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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 001-36471

MobileIron, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

26-0866846

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

490 East Middlefield Road

Mountain View, California

94043

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(650) 919-8100

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.0001 per share

MOBL

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer  

Accelerated filer  

Nonaccelerated filer  

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

The number of outstanding shares of the registrant’s common stock was 118,584,315 as of October 23, 2020.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2020

Page

PART I FINANCIAL INFORMATION

6

Item 1. Financial Statements:

6

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

6

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

7

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019

8

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

9

Notes to Condensed Consolidated Financial Statements

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

Item 3. Quantitative and Qualitative Disclosure About Market Risk

33

Item 4. Controls and Procedures

53

PART II OTHER INFORMATION

54

Item 1. Legal Proceedings

54

Item 1A. Risk Factors

54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

82

Item 3. Defaults Upon Senior Securities

83

Item 4. Mine Safety Disclosures

83

Item 5. Other Information

84

Item 6. Exhibits

84

Signatures

86

“MobileIron,” the MobileIron logos and other trademark or service marks of MobileIron, Inc. appearing in this Quarterly Report on Form 10-Q are the property of MobileIron, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

2

WHERE YOU CAN FIND MORE INFORMATION

Investors and others should note that we announce material financial information to our investors using our investor relations website address, press releases, reports and other information that we file from time to time with the Securities and Exchange Commission, or the SEC, and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our services and other matters and for complying with our disclosure obligations under Regulation FD:

MobileIron Company Blog (https://www.mobileiron.com/en/smartwork-blog)

MobileIron Facebook Page (https://www.facebook.com/mobileiron)

MobileIron Twitter Account (https://twitter.com/mobileiron); @mobileiron

MobileIron LinkedIn Page (https://www.linkedin.com/company/mobileiron)

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on MobileIron’s investor relations website.

3

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “potentially,” “predict,” “plan,” “outlook,” “target,” “expect,” “future” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

our expectations regarding the Agreement and Plan of Merger, dated September 26, 2020, with Ivanti, Inc. (“Parent”), and Oahu Merger Sub, Inc., a wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Parent;

the potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations, including the effect of governmental lockdowns, restrictions and new regulations on our operations and processes;

beliefs and objectives for future operations, results and growth;

our business plan and our ability to effectively manage our expenses;

our ability to timely and effectively scale and adapt our existing technology;

our ability to innovate new products and bring them to market in a timely manner;

our ability to expand internationally;

our ability to attract new customers and further penetrate our existing customer base;

our expectations concerning renewal rates for subscriptions and services by existing customers;

our expectations concerning the mix of our sales of subscriptions and perpetual licenses;

cost of revenue, including changes in costs associated with hardware, royalties, customer support and data center operations;

operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;

our expectations concerning relationships with third parties, including channel partners;

economic and industry trends or trend analysis; and

the sufficiency of our existing cash and investments to meet our cash needs for at least the next 12 months.

In addition, statements such as "we believe" and similar statements reflect our beliefs and opinions on the relevant subject.  These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive

4

inquiry into, or review of, all potentially available relevant information.  These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These risks are not exhaustive. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

5

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MOBILEIRON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

September 30, 

December 31, 

    

2020

    

2019

 

ASSETS

Current assets:

Cash and cash equivalents

$

89,824

$

94,415

Accounts receivable, net of allowance for doubtful accounts of $511 and $412 at September 30, 2020 and December 31, 2019, respectively

 

39,120

 

58,815

Deferred commissions - current

8,019

 

9,825

Prepaid expenses and other current assets

 

13,686

 

11,965

TOTAL CURRENT ASSETS

 

150,649

 

175,020

Property and equipment—net

 

3,346

 

4,804

Operating lease right-of-use asset

10,346

13,683

Deferred commissions - noncurrent

7,964

 

8,077

Intangible assets

2,822

Goodwill

 

8,407

 

5,475

Other assets

 

4,110

 

5,371

TOTAL ASSETS

$

187,644

$

212,430

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

2,002

$

1,310

Accrued expenses

 

26,836

 

24,792

Lease liabilities - current

4,753

5,664

Unearned revenue - current

82,017

 

85,153

Customer arrangements with termination rights

 

11,268

 

16,130

TOTAL CURRENT LIABILITIES

 

126,876

 

133,049

Long-term liabilities:

Lease liabilities - noncurrent

6,680

10,088

Unearned revenue - noncurrent

 

25,874

 

33,058

Other long-term liabilities

 

122

 

237

TOTAL LIABILITIES

 

159,552

 

176,432

Commitments and contingencies (Note 12)

Stockholders’ equity:

Common stock, $0.0001 par value, 300,000,000 shares authorized, 121,730,409 shares issued and 118,560,029 shares outstanding and 115,685,153 shares issued and 112,725,391 shares outstanding at September 30, 2020 and December 31, 2019, respectively

 

12

11

Additional paid-in capital

 

534,259

504,041

Treasury stock

(15,825)

(15,141)

Accumulated deficit

 

(490,354)

(452,913)

TOTAL STOCKHOLDERS’ EQUITY

 

28,092

35,998

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

187,644

$

212,430

See accompanying notes.

6

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

 

September 30, 

September 30, 

 

    

2020

    

2019

    

2020

    

2019

 

Revenue

Cloud services

$

20,890

$

17,591

$

59,073

$

49,163

License

6,465

12,216

32,553

35,814

Software support and services

 

22,644

 

22,394

 

66,996

 

66,171

Total revenue

 

49,999

 

52,201

 

158,622

 

151,148

Cost of revenue

Cloud services

6,792

5,557

19,673

 

15,413

License

 

415

 

436

 

1,461

 

1,423

Software support and services

 

4,914

 

4,466

 

14,263

 

14,333

Restructuring expense

 

300

Total cost of revenue

 

12,121

 

10,459

 

35,397

 

31,469

Gross profit

 

37,878

 

41,742

 

123,225

 

119,679

Operating expenses:

Research and development

 

20,259

 

19,072

 

60,115

 

60,889

Sales and marketing

 

23,597

 

23,577

 

72,575

 

74,099

General and administrative

 

9,949

 

6,932

 

26,069

 

22,477

Restructuring expense

 

579

2,758

Total operating expenses

 

53,805

 

49,581

 

159,338

 

160,223

Operating loss

 

(15,927)

 

(7,839)

 

(36,113)

 

(40,544)

Other income (expense) - net

 

263

 

35

 

183

 

987

Loss before income taxes

 

(15,664)

 

(7,804)

 

(35,930)

 

(39,557)

Income tax expense

 

608

 

399

 

1,511

 

1,335

Net loss

$

(16,272)

$

(8,203)

$

(37,441)

$

(40,892)

Net loss per share, basic and diluted

$

(0.14)

$

(0.07)

$

(0.32)

$

(0.37)

Weighted-average shares used to compute net loss per share, basic and diluted

 

117,703

 

110,831

 

116,192

 

109,147

See accompanying notes.

7

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

    

    

    

    

    

    

    

    

 

    

Additional

Total

 

Common Stock

Paid-in

Accumulated

Stockholders’

 

 

Shares

 

Amount

 

Capital

 

 

Treasury Stock

Deficit

 

Equity

BALANCE—June 30, 2020

116,843,504

$

12

$

525,383

$

(15,825)

$

(474,082)

$

35,488

Issuance of common stock for stock option exercises

301,374

1,324

1,324

Issuance of common stock pursuant to the Employee Stock Purchase Plan

558,451

2,131

2,131

Shares withheld for net settlement of equity awards

(490,420)

(2,942)

(2,942)

Vesting of restricted stock units

1,347,120

Stock-based compensation

8,363

8,363

Net loss

(16,272)

(16,272)

BALANCE—September 30, 2020

 

118,560,029

$

12

$

534,259

$

(15,825)

$

(490,354)

$

28,092

BALANCE—December 31, 2019

112,725,391

$

11

$

504,041

$

(15,141)

$

(452,913)

$

35,998

Issuance of common stock for stock option exercises

443,674

1,823

1,823

Issuance of common stock pursuant to the Employee Stock Purchase Plan

1,120,684

4,282

4,282

Issuance of common stock pursuant to the Employee Stock-Settled Bonus Plans

1,730,682

1

7,633

7,634

Shares withheld for net settlement of equity awards

(1,305,947)

(6,484)

(6,484)

Repurchase of common stock

(210,618)

(684)

(684)

Vesting of restricted stock units

4,056,163

Stock-based compensation

22,964

22,964

Net loss

(37,441)

(37,441)

BALANCE—September 30, 2020

 

118,560,029

$

12

$

534,259

$

(15,825)

$

(490,354)

$

28,092

    

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

 

Shares

 

Amount

 

Capital

 

 

Treasury Stock

Deficit

 

Equity

BALANCE—June 30, 2019

109,770,021

$

11

$

484,593

$

(10,422)

$

(436,756)

$

37,426

Issuance of common stock for stock option exercises

 

780,029

 

 

3,761

 

 

3,761

Issuance of common stock pursuant to the Employee Stock Purchase Plan

530,190

2,085

2,085

Shares withheld for net settlement of equity awards

(102,535)

(707)

(707)

Repurchase of common stock

(290,844)

(2,033)

(2,033)

Vesting of restricted stock units

1,343,812

Stock-based compensation

 

 

 

7,453

 

 

7,453

Net loss

 

 

 

 

(8,203)

 

(8,203)

BALANCE—September 30, 2019

112,030,673

$

11

$

497,185

$

(12,455)

$

(444,959)

$

39,782

BALANCE—December 31, 2018

106,206,545

$

11

$

462,004

$

(3,831)

$

(404,067)

$

54,117

Issuance of common stock for stock option exercises

1,337,433

5,481

5,481

Issuance of common stock pursuant to the Employee Stock Purchase Plan

1,048,302

4,132

4,132

Issuance of common stock pursuant to the Employee Stock-Settled Bonus Plans

2,170,855

10,485

10,485

Shares withheld for net settlement of equity awards

(1,064,577)

(5,492)

(5,492)

Repurchase of common stock

(1,572,030)

(8,624)

(8,624)

Vesting of restricted stock units

3,904,145

Stock-based compensation

20,575

20,575

Net loss

(40,892)

(40,892)

BALANCE—September 30, 2019

 

112,030,673

$

11

$

497,185

$

(12,455)

$

(444,959)

$

39,782

See accompanying notes.

8

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except per share data)

(Unaudited)

Nine Months Ended

 

September 30, 

 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(37,441)

$

(40,892)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Stock-based compensation expense

 

23,723

 

27,159

Depreciation

 

2,275

 

2,587

Amortization of intangible assets

 

302

 

Provision for doubtful accounts

119

Accretion of premium on investment securities

(21)

Impairment of right-of-use assets

1,328

Loss on disposal of fixed assets

170

Changes in operating assets and liabilities:

Accounts receivable

 

19,578

 

16,429

Deferred commissions

1,919

220

Other current and noncurrent assets

 

3,249

 

(2,372)

Accounts payable

 

615

 

637

Unearned revenue

(10,595)

 

964

Customer arrangements with termination rights

 

(4,862)

 

(3,121)

Accrued expenses and other long-term liabilities

 

5,702

 

(5,504)

Net cash provided by (used in) operating activities

 

4,584

 

(2,416)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

 

(796)

 

(1,233)

Purchase of incapptic, net of cash acquired

(5,668)

Proceeds from maturities of investment securities

3,250

Purchase of investment securities

(4,126)

Net cash used in investing activities

 

(6,464)

 

(2,109)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from Employee Stock Purchase Plan

 

2,977

 

3,100

Taxes paid for net settlement of equity awards

 

(6,485)

 

(5,492)

Proceeds from exercise of stock options

1,829

5,481

Repurchase of common stock

(684)

(8,624)

Net cash used in financing activities

 

(2,363)

 

(5,535)

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(4,243)

 

(10,060)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period

 

94,415

 

104,613

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period

$

90,172

$

94,553

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for income taxes

$

1,353

$

1,280

Lease payments included in cash provided by operating activities

$

4,865

$

5,540

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

Value of shares issued under the Bonus Plans

$

4,765

$

6,374

Value of shares issued under the Employee Stock Purchase Plan

$

4,282

$

4,132

Unpaid property and equipment purchases

$

21

$

155

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE BALANCE SHEETS

Cash and cash equivalents

$

89,824

$

94,553

Restricted cash included within Other Assets

348

Total cash, cash equivalents and restricted cash

$

90,172

$

94,553

See accompanying notes.

9

MOBILEIRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Description of Business and Significant Accounting Policies

Description of Business

MobileIron, Inc. and its wholly owned subsidiaries, collectively, the “Company”, “we”, “us” or “our”, provides a purpose-built mobile IT platform that enables enterprises to manage and secure mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. We were incorporated in Delaware in July 2007 and are headquartered in Mountain View, California, with additional sales and support presence in North America, Europe, the Middle East, Asia and Australia and employees in India primarily focused on research and development.

Pending Acquisition by Ivanti, Inc.

On September 26, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ivanti, Inc., a Delaware corporation (“Parent”), and Oahu Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Parent. The Merger Agreement and the transactions contemplated thereby were approved unanimously by the Company’s Board of Directors on September 26, 2020.

 

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of our common stock that is outstanding immediately prior to the Effective Time (other than shares of common stock (1) held by the Company as treasury stock, (2) owned by Parent or Merger Sub, (3) owned by any direct or indirect wholly owned subsidiary of Parent or Merger Sub or (4) held by stockholders who have properly and validly exercised their statutory rights of appraisal under Section 262 of the Delaware General Corporation Law (the “DGCL”)) will be canceled and converted into the right to receive cash in the amount equal to $7.05, without interest (the “Per Share Merger Consideration”).

 

At the Effective Time, each outstanding vested restricted stock unit (“RSU”), performance stock unit (“PSU”) and option granted by the Company shall be cancelled and converted into the right to receive cash equal to (A) the aggregate number of shares of the Company’s common stock subject to such RSU, PSU or option, as applicable, multiplied by (B) the Per Share Merger Consideration (less the exercise price in the case of vested options) (the “Award Consideration”). Each outstanding RSU, PSU or option that is not vested but that is subject to acceleration shall be cancelled and converted into the right to receive an amount in cash equal to the Award Consideration pursuant to the terms of the Merger Agreement, a portion of which will be paid after the Effective Time in accordance with the applicable award agreement. Each outstanding RSU, PSU or option that is not vested and that does not automatically accelerate at closing of the Merger will be cancelled without consideration.

Pursuant to the Merger Agreement, the Company has acted to provide, among other things, that (1) each individual participating in an offering period under the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”) in progress on the date of the Merger Agreement will not be permitted to (A) increase his or her payroll contribution rate pursuant to the ESPP or (B) make separate non-payroll contributions to the ESPP on or following the date of the Merger Agreement, except as may be required by applicable law; (2) no individual who is not participating in the ESPP will be allowed to commence participation in the ESPP; and (3) any offering period that would otherwise be outstanding at the Effective Time will terminate no later than five days prior to the date on which the Effective Time occurs. The Company will make any pro rata adjustments as may be necessary to reflect the shortened offering period and will cause the exercise of each outstanding purchase right pursuant to the ESPP no later than one business day prior to the Effective Time.

10

 

The Company, and Parent and Merger Sub, have made certain representations, warranties and covenants in the Merger Agreement, including, among others, covenants by the Company to conduct its business in the ordinary course during the period between execution of the Merger Agreement and closing of the Merger.  

 

Pursuant to the terms of the Merger Agreement, the Company is subject to restrictions on its ability to solicit alternative acquisition proposals and to provide information to, and engage in discussion with, third parties regarding such proposals, except under limited circumstances. In the event the Merger Agreement is terminated by the Company to enter into a Superior Proposal, as defined in the Merger Agreement, the Company will be required to pay Parent a termination fee of $30.45 million.

 

Subject to certain exceptions, each of the parties has agreed to use its reasonable best efforts to take or cause to be taken actions necessary to consummate the Merger, including with respect to obtaining required government approvals. The Merger Agreement also contains certain termination rights for both the Company and Parent. Pursuant to the terms of the Merger Agreement, if the Company terminates the Merger Agreement as a result of Parent’s failure to close the Merger following the end of the marketing period for the debt financing required to consummate the transactions within two business days after receiving a written notice from the Company stating that all closing conditions have been satisfied or validly waived, Parent will pay the Company $65.25 million.

 

The Merger Agreement requires the Company to convene a special meeting of stockholders for purposes of obtaining approval of the adoption of the Merger Agreement. Commencing on October 26, 2020, the Company noticed and mailed a definitive proxy statement for a special meeting of the Company’s stockholders to be held on November 24, 2020.

The Merger is subject to the satisfaction or waiver of certain closing conditions including, among other things, (1) the affirmative vote of the holders of a majority of the voting power of the outstanding shares of the Company’s common stock entitled to vote on the adoption of the Merger Agreement, (2) the expiration or termination of the waiting period under Antitrust Laws (as defined in the Merger Agreement), (3) the absence of any law, injunction, judgment, order or ruling prohibiting the Merger, (4) the accuracy of the representations and warranties made by the parties, (5) the performance by the parties in all material respects of their covenants, obligations and agreements under the Merger Agreement, and (6) the absence of a material adverse effect on the Company prior to the closing.

 

Parent furnished the Company with copies of equity and debt financing commitments obtained by Parent, the proceeds of which will provide for funds to consummate the transactions contemplated by the Merger Agreement. The consummation of the Merger is not subject to a financing condition.

COVID-19 Pandemic

In the first quarter of 2020, the United States and other countries began shelter-in-place mandates and began to close many businesses as a result of the COVID-19 virus. The World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. The future impact of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is difficult at this time to predict the amount of the financial impact that COVID-19 will have on the Company’s business, financial position and operating results in future periods due to numerous uncertainties. The Company is closely monitoring the impact of the pandemic on all aspects of its business.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial statements and pursuant to the rules and regulations of the SEC, and include the accounts of our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

11

Certain information and footnote disclosures in this Quarterly Report on Form 10-Q normally included in annual financial statements prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of our balance sheet as of September 30, 2020, our operating results for the three and nine months ended September 30, 2020 and 2019, and our cash flows for the nine months ended September 30, 2020 and 2019. Our operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements as of that date, but does not include all the footnotes required by U.S. GAAP for complete financial statements.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with our audited financial statements and related notes for the year ended December 31, 2019, included in our Annual Report on Form 10-K for the year ended December 31, 2019 previously filed with the SEC.

Foreign Currency Translation

Our reporting currency is the U.S. dollar. The functional currency of all our international operations is the U.S. dollar. All monetary asset and liability accounts are translated into U.S. dollars at the period-end rate, nonmonetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at the weighted-average exchange rates in effect during the period. Translation adjustments are recorded as foreign currency gains (losses) in the condensed consolidated statements of operations. We recognized a foreign currency gain of $236,000 and a loss of $420,000 in the three months ended September 30, 2020 and 2019, respectively, and we recognized a foreign currency loss of $189,000 and $612,000 in the nine months ended September 30, 2020 and 2019, respectively, in other income (expense)—net in our condensed consolidated statements of operations.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, deferred commissions and commissions expense, stock-based compensation, intangible assets, goodwill, and accounting for income taxes. Actual results could differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, money market funds and fixed income investments. Although we deposit our cash with multiple financial institutions, our deposits, at times, exceed federally insured limits. We invest in fixed income securities that are of high-credit quality. Substantially all of our money market funds, or $51.8 million, are held in two funds that are rated “AAA.”

We generally do not require collateral or other security in support of accounts receivable. Allowances are provided for individual accounts receivable when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration of the customer’s operating results, or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We also consider broader factors in evaluating the sufficiency of our allowances for doubtful accounts, including the length of time receivables are past due, significant one-time events, overall or industry-specific economic conditions, and historical experience. We had an allowance for doubtful accounts of $511,000 and $412,000 at September 30, 2020 and December 31, 2019, respectively.

12

One reseller accounted for 10% of total revenue for both the three and nine months ended September 30, 2019. No resellers or end-user customers accounted for 10% or more of our total revenue in the three and nine months ended September 30, 2020 and no other reseller or end-user customer accounted for 10% or more of our total revenue in the three and nine months ended September 30, 2019. Two resellers accounted for 18% and 12%, respectively, of net accounts receivable at September 30, 2020. No reseller or end-user customer accounted for 10% or more of net accounts receivable as of December 31, 2019.

Segments

We have one reportable segment, software and services to manage and secure mobile devices, applications and content.

Summary of Significant Accounting Policies

Revenue Recognition

Revenue Presentation

Cloud services include sales of cloud-based solutions that allow customers to use hosted software over a contract period without taking possession of our software and are typically provided on a subscription or usage basis.

License revenue includes sales of perpetual software licenses, software licenses sold as part of on-premise term subscriptions, and appliances.

Software support and services revenue includes sales of software support sold as part of on-premise term subscriptions, software support for perpetual licenses, and professional services.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of Products and Services

Cloud services, which allow customers to use hosted software over a contract period without taking possession of our software, are provided on a subscription or usage basis. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract period and revenue related to cloud services based on usage is generally recognized as the usage occurs.

Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase on-premise software licenses as perpetual licenses or as part of subscriptions. On-premise licenses are considered distinct performance obligations and revenue from the licenses is recognized upfront when the software is made available to the customer. In the case of our on-premise subscriptions, the license portion of revenue is recognized up-front, and the software support and services portion is recognized ratably.

Software support and services convey rights to the upgrades released over the contract period and provide support and tools to help customers deploy and use our products more efficiently. Revenue allocated to software support and services is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that the software support and services comprises a distinct performance obligation that is satisfied over time.

On-premise subscriptions and software support and services occasionally contain termination rights. We recognize revenue from those arrangements, including the distinct licenses contained therein, as the termination rights

13

for the performance obligation expire. See also Unearned Revenue and Customer Arrangements with Termination Rights below.

Professional services include consulting, deployment and training services. Our professional services represent distinct performance obligations as our customers benefit from the services separately or together with other readily available resources. Professional services revenue is recognized as services are delivered.

Appliance revenue was less than 1% of total revenue for all periods presented and is included as a component of license revenue within the consolidated statements of operations.

Refer to Note 15 – Segment and Disaggregated Revenue Information for further information.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time.

Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. We use a range of amounts to estimate the SSP for items that are not sold separately, including on-premises licenses sold with software support and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customer classes and circumstances. In these instances, we may use information such as the size and type of customer in determining the SSP.

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue will be recognized after invoicing. For multi-year agreements, we either invoice our customer in full at the inception of the contract or annually at the beginning of each annual period. We record an unbilled receivable related to revenue recognized for multi-year on-premise licenses invoiced annually when we have an unconditional right to invoice and receive payment in the future for those licenses or when we have the right to invoice future monthly periods under committed monthly recurring charge (“MRC”) agreements. The majority of our MRC agreements are for a month to month term (“non-committed”) or usage-based.

Payment terms and conditions vary by contract type, although terms generally include a requirement to pay within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. This includes invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period or multi-year on-premise licenses that are invoiced annually with a portion of the revenue recognized upfront.

As of September 30, 2020 and December 31, 2019, the balance of accounts receivable, net of the allowance for doubtful accounts, included $2.3 million and $2.0 million, respectively, of unbilled receivables from upfront recognition of revenue for certain multi-period on-premises software subscriptions that include both distinct software licenses and software support and services.

As of September 30, 2020 and December 31, 2019, unbilled receivables included in other long-term assets on our condensed consolidated balance sheets were $726,000 and $795,000, respectively.

14

Unearned Revenue and Customer Arrangements with Termination Rights

We generally invoice our customers upfront for subscriptions and software support and services associated with perpetual licenses. Unearned revenue from those upfront billings is comprised of unearned revenue from cloud-based subscriptions, software support and services for on-premise subscriptions, software support and services associated with perpetual licenses and professional services to be performed in the future.

Because some of our arrangements with customers contain termination rights, the arrangements do not meet the definition of a contract under Accounting Standard Codification, or ASC, Topic 606, Revenue Recognition from Contracts with Customers, or ASC 606, and are not recorded as unearned revenue and instead are recorded as “customer arrangements with termination rights” on our condensed consolidated balance sheets.

Refer to Note 14 – Unearned Revenue for further information on unearned revenue, changes in unearned revenue during the period, and customer arrangements with termination rights.

Deferred Commissions

We recognize an asset for the incremental costs of obtaining a contract with a customer. We have determined that certain sales incentive programs meet the requirements to be capitalized and we include those costs in current and non-current deferred commissions on our consolidated balance sheets.

Deferred commissions are amortized over the period commensurate with revenue recognition.

Changes in deferred commissions were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Balance, beginning of the period

$

16,736

$

17,727

$

17,902

$

17,331

Deferral of commissions earned

 

3,519

4,271

 

11,967

12,862

Recognition of commission expense

 

(4,272)

(4,867)

 

(13,846)

(12,844)

Impairment of deferred commissions

(21)

(40)

(239)

Balance, end of the period

$

15,983

$

17,110

$

15,983

$

17,110

Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of September 30, 2020 and December 31, 2019, cash and cash equivalents consist of cash deposited with banks and money market funds.

Comprehensive Loss

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. For the three and nine months ended September 30, 2020 and 2019, there were no differences between net loss and comprehensive loss. Therefore, the consolidated statements of comprehensive loss have been omitted.

Net Loss per Share of Common Stock

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period after repurchases but without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, unvested restricted stock and stock options are considered to be potentially dilutive securities. Because we have reported a net loss for the three and nine months ended

15

September 30, 2020 and 2019, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

Software Development Costs Incurred in Connection with Software to be Sold or Marketed

The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.

Internal Use Software

We capitalize costs incurred during the application development stage related to our internally used software. Such costs are primarily incurred by third-party vendors and consultants. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Amounts capitalized in all periods presented were not significant.

All software development costs incurred in connection with our cloud offering, or SaaS, are also sold or marketed to partners or end customers, therefore we start capitalizing costs when technological feasibility is achieved. No costs were capitalized in any periods presented as we believe that our current process for developing software is essentially completed concurrent with the establishment of technological feasibility.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the property and equipment, determined to be three years for computers and equipment and software, five years for furniture and fixtures, and the lesser of the remaining lease term or estimated useful life for leasehold improvements. Expenditures for repairs and software support are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected as operating expenses in the consolidated statements of operations.

Leases

We determine if an arrangement is a lease conveying the right to control identified property, plant, or equipment and whether the lease is operating or financing at the lease’s inception. We have determined that all of our leases are operating leases. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. The operating lease ROU asset also includes any advance lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have adopted the practical expedient as permitted by the new leasing standard to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. Our leases generally separate lease components from nonlease components. However, where lease and nonlease components are combined in our lease arrangements, we have adopted the practical expedient to not separate the lease from the nonlease components. Refer to Note 13 - Leases for further information about our leases.

16

Goodwill and Intangible Assets

We record the excess of the acquisition purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We have a single reporting unit and consequently evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole. We record purchased intangible assets at their respective estimated fair values at the date of acquisition. Purchased intangible assets are being amortized using the straight-line method over their estimated useful lives, which range from three to five years. We evaluate the remaining useful lives of intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining estimated amortization period. Refer to Note 5 – Goodwill and Intangible Assets for further information about our goodwill and intangible assets.

Long-Lived Assets with Finite Lives

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. We evaluate the recoverability of each of our long-lived assets, including property and equipment and purchased intangible assets, by comparison of its carrying amount to the future discounted cash flows we expect the asset to generate. If we consider the asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

Stock-Based Compensation

We use the estimated grant-date fair value method of accounting in accordance with ASC Topic 718 Compensation—Stock Compensation. Fair value is determined using the Black-Scholes Model using various inputs, including our estimates of expected volatility, term and future dividends. We estimated the forfeiture rate based on our historical experience for annual grant years where the majority of the vesting terms have been satisfied.

We recognize compensation costs for awards with service and performance vesting conditions and for our ESPP on an accelerated method over the requisite service period of the award. For stock options or restricted stock unit grants with no performance condition, we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

Research and Development

Because we estimate that our software is essentially completed concurrent with the establishment of technological feasibility, we have charged all research and development to expense as incurred.

Advertising

Advertising costs are expensed and included in sales and marketing expense when incurred. Advertising expense for the three and nine months ended September 30, 2020 and 2019 was not significant.

Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. The

17

standard also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We are currently evaluating the impact of the CARES Act, but at present do not expect that the NOL carryback provision of the CARES Act would result in a cash benefit to us.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Recently Adopted Accounting Guidance

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments,” which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses are recognized as allowances rather than reductions in the amortized cost of the securities. The standard was effective for annual reporting periods beginning after December 15, 2019. Entities apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. We adopted ASU 2016-13 effective January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated balance sheet, results of operations, cash flows and disclosures for the three and nine months ended September 30, 2020.

In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The standard was effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We adopted ASU 2018-15 effective January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated balance sheet, results of operations, or cash flows for the three and nine months ended September 30, 2020.

Accounting Guidance Not Yet Adopted

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. This ASU should be applied on a prospective basis. The ASU is effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption is permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated balance sheet, results of operations, or cash flows.

Simplifying Accounting for Income Taxes

18

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this ASU on our consolidated balance sheet, results of operations, and cash flows.

2.Significant Balance Sheet Components

Accounts Receivable, Net —Accounts receivable, net at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

    

September 30, 2020

    

December 31, 2019

Accounts receivable - billed

$

37,331

$

57,184

Accounts receivable - unbilled

2,300

2,043

Allowance for doubtful accounts

 

(511)

 

(412)

Accounts receivable, net

$

39,120

$

58,815

Property and Equipment —Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

    

September 30, 2020

    

December 31, 2019

 

Computers and appliances

$

13,670

$

13,300

Purchased software

 

4,252

 

4,235

Furniture and fixtures

 

1,745

 

1,745

Leasehold improvements

 

3,834

 

3,403

Total property and equipment

 

23,501

 

22,683

Accumulated depreciation and amortization

 

(20,155)

 

(17,879)

Total property and equipment—net

$

3,346

$

4,804

Prepaid Expenses and Other Current Assets and Other Assets

Prepaid expenses and other current assets at September 30, 2020 and December 31, 2019 included $7.1 million and $6.3 million of prepaid royalties, respectively. Other assets at September 30, 2020 and December 31, 2019 included $1.5 million and $3.0 million of prepaid royalties, respectively. The prepaid royalties were primarily associated with MobileIron Threat Defense.

At September 30, 2020, $348,000 of restricted cash was included in Other Assets. The cash was restricted as part of a bank guarantee drawn in favor of India taxing authorities for an ongoing corporate income tax audit.

19

Accrued Expenses —Accrued expenses at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

    

September 30, 2020

    

December 31, 2019

 

Accrued commissions

$

3,450

$

4,810

Accrued bonus

9,249

6,875

Employee Stock Purchase Plan liability

 

882

 

2,187

Other accrued payroll-related expenses

 

3,748

 

2,839

Accrued royalties

2,758

2,386

Other accrued liabilities

 

6,749

 

5,695

Total accrued expenses

$

26,836

$

24,792

3.

Fair Value Measurement

With the exception of held-to-maturity fixed income investments, we report financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis in accordance with ASC 820, Fair Value Measurements. ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

Our financial assets that are carried at fair value include cash and money market funds. We had no financial liabilities, or nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at fair value as of September 30, 2020 or December 31, 2019.

Our financial instruments measured at fair value as of September 30, 2020 and December 31, 2019 were as follows:

As of September 30, 2020

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Money market funds

$

51,821

$

$

$

51,821

Total

$

51,821

$

$

$

51,821

    

As of December 31, 2019

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds

$

82,411

$

$

$

82,411

Total

$

82,411

$

$

$

82,411

20

4. Acquisitions

On April 24, 2020, we acquired all of the issued and outstanding capital stock of incapptic Connect GmbH (“incapptic”), a privately held company based in Germany that provides automated mobile application distribution software, for $5.9 million in cash. Our unified endpoint management platform integrates with the incapptic software to help customers develop, deploy and secure in-house business applications. Of the $5.9 million paid, $1.1 million was paid to an escrow account and will be distributed to former incapptic shareholders within 24 months, less any amounts used to satisfy any claims for indemnification that we may make for certain breaches of representations, warranties and covenants.

Transaction costs associated with the acquisition were $347,000 in the nine months ended September 30, 2020 and are included in general and administrative expenses. No further transaction costs associated with the acquisition were incurred in the three months ended September 30, 2020.

We accounted for the incapptic acquisition as a business combination. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. We engaged an independent third-party valuation firm to assist us in the determination of the value of the purchased intangible assets. The methodologies used to value the intangible assets were relief from royalty for tradename, multi-period excess earnings for contractual customer relationships and the cost approach for developed technology. The excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill, which will not be amortized and is not deductible for tax purposes. The goodwill generated from the business combination was primarily related to the value placed on expected synergies and the value of the acquired workforce. Although we believe the purchase price allocation is substantially complete, the finalization of certain liabilities, or tax-related issues, among other things, could result in a future adjustment to the purchase price allocation. The preliminary purchase price allocation is as follows (in thousands):

Intangible assets:

    

Tradename

$

163

Contractual customer relationship

1,415

Developed technology

1,546

Goodwill

2,932

Cash

279

Unearned revenue

    

 

(275)

Other assets and liabilities, net

(113)

Net assets acquired

    

$

5,947

The tradename, contractual customer relationship and developed technology intangible assets are being amortized on a straight-line basis over estimated useful lives of 3, 5, and 4 years, respectively.

Incapptic has been included in our condensed consolidated results of operations since the date of acquisition. Pro forma results of operations for the acquisition have not been presented because the acquisition was not material to our condensed consolidated statement of operations.

5. Goodwill and Intangible Assets

The following table reflects intangible assets subject to amortization as of September 30, 2020:

    

September 30, 2020

 

    

Gross Carrying

    

Accumulated

    

    

Net Book

Amount

 

Amortization

Impairment

 

Value

Tradename

$

163

$

(23)

 

$

140

Contractual customer relationship

1,415

(118)

1,297

Developed technology

1,546

(161)

1,385

Total

$

3,124

$

(302)

$

$

2,822

21

The net book value of intangible assets subject to amortization was zero at December 31, 2019.

We recorded amortization of intangible assets of $178,000 and $302,000 in the three and nine months ended September 30, 2020. There was no amortization of intangible assets for the three and nine months ended September 30, 2019.

The weighted average remaining life of our intangible assets on September 30, 2020 was 4.1 years.

As of September 30, 2020, estimated remaining intangible asset amortization expense is as follows (in thousands):

Year

    

    

 

2020

$

181

2021

 

724

2022

 

724

2023

 

687

2024

 

412

Thereafter

94

Total

$

2,822

At September 30, 2020 and December 31, 2019, the carrying value of goodwill was as follows (in thousands):

    

    

Balance, December 31, 2019

$

5,475

Additions

 

2,932

Balance, September 30, 2020

$

8,407

We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We determined that goodwill was not impaired based on the impairment test completed in the third quarter of 2020.

6. Restructuring Expense

We implemented business restructurings in the three months ended March 31, 2020 and the three and nine months ended September 30, 2019 to reduce our cost structure through workforce reductions. The three and nine months ended September 30, 2019 also included charges for the exit of an office building.

The following table summarizes the activity in accrued restructuring expense, included in accrued expenses, for the three and nine months ended September 30, 2020 (in thousands):

    

Severance and Other Restructuring Costs

Three Months Ended

Nine Months Ended

September 30, 2020

Accrued restructuring, beginning of the period

$

419

$

282

Provision for restructuring expense

579

Cash payments

(121)

(563)

Accrued restructuring, end of the period

$