
  

 

 

 

 

     Year Ended
December 31, 2012
 

Basic:

  

Net income

   $ 3,566  
  

 

 

 

Weighted average common shares outstanding, basic

     24,711  
  

 

 

 

Net income, basic

   $ 0.14  
  

 

 

 

Diluted:

  

Net income

   $ 3,566  
  

 

 

 

Weighted average common shares outstanding

     24,711  

Add: Options to purchase common shares

     645  
  

 

 

 

Weighted average common shares outstanding, diluted

     25,356  
  

 

 

 

Net income, diluted

   $ 0.14  
  

 

 

 

 

     Year Ended
December 31, 2013
 

Basic and Diluted Net Loss per Share:

  

Net loss

   $ (7,682 )
  

 

 

 

Weighted average common shares outstanding

     24,351  
  

 

 

 

Basic and diluted net loss per share

   $ (0.32 )
  

 

 

 

Guarantees and Indemnification Obligations — As permitted under Delaware law, the Company has agreements whereby the Company indemnifies certain of its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. As permitted under Delaware law, the Company also has similar indemnification obligations under its certificate of incorporation and by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s insurance coverage that the Company believes limits its exposure and enables it to recover a portion of any future amounts paid.

 

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims, including claims alleging that the Company’s products infringe third-party patents, copyrights, or trademarks. The term of these indemnification obligations is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited. Through December 31, 2013, the Company has not experienced any losses related to these indemnification obligations.

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

Recently Issued Accounting Pronouncements — 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 (in thousands):

 

     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      $ 49,209      $      $  

Cash equivalents — bank deposits

     5,037               5,037         

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

     100,161        90,138        10,023         

Contingent consideration liability

     161                      161  

Balance at December 31, 2013

           

Cash equivalents — money market funds

     28,210        28,210                

Cash equivalents — bank deposits

     5,001               5,001         

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

     100,299        75,288         25,011          

Contingent consideration liability

                            

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

The Level 3 liability consists of contingent consideration related to the July 19, 2011 acquisition of Xively. 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. The contingent consideration liability was settled in the quarter ended September 30, 2013. A reconciliation of the beginning and ending Level 3 liability is as follows (in thousands):

 

     Years Ended
December 31,
 
       2012         2013    

Balance beginning of period

   $ 212     $ 161  

Additions to Level 3

            

Payments

     (89 )     (178 )

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

     38       17  
  

 

 

   

 

 

 

Balance end of period

   $ 161     $  
Acquisitions
Acquisitions
4. Acquisitions

On July 19, 2011, the Company acquired substantially all of the assets of Connected Environments (BVI) Limited, a British Virgin Island limited company and Connected Environments, Limited, a U.K. limited company (collectively, “Connected Environments”), primarily including their Xively service, for an initial cash payment of $10.0 million plus contingent payments totaling up to $5.2 million. The Xively service is a cloud-based connectivity and data management platform for the Internet of Things. The Company acquired Xively to expand its capabilities with embedded devices and enter into the Internet of Things market.

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

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

 

     Amount  

Tangible assets

   $ 8  

Technology and know-how

     3,250  

Goodwill

     6,935  
  

 

 

 

Total purchase price

     10,193  

Liability for contingent consideration

     (193
  

 

 

 

Cash paid

   $ 10,000  
  

 

 

 

The asset purchase agreement included a contingent payment provision requiring the Company to make additional payments to the shareholders of Connected Environments, as well as certain employees, on the first and second anniversaries of the acquisition, contingent upon the continued employment of certain employees and the achievement of certain product performance metrics. The range of the contingent payments that the Company could pay is between $0 to $4.9 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The Company paid approximately $1.7 million of contingent payments in July 2012 and paid the remaining $3.2 million in July 2013.

The asset purchase agreement also includes a contingent payment provision to a non-employee shareholder for an amount between $0 and $267,000, which the Company has concluded is part of the purchase price. This contingent liability was recorded at its fair value of $193,000 at the acquisition date. The Company re-measures the fair value of the consideration at each subsequent reporting period and recognizes any adjustments to fair value as part of earnings. The Company classifies the cash payments made to the non-employee shareholder as a financing activity within the statement of cash flows, while changes in the fair value of the liability are classified as cash flows from operations.

The goodwill recorded in connection with this transaction is primarily related to the expected synergies to be achieved related to Gravity, our service delivery platform, and the ability to leverage existing sales and marketing capacity and customer base with respect to the acquired Xively service. All goodwill acquired is expected to be deductible for income tax purposes.

The Company incurred approximately $269,000 of acquisition-related costs which are included in general and administrative expense for the year ended December 31, 2011.

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.

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 (in thousands):

 

     Amount  

Cash

   $ 482  

Current assets

     126  

Other assets

     19  

Deferred revenue

     (424 )

Other liabilities

     (107 )

Completed technology

     1,090  

Trade name and trademark

     30  

Customer relationships

     2,760  

Non-compete agreements

     160  

Goodwill

     11,178  
  

 

 

 

Total purchase price

   $ 15,314  
  

 

 

 

The pro forma results of operations for the year ended December 31, 2011 assuming the Company had acquired Bold on January 1, 2011, do not differ materially from those reported in the Company’s consolidated statement of income for that year.

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 $1.5 million. The Company has concluded that the arrangement is a compensation arrangement and is accruing the maximum payout ratably over the performance period, as it believes it is probable that the criteria will be met. The Company paid $71,000 and $598,000 in contingent, retention-based bonus payments in 2012 and 2013, respectively. The Company paid the remaining $827,000 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 $110,000 of acquisition-related costs which are included in general and administrative expense for the year ended December 31, 2011, and $82,000 of acquisition-related costs for the year ended December 31, 2012.

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

The changes in the carry amounts of goodwill for the years ended December 31, 2012 and 2013 are due to the addition of goodwill resulting from the Xively and Bold acquisitions and the impact of foreign currency translation adjustments related to asset balances that are recorded in non-U.S. currencies.

Changes in goodwill for the years ended December 31, 2012 and 2013, are as follows (in thousands):

 

Balance, December 31, 2011

   $ 7,259   

Goodwill related to the acquisition of Bold

     11,178  

Foreign currency translation adjustments

     446  
  

 

 

 

Balance, December 31, 2012

   $ 18,883  

Foreign currency translation adjustments

     (171 )
  

 

 

 

Balance, December 31, 2013

   $ 18,712  
  

 

 

 

 

Intangible assets consist of the following (in thousands):

 

          December 31, 2012     December 31, 2013  
     Estimated
Useful

Life
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Identifiable intangible assets:

             

Trademark

    1-5 years      $ 666     $ 666     $     $ 666     $ 666     $  

Customer base

    5-7 years        3,789       1,447       2,342       3,789       1,901       1,888  

Domain names

    5 years        534       137       397       894       341       553  

Software

    4 years        299       299             299       299        

Technology

    3-6 years        2,463       1,581       882       13,963       1,835       12,128  

Technology and know-how

    3-6 years       3,257       1,577       1,680       3,176       2,597       579  

Non-Compete agreements

    5 years       162       9       153       162       34       128  

Internally developed software

    3 years        1,282       368       914       2,485       875       1,610  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 12,452     $ 6,084     $ 6,368     $ 25,434     $ 8,548     $ 16,886  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In 2012, as a result of the Bold acquisition, the Company capitalized $1.1 million of technology, $30,000 of trade names and trademarks, $2.8 million 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.

On November 6, 2013, the Company purchased a software asset for $11.5 million. This software asset is recorded as an Intangible asset and classified as Technology and will be amortized using the straight-line method over an estimated useful life of five years, beginning when the product is made available to customers in the first quarter of 2014.

The Company capitalized costs related to internally developed computer software to be sold as a service incurred during the application development stage of $742,000 and $1.2 million during 2012 and 2013, respectively, and is amortizing these costs over the expected lives of the related services. The Company paid $311,000 and $358,000 during 2012 and 2013, respectively, to acquire domain names.

The Company is amortizing the intangible assets over the estimated useful lives noted above. Amortization expense for intangible assets was $794,000, $2.1 million and $2.5 million for the years ended December 31, 2011, 2012 and 2013, respectively. Amortization relating to software, technology and know-how and internally developed software is recorded within cost of revenues and the amortization of trademark, customer base, and domain names is recorded within operating expenses. Future estimated amortization expense for intangible assets is as follows at December 31, 2013 (in thousands):

 

Amortization Expense (Years Ending December 31)

   Amount  

2014

     4,333   

2015

     3,706   

2016

     3,257   

2017

     2,787   

2018

     2,612   

Thereafter

     191  
  

 

 

 

Total

   $ 16,886  
Property and Equipment
Property and Equipment
6. Property and Equipment

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

 

     December 31,  
     2012     2013  

Computer equipment and software

   $ 15,617     $ 22,276  

Office equipment

     1,947       3,235  

Furniture & fixtures

     1,438       3,083   

Construction in Progress

     1,072       456   

Leasehold improvements

     1,845       2,967  
  

 

 

   

 

 

 

Total property and equipment

     21,919       32,017  

Less accumulated depreciation and amortization

     (15,343 )     (18,819 )
  

 

 

   

 

 

 

Property and equipment, net

   $ 6,576     $ 13,198  
  

 

 

   

 

 

 

Depreciation expense for property and equipment was $3.6 million, $4.0 million and $5.2 million for the years ended December 31, 2011, 2012 and 2013.

Accrued Liabilities
Accrued Liabilities
7. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2012
     December 31,
2013
 

Marketing programs

   $ 2,689      $ 4,631  

Payroll and payroll related

     7,970        9,719  

Professional fees

     1,712        1,064  

Other accrued liabilities

     4,286        4,696  
  

 

 

    

 

 

 

Total accrued expenses

   $ 16,657      $ 20,110  
Income Taxes
Income Taxes

8. Income Taxes

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

 

     Years Ended December 31,  
     2011      2012     2013  

Domestic

   $ 9,423      $ 7,789     $ 10,389  

Foreign

     372        (1,532 )     (11,857 )
  

 

 

    

 

 

   

 

 

 

Total income (loss) before provision for income taxes

   $ 9,795      $ 6,257     $ (1,468 )
  

 

 

    

 

 

   

 

 

 

 

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

 

     Years Ended December 31,  
     2011     2012     2013  

Current

      

Federal

   $ 5,477     $ 8,324     $ 5,480  

State

     235       1,181       1,346  

Foreign

     140       126       952  
  

 

 

   

 

 

   

 

 

 

Total

     5,852       9,631       7,778  
  

 

 

   

 

 

   

 

 

 

Deferred

      

Federal

     (2,022     (4,926 )     (1,379 )

State

     188       44       (177 )

Foreign

     16       (2,058 )     (8 )
  

 

 

   

 

 

   

 

 

 

Total

     (1,818     (6,940 )     (1,564 )
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 4,034     $ 2,691     $ 6,214  
  

 

 

   

 

 

   

 

 

 

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

 

     For the Years Ended December 31,  
     2011     2012     2013  

Statutory tax rate

       35.0       35.0       35.0

Change in valuation allowance

            (10.8       

Impact of permanent differences

     4.6        15.6        (82.3

Foreign tax rate differential

     0.3        (11.5     (346.9

Research and development credits

     (2.6            23.1   

State taxes, net of federal benefit

     3.4        13.8        (51.9

Impact of uncertain tax positions

     2.0        0.8        (3.6

Other

     (1.5     0.1        3.4   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

       41.2       43.0     (423.2 )% 
  

 

 

   

 

 

   

 

 

 

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

 

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

 

     December 31,  
     2012     2013  

Deferred tax assets:

    

Net operating loss carryforwards

   $ 3,222      $ 2,375   

Deferred revenue

     1,715        627   

Amortization

     897        1,211   

Research and development credit carryforwards

     383        404   

Bad debt reserves

     71        56   

Stock compensation associated with non-qualified awards

     8,242        10,423   

Depreciation

            326   

Other

     2,136        2,369   
  

 

 

   

 

 

 

Total deferred tax assets

     16,666        17,791   

Deferred tax asset valuation allowance

     (2,463     (2,836
  

 

 

   

 

 

 

Net deferred tax assets

     14,203        14,955   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Depreciation

     (313     (1,212

Goodwill amortization

     (655     (1,236

Other

            (14
  

 

 

   

 

 

 

Total deferred tax liabilities

     (968     (2,462
  

 

 

   

 

 

 

Total

   $ 13,235      $ 12,493   
  

 

 

   

 

 

 

At December 31, 2012 and 2013, deferred tax liabilities of approximately $28,000 and $15,000 respectively, are included in accrued expenses, and approximately $15,000 and $15,000 respectively, are included in long term liabilities.

Deferred tax assets, related valuation allowances, current tax liabilities, and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we estimate deferred tax assets, current tax liabilities and deferred tax liabilities, and we assess temporary differences resulting from differing treatment of items for tax and accounting purposes. As of December 31, 2011, the Company maintained a full valuation allowance against the deferred tax assets of its Hungarian and Xively subsidiaries. The increase in the valuation allowance for the year ended December 31, 2011 was $933,000.

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 Xively’s deferred tax assets of approximately $677,000. As of December 31, 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 increase in the valuation allowance for the year ended December 31, 2013 was $373,000.

As of December 31, 2013, the Company had federal, state, and foreign net operating loss carryforwards of approximately $0, $131,000 and $23.8 million, respectively. The Company’s foreign net operating loss carryforwards are not subject to expiration. The Company recognized a full valuation allowance against its Hungarian net operating loss carryfowards. The Company utilized approximately $0 of federal, $130,000 of state and added approximately $120,000 of foreign net operating loss carryforwards during the year ended December 31, 2013.

As of December 31, 2013, the Company had federal, state and foreign research and development credit carryforwards of approximately $0, $7,000 and $400,000, respectively, which are available to offset future state taxes. The Company’s foreign research and development credits expire beginning in 2014. The Company has recognized a full valuation allowance against its foreign research and development credit carryforwards. The domestic research and development credits are available to offset future tax payments, however they are no longer recognized for book purposes as they have been utilized under the with-and-without method.

The Company generally considers all earnings generated outside of the U.S. to be indefinitely reinvested offshore. Therefore, the Company does not accrue U.S. tax for the repatriation of the foreign earnings it considers to be indefinitely reinvested outside the U.S. As of December 31, 2013, the Company has not provided for federal income tax on approximately $4.7 million of accumulated undistributed earnings of its foreign subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on the undistributed foreign earnings.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s income tax returns since inception are open to examination by federal, state, and foreign tax authorities. As of December 31, 2012 and 2013, the Company has provided a liability of $251,000 and $304,000 respectively for uncertain tax positions. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

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

 

     Years Ended
December 31,
 
         2012              2013      

Beginning balance

   $ 198       $ 251   

Gross decreases — tax positions in prior period

               

Gross increases — tax positions in current period

     53         53   
  

 

 

    

 

 

 

Ending balance

   $ 251       $ 304   
  

 

 

    

 

 

 

The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax expense. The Company recognized approximately $2,000 and $4,000 of interest expense during the years ended December 31, 2012 and 2013, respectively.

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

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

Common Stock Reserved — As of December 31, 2012 and 2013, the Company has reserved the following number of shares of common stock for the exercise of stock options and restricted stock units (in thousands):

 

     Number of Shares as of  
     December 31,
2012
     December 31,
2013
 

Common stock options and restricted stock units

     4,908         5,231   
  

 

 

    

 

 

 

Total reserved

     4,908         5,231   
  

 

 

    

 

 

 

In February 2013, the Company’s board of directors approved a $25 million share repurchase program. On August 13, 2013, our board of directors approved a new $50 million share repurchase program, which replaced our previous $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.

 

During the year ended December 31, 2013, the Company repurchased 1,268,643 shares of its common stock at an average price of $24.06 per share at a cost of approximately $30.5 million, respectively. At December 31, 2013, approximately $35.9 million remained available under the Company’s current share repurchase program.

Stock Incentive Plan
Stock Incentive Plan
10. Stock Incentive Plan

The Company’s 2009 Stock Incentive Plan (“2009 Plan”) is administered by the Board of Directors and Compensation Committee, which have the authority to designate participants and determine the number and type of awards to be granted and any other terms or conditions of the awards. Options generally vest over a four-year period and expire ten years from the date of grant. Restricted stock units with service-based vesting conditions generally vest over a three-year period while restricted stock units with market-based vesting conditions generally vest over two or three-year periods. Certain stock-based awards provide for accelerated vesting if there is a change in control. On May 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. As of December 31, 2013, there were 1,649,831 shares available for grant under the 2009 Plan.

The Company generally issues previously unissued shares of common stock for the exercise of stock options and restricted stock units. The Company received $6.2 million, $2.7 million and $3.8 million in cash from stock option exercises during the years ended December 31, 2011, 2012 and 2013, respectively.

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

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

 

     Years Ended December 31,
     2011    2012    2013

Expected dividend yield

   0.00%    0.00%    0.00%

Risk-free interest rate

   0.91% - 2.28%    0.64% - 0.87%    0.87 - 1.36%

Expected term (in years)

   5.56 - 6.25    5.56 - 6.25    6.25

Volatility

   60%    55% - 60%    55%

 

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

 

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

Outstanding, January 1, 2013

     2,941      $ 25.90         7.2      
       

 

 

    

Granted

     186        22.22         

Exercised

     (374 )     10.15          $ 7,213   
          

 

 

 

Forfeited

     (364 )     33.97         
  

 

 

   

 

 

       

Outstanding, December 31, 2013

     2,389      $ 26.85         6.4       $ 22,330   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2013

     1,451      $ 23.45         5.4       $ 17,855   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested or expected to vest at December 31, 2013

     2,331      $ 26.78         6.3       $ 21,965   
  

 

 

   

 

 

    

 

 

    

 

 

 

The aggregate intrinsic value was calculated based on the positive differences between the estimated fair value of the Company’s common stock on December 31, 2013 of $33.55 per share or at time of exercise, and the exercise price of the options.

The weighted average grant date fair value of stock options issued was $22.42, $18.57 and $11.60 per share for the years ended December 31, 2011, 2012 and 2013, respectively.

During the year ended December 31, 2013, the Company granted 763,073 restricted stock units, containing time-based vesting conditions which generally lapse over a three year period.

In August 2013, the Company granted 74,000 restricted stock units containing market-based vesting conditions which vest upon the achievement of a total shareholder return target measured over the performance period which ranges from two to three years (“TSR units”). The number of TSR units that will vest can range from 0% of the target shares to 200% of the target shares, or 148,000, and is also based upon continued employment of the participant over the vesting period which ranges from two to three years. The TSR units are valued using a Monte Carlo simulation model. The number of awards expected to be earned is factored into the grant date Monte Carlo valuation for the TSR unit. Compensation cost is recognized regardless of the actual number of awards that are earned based on the market condition. Expected volatility is based on the Company’s historical volatility. The risk-free interest rate is based upon U.S. Treasury securities with a term similar to vesting term of the restricted stock unit.

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

 

     Year
Ended
December  31,
2013
 

Risk-free interest rate

     0.62

Volatility

     54

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

 

The following table summarizes all restricted stock unit activity (shares in thousands):

 

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

Unvested as of January 1, 2013

     783      $ 31.14   

Restricted stock units granted

     837        26.93   

Restricted stock units vested

     (259     31.06   

Restricted stock units forfeited

     (169     29.26   
  

 

 

   

 

 

 

Unvested as of December 31, 2013

     1,192      $ 28.47   
  

 

 

   

 

 

 

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

 

     Years Ended December 31,  
     2011      2012      2013  

Cost of revenue

   $ 316       $ 484       $ 706   

Research and development

     1,477         2,826         3,761   

Sales and marketing

     2,700         4,962         7,242   

General and administrative

     4,432         6,520         8,005   
  

 

 

    

 

 

    

 

 

 
   $ 8,925       $ 14,792       $ 19,714   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2013, there was approximately $36,656,000 of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested stock option grants and unvested restricted stock units which are expected to be recognized over a weighted average period of 2.0 years. The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.

Commitments and Contingencies
Commitments and Contingencies

11. Commitments and Contingencies

Operating Leases — The Company has operating lease agreements for offices in 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 costs totaled $5.6 million, all of which were paid as of December 31, 2013, and have been classified in Other assets and are being amortized over the lease term. 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 $168,000 (EUR 122,000). The lease agreement required a security deposit of approximately $257,000 (EUR 187,000) and contains a termination option which allows the Company to terminate the lease pursuant to certain lease provisions.

In September 2013, the Company entered into a lease for new office space in Sydney, Australia. The term of the new office space began in December 2013 and extends through May 2017. The aggregate amount of minimum lease payments to be made over the term of the lease is approximately $663,000 (AUD 711,000). The lease agreement required a bank guarantee of approximately $115,000 (AUD 123,000). The bank guarantee is classified as restricted cash.

 

Rent expense under all leases was approximately $2.9 million, $3.2 million and $6.0 million for the years ended December 31, 2011, 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 aggregated approximately $1.9 million, $3.2 million and $4.7 million for the years ended December 31, 2011, 2012 and 2013, respectively.

On July 2, 2013, the Company entered into an agreement to purchase a software asset. On November 6, 2013, the Company paid $11.5 million for the software asset upon its acceptance. The agreement also included a $0.5 million statement of work, which is to be completed in the first quarter of 2014. Payment is expected to be made in the first quarter of 2014 once the work is completed and accepted by the Company.

Future minimum lease payments under non-cancelable operating leases including one year commitments associated with the Company’s hosting services arrangements are approximately as follows at December 31, 2013 (in thousands):

 

Years Ending December 31(1)

      

2014

   $ 9,094   

2015

     6,043   

2016

     5,870   

2017

     4,495   

2018

     4,515   

Thereafter

     20,816   
  

 

 

 

Total minimum lease payments

   $ 50,833   
  

 

 

 

 

  (1) Excluded from the table above is $304,000 related to uncertain tax positions as the Company is uncertain as to when a cash settlement for these liabilities will occur.

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. At this time the Company does not believe that a loss is probable and remains unable to reasonably estimate a possible loss or range of loss associated with this litigation.

On November 3, 2010, Gemini IP LLC, or Gemini, filed a complaint that named the Company as a defendant in a lawsuit in the U.S. District Court for the Eastern District of Texas (Civil Action No. 4:07-cv-521) alleging that the Company infringed U.S. Patent No. 6,117,932, which allegedly is owned by Gemini and has claims related to a system for operating an IT helpdesk. The complaint sought damages in an unspecified amount and injunctive relief. On April 25, 2011, the Company and Gemini entered into a License Agreement which granted the Company a fully-paid license that covers the patent at issue in the action and mutually released each party from all claims. The Company paid Gemini a one-time licensing fee of $1.3 million in connection with the License Agreement. As a result, the action was dismissed by the court on May 23, 2011.

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

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.

Other Contingencies — In 2011, the Company was contacted by a representative from a state tax assessor’s office requesting remittance of uncollected sales taxes due for the period from 2005 to the present. While the Company does not believe it was responsible for collecting sales taxes in this state, after vigorously defending its position and exhausting all defenses against this claim, in September 2011, the Company agreed to make a settlement payment of $1.3 million with the state tax assessor’s office. The Company recorded the amount in general and administrative expense. The Company paid the settlement in December 2011.

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

On January 1, 2007, the Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan is available to all employees upon employment and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company may contribute to the plan at the discretion of the Board of Directors. The Company has not made any contributions to the plan through December 31, 2013

Subsequent Event
Subsequent Event
13. Subsequent Event

On March 7, 2014, the Company acquired all of the outstanding capital stock of a Boston, Massachusetts based systems integrator for a cash purchase price of $7.5 million plus contingent retention-based bonuses totaling up to $4.0 million, which are expected to be paid over a two-year period from the date of acquisition. The Company purchased the systems integrator to acquire their technical expertise to help accelerate the adoption of its Xively platform and its Internet of Things business plans generally. The Company is in the process of allocating the purchase price to the assets acquired and liabilities assumed. Any goodwill resulting from this acquisition will not be deductible for income tax purposes.

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

 

    For the Three Months Ended,  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012(1)
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 
    (in thousands, except for per share data)  

Statement of Operations Data:

               

Revenue

  $ 32,688      $ 33,797      $ 35,368      $ 36,985      $ 37,437      $ 40,670      $ 42,970      $ 45,181   

Gross profit

    29,271        30,372        31,681        33,010        33,028        35,894        38,285        40,235   

Income (loss) from operations

    1,172        2,256        1,549        1,034        (6,630     (123     2,191        2,636   

Net income (loss)

    76        576        718        2,196        (5,807     (1,360     (56     (459

Net income (loss) per share-basic

    0.00        0.02        0.03        0.14        (0.24     (0.06     0.00        (0.02

Net income (loss) per share-diluted

    0.00        0.02        0.03        0.14        (0.24     (0.06     0.00        (0.02

 

  (1) Comparability affected by the reversal of the valuation allowance related to its Xively deferred tax assets of approximately $677,000.
Summary of Significant Accounting Policies (Policies)

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

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

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

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2012 and December 31, 2013, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of $100.1 million and $100.3 million and an aggregate fair value of $100.2 million and $100.3 million, including $83,000 and $67,000 of unrealized gains and $5,000 and $28,000 of unrealized losses, respectively.

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

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

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

Estimated useful lives of assets are as follows:

 

Computer equipment and software

     2 —3 years   

Office equipment

     3 years   

Furniture and fixtures

     5 years   

Leasehold Improvements

    
 
Shorter of lease term
or estimated useful life
  
  

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill, but performs an 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. As of December 31, 2013, the fair value of the Company as a whole significantly exceeds the carrying amount of the Company. Through December 31, 2013, no impairments have occurred.

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their respective estimated fair values at the date of acquisition. Intangible assets are being amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives, which range from one to seven years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including intangible assets, may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there is impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. Through December 31, 2013, no impairments have occurred.

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.

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 related consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met.

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

Deferred Revenue — Deferred revenue primarily consists of billings and payments received in advance of revenue recognition. The Company primarily bills and collects payments from customers for products and services in advance on a monthly and annual basis. Deferred revenue to be recognized in the next twelve months is included in current deferred revenue, and the remaining amounts are included in long-term deferred revenue in the consolidated balance sheets.

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, short term 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 and 2013 no customers accounted for more than 10% of accounts receivable and there were no customers that represented 10% or more of revenue for the years ended December 31, 2011, 2012, or 2013.

Legal Costs — Legal expenditures are expensed as incurred.

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

Software Development Costs — The Company has determined that technological feasibility of its software products that are sold as a perpetual license is reached shortly before their introduction to the marketplace. As a result, development costs incurred after the establishment of technological feasibility and before their release to the marketplace have not been material and such costs have been expensed as incurred.

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

Foreign Currency Translation — The functional currency of operations outside the United States of America is deemed to be the currency of the local country, unless otherwise determined that the United States dollar would serve as a more appropriate functional currency given the economic operations of the entity. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars using the period-end exchange rate, and income and expense items are translated using the average exchange rate during the period. Cumulative translation adjustments are reflected as a separate component of equity. Foreign currency transaction gains and losses are charged to operations. The Company had foreign currency losses of approximately $565,000, $641,000, and $89,000 for the years ended December 31, 2011, 2012, and 2013 included in other expense in the consolidated statements of income.

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

Advertising Costs — The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2011, 2012, and 2013 was approximately $20.5 million, $23.8 million, and $27.8 million respectively, which consisted primarily of online paid searches, banner advertising, and other online marketing and is included in sales and marketing expense in the accompanying consolidated statements of operations.

Comprehensive Income (Loss) — Comprehensive income (loss) is the change in stockholders’ equity during a period relating to transactions and other events and circumstances from non-owner sources and currently consists of net income, foreign currency translation adjustments, and unrealized gains and losses, net of tax on available-for-sale securities. Accumulated comprehensive loss was approximately $400,000 at December 31, 2012 and consisted of $450,000 related to foreign currency translation adjustments offset by $50,000 of unrealized gains, net of tax on available-for sale securities. Accumulated comprehensive loss was approximately $1.2 million at December 31, 2013 and consisted of $1.2 million related to foreign currency translation adjustments offset by $25,000 of unrealized gains, net of tax on available-for sale securities.

Fair Value of Financial Instruments — The carrying value of the Company’s financial instruments, including cash equivalents, restricted cash, accounts receivable, and accounts payable, approximate their fair values due to their short maturities.

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

 

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

 

     Years Ended December 31,  
     2011      2012      2013  

Revenues:

        

United States

   $ 79,050      $ 90,233      $ 109,444  

United Kingdom

     10,652        12,846        15,058  

International — all other

     29,759        35,758        41,756  
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 119,461      $ 138,837      $ 166,258  
  

 

 

    

 

 

    

 

 

 

Long-lived assets:

        

United States

   $ 3,177      $ 4,129      $ 10,207  

Hungary

     1,373        1,599        1,224  

Ireland

             234         1,057   

United Kingdom

     264        530        289  

Australia

     113         75         367   

International — all other

     276         9         54   
  

 

 

    

 

 

    

 

 

 

Total long-lived assets

   $ 5,203      $ 6,576      $ 13,198  
  

 

 

    

 

 

    

 

 

 

Net Income (Loss) Per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding during the period and the weighted average number of potential common shares outstanding from the assumed exercise of stock options and the vesting of restricted stock units. For the year ended December 31, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for each period were identical.

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

 

     Years Ended December 31,  
       2011          2012          2013    

Options to purchase common shares

     984        1,679        2,389  

Restricted stock units

            147        1,192  
  

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     984        1,826        3,581  
  

 

 

    

 

 

    

 

 

 

 

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

 

     Year Ended
December 31, 2011
 

Basic:

  

Net income

   $ 5,761  
  

 

 

 

Weighted average common shares outstanding, basic

     24,176  
  

 

 

 

Net income, basic

   $ 0.24  
  

 

 

 

Diluted:

  

Net income

   $ 5,761  
  

 

 

 

Weighted average common shares outstanding

     24,176  

Add: Options to purchase common shares

     979  
  

 

 

 

Weighted average common shares outstanding, diluted

     25,155  
  

 

 

 

Net income, diluted

   $ 0.23  
  

 

 

 

 

     Year Ended
December 31, 2012
 

Basic:

  

Net income

   $ 3,566  
  

 

 

 

Weighted average common shares outstanding, basic

     24,711  
  

 

 

 

Net income, basic

   $ 0.14  
  

 

 

 

Diluted:

  

Net income

   $ 3,566  
  

 

 

 

Weighted average common shares outstanding

     24,711  

Add: Options to purchase common shares

     645  
  

 

 

 

Weighted average common shares outstanding, diluted

     25,356  
  

 

 

 

Net income, diluted

   $ 0.14  
  

 

 

 

 

     Year Ended
December 31, 2013
 

Basic and Diluted Net Loss per Share:

  

Net loss

   $ (7,682 )
  

 

 

 

Weighted average common shares outstanding

     24,351  
  

 

 

 

Basic and diluted net loss per share

   $ (0.32 )
  

 

 

 

Guarantees and Indemnification Obligations — As permitted under Delaware law, the Company has agreements whereby the Company indemnifies certain of its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. As permitted under Delaware law, the Company also has similar indemnification obligations under its certificate of incorporation and by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s insurance coverage that the Company believes limits its exposure and enables it to recover a portion of any future amounts paid.

 

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims, including claims alleging that the Company’s products infringe third-party patents, copyrights, or trademarks. The term of these indemnification obligations is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited. Through December 31, 2013, the Company has not experienced any losses related to these indemnification obligations.

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

Recently Issued Accounting Pronouncements — 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)

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

 

     December 31,  
     2011      2012      2013  

Balance, beginning

   $ 111      $ 109      $ 180  

Provision for bad debt

     85        100        116  

Uncollectible accounts written off

     87        29        27  
  

 

 

    

 

 

    

 

 

 

Balance, ending

   $ 109      $ 180      $ 269  
  

 

 

    

 

 

    

 

 

 

Estimated useful lives of assets are as follows:

 

Computer equipment and software

     2 —3 years   

Office equipment

     3 years   

Furniture and fixtures

     5 years   

Leasehold Improvements

    
 
Shorter of lease term
or estimated useful life
  
  

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

 

     Years Ended December 31,  
     2011      2012      2013  

Revenues:

        

United States

   $ 79,050      $ 90,233      $ 109,444  

United Kingdom

     10,652        12,846        15,058  

International — all other

     29,759        35,758        41,756  
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 119,461      $ 138,837      $ 166,258  
  

 

 

    

 

 

    

 

 

 

Long-lived assets:

        

United States

   $ 3,177      $ 4,129      $ 10,207  

Hungary

     1,373        1,599        1,224  

Ireland

             234         1,057   

United Kingdom

     264        530        289  

Australia

     113         75         367   

International — all other

     276         9         54   
  

 

 

    

 

 

    

 

 

 

Total long-lived assets

   $ 5,203      $ 6,576      $ 13,198  
  

 

 

    

 

 

    

 

 

 

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

 

     Years Ended December 31,  
       2011          2012          2013    

Options to purchase common shares

     984        1,679        2,389  

Restricted stock units

            147        1,192  
  

 

 

    

 

 

    

 

 

 

Total options and restricted stock units

     984        1,826        3,581  
  

 

 

    

 

 

    

 

 

 

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

 

     Year Ended
December 31, 2011
 

Basic:

  

Net income

   $ 5,761  
  

 

 

 

Weighted average common shares outstanding, basic

     24,176  
  

 

 

 

Net income, basic

   $ 0.24  
  

 

 

 

Diluted:

  

Net income

   $ 5,761  
  

 

 

 

Weighted average common shares outstanding

     24,176  

Add: Options to purchase common shares

     979  
  

 

 

 

Weighted average common shares outstanding, diluted

     25,155  
  

 

 

 

Net income, diluted

   $ 0.23  
  

 

 

 

 

     Year Ended
December 31, 2012
 

Basic:

  

Net income

   $ 3,566  
  

 

 

 

Weighted average common shares outstanding, basic

     24,711  
  

 

 

 

Net income, basic

   $ 0.14  
  

 

 

 

Diluted:

  

Net income

   $ 3,566  
  

 

 

 

Weighted average common shares outstanding

     24,711  

Add: Options to purchase common shares

     645  
  

 

 

 

Weighted average common shares outstanding, diluted

     25,356  
  

 

 

 

Net income, diluted

   $ 0.14  
  

 

 

 

 

     Year Ended
December 31, 2013
 

Basic and Diluted Net Loss per Share:

  

Net loss

   $ (7,682 )
  

 

 

 

Weighted average common shares outstanding

     24,351  
  

 

 

 

Basic and diluted net loss per share

   $ (0.32 )
  

 

 

 
Fair Value of Financial Instruments (Tables)

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

 

     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      $ 49,209      $      $  

Cash equivalents — bank deposits

     5,037               5,037         

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

     100,161        90,138        10,023         

Contingent consideration liability

     161                      161  

Balance at December 31, 2013

           

Cash equivalents — money market funds

     28,210        28,210                

Cash equivalents — bank deposits

     5,001               5,001         

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

     100,299        75,288         25,011          

Contingent consideration liability

                           

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

 

     Years Ended
December 31,
 
       2012         2013    

Balance beginning of period

   $ 212     $ 161  

Additions to Level 3

            

Payments

     (89 )     (178 )

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

     38       17  
  

 

 

   

 

 

 

Balance end of period

   $ 161     $  
  

 

 

   

 

 

 
Acquisitions (Tables)

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

 

     Amount  

Tangible assets

   $ 8  

Technology and know-how

     3,250  

Goodwill

     6,935  
  

 

 

 

Total purchase price

     10,193  

Liability for contingent consideration

     (193
  

 

 

 

Cash paid

   $ 10,000  
  

 

 

 

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

 

     Amount  

Cash

   $ 482  

Current assets

     126  

Other assets

     19  

Deferred revenue

     (424 )

Other liabilities

     (107 )

Completed technology

     1,090  

Trade name and trademark

     30  

Customer relationships

     2,760  

Non-compete agreements

     160  

Goodwill

     11,178  
  

 

 

 

Total purchase price

   $ 15,314  
  

 

 

 
Goodwill and Intangible Assets (Tables)

Changes in goodwill for the years ended December 31, 2012 and 2013, are as follows (in thousands):

 

Balance, December 31, 2011

   $ 7,259   

Goodwill related to the acquisition of Bold

     11,178  

Foreign currency translation adjustments

     446  
  

 

 

 

Balance, December 31, 2012

   $ 18,883  

Foreign currency translation adjustments

     (171 )
  

 

 

 

Balance, December 31, 2013

   $ 18,712  
  

 

 

 

Intangible assets consist of the following (in thousands):

 

          December 31, 2012     December 31, 2013  
     Estimated
Useful

Life
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 

Identifiable intangible assets:

             

Trademark

    1-5 years      $ 666     $ 666     $     $ 666     $ 666     $  

Customer base

    5-7 years        3,789       1,447       2,342       3,789       1,901       1,888  

Domain names

    5 years        534       137       397       894       341       553  

Software

    4 years        299       299             299       299        

Technology

    3-6 years        2,463       1,581       882       13,963       1,835       12,128  

Technology and know-how

    3-6 years       3,257       1,577       1,680       3,176       2,597       579  

Non-Compete agreements

    5 years       162       9       153       162       34       128  

Internally developed software

    3 years        1,282       368       914       2,485       875       1,610  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 12,452     $ 6,084     $ 6,368     $ 25,434     $ 8,548     $ 16,886  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortization Expense (Years Ending December 31)

   Amount  

2014

     4,333   

2015

     3,706   

2016

     3,257   

2017

     2,787   

2018

     2,612   

Thereafter

     191  
  

 

 

 

Total

   $ 16,886  
Property and Equipment (Tables)
Schedule of Property and Equipment

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

 

     December 31,  
     2012     2013  

Computer equipment and software

   $ 15,617     $ 22,276  

Office equipment

     1,947       3,235  

Furniture & fixtures

     1,438       3,083   

Construction in Progress

     1,072       456   

Leasehold improvements

     1,845       2,967  
  

 

 

   

 

 

 

Total property and equipment

     21,919       32,017  

Less accumulated depreciation and amortization

     (15,343 )     (18,819 )
  

 

 

   

 

 

 

Property and equipment, net

   $ 6,576     $ 13,198  
  

 

 

   

 

 

 
Accrued Liabilities (Tables)
Summary of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     December 31,
2012
     December 31,
2013
 

Marketing programs

   $ 2,689      $ 4,631  

Payroll and payroll related

     7,970        9,719  

Professional fees

     1,712        1,064  

Other accrued liabilities

     4,286        4,696  
  

 

 

    

 

 

 

Total accrued expenses

   $ 16,657      $ 20,110  
  

 

 

    

 

 

 
Income Taxes (Tables)

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

 

     Years Ended December 31,  
     2011      2012     2013  

Domestic

   $ 9,423      $ 7,789     $ 10,389  

Foreign

     372        (1,532 )     (11,857 )
  

 

 

    

 

 

   

 

 

 

Total income (loss) before provision for income taxes

   $ 9,795      $ 6,257     $ (1,468 )
  

 

 

    

 

 

   

 

 

 

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

 

     Years Ended December 31,  
     2011     2012     2013  

Current

      

Federal

   $ 5,477     $ 8,324     $ 5,480  

State

     235       1,181       1,346  

Foreign

     140       126       952  
  

 

 

   

 

 

   

 

 

 

Total

     5,852       9,631       7,778  
  

 

 

   

 

 

   

 

 

 

Deferred

      

Federal

     (2,022     (4,926 )     (1,379 )

State

     188       44       (177 )

Foreign

     16       (2,058 )     (8 )
  

 

 

   

 

 

   

 

 

 

Total

     (1,818     (6,940 )     (1,564 )
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 4,034     $ 2,691     $ 6,214  
  

 

 

   

 

 

   

 

 

 

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

 

     For the Years Ended December 31,  
     2011     2012     2013  

Statutory tax rate

       35.0       35.0       35.0

Change in valuation allowance

            (10.8       

Impact of permanent differences

     4.6        15.6        (82.3

Foreign tax rate differential

     0.3        (11.5     (346.9

Research and development credits

     (2.6            23.1   

State taxes, net of federal benefit

     3.4        13.8        (51.9

Impact of uncertain tax positions

     2.0        0.8        (3.6

Other

     (1.5     0.1        3.4   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

       41.2       43.0     (423.2 )% 
  

 

 

   

 

 

   

 

 

 

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

 

     December 31,  
     2012     2013  

Deferred tax assets:

    

Net operating loss carryforwards

   $ 3,222      $ 2,375   

Deferred revenue

     1,715        627   

Amortization

     897        1,211   

Research and development credit carryforwards

     383        404   

Bad debt reserves

     71        56   

Stock compensation associated with non-qualified awards

     8,242        10,423   

Depreciation

            326   

Other

     2,136        2,369   
  

 

 

   

 

 

 

Total deferred tax assets

     16,666        17,791   

Deferred tax asset valuation allowance

     (2,463     (2,836
  

 

 

   

 

 

 

Net deferred tax assets

     14,203        14,955   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Depreciation

     (313     (1,212

Goodwill amortization

     (655     (1,236

Other

            (14
  

 

 

   

 

 

 

Total deferred tax liabilities

     (968     (2,462
  

 

 

   

 

 

 

Total

   $ 13,235      $ 12,493   
  

 

 

   

 

 

 

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

 

     Years Ended
December 31,
 
         2012              2013      

Beginning balance

   $ 198       $ 251   

Gross decreases — tax positions in prior period

               

Gross increases — tax positions in current period

     53         53   
  

 

 

    

 

 

 

Ending balance

   $ 251       $ 304   
  

 

 

    

 

 

 
Common Stock and Equity (Tables)
Reserved Common Stock for Stock Options and Restricted Stock Units

Common Stock Reserved — As of December 31, 2012 and 2013, the Company has reserved the following number of shares of common stock for the exercise of stock options and restricted stock units (in thousands):

 

     Number of Shares as of  
     December 31,
2012
     December 31,
2013
 

Common stock options and restricted stock units

     4,908         5,231   
  

 

 

    

 

 

 

Total reserved

     4,908         5,231   
Stock Incentive Plan (Tables)

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

 

     Years Ended December 31,
     2011    2012    2013

Expected dividend yield

   0.00%    0.00%    0.00%

Risk-free interest rate

   0.91% - 2.28%    0.64% - 0.87%    0.87 - 1.36%

Expected term (in years)

   5.56 - 6.25    5.56 - 6.25    6.25

Volatility

   60%    55% - 60%    55%

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

 

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

Outstanding, January 1, 2013

     2,941      $ 25.90         7.2      
       

 

 

    

Granted

     186        22.22         

Exercised

     (374 )     10.15          $ 7,213   
          

 

 

 

Forfeited

     (364 )     33.97         
  

 

 

   

 

 

       

Outstanding, December 31, 2013

     2,389      $ 26.85         6.4       $ 22,330   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2013

     1,451      $ 23.45         5.4       $ 17,855   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested or expected to vest at December 31, 2013

     2,331      $ 26.78         6.3       $ 21,965   
  

 

 

   

 

 

    

 

 

    

 

 

 

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

 

     Year
Ended
December  31,
2013
 

Risk-free interest rate

     0.62

Volatility

     54

The following table summarizes all restricted stock unit activity (shares in thousands):

 

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

Unvested as of January 1, 2013

     783      $ 31.14   

Restricted stock units granted

     837        26.93   

Restricted stock units vested

     (259     31.06   

Restricted stock units forfeited

     (169     29.26   
  

 

 

   

 

 

 

Unvested as of December 31, 2013

     1,192      $ 28.47   
  

 

 

   

 

 

 

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

 

     Years Ended December 31,  
     2011      2012      2013  

Cost of revenue

   $ 316       $ 484       $ 706   

Research and development

     1,477         2,826         3,761   

Sales and marketing

     2,700         4,962         7,242   

General and administrative

     4,432         6,520         8,005   
  

 

 

    

 

 

    

 

 

 
   $ 8,925       $ 14,792       $ 19,714   
  

 

 

    

 

 

    

 

 

 
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 December 31, 2013 (in thousands):

 

Years Ending December 31(1)

      

2014

   $ 9,094   

2015

     6,043   

2016

     5,870   

2017

     4,495   

2018

     4,515   

Thereafter

     20,816   
  

 

 

 

Total minimum lease payments

   $ 50,833   
  

 

 

 

 

  (1) Excluded from the table above is $304,000 related to uncertain tax positions as the Company is uncertain as to when a cash settlement for these liabilities will occur.

 

Quarterly Information (Unaudited) (Tables)
Statement of Operations Data
    For the Three Months Ended,  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012(1)
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 
    (in thousands, except for per share data)  

Statement of Operations Data:

               

Revenue

  $ 32,688      $ 33,797      $ 35,368      $ 36,985      $ 37,437      $ 40,670      $ 42,970      $ 45,181   

Gross profit

    29,271        30,372        31,681        33,010        33,028        35,894        38,285        40,235   

Income (loss) from operations

    1,172        2,256        1,549        1,034        (6,630     (123     2,191        2,636   

Net income (loss)

    76        576        718        2,196        (5,807     (1,360     (56     (459

Net income (loss) per share-basic

    0.00        0.02        0.03        0.14        (0.24     (0.06     0.00        (0.02

Net income (loss) per share-diluted

    0.00        0.02        0.03        0.14        (0.24     (0.06     0.00        (0.02

 

  (1) Comparability affected by the reversal of the valuation allowance related to its Xively deferred tax assets of approximately $677,000.
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
12 Months Ended 3 Months Ended 12 Months Ended
Dec. 31, 2013
Segment
Customer
Dec. 31, 2012
Customer
Dec. 31, 2011
Customer
May 31, 2013
Nov. 30, 2012
Patents
Mar. 31, 2013
License Agreements [Member]
Dec. 31, 2013
Massachusetts [Member]
Apr. 30, 2012
Massachusetts [Member]
Dec. 31, 2013
Massachusetts [Member]
Internally Developed Software [Member]
Dec. 31, 2013
Minimum [Member]
Dec. 31, 2013
Maximum [Member]
Dec. 31, 2013
Maximum [Member]
Internally Developed Software [Member]
Dec. 31, 2013
Weighted Average [Member]
Organization And Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents maturity period
Less than three months