NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1.
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Description of Business and Basis of Presentation
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LivePerson, Inc. (the “Company” or “LivePerson”) was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. In April 2000, the Company completed an initial public offering and is currently traded on the Nasdaq Global Select Market and the Tel Aviv Stock Exchange. LivePerson is headquartered in New York City, with U.S. offices in Alpharetta (Georgia) and international offices in Amsterdam, Berlin, London, Mannheim, Melbourne, Milan, Paris, Ra'anana (Israel), Reading (UK), and Tokyo.
LivePerson provides mobile and online business messaging solutions that power digital communication between brands and consumers. LiveEngage, the Company’s enterprise-class, cloud-based platform, enables businesses to create a meaningful connection with consumers via messaging. As consumers have reoriented their digital lives around the smartphone, messaging apps have become their preferred communication channel to connect with each other. LivePerson allows brands to align with this new consumer preference by deploying messaging at scale for customer care and sales as an alternative to email or to calling a contact center.
LiveEngage is designed to securely deploy messaging at scale for brands with tens of millions of customers and many thousands of customer care agents. Key benefits include a sophisticated proactive targeting engine and a robust suite of text and mobile messaging, real-time chat messaging, content delivery, customer sentiment, and cobrowsing offerings that power intelligent digital engagement with consumers. LiveEngage powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, social media and third-party consumer messaging platforms.
LivePerson optimizes campaign outcomes for sales and service transactions by combining website visitor data with other historical, behavioral, and operational information to develop insights into each step of a consumer’s journey. LivePerson’s products, coupled with its domain knowledge, industry expertise and consulting services, have been proven to maximize the effectiveness of consumer engagement.
The Company’s primary revenue source is from the sale of LivePerson services to businesses of all sizes. The Company also offers an online marketplace that connects independent service providers (“Experts”) who provide information and knowledge for a fee via mobile and online messaging with individual consumers (“Users”).
Basis of Presentation
The accompanying condensed consolidated financial statements as of
June 30, 2017
and for the
three and six
months ended
June 30, 2017
and
2016
are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the consolidated financial position of LivePerson as of
June 30, 2017
, and the consolidated results of operations, comprehensive loss and cash flows for the interim periods ended
June 30, 2017
and
2016
. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods is unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at
December 31, 2016
has been derived from audited consolidated financial statements at that date.
Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended
December 31, 2016
included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2017.
Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.
Recently Issued Accounting Standards
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting" (“ASU 2017-09”). This update clarifies and reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, to a change to the terms and conditions of a share-based payment award. ASU 2017-09 is effective for financial statements issued for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact of this updated standard, but does not believe this update will have a significant impact on its consolidated financial statements.
In January 2017, FASB issued Accounting Standards Update No. 2017-04, "Intangibles —Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" (“ASU 2017-04”). This update addresses concerns over the cost and complexity of the two-step goodwill impairment test. The amendments in this update remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-04 is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The Company does not expect the adoption of ASU 2017-04 to have a material effect on its financial position, results of operations or cash flows.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" (“ASU 2017-01”). This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this update provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. ASU 2017-01 is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company does not expect the adoption of ASU 2017-01 to have a material effect on its financial position, results of operations or cash flows.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation -Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). This update is intended to improve the accounting for employee share-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including:(a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company adopted this ASU as of the beginning of the first quarter of 2017 and has elected to continue to estimate expected forfeitures over the course of a vesting period. Further, the ASU eliminates the requirement to delay the recognition of excess tax benefits until they reduce current taxes payable. The adoption of ASU 2016-09 did not have any material impact on the Company’s financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, “Revenue from Contracts with Customers”. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018. While the Company is currently assessing the impact ASU 2016-02 will have on the consolidated financial statements, the Company expects the primary impact to its consolidated financial position upon adoption will be the recognition, on a discounted basis, of its minimum commitments under non-cancelable operating leases on the consolidated balance sheets resulting in the recording of right of use assets and lease obligations. The Company is also currently evaluating the timing of adoption and the impact that the standard will have on its condensed consolidated financial statements and related disclosures.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes most existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In March 2016, the FASB issued implementation guidance that clarified the considerations in principal versus agent determination. In April 2016, FASB issued guidance that clarified identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In May 2016, FASB issued guidance that addresses narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. In December 2016, FASB issued guidance to make minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The Company currently capitalizes the contract costs over the contracted period. The Company is still analyzing the impact of this ASU as we are currently in the process of analyzing all of our revenue streams, but based on the current work to date, the Company believes that the current revenue recognition policy currently in place already depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services and as a result the adoption of this ASU is not expected to have a material impact on the Company's financial statements. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, full retrospective method, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application, modified retrospective method. The Company plans to adopt the standard using the modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company will adopt this guidance at the beginning of its first quarter of fiscal year 2018.
The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Because the Company provides its application as a service, the Company follows the provisions of FASB Accounting Standards Codification (“ASC”) 605-10-S99, “Revenue Recognition” and ASC 605-25, “Revenue Recognition with Multiple-Element Arrangements.” The Company charges a monthly, quarterly or annual fee, which varies by type of service, the level of customer usage and website traffic, and in some cases, the number of orders placed via the Company’s online engagement solutions.
For certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions. For these Pay for Performance (“PFP”) arrangements, in accordance with ASC 605-45, “Principal Agent Considerations,” the Company records revenue for transactions in which it acts as an agent on a net basis, and revenue for transactions in which it acts as a principal on a gross basis.
The Company also sells certain of the LivePerson services directly via Internet download. These services are marketed as LiveEngage for small to medium-sized businesses, and are paid for almost exclusively by credit card. Credit card payments accelerate cash flow and reduce the Company’s collection risk, subject to the merchant bank’s right to hold back cash pending settlement of the transactions. Sales of LiveEngage may occur with or without the assistance of an online sales representative, rather than through face-to-face or telephone contact that is typically required for traditional direct sales.
The Company recognizes monthly service revenue based upon the fee charged for the LivePerson services, provided that there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable. The Company’s service agreements typically have
twelve
month terms and, in some cases, are terminable or may terminate upon
30
to
90
days’ notice without penalty. When professional service fees add value to the customer on a standalone basis, the Company recognizes professional service fees upon completion and customer acceptance. The Company establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) best estimated selling price. If a professional services arrangement does not qualify for separate accounting, the Company recognizes the fees, and the related labor costs, ratably over the contracted period.
For revenue from the Company’s Consumer segment generated from online transactions between Experts and Users, the Company recognizes revenue net of the Expert fees in accordance with ASC 605-45, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of
loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the User and retains a portion of the fee, and then remits the balance to the Expert. Revenue from these transactions is recognized when there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed and determinable.
The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10 and the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 98. Under ASC 260-10, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. All options, warrants or other potentially dilutive instruments issued for nominal consideration are required to be included in the calculation of basic and diluted net income attributable to common stockholders. Diluted EPS is calculated using the treasury stock method and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.
Diluted net loss per common share for the
three and six
months ended
June 30, 2017
does not include the effect of
9,423,000
outstanding common stock awards, as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the three and six months ended
June 30, 2016
does not include the effect of
9,156,278
outstanding common stock awards, as the effect of their inclusion is anti-dilutive.
A reconciliation of shares used in calculating basic and diluted net loss per share follows:
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|
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|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic
|
55,954,158
|
|
|
55,965,525
|
|
|
55,964,568
|
|
|
56,174,603
|
|
Effect of assumed exercised options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted
|
55,954,158
|
|
|
55,965,525
|
|
|
55,964,568
|
|
|
56,174,603
|
|
The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company is organized into
two
operating segments for purposes of making operating decisions and assessing performance. The Business segment facilitates real-time online interactions – chat, voice and content delivery across multiple channels and screens for global corporations of all sizes. The Consumer segment facilitates online transactions between Experts and Users and sells its services to consumers. Both segments currently generate their revenue primarily in the United States. The chief operating decision maker, who is the chief executive officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income of each segment. The reporting segments follow the same accounting polices used in the preparation of the Company’s condensed consolidated financial statements which are described in the summary of significant accounting policies. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses, restructuring costs and income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.
Summarized financial information by segment for the three months ended
June 30, 2017
, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Corporate
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Hosted services – Business
|
$
|
43,927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,927
|
|
Hosted services – Consumer
|
—
|
|
|
4,460
|
|
|
—
|
|
|
4,460
|
|
Professional services
|
5,687
|
|
|
—
|
|
|
—
|
|
|
5,687
|
|
Total revenue
|
49,614
|
|
|
4,460
|
|
|
—
|
|
|
54,074
|
|
Cost of revenue
|
14,206
|
|
|
928
|
|
|
—
|
|
|
15,134
|
|
Sales and marketing
|
21,242
|
|
|
2,150
|
|
|
—
|
|
|
23,392
|
|
Amortization of purchased intangibles
|
470
|
|
|
—
|
|
|
—
|
|
|
470
|
|
Unallocated corporate expenses
|
—
|
|
|
—
|
|
|
21,839
|
|
|
21,839
|
|
Operating income (loss)
|
$
|
13,696
|
|
|
$
|
1,382
|
|
|
$
|
(21,839
|
)
|
|
$
|
(6,761
|
)
|
Summarized financial information by segment for the three months ended
June 30, 2016
, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Corporate
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Hosted services – Business
|
$
|
46,729
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,729
|
|
Hosted services – Consumer
|
—
|
|
|
4,238
|
|
|
—
|
|
|
4,238
|
|
Professional services
|
5,712
|
|
|
—
|
|
|
—
|
|
|
5,712
|
|
Total revenue
|
52,441
|
|
|
4,238
|
|
|
—
|
|
|
56,679
|
|
Cost of revenue
|
16,691
|
|
|
817
|
|
|
—
|
|
|
17,508
|
|
Sales and marketing
|
21,315
|
|
|
1,773
|
|
|
—
|
|
|
23,088
|
|
Amortization of purchased intangibles
|
1,017
|
|
|
—
|
|
|
—
|
|
|
1,017
|
|
Unallocated corporate expenses
|
—
|
|
|
—
|
|
|
20,880
|
|
|
20,880
|
|
Operating income (loss)
|
$
|
13,418
|
|
|
$
|
1,648
|
|
|
$
|
(20,880
|
)
|
|
$
|
(5,814
|
)
|
Summarized financial information by segment for the six months ended
June 30, 2017
, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Corporate
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Hosted services – Business
|
$
|
85,420
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85,420
|
|
Hosted services – Consumer
|
—
|
|
|
8,630
|
|
|
—
|
|
|
8,630
|
|
Professional services
|
10,943
|
|
|
—
|
|
|
—
|
|
|
10,943
|
|
Total revenue
|
96,363
|
|
|
8,630
|
|
|
—
|
|
|
104,993
|
|
Cost of revenue
|
27,112
|
|
|
1,803
|
|
|
—
|
|
|
28,915
|
|
Sales and marketing
|
40,785
|
|
|
4,307
|
|
|
—
|
|
|
45,092
|
|
Amortization of purchased intangibles
|
942
|
|
|
—
|
|
|
—
|
|
|
942
|
|
Unallocated corporate expenses
|
—
|
|
|
—
|
|
|
41,730
|
|
|
41,730
|
|
Operating income (loss)
|
$
|
27,524
|
|
|
$
|
2,520
|
|
|
$
|
(41,730
|
)
|
|
$
|
(11,686
|
)
|
Summarized financial information by segment for the six months ended
June 30, 2016
, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Corporate
|
|
Consolidated
|
Revenue:
|
|
|
|
|
|
|
|
Hosted services – Business
|
$
|
92,688
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92,688
|
|
Hosted services – Consumer
|
—
|
|
|
8,004
|
|
|
—
|
|
|
8,004
|
|
Professional services
|
11,452
|
|
|
—
|
|
|
—
|
|
|
11,452
|
|
Total revenue
|
104,140
|
|
|
8,004
|
|
|
—
|
|
|
112,144
|
|
Cost of revenue
|
31,929
|
|
|
1,443
|
|
|
—
|
|
|
33,372
|
|
Sales and marketing
|
42,328
|
|
|
3,436
|
|
|
—
|
|
|
45,764
|
|
Amortization of purchased intangibles
|
1,941
|
|
|
—
|
|
|
—
|
|
|
1,941
|
|
Unallocated corporate expenses
|
—
|
|
|
—
|
|
|
39,623
|
|
|
39,623
|
|
Operating income (loss)
|
$
|
27,942
|
|
|
$
|
3,125
|
|
|
$
|
(39,623
|
)
|
|
$
|
(8,556
|
)
|
Geographic Information
The Company is domiciled in the United States and has international operations in the United Kingdom, Asia-Pacific, Latin America and Western Europe, particularly France and Germany. The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented (amounts in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
United States
|
$
|
34,078
|
|
|
$
|
38,272
|
|
|
$
|
65,763
|
|
|
$
|
76,063
|
|
Other Americas
(1)
|
1,968
|
|
|
1,546
|
|
|
3,940
|
|
|
3,092
|
|
Total Americas
|
36,047
|
|
|
39,818
|
|
|
69,703
|
|
|
79,155
|
|
EMEA
(2) (4)
|
13,953
|
|
|
12,274
|
|
|
27,465
|
|
|
23,880
|
|
APAC
(3)
|
4,075
|
|
|
4,587
|
|
|
7,825
|
|
|
9,109
|
|
Total revenue
|
$
|
54,074
|
|
|
$
|
56,679
|
|
|
$
|
104,993
|
|
|
$
|
112,144
|
|
(1)
Canada, Latin America and South America
(2)
Europe, the Middle East and Africa (“EMEA”)
(3)
Asia-Pacific (“APAC”)
(4)
Includes revenues from the United Kingdom of
$9.1 million
and
$8.2 million
for three months ended and
$18.2 million
and
$16.3 million
for the six months ended
June 30, 2017
and
2016
, respectively.
The following table presents the Company’s long-lived assets by geographic region for the periods presented (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2017
|
|
2016
|
United States
|
$
|
94,524
|
|
|
$
|
93,845
|
|
Israel
|
12,703
|
|
|
13,940
|
|
Australia
|
9,254
|
|
|
9,496
|
|
Netherlands
|
7,523
|
|
|
7,495
|
|
Other
(1)
|
2,439
|
|
|
2,711
|
|
Total long-lived assets
|
$
|
126,443
|
|
|
$
|
127,487
|
|
(1)
United Kingdom, Germany, Japan, France and Italy
No individual customer accounted for 10% or more of consolidated revenue for any of the periods presented. No individual customer accounted for 10% or more of accounts receivable as of
June 30, 2017
and
December 31, 2016
.
|
|
5.
|
Goodwill and Intangible Assets
|
Goodwill
The changes in the carrying amount of goodwill for the
six months ended
June 30, 2017
are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Consumer
|
|
Consolidated
|
Balance as of December 31, 2016
|
$
|
72,221
|
|
|
$
|
8,024
|
|
|
$
|
80,245
|
|
Adjustments to goodwill:
|
|
|
|
|
|
Foreign exchange adjustment
|
178
|
|
|
—
|
|
|
178
|
|
Balance as of June 30, 2017
|
$
|
72,399
|
|
|
$
|
8,024
|
|
|
$
|
80,423
|
|
Intangible Assets
Intangible assets are summarized as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Weighted
Average
Amortization
Period
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
Technology
|
$
|
28,232
|
|
|
$
|
(21,652
|
)
|
|
$
|
6,580
|
|
|
5.3 years
|
Customer relationships
|
15,851
|
|
|
(9,596
|
)
|
|
6,255
|
|
|
8.0 years
|
Trade names
|
1,299
|
|
|
(1,287
|
)
|
|
12
|
|
|
2.1 years
|
Non-compete agreements
|
1,449
|
|
|
(1,360
|
)
|
|
89
|
|
|
2.3 years
|
Patents
|
1,419
|
|
|
(431
|
)
|
|
988
|
|
|
12.8 years
|
Other
|
262
|
|
|
(235
|
)
|
|
27
|
|
|
2.7 years
|
Total
|
$
|
48,512
|
|
|
$
|
(34,561
|
)
|
|
$
|
13,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Weighted
Average
Amortization
Period
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
Technology
|
$
|
28,018
|
|
|
$
|
(19,736
|
)
|
|
$
|
8,282
|
|
|
5.3 years
|
Customer relationships
|
16,009
|
|
|
(8,857
|
)
|
|
7,152
|
|
|
8.0 years
|
Trade names
|
1,295
|
|
|
(1,277
|
)
|
|
18
|
|
|
2.1 years
|
Non-compete agreements
|
1,446
|
|
|
(1,220
|
)
|
|
226
|
|
|
2.3 years
|
Patents
|
1,180
|
|
|
(376
|
)
|
|
804
|
|
|
12.4 years
|
Other
|
263
|
|
|
(235
|
)
|
|
28
|
|
|
2.7 years
|
Total
|
$
|
48,211
|
|
|
$
|
(31,701
|
)
|
|
$
|
16,510
|
|
|
|
Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization expense for intangible assets was
$1.4 million
and
$1.7 million
for the three months ended
June 30, 2017
and
2016
, respectively. Aggregate amortization expense for intangible assets was
$2.9 million
and
$3.3 million
for the six months ended
June 30, 2017
and
2016
, respectively. For the three and
six months ended June 30, 2017
and
2016
, respectively, a portion of this amortization is included in cost of revenue. Estimated amortization expense for the next five years is as follows (amounts in thousands):
|
|
|
|
|
|
Estimated Amortization Expense
|
2017
|
$
|
1,823
|
|
2018
|
2,583
|
|
2019
|
2,374
|
|
2020
|
2,179
|
|
2021
|
1,969
|
|
Thereafter
|
3,023
|
|
Total
|
$
|
13,951
|
|
|
|
6.
|
Property and Equipment
|
The following table presents the detail of property and equipment for the periods presented (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
December 31,
2016
|
Computer equipment and software
|
$
|
89,527
|
|
|
$
|
82,477
|
|
Furniture, equipment and building improvements
|
15,108
|
|
|
15,027
|
|
|
104,635
|
|
|
97,504
|
|
Less: accumulated depreciation
|
(74,945
|
)
|
|
(69,107
|
)
|
Total
|
$
|
29,690
|
|
|
$
|
28,397
|
|
In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis. This review indicated that the actual lives of certain co-location assets were longer than the estimated useful lives used for depreciation purposes in the Company’s financial statements.
|
|
7.
|
Accrued Expenses and Other Current Liabilities
|
The following table presents the detail of accrued expenses and other current liabilities for the periods presented (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
December 31,
2016
|
Payroll and other employee related costs
|
$
|
12,026
|
|
|
$
|
15,468
|
|
Professional services and consulting and other vendor fees
|
15,132
|
|
|
15,277
|
|
Unrecognized tax benefits
|
4,626
|
|
|
4,240
|
|
Sales commissions
|
1,274
|
|
|
3,312
|
|
Contingent earnout (see Note 8)
|
—
|
|
|
210
|
|
Other
|
3,923
|
|
|
1,743
|
|
Total
|
$
|
36,981
|
|
|
$
|
40,250
|
|
|
|
8.
|
Fair Value Measurements
|
The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
|
|
•
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
•
|
Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
Financial Assets and Liabilities
The carrying amount of cash, accounts receivable, and accounts payable approximate their fair value due to their short-term nature. The Company
’
s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of
June 30, 2017
and
December 31, 2016
, are summarized as follows (amounts in thousands).
The Company’s restricted cash balance of
$3.8 million
at
June 30, 2017
and
$4.0 million
at
December 31, 2016
is not held in a money market account and is not included in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
3,084
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,084
|
|
|
$
|
3,076
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,076
|
|
Foreign currency derivative contracts
|
—
|
|
|
2,020
|
|
|
—
|
|
|
2,020
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
108
|
|
Total assets
|
$
|
3,084
|
|
|
$
|
2,020
|
|
|
$
|
—
|
|
|
$
|
5,104
|
|
|
$
|
3,076
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
3,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent earn-outs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
210
|
|
|
$
|
210
|
|
Foreign currency derivative contracts
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
66
|
|
|
—
|
|
|
66
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
210
|
|
|
$
|
276
|
|
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.
The Company's money market funds are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as level 1 within the fair value hierarchy. The Company's contingent earn-out liability and foreign currency derivative contracts are measured at fair value on a recurring basis and are classified as level 3 and level 2, respectively, within the fair value hierarchy. On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. The Company uses an income approach and inputs that constitute level 3. During the third quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level. The Company uses qualitative factors in accordance with ASU No. 2011-08 to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This measurement is classified based on level 3 input.
There is no remaining contingent earn-out as of
June 30, 2017
. The contingent earn-out related to the acquisition of Synchronite was based on the fulfillment of a complete product integration and a minimum number of “Co-Browse” interactions per month.
The changes in fair value of the level 3 liabilities are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Contingent Earn-Out
|
|
June 30, 2017
|
|
December 31, 2016
|
Balance, Beginning of Period
|
$
|
210
|
|
|
$
|
377
|
|
Cash payments
|
(210
|
)
|
|
(167
|
)
|
Balance, End of Period
|
$
|
—
|
|
|
$
|
210
|
|
Derivative Financial Instruments
The Company is exposed to foreign exchange risks that in part are managed by using derivative financial instruments. The Company entered into foreign currency forward contracts related to risks associated with foreign operations. The Company does not use derivatives for trading purposes. Derivatives are recorded at their estimated fair values based upon Level 2 inputs. Derivatives designated and effective as cash flow hedges are reported as a component of other comprehensive income and reclassified to earnings in the same periods in which the hedged transactions impact earnings. Gains and losses related to derivatives not meeting the requirements of hedge accounting and the portion of derivatives related to hedge ineffectiveness are recognized in current earnings.
In accordance with the foreign currency forward contracts, the Company was required to pledge cash as collateral security to be maintained at the bank. The collateral shall remain in control of the lender, and these funds can be used to satisfy the outstanding obligation. Accordingly, the Company had cash at the bank of approximately
$3.8 million
at
June 30, 2017
and
$4.0 million
at
December 31, 2016
, which is recorded as cash held as collateral in current assets.
The following summarizes certain information regarding the Company’s outstanding foreign currency derivative contracts related primarily to intercompany receivables and payables for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of December 31, 2016
|
Notional amount of foreign currency derivative contracts
|
$
|
22,363
|
|
|
$
|
44,438
|
|
Fair value of foreign currency derivatives contracts
|
$
|
2,018
|
|
|
$
|
42
|
|
The fair value of the Company’s derivative instruments is summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
Balance Sheet Location
|
|
As of June 30, 2017
|
|
As of December 31, 2016
|
Derivative Assets
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency derivatives contracts
|
Prepaid expenses and other current assets
|
|
$
|
2,020
|
|
|
$
|
108
|
|
Derivative Liabilities
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency derivatives contracts
|
Accrued expenses and other liabilities
|
|
$
|
2
|
|
|
$
|
66
|
|
The following summarizes certain information regarding the Company’s derivatives that are not designated or are not effective as hedges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (losses) on Derivative Instruments Recognized in Statements of Operations
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
Location
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Foreign currency derivatives contracts
|
|
Other expense
|
|
$
|
38
|
|
|
$
|
(393
|
)
|
|
$
|
213
|
|
|
$
|
88
|
|
|
|
9.
|
Commitments and Contingencies
|
Contractual Obligations
The Company leases facilities and certain equipment under agreements accounted for as operating leases. These leases generally require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases for the three and
six months ended
June 30, 2017
was approximately
$2.3 million
and
$4.6 million
, respectively. Rental expense for operating leases for the three and
six months ended
June 30, 2016
was approximately
$2.6 million
and
$5.3 million
, respectively.
Employee Benefit Plans
The Company has a 401(k) defined contribution plan covering all eligible employees. The Company provides for employer matching contributions equal to
50%
of employee contributions, up to the lesser of
5%
of eligible compensation or
$6,000
. Matching contributions are deposited into the employee’s 401(k) account and are subject to
5
year graded vesting. Salaries and related expenses include
$0.4 million
and
$0.8 million
of employer matching contributions for the three and
six months ended
June 30, 2017
. Salaries and related expenses include
$0.3 million
and
$0.7 million
of employer matching contributions for the three and
six months ended
June 30, 2016
.
Letters of Credit
As of
June 30, 2017
, the Company has a
$1.9 million
letter of credit outstanding substantially in favor of a certain landlord for office space. In addition, the Company has a letter of credit totaling
$0.1 million
as a security deposit for the due performance by the Company of the terms and conditions of a supply contract. There were no draws against these letters of credit during the three and
six months ended
June 30, 2017
.
|
|
10.
|
Stockholders
’
Equity
|
Common Stock
As of
June 30, 2017
, there were
100,000,000
shares of common stock authorized, and
58,763,919
shares issued and outstanding. As of
December 31, 2016
, there were
100,000,000
shares of common stock authorized, and
58,276,447
shares issued and outstanding. The par value for common shares is
$0.001
.
Preferred Stock
As of
June 30, 2017
and
December 31, 2016
, there were
5,000,000
shares of preferred stock authorized, and
zero
shares issued and outstanding. The par value for preferred shares is
$0.001
.
Stock Repurchase Program
On December 10, 2012, the Company’s Board of Directors approved a stock repurchase program through June 30, 2014. Under the stock repurchase program, the Company is authorized to repurchase shares of its common stock, in the open market or privately negotiated transactions, at times and prices considered appropriate by the Board of Directors depending upon prevailing market conditions and other corporate considerations. On March 13, 2014, the Company’s Board of Directors increased the aggregate purchase price of the stock repurchase program from
$30.0 million
to
$40.0 million
. On July 23, 2014, the Company’s Board of Directors increased the aggregate purchase price of the stock repurchase program from
$40.0 million
to
$50.0 million
. On February 16, 2016, the Company's Board of Directors increased the aggregate purchase price of the total stock repurchase program by an additional
$14.0 million
. On November 21, 2016, the Company's Board of Directors increased the aggregate purchase price of the stock repurchase program from
$64.0 million
to
$74.0 million
and extended the expiration date of the program out to December 31, 2017. There were
247,430
shares repurchased under this program during the
six months ended
June 30, 2017
, which were recorded in treasury stock at par on the condensed consolidated balance sheets as of
June 30, 2017
. As of
June 30, 2017
, approximately
$18.4 million
remained available for purchase under the program.
Stock-Based Compensation
The Company follows FASB ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
The per share weighted average fair value of stock options granted during the
three and six
months ended
June 30, 2017
was
$3.55
and
$3.50
, respectively. The per share weighted average fair value of stock options granted during the
three and six
months ended
June 30, 2016
was
$3.03
and
$3.00
, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Dividend yield
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Risk-free interest rate
|
1.7% - 1.9%
|
|
1.0% - 1.4%
|
|
1.7% - 1.9%
|
|
1.0% - 1.4%
|
Expected life (in years)
|
5
|
|
5
|
|
5
|
|
5
|
Historical volatility
|
46.6% - 47.6%
|
|
47.7% - 48.2%
|
|
46.6% - 47.6%
|
|
47.3% - 48.2%
|
A description of the methods used in the significant assumptions used to estimate the fair value of stock-based compensation awards follows:
Dividend yield –
The Company uses
0%
as it has never issued dividends and does not anticipate issuing dividends in the near term.
Risk-free interest rate –
The Company uses the market yield on U.S. Treasury securities at
five
years with constant maturity, representing the current expected life of stock options in years.
Expected life –
The Company uses historical data to estimate the expected life of a stock option.
Historical volatility –
The Company uses a trailing
five
year from grant date to determine volatility.
Stock Option Plans
During 1998, the Company established the Stock Option and Restricted Stock Purchase Plan (the “1998 Plan”). Under the 1998 Plan, the Board of Directors could issue incentive stock options or nonqualified stock options to purchase up to
5,850,000
shares of common stock. The 2000 Stock Incentive Plan (the “2000 Plan”) succeeded the 1998 Plan. Under the 2000 Plan, the options which had been outstanding under the 1998 Plan were incorporated in the 2000 Plan increasing the number of shares available for issuance under the plan by approximately
4,150,000
, thereby reserving for issuance
10,000,000
shares of common stock in the aggregate.
The Company established the 2009 Stock Incentive Plan (as amended and restated, the “2009 Plan”) as a successor to the 2000 Plan. Under the 2009 Plan, the options which had been outstanding under the 2000 Plan were incorporated into the 2009 Plan and the Company increased the number of shares available for issuance under the plan by
6,000,000
. The Company amended the 2009 Plan (the “Amended 2009 Plan”) effective June 7, 2012. The Amended 2009 Plan increased the number of shares authorized for issuance under the plan by an additional
4,250,000
.
Subject to stockholder approval, which was obtained on June 2, 2017, the Company's Board of Directors amended and restated the Amended 2009 Plan effective April 30, 2017. The amended and restated plan increased the number of shares authorized for issuance under the plan by an additional
4,000,000
, thereby reserving for issuance
27,817,744
shares of common stock in the aggregate. Options to acquire common stock granted thereunder have
10
-year terms. As of
June 30, 2017
, approximately
5.4 million
shares of common stock were reserved for issuance under the 2009 Plan (taking into account all option exercises through
June 30, 2017
).
Employee Stock Purchase Plan
In June 2010, the Company’s stockholders approved the 2010 Employee Stock Purchase Plan with
1,000,000
shares of common stock initially reserved for issuance. Subject to stockholder approval, which was obtained on June 2, 2017, the Company's Board of Directors amended and restated the 2010 Employee Stock Purchase Plan effective April 30, 2017. The amended and restated plan increased the number of shares authorized for issuance under the plan by an additional
1,000,000
, thereby reserving for issuance
2,000,000
shares of common stock in the aggregate. As of
June 30, 2017
, approximately
1.1 million
shares of common stock were reserved for issuance under the Employee Stock Purchase Plan (taking into account all share purchases through
June 30, 2017
).
Stock Option Activity
A summary of the Company’s stock option activity and weighted average exercise prices follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Activity
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Options (in thousands)
|
|
Weighted
Average
Exercise Price
|
|
|
Balance outstanding at December 31, 2016
|
7,769
|
|
|
$
|
10.88
|
|
|
|
|
|
Granted
|
1,420
|
|
|
8.18
|
|
|
|
|
|
Exercised
|
(280
|
)
|
|
6.92
|
|
|
|
|
|
Cancelled or expired
|
(533
|
)
|
|
11.57
|
|
|
|
|
|
Balance outstanding at June 30, 2017
|
8,376
|
|
|
$
|
10.51
|
|
|
6.07
|
|
$
|
13,799
|
|
Options vested and expected to vest
|
7,660
|
|
|
$
|
10.73
|
|
|
5.76
|
|
$
|
11,732
|
|
Options exercisable at June 30, 2017
|
5,608
|
|
|
$
|
11.27
|
|
|
4.76
|
|
$
|
7,585
|
|
The total fair value of stock options exercised during the
six months ended
June 30, 2017
was approximately
$1.0 million
. On January 1, 2017, the Company adopted ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”) and elected to continue to estimate forfeitures over the course of a vesting period. As of
June 30, 2017
, there was approximately
$8.2 million
of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately
2.7
years.
The following table summarizes information about outstanding and vested stock options as of
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number of Shares Outstanding (in thousands)
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
Weighted-Average Exercise Price
|
|
Number of Shares (in thousands)
|
|
Weighted-Average Exercise Price
|
$1.79 - $7.02
|
|
932
|
|
|
3.96
|
|
$
|
5.22
|
|
|
714
|
|
|
$
|
4.81
|
|
$7.04 - $7.45
|
|
393
|
|
|
7.38
|
|
7.26
|
|
|
217
|
|
|
7.19
|
|
$7.60 - $7.60
|
|
884
|
|
|
9.85
|
|
7.60
|
|
|
—
|
|
|
—
|
|
$7.95 - $9.24
|
|
848
|
|
|
6.28
|
|
8.97
|
|
|
556
|
|
|
9.13
|
|
$9.34 - $10.05
|
|
990
|
|
|
7.33
|
|
9.75
|
|
|
515
|
|
|
9.77
|
|
$10.13 - $10.13
|
|
879
|
|
|
5.95
|
|
10.13
|
|
|
686
|
|
|
10.13
|
|
$10.31 - $12.32
|
|
925
|
|
|
5.91
|
|
11.12
|
|
|
623
|
|
|
11.39
|
|
$12.46 - $13.28
|
|
1,077
|
|
|
4.25
|
|
13.11
|
|
|
1,025
|
|
|
13.11
|
|
$13.34 - $16.98
|
|
1,127
|
|
|
5.54
|
|
15.28
|
|
|
951
|
|
|
15.60
|
|
$17.88 - $18.24
|
|
321
|
|
|
4.64
|
|
18.05
|
|
|
321
|
|
|
18.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,376
|
|
|
6.07
|
|
$
|
10.51
|
|
|
5,608
|
|
|
$
|
11.27
|
|
Restricted Stock Unit Activity
A summary of the Company’s restricted stock units (“RSUs”) activity and weighted average exercise prices follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Unit Activity
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average
Grant Date Fair Value (Per Share)
|
|
Aggregate Fair Value (in thousands)
|
Balance outstanding at December 31, 2016
|
1,188
|
|
|
$
|
8.44
|
|
|
$
|
—
|
|
Awarded
|
299
|
|
|
7.60
|
|
|
—
|
|
Released
|
(232
|
)
|
|
8.27
|
|
|
—
|
|
Forfeited
|
(208
|
)
|
|
8.51
|
|
|
—
|
|
Non-vested and outstanding at June 30, 2017
|
1,047
|
|
|
$
|
8.21
|
|
|
$
|
11,544
|
|
Expected to vest
|
771
|
|
|
$
|
8.49
|
|
|
$
|
8,484
|
|
RSUs granted to employees generally vest over a
four
-year period. In accordance with ASU 2017-09, as of
June 30, 2017
, total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested RSUs was approximately
$8.6 million
and the weighted-average remaining vesting period was
2.8
years.
The Company's restructuring costs related to the wind down of our legacy platform and severance costs associated with re-prioritizing and reallocating resources to focus on areas showing high growth potential. The expense associated with this restructuring was approximately
$2.1 million
and
$2.3 million
during the three and
six months ended
June 30, 2017
, respectively. The restructuring liability was approximately
$3.2 million
as of
June 30, 2017
and
$2.6 million
as of
December 31, 2016
. It is classified as accrued expenses and other current liabilities on the condensed consolidated balance sheets.
The following table presents the detail of the liability for the Company's restructuring charges for the periods presented (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Balance, Beginning of the year
|
$
|
2,551
|
|
|
$
|
1,328
|
|
Severance and other associated costs
|
399
|
|
|
1,585
|
|
Cash payments
|
(1,625
|
)
|
|
(1,328
|
)
|
Wind down cost legacy platform
|
1,916
|
|
|
966
|
|
Balance, End of year
|
$
|
3,241
|
|
|
$
|
2,551
|
|
The following table presents the detail of expenses for the Company's restructuring charges for the three months ended
June 30, 2017
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Severance and other associated costs
|
$
|
289
|
|
|
$
|
—
|
|
Wind down cost legacy platform
|
1,787
|
|
|
—
|
|
Total restructuring costs
|
$
|
2,076
|
|
|
$
|
—
|
|
The following table presents the detail of expenses for the Company's restructuring charges for the
six months ended
June 30, 2017
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Severance and other associated costs
|
$
|
399
|
|
|
$
|
—
|
|
Wind down cost legacy platform
|
1,916
|
|
|
—
|
|
Total restructuring costs
|
$
|
2,315
|
|
|
$
|
—
|
|
The Company previously filed an intellectual property suit against [24]7 Customer, Inc. in the Southern District of New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and misappropriated the Company's technology to develop competing products and misused the Company's business information. On June 22, 2015, [24]7 Customer, Inc. filed suit against the Company in the Northern District of California alleging patent infringement. On December 7, 2015, [24]7 Customer Inc. filed a second patent infringement suit against the Company, also in the Northern District of California. On March 16, 2017, the New York case was voluntarily transferred and consolidated with the two California cases in the Northern District of California for all pre-trial purposes. Recent Court rulings in the Company’s favor have invalidated multiple [24]7 patents that were asserted in the patent cases. Trial for the Company’s intellectual proper and other claims asserted against [24]7 in the original litigation is currently set for November 26, 2018. The Company believes the claims filed by [24]7 are without merit and intends to defend them vigorously.
The Company routinely assesses all of its litigation and 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.
From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
From time to time, third parties assert claims against the Company regarding intellectual property rights, privacy issues and other matters arising in the ordinary course of business. Although the Company cannot be certain of the outcome of any litigation or the disposition of any claims, nor the amount of damages and exposure, if any, that the Company could incur, the Company currently believes that the final disposition of all existing matters will not have a material adverse effect on our business, results of operations, financial condition or cash flows. In addition, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.