Notes to Consolidated Financial Statements
December 31, 2021
(In thousands, except per share amounts and where specifically noted)
1. Nature of Business
Limelight Networks, Inc., a provider of content delivery services, AppOps and Jamstack application architecture, provides powerful tools to optimize and deliver digital experiences. Limelight offers one of the largest, best-optimized private networks coupled with a global team of industry experts to provide edge services that are fast, secure and reliable.
We were incorporated in Delaware in 2003, and have operated in the Phoenix metropolitan area since 2001 and elsewhere throughout the United States since 2003. We began international operations in 2004.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The consolidated financial statements include accounts of Limelight and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. In addition, certain other reclassifications have been made to prior period amounts to conform to the current period presentation.
Use of Estimates
The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results and outcomes may differ from those estimates. The results of operations presented in this Annual Report on Form 10-K are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or for any future periods.
Foreign Currency Translation
The functional currency of our international subsidiaries is the local currency. We translate assets and liabilities of foreign subsidiaries, whose functional currency is their local currency, at exchange rates in effect at the balance sheet date. We translate revenue and expenses at the monthly average exchange rates. We include accumulated net translation adjustments in stockholders’ equity as a component of accumulated other comprehensive income (loss).
Due to changes in exchange rates between reporting periods and changes in certain account balances, the foreign currency translation adjustment will change from period to period. During the years ended December 31, 2021, 2020, and 2019, we recorded foreign currency translation gains (losses) of $(836), $1,750, and $782, respectively, in our statements of comprehensive income (loss).
Our entities occasionally transact in currencies other than their functional currencies. Assets denominated in foreign currencies other than that of the functional currency of the entity are remeasured at period-end exchange rates. Foreign currency-based revenue and expense transactions are measured at transaction date exchange rates. During the years ended December 31, 2021, 2020, and 2019, we recorded a foreign currency re-measurement gain (loss) of approximately $(953), $(368), and $24, respectively, in other income (expense) in the consolidated statements of operations.
Recent Accounting Standards
Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12 to simplifying the accounting for income taxes. ASU 2019-12 is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in the Accounting Standards Codification (ASC) Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. We adopted this guidance effective January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. ASU 2020-06 also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. We early adopted this guidance on January 1, 2021, on a modified retrospective basis. As a result of the adoption of ASU 2020-06, our total remaining interest expense over the contractual terms of our convertible debt will be approximately $20,823 less than under the previous accounting standards. The adoption resulted in a $21,733 decrease in additional paid in capital from the derecognition of the bifurcated equity component, $20,255 increase in debt from the derecognition of the discount associated with the bifurcated equity component and $1,677 decrease to the opening balance of accumulated deficit, representing the cumulative interest expense recognized related to the amortization of the bifurcated conversion option. We wrote-off the related deferred tax liabilities with a corresponding adjustment to the valuation allowance, resulting in no net tax impact to the cumulative adjustment to retained earnings.
In October 2021, the FASB issued ASU 2021-08, which provides amendments to improve, simplify, and provide consistency for recognition and measurement of acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments require that an acquirer recognize and measure such contract assets and contract liabilities under Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts. The amendments also allow for election of certain practical expedients, which are applied on an acquisition-by-acquisition basis. The new accounting amendments are effective for us beginning in fiscal 2023 with prospective application. Early adoption is permitted, including in any interim period, and if elected, the amendments are applied retrospectively for any acquisitions that occurred in the fiscal year of interim adoption. We early adopted this guidance during Q4 2021, on a retrospective basis. As a result of the adoption of ASU 2021-08, we increased the allocation of purchase consideration for deferred revenue related to our acquisition of Moov Corporation in September 2021 by approximately $629. The adoption of ASU 2021-08 did not have a material impact on revenue recognized in 2021.
Recently Issued Accounting Standards applicable to Limelight Networks, Inc.
None
Significant Accounting Policies
Restructuring Charges
We account for restructuring costs under ASC 420, Exit or Disposal Obligations. Restructuring costs are recognized when the liability is incurred. A restructuring liability related to employee terminations is recorded when a one-time benefit arrangement is communicated to an employee who is involuntarily terminated as part of a reorganization and the amount of the termination benefit is known, provided that the employee is not required to render future services in order to receive the termination benefit. If fixed assets, or other assets are to be disposed of as a result of our restructuring efforts, the assets are written off when we commit to dispose of them, and they are no longer in use. If applicable, depreciation is accelerated on fixed assets for the period of time the asset continues to be used until the asset ceases to be used. During 2021 we moved to a home and office hybrid work model. As part of our restructuring plans we have evaluated our real estate footprint, and in certain cases we have subleased certain of our office facilities, including what previously was our corporate headquarters in Scottsdale, Arizona. We are exploring opportunities to sublease additional office facilities under this new model. In these cases we evaluate the right of use asset for potential impairment, and if impaired, record an impairment charge. Other restructuring costs are generally recorded as the cost is incurred or the service is provided.
Business Combinations
In accounting for acquisitions through which a set of assets and activities are transferred to us, we perform an initial test to determine whether substantially all of the fair value of the gross assets transferred are concentrated in a single identifiable asset or a group of similar identifiable assets, such that the acquisition would not represent a business. If the initial test does not result in substantially all of the fair value concentrated in a single or group of similar assets, we then perform a second test to evaluate whether the assets and activities transferred include inputs and substantive processes that, together, significantly contribute to the ability to create outputs, which would constitute a business. If the result of the second test indicates that the acquired assets and activities constitute a business, we account for the transaction as a business combination.
For our business combinations, we allocate the purchase consideration of the acquisition, which includes the estimated acquisition date fair value of contingent consideration (if applicable), to the tangible assets, liabilities and identifiable intangible assets acquired based on each of the estimated fair values at the acquisition date. The excess of the purchase consideration over
the fair values is recorded as goodwill. Determining the fair value of such items requires judgment, including estimating future cash flows or the cost to recreate an acquired asset.
Acquisition-related expenses are expensed as incurred, except for those costs incurred to issue debt or equity securities (if applicable), and are included in general and administrative expense in our consolidated statements of operations. During and up to the one-year period beginning with the acquisition date, we may record certain purchase accounting adjustments related to the fair value of assets acquired and liabilities assumed against goodwill. After the final determination of the fair value of assets acquired or liabilities assumed, any subsequent adjustments are recorded to our consolidated statements of operations. The fair value of contingent consideration liabilities assumed from an acquisition are remeasured each reporting period after the acquisition date and the changes in the estimated fair value, if any, are recorded within operating expenses in our consolidated statement of operations for such period. In accounting for income taxes in a business combination, changes in the deferred tax asset valuations allowance and income tax uncertainties after the acquisition date will be recognized through income tax expense in our consolidated statement of operations each reporting period.
The results of operations of the acquired business are included in our consolidated statement of operations since the date of acquisition.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
For contracts that contain minimum commitments over the contractual term, not subject to the variable consideration exception, we estimate an amount of variable consideration by using the expected value method. We include estimates of variable consideration in revenue only when we have a high degree of confidence that revenue will not be reversed in a subsequent reporting period. We believe that the expected value method is the most appropriate estimate of the amount of variable consideration. These clients have entered into contracts with contract terms generally from one to four years. As of December 31, 2021, we have approximately $2,635 of remaining unsatisfied performance obligations. We recognized revenue of approximately $8,589, $7,896 and $9,600, respectively, during the years ended December 31, 2021, 2020, and 2019, related to these types of contracts with our clients. We expect to recognize approximately 95% of the remaining unsatisfied performance obligations in 2022 and the remainder in 2023.
We recorded deferred revenue of $3,107 in accordance with the allocation of purchase consideration related to the acquisition of Moov Corporation (Moov). Deferred revenue is primarily driven by payments received in advance of satisfying our performance obligations. We recognized approximately $1,656 in 2021 that was included in the deferred revenue purchase consideration allocation. The deferred revenue balance of approximately $1,451 as of December 31, 2021 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied. We expect to recognize approximately 99%% of the remaining unsatisfied performance obligations in 2022, and the remainder in 2023.
We may charge the clients an activation fee when services are first activated. We do not charge activation fees for contract renewals. Activation fees are not distinct within the context of the overall contractual commitment with the client to perform our content delivery service and are therefore recorded initially as deferred revenue and recognized as revenue ratably over the estimated life of the client arrangement.
At the inception of a client contract for service, we make an assessment as to that client’s ability to pay for the services provided. If we subsequently determine that collection from the client is not probable, we record an allowance for credit losses or deferred revenue for that client’s unpaid invoices and cease recognizing revenue for continued services provided until it is probable that revenue will not be reversed in a subsequent reporting period. Our standard payment terms vary by the type and location of our client but do not contain a financing component.
Arrangements with Multiple Performance Obligations
Certain of our revenue arrangements include multiple promises to our clients. Revenue arrangements with multiple promises are accounted for as separate performance obligations if each promise is distinct. Such arrangements may include a combination of some or all of the following: content delivery services, video content management services, performance services for website and web application acceleration and security, professional services, cloud storage, edge computing services, and sale of equipment.
Judgment may be required in determining whether products or services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation. Revenue is recognized over the period in
which the performance obligations are satisfied, which is generally over the contract term. We have determined that generally most of our products and services do not constitute an individual service offering to our clients, as our promise to the client is to provide a complete edge services platform, and therefore have concluded that it represents a single performance obligation. We have determined that professional services and hardware sales represent separate performance obligations from that of our edge services platform.
Consideration is allocated to the performance obligations using the relative standalone selling price method. Generally, arrangements with multiple performance obligations are provided over the same contract period, and therefore, revenue is recognized over the same period.
We determine standalone selling price by evaluating the overall pricing objectives and market conditions. Consideration included our discounting practices, the size and volume of our transactions, the area where services are sold, price lists, historical sales and contract prices.
Deferred Revenue
Deferred revenue represents amounts billed to clients for which revenue has not been recognized. Deferred revenue primarily consists of the unearned portion of monthly pre-billed service fees, activation fees, and prepayments made by clients for services to be rendered in future periods.
Convertible Senior Notes
In July 2020, we issued $125,000 aggregate principal amount of 3.50% convertible senior notes. Effective January 1, 2021, we early adopted ASU 2020-06. The conversion option that was previously accounted for under the cash conversion model or beneficial conversion feature model was recombined into a single instrument that is classified as a liability for convertible debt or equity for equity-classified preferred stock.
Cash and Cash Equivalents
We hold our cash and cash equivalents in checking, money market, and highly-liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents are deposited in or managed by major financial institutions and at times exceed Federal Deposit Insurance Corporation insurance limits.
Investments in Marketable Securities
We hold investments in marketable securities, consisting of municipal bonds, investment grade corporate debt securities, and certificates of deposit. Management determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. We have classified our investments, which are all debt securities, in marketable securities as available-for-sale and as current, as our marketable securities are available to fund current operations. Our available-for-sale investments are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive income (loss) in stockholders' equity. Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses. Expected credit losses on available-for-sale debt securities are recognized in other income (expense), net on our condensed consolidated statements of operations, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity. Credit losses on our marketable securities portfolio for the year ended December 31, 2021 were not material. We determine realized gains or losses on sale of marketable securities on a specific identification method and record such gains or losses as interest and other income (expense), net.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amounts and do not bear interest. We record reserves against our accounts receivable balance for service credits and for doubtful accounts. Estimates are used in determining both of these reserves. The allowance for credit losses are included as a component of general and administrative expenses.
All trade receivables are reported on the Consolidated Balance Sheets at their amortized cost adjusted for any write-offs and net of allowances for credit losses. We maintain an allowance for credit losses, which represents an estimate of expected losses of our receivables considering current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of our ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses for our trade receivables. For trade receivables, we apply a reserve percentage to the specific age of the receivable to estimate the allowance for doubtful accounts. The reserve percentages are determined based
on our historical write-off experience. Determination of the proper amount of allowance requires management to exercise judgment about the timing, frequency and severity of potential credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection experience, current economic conditions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.
Our reserve for service credits relates to credits that are expected to be issued to clients during the ordinary course of business. These credits typically relate to client disputes and billing adjustments and are estimated at the time the revenue is recognized and recorded as a reduction of revenues. Estimates for service credits are based on an analysis of credits issued in previous periods.
We evaluate the credit risk of the client when extending credit based on a combination of various financial and qualitative factors that may affect our clients’ ability to pay. These factors may include the client’s financial condition, past payment experience, and credit bureau information.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation or amortization. Depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives of the applicable asset.
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Network equipment | 3 years |
Computer equipment and software | 3 years |
Furniture and fixtures | 3-5 years |
Other equipment | 3-5 years |
Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the respective lease term. Repairs and maintenance are charged to expense as incurred.
Goodwill
Goodwill represents costs in excess of fair values assigned to the underlying net assets of the acquired company. Goodwill is not amortized but instead is tested for impairment annually or more frequently if events or changes in circumstances indicate goodwill might be impaired. We have concluded that we have one reporting unit and assigned the entire balance of goodwill to this reporting unit. The estimated fair value of the reporting unit is determined using a market approach. Our market capitalization is adjusted for a control premium based on the estimated average and median control premiums of transactions involving companies comparable to us. As of our annual impairment testing date of October 31, 2021, management determined that goodwill was not impaired.
Finite Intangible Assets
Finite-lived intangible assets are amortized over the following estimated useful lives:
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Trade name | 3.0 years |
Client relationships | 5.0 years |
Technology | 5.0 years |
Our finite-lived intangible assets are primarily amortized on a straight-line basis. We annually evaluate the estimated remaining useful lives of our intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.
Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. An impairment loss is recognized if the sum of the expected long-term undiscounted cash flows the asset is expected to generate is less than its carrying amount. Any write-downs are treated as permanent reductions in the carrying amount of the respective asset. Our analysis did not indicate impairment during any of the periods presented.
Contingencies
We record contingent liabilities resulting from asserted and unasserted claims when it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable
possibility that the ultimate loss will exceed the recorded liability. Additionally, estimating the loss, or range of loss, associated with a contingency requires analysis of multiple factors, and changes in law or other developments may ultimately cause our judgments to change. Therefore, actual losses in any future period are inherently uncertain and may be materially different from our estimate.
Long-Lived Assets
We review our long-lived assets for impairment annually, or whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. We recognize an impairment loss if the sum of the expected long-term undiscounted cash flows that the long-lived asset group(s) is expected to generate is less than the carrying amount of the long-lived asset being evaluated. We treat any write-downs as permanent reductions in the carrying amounts of the assets. We concluded that there were no indicators of impairment in any of the periods presented, other than related to our decision to close certain facilities and resulting impairment charges for certain operating lease assets and related tenant improvements during 2021 as discussed in Note 11.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in ROU assets, and lease liability obligations are included in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liability obligations represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We have lease agreements with lease and non-lease components and account for such components as a single lease component. As most of our leases do not provide an implicit rate, we estimated our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. 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. Upon review of our co-location and bandwidth arrangements, we have determined that such arrangements did not meet the leasing criteria, and therefore, were not included in our ROU asset and lease liability obligations on our balance sheet. We have determined that our real estate leases with terms in excess of one year and which do not include an option to purchase the underlying asset, do meet the leasing criteria. Please refer to Note 18 "Operating Leases - Right of Use Assets and Purchase Commitments" of this annual report on Form 10-K for additional information.
Cost of Revenue
Cost of revenues consists primarily of fees paid to network providers for bandwidth and backbone, costs incurred for non-settlement free peering and connection to internet service provider networks and fees paid to data center operators for housing network equipment in third party network data centers, also known as co-location costs. Cost of revenues also includes leased warehouse space and utilities, depreciation of network equipment used to deliver our content delivery services, payroll and related costs, and share-based compensation for our network operations and professional services personnel.
We enter into contracts for bandwidth with third party network providers with terms typically ranging from several months to three years. These contracts generally commit us to pay minimum monthly fees plus additional fees for bandwidth usage above contracted minimums. A portion of the global computing platform traffic delivery is completed through direct connection to ISP networks, called peering.
Research and Development
Research and development costs consist primarily of payroll and related personnel costs for the design, development, deployment, testing, operation, and enhancement of our services, and network. Costs incurred in the development of our services are expensed as incurred.
Advertising Costs
Costs associated with advertising are expensed as incurred. Advertising expenses, which are comprised of internet, trade show, and publications advertising, were approximately $1,555, $2,228, and $2,120 for the years ended December 31, 2021, 2020, and 2019, respectively.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance on a jurisdiction by jurisdiction basis. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
We recognize uncertain income tax positions in our financial statements when it is more-likely-than-not the position will be sustained upon examination.
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 carryovers, or NOLs, 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 have evaluated the impact of the CARES Act, and do not expect that the NOL carryback provision of the CARES Act to result in a cash benefit to us.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents approximate fair value due to the nature and short maturity of those instruments. The respective fair values of marketable securities are determined based on quoted market prices or other readily available market information, which approximate fair values. The carrying amounts of accounts receivable, accounts payable, and accrued liabilities reported in the consolidated balance sheets approximate their respective fair values due to the immediate or short-term maturity of these financial instruments.
Share-Based Compensation
We account for our share-based compensation awards using the fair-value method. The grant date fair value was determined using the Black-Scholes-Merton pricing model. The Black-Scholes-Merton valuation calculation requires us to make key assumptions such as future stock price volatility, expected terms, risk-free rates, and dividend yield. Our expected volatility is derived from our volatility rate as a publicly traded company. The expected term is based on our historical experience. The risk-free interest factor is based on the United States Treasury yield curve in effect at the time of the grant for zero coupon United States Treasury notes with maturities of approximately equal to each grant’s expected term. We have never paid cash dividends and do not currently intend to pay cash dividends, and therefore, we have assumed a 0% dividend yield.
We apply the straight-line attribution method to recognize compensation costs associated with awards that are not subject to graded vesting. For awards subject to graded vesting, we recognize expense separately for each vesting tranche. We regularly estimate when and if performance-based award will be earned and record expense over the estimated service period only for awards considered probable of being earned. Any previously recognized expense is reversed in the period in which an award is determined to no longer be probable of being earned.
3. Business Acquisition
In September 2021, we closed the acquisition of 100% of the equity interests of Moov, a California corporation doing business as Layer0, a sub-scale SaaS based application acceleration and developer support platform, for total purchase consideration of $52,487. The total purchase consideration included $34,054 in cash, and 6,878 shares of our common stock valued at $18,433 at the acquisition date.
In connection with this transaction, a shareholder of Moov entered into an employment agreement with us. As part of the employment agreement, the employee will receive contingent consideration of approximately $4,300 to be paid out ratably over a three year period on each anniversary of the acquisition closing date if the employee remains employed by us. As the employee is required to render services to us following the acquisition, this contingent consideration is not included in the purchase consideration. We also assumed unvested options which are subject to future performance requirements, and accordingly expense is attributable to post-combination services and will be recognized over the remaining service periods of the stock options.
The acquisition was accounted for under the acquisition method of accounting and the operating results of Moov have been included in our consolidated financial statements as of the closing date of the acquisition. Under the acquisition method of accounting, the aggregate amount of consideration paid by us was allocated to Moov net tangible assets and intangible assets based on their estimated fair values as of the acquisition closing date. The excess of the purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill. The factors contributing to the recognition of goodwill were based upon our conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill, which is non-deductible for tax purposes, represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is primarily attributable to the technology, client relationships and trade name of the acquired business and expected synergies at the time of the acquisition.
We retained an independent third-party valuation firm to assist management in our valuation of the acquired assets and liabilities.
The following table presents the allocation of the purchase price for Moov:
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Consideration: | |
Cash | $ | 34,054 | |
Common stock | 18,433 | |
Total consideration | $ | 52,487 | |
The fair value of our common stock consideration of 6,878 shares, is based on the closing price of our common stock of $2.68 per share on the acquisition closing date.
The following table summarizes the allocation of the purchase consideration to the acquisition date fair value of the assets, including intangible assets, liabilities assumed and related goodwill acquired:
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Cash | $ | 3,130 | |
Accounts receivable | 2,514 | |
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Prepaid expenses and other current assets | 273 | |
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Goodwill (a) (b) | 36,448 | |
Intangible assets | |
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Trade name | 91 | |
Client relationships | 7,090 | |
Developed technology (a) | 8,480 | |
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Total assets acquired | 58,026 | |
Accounts payable and accrued liabilities | 2,432 | |
Deferred revenue (b) | 3,107 | |
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Total liabilities | 5,539 | |
Total purchase consideration | $ | 52,487 | |
(a) During the fourth quarter of 2021, we identified measurement period adjustments related to preliminary fair value estimates. The measurement period adjustments were due to the refinement of inputs used to calculate the fair value of the developed technology intangible asset, based on facts and circumstances that existed as of the acquisition date. The adjustment to technology was a decrease in the fair value of the intangible asset of $8,340, and an increase to goodwill of $8,340.
(b) As noted above in Note 2, we early adopted ASU 2021-08 on a retrospective basis, which resulted in increased deferred revenue and goodwill of approximately $629.
Certain amounts noted above are preliminary and subject to change during the respective measurement period (up to one year from the acquisition date) as we obtain additional information for the preliminary fair value estimates of the assets acquired and liabilities assumed. The remaining items to be finalized relate to the calculation of non-income based taxes and residual goodwill.
The fair value of the acquired intangible assets were determined as follows, trade name - income approach using the relief from royalty methodology, client relationships - utilizing the cost approach methodology, and developed technology -
excess earnings methodology under the income approach. The weighted-average amortization period of the acquired intangible assets was 5 years at acquisition.
Moov represented approximately $4,500 of our total revenue from the acquisition date to December 31, 2021. For the period January 1, 2021 to the acquisition closing date, Moov's unaudited revenue and net loss was approximately $8,969, and $628, respectively.
Transaction costs incurred by us in connection with the Moov acquisition were $1,640 for the year ended December 31, 2021, respectively, and were recorded within general and administrative expenses in our consolidated statements of operations.
4. Investments in Marketable Securities
The following is a summary of marketable securities (designated as available-for-sale) at December 31, 2021.
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| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
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Certificate of deposit | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | |
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Corporate notes and bonds | 18,297 | | | — | | | 38 | | | 18,259 | |
Municipal securities | 19,117 | | | 0 | | 9 | | 19,108 | |
Total marketable securities | $ | 37,454 | | | $ | — | | | $ | 47 | | | $ | 37,407 | |
The amortized cost and estimated fair value of the marketable securities at December 31, 2021, by maturity, are shown below:
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| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Available-for-sale securities | | | | | | | |
Due in one year or less | $ | 37,209 | | | $ | — | | | $ | 47 | | | $ | 37,162 | |
Due after one year and through five years | 245 | | | — | | | — | | | 245 | |
| $ | 37,454 | | | $ | — | | | $ | 47 | | | $ | 37,407 | |
The following is a summary of marketable securities (designated as available-for-sale) at December 31, 2020:
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| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Certificate of deposit | $ | 551 | | | $ | — | | | $ | — | | | $ | 551 | |
Corporate notes and bonds | 45,426 | | | — | | | 41 | | | 45,385 | |
Municipal securities | 31,039 | | | 1 | | | 8 | | | 31,032 | |
Total marketable securities | $ | 77,016 | | | $ | 1 | | | $ | 49 | | | $ | 76,968 | |
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The amortized cost and estimated fair value of the marketable securities at December 31, 2020, by maturity, are shown below:
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| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Available-for-sale securities | | | | | | | |
Due in one year or less | $ | 76,976 | | | $ | 1 | | | $ | 49 | | | $ | 76,928 | |
Due after one year and through five years | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | |
| $ | 77,016 | | | $ | 1 | | | $ | 49 | | | $ | 76,968 | |
5. Accounts Receivable
Accounts receivable include:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Accounts receivable | $ | 43,887 | | | $ | 32,857 | |
Less: credit allowance | (170) | | | (170) | |
Less: allowance for doubtful accounts | (1,500) | | | (1,012) | |
Total accounts receivable, net | $ | 42,217 | | | $ | 31,675 | |
The following is a roll-forward of the allowance for doubtful accounts related to trade accounts receivable for the years ended December 31, 2021 and 2020.
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Beginning of period | $ | 1,012 | | | $ | 973 | |
Provision for credit losses | 1,082 | | | 801 | |
Write-offs | (594) | | | (762) | |
End of period | $ | 1,500 | | | $ | 1,012 | |
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Prepaid bandwidth and backbone | $ | 1,754 | | | $ | 3,519 | |
VAT receivable | 4,781 | | | 4,392 | |
Prepaid expenses and insurance | 1,975 | | | 2,906 | |
Vendor deposits and other | 4,526 | | | 4,771 | |
Total prepaid expenses and other current assets | $ | 13,036 | | | $ | 15,588 | |
7. Property and Equipment
Property and equipment include:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Network equipment | $ | 123,915 | | | $ | 136,788 | |
Computer equipment and software | 7,107 | | | 7,358 | |
Furniture and fixtures | 1,406 | | | 1,703 | |
Leasehold improvements | 6,454 | | | 7,470 | |
Other equipment | 18 | | | 21 | |
| 138,900 | | | 153,340 | |
Less: accumulated depreciation | (105,278) | | | (106,922) | |
Total property and equipment, net | $ | 33,622 | | | $ | 46,418 | |
Cost of revenue depreciation expense related to property and equipment was approximately $22,508, $21,579, and $19,193, respectively, for the years ended December 31, 2021, 2020, and 2019, respectively.
Operating expense depreciation and amortization expense related to property and equipment was approximately $1,746, $1,591, and $872, respectively, for the years ended December 31, 2021, 2020, and 2019, respectively.
8. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2021, and 2020, were as follows:
| | | | | |
Balance, December 31, 2019 | $ | 77,102 | |
Foreign currency translation adjustment | 651 | |
Balance, December 31, 2020 | 77,753 | |
Acquisition of business | 36,448 | |
Foreign currency translation adjustment | 310 | |
Balance, December 31, 2021 | $ | 114,511 | |
Intangible assets consist of the following as of December 31, 2021
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Trade name | $ | 91 | | | $ | (10) | | | $ | 81 | |
Client relationships | 7,090 | | | (473) | | | 6,617 | |
Technology | 8,480 | | | (565) | | | 7,915 | |
Total other intangible assets | $ | 15,661 | | | $ | (1,048) | | | $ | 14,613 | |
Aggregate expense related to amortization of other intangible assets for the year ended December 31, 2021, was approximately $1,048. There were no impairment charges related to goodwill or other intangible assets incurred in the periods presented.
As of December 31, 2021, the weighted-average remaining useful lives of our acquired intangible assets were 2.67 years for trade name, 4.67 years for client relationships, and 4.67 years for developed technology, and 4.7 years in total, for all acquired intangible assets.
As of December 31, 2021, future amortization expense related to our other intangible assets is expected to be recognized as follows:
| | | | | | | | |
2022 | | $ | 3,144 | |
2023 | | 3,145 | |
2024 | | 3,134 | |
2025 | | 3,114 | |
2026 | | 2,076 | |
Thereafter | | — | |
Total | | $ | 14,613 | |
9. Other Current Liabilities
Other current liabilities include:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Accrued compensation and benefits | $ | 5,131 | | | $ | 5,964 | |
Accrued cost of revenue | 5,714 | | | 5,036 | |
Accrued interest payable | 1,823 | | | 1,894 | |
Restructuring charges | 415 | | | — | |
Accrued legal fees | 233 | | | 61 | |
Other accrued expenses | 5,976 | | | 4,605 | |
Total other current liabilities | $ | 19,292 | | | $ | 17,560 | |
10. Debt
Convertible Senior Notes - Due 2025
On July 27, 2020, we issued $125,000 aggregate principal amount of 3.50% Convertible Senior Notes due 2025 (the
Notes), including the initial purchasers’ exercise in full of their option to purchase an additional $15,000 principal amount of the Notes, in a private placement to qualified institutional buyers in an offering exempt from registration under the Securities Act of 1933, as amended. The net proceeds from the issuance of the Notes was $120,741 after deducting transaction costs.
The Notes are governed by an indenture (the Indenture) between us, as the issuer, and U.S. Bank, National Association, as trustee. The Notes are senior, unsecured obligations of ours and will be equal in right of payment with our senior, unsecured indebtedness; senior in right of payment to our indebtedness that is expressly subordinated to the notes; effectively subordinated to our senior, secured indebtedness, including future borrowings, if any, under our $20,000 credit facility with Silicon Valley Bank (SVB), to the extent of the value of the collateral securing that indebtedness; and structurally subordinated to all indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us after which the Notes become automatically due and payable.
The Notes mature on August 1, 2025 unless earlier converted, redeemed or repurchased in accordance with their term prior to the maturity date. Interest is payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2021. The holders of the Notes may convert all or any portion of their Notes at their option only in the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 (and only during such calendar quarter), if the last reported sale price per share of our common stock exceeds 130% of the conversion price of $8.53 for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
(2) during the five consecutive business days immediately after any ten consecutive trading day period (such ten consecutive trading day period, the “measurement period”) in which the trading price per $1 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;
(3) upon the occurrence of certain corporate events or distributions of our common stock;
(4) if we call such Notes for redemption; and
(5) at any time from, and including, May 1, 2025, until the close of business on the second scheduled trading day immediately before the maturity date.
On or after May 1, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in minimum principal amount denominations of $1 or any integral multiple of $1 in excess thereof, at the option of the holder regardless of the foregoing circumstances. Upon conversion, we may satisfy our conversion obligation by paying or delivering, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at our election, in the manner and subject to the terms and conditions provided in the Indenture. The Notes have an initial conversion rate of 117.2367 shares of our common stock per $1 principal amount of Notes, which is equal to an initial conversion price of approximately $8.53 per share of our common stock. The initial conversion price of the Notes represents a premium of approximately 27.5% over the last reported sale price of our common stock on The Nasdaq Global Select Market of $6.69 per share on July 22, 2020. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will increase the conversion rate in certain circumstances for a holder who elects to convert its Notes in connection with such a corporate event or convert its Notes called (or deemed called) for redemption in connection with such notice of redemption, provided that the conversion rate will not exceed 149.4768 shares of our common stock per $1 principal amount of Notes, subject to adjustment.
We may not redeem the Notes prior to August 4, 2023. We may redeem for cash all, or any portion in an authorized denomination, of the Notes, at our option, on or after August 4, 2023, and on or prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, whether or not consecutive, including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that we are not required to redeem or retire the Notes periodically.
If we undergo a fundamental change (as defined in the Indenture), holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
As of December 31, 2021, the conditions allowing holders of the Notes to convert had not been met and therefore the Notes are not yet convertible. The Notes are classified as long-term debt on our condensed consolidated balance sheet as of December 31, 2021, and the liability component of the notes are classified as long-term debt on our condensed consolidated balance sheet as of December 31, 2020.
At the time of issuance in July 2020, we separately accounted for the liability and equity components of the Notes. We determined the initial carrying amount of the $102,500 liability component before consideration of debt discount and transaction fees by calculating the present value of the cash flows using an effective interest rate of 8.6%. The interest rate was determined based on non-convertible debt offerings of similar sizes and terms by companies with similar credit ratings (Level 2 inputs). The carrying amount of the equity component, representing the conversion option, was $22,500 and was calculated by deducting the initial carrying value of the liability component from the principal amount of the Notes as a whole. This difference represents a debt discount that is amortized to interest expense over the 5-year contractual term of the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. On January 1, 2021, we early adopted ASU 2020-06 on a modified retrospective basis. As a result of the adoption of ASU 2020-06, our total remaining interest expense over the contractual terms of our convertible debt will be approximately $20,823 less than under the previous accounting standards. The adoption resulted in a $21,733 decrease in additional paid in capital from the derecognition of the bifurcated equity component, $20,255 increase in debt from the derecognition of the discount associated with the bifurcated equity component and $1,677 decrease to the opening balance of accumulated deficit, representing the cumulative interest expense recognized related to the amortization of the bifurcated conversion option.
We allocated transaction costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs initially attributable to the liability component were $3,400 and are being amortized to interest expense using the effective interest method over the term of the Notes. Transaction costs attributable to the equity component were $859. Following the adoption of ASU 2020-06, the transaction costs attributable to the original equity component are now being amortized to interest expense over the remaining term of the Notes.
The net carrying amount of the liability and equity components of the Notes was as follows:
| | | | | | | | | | | |
| December 31, | | December 31, |
| 2021 | | 2020 |
Liability component: | | | |
Principal | $ | 125,000 | | | $ | 125,000 | |
Debt discount (equity component) | — | | | (20,823) | |
Unamortized transaction costs | (3,218) | | | (3,232) | |
Net carrying amount | $ | 121,782 | | | $ | 100,945 | |
| | | |
Equity component, net of transaction costs | $ | — | | | $ | 21,733 | |
Interest expense recognized related to the Notes was as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Contractual interest expense | $ | 4,353 | | | $ | 1,894 | |
Amortization of debt discount | — | | | 1,677 | |
Amortization of transaction costs | 811 | | | 260 | |
Total | $ | 5,164 | | | $ | 3,831 | |
As of December 31, 2021 and 2020, the estimated fair value of the Notes was $119,363 and $114,233, respectively. We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period, which are considered Level 2 inputs.
Capped Call Transactions
In connection with the offering of the Notes, we entered into privately negotiated capped call transactions with certain counterparties (collectively, the Capped Calls). The Capped Calls have an initial strike price of approximately $8.53 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of $13.38 per share, subject to certain adjustments. The Capped Calls are generally intended to reduce or offset the potential economic dilution of approximately 14.7 million shares to our common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. As the Capped Calls are considered indexed to our own stock and are equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $16,400 incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital.
Line of Credit
In November 2015, we entered into the original Loan and Security Agreement (the Credit Agreement) with SVB. Since the inception, there have been eight amendments, with the most recent amendment being in September 2021 (the Eighth Amendment). The Eighth Amendment modified language within the Credit Agreement, which permitted us to acquire Moov. The maximum principal commitment amount remains at $20,000. Our borrowing capacity is the lesser of the commitment amount or 80% of eligible accounts receivable. All outstanding borrowings owed under the Credit Agreement become due and payable no later than the final maturity date of November 2, 2022. As long as our Adjusted Quick Ratio remains above 1.5 to 1, we no longer are required to submit quarterly borrowing base reports.
As of December 31, 2021, and 2020, we had no outstanding borrowings, and we had availability under the Credit Agreement of $20,000.
As of December 31, 2021, borrowings under the Credit Agreement bear interest at the current prime rate minus 0.25%. In the event of default, obligations shall bear interest at a rate per annum that is 3% above the then applicable rate.
Amendment fees and other commitment fees are included in interest expense. During the years ended December 31, 2021, 2020 and 2019, respectively, interest expense was immaterial and fees and amortization expense was $81, $108 and $76, respectively.
Any borrowings are secured by essentially all of our domestic personal property, with a negative pledge on intellectual property. SVB’s security interest in our foreign subsidiaries is limited to 65% of voting stock of each such foreign subsidiary.
We are required to maintain an Adjusted Quick Ratio of at least 1.0 to 1.0. We are also subject to certain customary limitations on our ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividends, dispose of assets or undergo a change in control. As of December 31, 2021, we were in compliance with all covenants under the Credit Agreement.
11. Restructuring Charges
During the first quarter of 2021, management committed to restructure certain parts of the company to focus on improved growth and profitability. As a result, certain headcount reductions were implemented, and we incurred certain charges related to severance, share-based compensation, and professional fees. During the three months ended June 30, 2021, we incurred $2,155 of costs related to this restructuring plan. During the three months ended September 30, 2021 and December 31, 2021, we recognized a cost recovery of $112 and $259, respectively, as actual expenses incurred were less than previously estimated. We do not expect any additional restructure charges related to this action plan.
During the third and fourth quarters of 2021, management committed to restructure certain parts of the company to align our workforce and facility requirements with our continued investment in the business as we focus on cost efficiencies, improved growth and profitability. As a result, outside service contracts and professional fees were incurred. Additionally, with the decision to close, and in some cases, sublease, facilities, we incurred impairment charges related to certain operating lease assets and related leasehold improvements. During the three months ended September 30, 2021, we incurred $1,882 of costs related to this restructuring plan. During the three months ended December 31, 2021, we incurred approximately $2,886 of costs related to this restructuring plan, substantially all of which was related to facilities impairment charges. We expect approximately $2,000 of additional costs related primarily to consulting fees to restructure our datacenter architecture over the next 12 months.
The following table summarizes the activity of our restructuring accrual (recorded in other current liabilities on our condensed consolidated balance sheet) during the year ended December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Employee Severance and Related Benefits | | Share-Based Compensation | | Facilities Related Charges | | Professional Fees and Other | | Total |
Balance as of January 1, 2021 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Costs incurred (recorded in restructuring charge) | 3,513 | | | 1,354 | | | — | | | 2,006 | | | 6,873 | |
Cash disbursements | (1,143) | | | — | | | — | | | (237) | | | (1,380) | |
Non-cash charges | — | | | (1,354) | | | — | | | — | | | (1,354) | |
Balance as of March 31, 2021 | $ | 2,370 | | | $ | — | | | $ | — | | | $ | 1,769 | | | $ | 4,139 | |
Costs incurred (recorded in restructuring charge) | (247) | | | 917 | | | — | | | 1,485 | | | 2,155 | |
Cash disbursements | (1,203) | | | — | | | — | | | (2,902) | | | (4,105) | |
Non-cash charges | — | | | (917) | | | — | | | — | | | (917) | |
Balance as of June 30, 2021 | $ | 920 | | | $ | — | | | $ | — | | | $ | 352 | | | $ | 1,272 | |
Costs incurred (recorded in restructuring charge) | (1) | | | (236) | | | 1,882 | | | 125 | | | 1,770 | |
Cash disbursements | (357) | | | — | | | — | | | (465) | | | (822) | |
Non-cash charges | (9) | | | 383 | | | (1,882) | | | — | | | (1,508) | |
Balance as of September 30, 2021 | $ | 553 | | | $ | 147 | | | $ | — | | | $ | 12 | | | $ | 712 | |
Costs incurred (recorded in restructuring charge) | (49) | | | (254) | | | 2,886 | | | 44 | | | 2,627 | |
Cash disbursements | (265) | | | (147) | | | (668) | | | (56) | | | (1,136) | |
Non-cash charges | (4) | | | 254 | | | (2,038) | | | — | | | (1,788) | |
Balance as of December 31, 2021 | $ | 235 | | | $ | — | | | $ | 180 | | | $ | — | | | $ | 415 | |
12. Contingencies
Legal Matters
We are subject to various other legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows, and accordingly, no legal contingencies are accrued as of December 31, 2021. Litigation relating to the content delivery services industry is not uncommon, and we are, and from time to time have been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.
Taxes
We are subject to indirect taxation in various states and foreign jurisdictions. Laws and regulations that apply to communications and commerce conducted over the internet are becoming more prevalent, both in the United States and internationally, and may impose additional burdens on us conducting business online or providing internet-related services. Increased regulation could negatively affect our business directly, as well as the businesses of our clients, which could reduce their demand for our services. For example, tax authorities in various states and abroad may impose taxes on the internet-related revenue we generate based on regulations currently being applied to similar but not directly comparable industries.
There are many transactions and calculations where the ultimate tax determination is uncertain. In addition, domestic and international taxation laws are subject to change. In the future, we may come under audit, which could result in changes to our tax estimates. We believe we maintain adequate tax reserves, that are not material in amount, to offset potential liabilities that may arise upon audit. Although we believe our tax estimates and associated reserves are reasonable, the final determination of tax audits and any related litigation could be materially different than the amounts established for tax contingencies. To the extent these estimates ultimately prove to be inaccurate, the associated reserves would be adjusted, resulting in the recording of a benefit or expense in the period in which a change in estimate or a final determination is made.
13. Net Loss per Share
We calculate basic and diluted net loss per weighted average share. We use the weighted-average number of shares of common stock outstanding during the period for the computation of basic earnings per share. Diluted earnings per share include
the dilutive effect of all potentially dilutive common stock, including awards granted under our equity incentive compensation plans in the weighted-average number of shares of common stock outstanding.
The following table sets forth the components used in the computation of basic and diluted net loss per share for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Net loss | $ | (54,761) | | | $ | (19,277) | | | $ | (16,044) | |
Basic weighted average outstanding shares of common stock | 127,789 | | | 121,196 | | | 115,890 | |
Basic weighted average outstanding shares of common stock | 127,789 | | | 121,196 | | | 115,890 | |
Dilutive effect of stock options, restricted stock units, and other equity incentive plans | — | | | — | | | — | |
Diluted weighted average outstanding shares of common stock | 127,789 | | | 121,196 | | | 115,890 | |
Basic net loss per share | $ | (0.43) | | | $ | (0.16) | | | $ | (0.14) | |
Diluted net loss per share | $ | (0.43) | | | $ | (0.16) | | | $ | (0.14) | |
For the years ended December 31, 2021, 2020 and 2019, the following potentially dilutive common stock, including awards granted under our equity incentive compensation plans were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Employee stock purchase plan | 85 | | | 96 | | | 86 | |
Stock options | 2,138 | | | 5,973 | | | 2,736 | |
Restricted stock units | 1,123 | | | 1,891 | | | 1,303 | |
Convertible senior notes | 14,654 | | | 14,654 | | | — | |
| 18,000 | | | 22,614 | | | 4,125 | |
14. Stockholders’ Equity
Common Stock
On March 14, 2017, our board of directors authorized a $25,000 share repurchase program. Any shares repurchased under this program will be canceled and returned to authorized but unissued status. We did not purchase any shares during the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, there remained $21,200 under this share repurchase program.
Amended and Restated Equity Incentive Plan
We established the 2007 Equity Incentive Plan, or the 2007 Plan, which allows for the grant of equity, including stock options and restricted stock unit awards. In June 2016, our stockholders approved the Amended and Restated Equity Incentive Plan, or the Restated 2007 Plan, which amended and restated the 2007 Plan. Approval of the Restated 2007 Plan replaced the terms and conditions of the 2007 Plan with the terms and conditions of the Restated 2007 Plan and extended the term of the plan to April 2026. There was no increase in the aggregate amount of shares available for issuance. The total number of shares available to be issued under the Restated 2007 Plan as of December 31, 2021 was approximately 13,039.
2017 Moov Corporation Equity Incentive Plan
In connection with our acquisition of Moov, we assumed each outstanding and unvested option to purchase Moov common stock granted pursuant to the Moov Corporation 2017 Equity Incentive Plan and such options became exercisable to purchase shares of our common stock, subject to appropriate adjustments to the number of shares and the exercise price of each such option.
2021 Inducement Plan
In November 2021, we adopted the Inducement Plan pursuant to which we reserved 11,000 shares of common stock, to be used exclusively for grants of equity-based awards to highly qualified prospective officers and employees who are not currently our employees, as an inducement material to the individual's entry into employment with us within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of equity-based awards in the form of non-statutory stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards. The Inducement Plan was adopted by our board of directors without stockholder approval pursuant to Rule 5634(c)(4) of the Nasdaq Listing Rules. We have issued 10,477 shares under the Inducement Plan as of December 31, 2021.
Employee Stock Purchase Plan
In June 2013, our stockholders approved our 2013 Employee Stock Purchase Plan (ESPP), authorizing the issuance of 4,000 shares. In May 2019, our stockholders approved the adoption of Amendment 1 to the ESPP. Amendment 1 increased the number of shares authorized to 9,000 shares (an increase of 5,000 shares) and amended the maximum number of shares of common stock that an eligible employee may be permitted to purchase during each offering period to be 5 shares. The ESPP allows participants to purchase our common stock at a 15% discount of the lower of the beginning or end of the offering period using the closing price on that day. During the years ended December 31, 2021, 2020, and 2019, we issued 636, 555, and 794 shares, respectively, under the ESPP. Total cash proceeds from the purchase of shares under the ESPP were approximately $1,638, $1,936, and $1,938, respectively for the years ended December 31, 2021, 2020, and 2019. As of December 31, 2021, shares reserved for issuance to employees under this plan totaled 3,049 and we held employee contributions of approximately $223 (included in other current liabilities) for future purchases under the ESPP.
Preferred Stock
Our board of directors have authorized the issuance of up to 7,500 shares of preferred stock at December 31, 2021. The preferred stock may be issued in one or more series pursuant to a resolution or resolutions providing for such issuance duly adopted by the board of directors. As of December 31, 2021, the Board had not adopted any resolutions for the issuance of preferred stock.
15. Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss, net of tax, for the year ended December 31, 2021, was as follows:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| Foreign | | Available for | | |
| Currency | | Sale Securities | | Total |
Balance, December 31, 2020 | $ | (7,460) | | | $ | (51) | | | $ | (7,511) | |
Other comprehensive (loss) gain before reclassifications | (836) | | | 2 | | | (834) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | — | | | — | |
Net current period other comprehensive gain | (836) | | | 2 | | | (834) | |
Balance, December 31, 2021 | $ | (8,296) | | | $ | (49) | | | $ | (8,345) | |
16. Share-Based Compensation
Incentive Compensation Plans
We maintain incentive compensation plans (the Plans) to attract, motivate, retain, and reward high quality executives and other employees, officers, directors, and consultants by enabling such persons to acquire or increase a proprietary interest in the Company. The Plans are intended to be qualified plans under the Internal Revenue Code.
The Plans allow us to award stock option grants and restricted stock units (RSUs) to employees, directors and consultants of the Company. During 2021, we granted awards to employees, directors and contractors. The exercise price of incentive stock options granted under the Plan may not be granted at less than 100% of the fair market value of our common stock on the date of the grant.
In connection with our acquisition of Moov we assumed each outstanding and unvested option to purchase Moov common stock granted pursuant to the Moov Corporation 2007 Equity Incentive Plan, as amended, and the Moov Corporation 2017 Equity Incentive Plan and such options became exercisable to purchase shares of our common stock, subject to appropriate adjustments to the number of shares and the exercise price of each such option. Following such conversion, as of
December 31, 2021, there were options to purchase 791 shares of our common stock subject to time-based vesting outstanding under the Moov Corporation 2007 Equity Incentive Plan, as amended, and the Moov Corporation 2017 Equity Incentive Plan, with exercises prices between $0.38 and $0.58 per share.
Data pertaining to stock option activity under the Plans are as follows:
| | | | | | | | | | | |
| Number of Options Outstanding | | Weighted Average Exercise Price |
| (In thousands) | | |
Balance at December 31, 2018 | 16,943 | | | $ | 2.99 | |
Granted | 2,556 | | | 4.03 | |
Exercised | (1,054) | | | 2.34 | |
Cancelled/Forfeitures | (811) | | | 4.55 | |
Balance at December 31, 2019 | 17,634 | | | 3.12 | |
Granted | 1,509 | | | 4.18 | |
Exercised | (2,870) | | | 2.83 | |
Cancelled/Forfeitures | (678) | | | 3.98 | |
Balance at December 31, 2020 | 15,595 | | | 3.23 | |
Granted | 3,022 | | | 2.17 | |
Exercised | (1,936) | | | 2.35 | |
Cancelled/Forfeitures | (3,252) | | | 3.76 | |
Balance at December 31, 2021 | 13,429 | | | 3.00 | |
The following table summarizes the information about stock options outstanding and exercisable at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Options Outstanding | | Options Exercisable |
Exercise Price | | Number of Options Outstanding | | Weighted Average Remaining Contractual Life (Years) | | Weighted Average Exercise Price | | Number of Options Exercisable | | Weighted Average Exercise Price |
| | (In thousands) | | | | | | (In thousands) | | |
$ 0.00 — $ 1.50 | | 791 | | | 8.4 | | $ | 0.46 | | | 110 | | | $ | 0.49 | |
$ 1.51 — $ 3.00 | | 7,015 | | | 1.2 | | 2.32 | | | 6,605 | | | 2.29 | |
$ 3.01 — $ 4.50 | | 3,359 | | | 4.0 | | 3.62 | | | 2,415 | | | 3.55 | |
$ 4.51 — $ 6.00 | | 2,261 | | | 2.4 | | 5.04 | | | 2,064 | | | 5.06 | |
$ 6.01 — $ 7.50 | | 3 | | | 8.6 | | 6.22 | | | 1 | | | 6.22 | |
| | 13,429 | | | | | | | 11,195 | | | |
The weighted-average grant-date fair value of options granted during the years ended December 31, 2021, 2020, and 2019 on a per-share basis was approximately $2.26, $2.26, and $2.09, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2021, 2020, and 2019 was approximately $2,566, $9,963, and $1,865, respectively. The aggregate intrinsic value of options outstanding at December 31, 2021 is approximately $10,217. The weighted average remaining contractual term of options currently exercisable at December 31, 2021 was 1.1 years.
The fair value of options awarded were estimated on the grant date using the following weighted average assumptions:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Expected volatility | 62.62 | % | | 59.70 | % | | 52.47 | % |
Expected term, years | 4.65 | | 5.99 | | 6.17 |
Risk-free interest | 0.66 | % | | 0.62 | % | | 2.06 | % |
Expected dividends | — | % | | — | % | | — | % |
Unrecognized share-based compensation related to stock options totaled $4,059 at December 31, 2021. We expect to amortize unvested stock compensation related to stock options over a weighted average period of approximately 2.3 years at December 31, 2021.
The following table summarizes the RSUs outstanding (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
RSUs with service-based vesting conditions | 6,699 | | | 3,340 | | | 4,503 | |
RSUs with performance-based vesting conditions | 7,305 | | | — | | | — | |
| 14,004 | | | 3,340 | | | 4,503 | |
Each RSU represents the right to receive one share of our common stock upon vesting. The fair value of these RSUs was calculated based upon our closing stock price on the date of grant.
Data pertaining to RSUs activity under the Plans is as follows:
| | | | | | | | | | | |
| Number of Units | | Weighted Average Fair Value |
| (In thousands) | | |
Balance at December 31, 2018 | 4,248 | | | $ | 3.45 | |
Granted | 4,089 | | | 3.20 | |
Vested | (3,416) | | | 3.17 | |
Forfeitures | (418) | | | 3.19 | |
Balance at December 31, 2019 | 4,503 | | | 3.45 | |
Granted | 2,225 | | | 4.86 | |
Vested | (2,817) | | | 3.80 | |
Forfeitures | (571) | | | 3.51 | |
Balance at December 31, 2020 | 3,340 | | | 4.09 | |
Granted | 13,811 | | | 2.94 | |
Vested | (1,758) | | | 4.00 | |
Forfeitures | (1,389) | | | 3.74 | |
Balance at December 31, 2021 | 14,004 | | | 3.00 | |
The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2021, 2020, and 2019 was approximately $2.94, $4.86, and $3.20, respectively. The total intrinsic value of the units vested during the years ended December 31, 2021, 2020, and 2019 was approximately $5,436, $14,371, and $10,747, respectively. The aggregate intrinsic value of RSUs outstanding at December 31, 2021 is $48,034.
At December 31, 2021 there was approximately $35,656 of total unrecognized compensation costs related to RSUs. That cost is expected to be recognized over a weighted-average period of approximately 2.28 years as of December 31, 2021.
Total unrecognized aggregate share-based compensation expense totaled approximately $39,715 at December 31, 2021, which is expected to be recognized over a weighted average period of approximately 2.29 years. Unrecognized share-based compensation includes both time-based and performance-based equity issued as part of our recent business acquisition. We currently believe the performance targets related to the vesting of performance-based equity awards will be achieved. If such targets are not achieved or are subsequently determined to not be probable of being achieved, we will not recognize any compensation expense for the performance-based awards and will reverse any previously recognized expense on such
performance-based awards.
The following table summarizes the components of share-based compensation expense included in our consolidated statement of operations:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Share-based compensation expense by type: | | | | | |
Stock options | $ | 7,790 | | | $ | 4,289 | | | $ | 4,208 | |
Restricted stock units | 12,185 | | | 10,494 | | | 8,951 | |
ESPP | 505 | | | 934 | | | 619 | |
Total share-based compensation expense | $ | 20,480 | | | $ | 15,717 | | | $ | 13,778 | |
Share-based compensation expense included in the consolidated statements of operations: |
Cost of services | $ | 1,385 | | | $ | 1,998 | | | $ | 1,495 | |
General and administrative expense | 12,514 | | | 7,611 | | | 8,098 | |
Sales and marketing expense | 2,513 | | | 3,519 | | | 2,263 | |
Research and development expense | 2,435 | | | 2,589 | | | 1,922 | |
Restructuring charge | 1,633 | | | — | | | — | |
Total share-based compensation expense | $ | 20,480 | | | $ | 15,717 | | | $ | 13,778 | |
During the year ended December 31, 2021, we issued two common stock warrants to an outside consulting firm. The first warrant was for up to an aggregate of 441,867 shares at an exercise price per share equal to $0.01 per share, and the second warrant was for up to an aggregate of 662,800 shares at an exercise price per share equal to $3.72 per share. During 2021, 55,233 shares from the first warrant and 82,850 shares from the second warrant vested. We have terminated the relationship with the outside consulting firm and there will be no further vesting. We made a cash payment of $147 in exchange for the cancellation of the first warrant, including the 55,233 shares vested. The remaining 82,850 shares vested under the second warrant were outstanding as of December 31, 2021 and remain exercisable, subject to and conditioned upon the rights and restrictions contained in such warrant.
In September 2021, we acquired all of the issued and outstanding shares, options, warrants, convertible securities and other outstanding equity interests of Moov. As part of the purchase agreement, there is an incentive equity pool of $30,000 of restricted stock units to be granted to former Moov employees (including the Co-Founder) if they meet certain vesting criteria as follows:
•$10,000 is subject to time-based vesting over a period of either 36 or 48 months; and
•$20,000 is subject to achieving certain financial and operational metrics by June 30, 2025. We are recognizing the expense associated with this equity grant over a 28 month period.
This resulted in a total of approximately 10,957 restricted stock units, most of which were granted as inducements to employment in accordance with NASDAQ Listing Rule 5635(c)(4).
Also, in connection with our acquisition of Moov we agreed to assume all outstanding issued but unvested Moov stock options under the 2017 Moov Corporation Equity Incentive Plan. Following such conversion, we issued 818 stock options subject to time-based vesting under the Restated 2007 Plan, with exercises prices between $0.38 and $0.58 per share.
During the year ended December 31, 2021, we entered into transition agreements with five executives, which resulted in the modification of previously issued equity grants. The modifications were the result of us accelerating vesting after termination and extending the period of time the employee receives to exercise their outstanding non-qualified stock options. The extension of time to exercise their outstanding non-qualified stock options for the five individuals impacted ranged from six months to two years. The incremental expense recorded as a result of the modifications was $4,359, of which $49 was included in cost of revenue, $1,116 was included in restructuring charges, and $3,194 included in general and administrative expense.
For the year ended December 31, 2021, we have recorded approximately $1,422 of share-based compensation expense related to restricted stock units that will be issued as part of our 2021 annual corporate bonus plan. For the year ended December 31, 2020, we recorded approximately $1,091 of share-based compensation expense related to restricted stock units issued as part of our 2019 annual corporate bonus plan.
17. Related Party Transactions
We had no material related party transactions during the years ended December 31, 2021, 2020, and 2019.
18. Operating Leases - Right of Use Assets and Purchase Commitments
Right of Use Assets
We have various operating leases for office space that expire through 2030. Below is a summary of our right of use assets and liabilities as of December 31, 2021.
| | | | | |
Right-of-use assets | $ | 6,338 | |
| |
Lease liability obligations, current | $ | 1,861 | |
Lease liability obligations, less current portion | 9,616 | |
Total lease liability obligations | $ | 11,477 | |
| |
Weighted-average remaining lease term | 7.70 years |
| |
Weighted-average discount rate | 5.05 | % |
During the year ended December 31, 2021, we recognized approximately $2,075 in operating lease costs. Operating lease costs of $382 are included in cost of revenue and $1,693 are included in operating expenses in our consolidated statement of operations. During the year ended December 31, 2021, cash paid for operating leases was approximately $2,855. We recognized impairment charges related to operating lease assets during 2021 as discussed in Note 11.
During the year ended December 31, 2020, we recognized approximately $3,166 in operating lease costs. Operating lease costs of $476 are included in cost of revenue and $2,690 are included in operating expenses in our consolidated statement of operations. During the year ended December 31, 2020, cash paid for operating leases was approximately $2,175.
During the year ended December 31, 2019, we recognized approximately $3,540 in operating lease costs. Operating lease costs of $519 are included in cost of revenue and $3,021 are included in operating expenses in our consolidated statement of operations. During the year ended December 31, 2019, cash paid for operating leases was approximately $1,976.
Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of December 31, 2021, are as follows:
| | | | | |
2022 | $ | 2,389 | |
2023 | 1,810 | |
2024 | 1,441 | |
2025 | 1,440 | |
2026 | 1,468 | |
Thereafter | 5,361 | |
Total minimum payments | 13,909 | |
Less: amount representing interest | 2,432 | |
Total | $ | 11,477 | |
Purchase Commitments
We have long-term commitments for bandwidth usage and co-location with various networks and internet service providers. The following summarizes our minimum non-cancellable commitments for future periods as of December 31, 2021:
| | | | | |
2022 | $ | 50,232 | |
2023 | 23,998 | |
2024 | 13,437 | |
2025 | 10,088 | |
2026 | 7,628 | |
Thereafter | 1,245 | |
Total minimum payments | $ | 106,628 | |
Operating expense relating to these bandwidth and co-location agreements was approximately $93,149, $87,535, and $66,801, respectively, for the years ended December 31, 2021, 2020, and 2019.
19. Concentrations
During the years ended December 31, 2021 and 2020, we had two clients, Amazon and Sony which represented approximately 29% and 11%, respectively, and 36% and 11%, respectively of our total revenue. During the year ended December 31, 2019, Amazon represented approximately 30% of our total revenue.
Revenue from clients located within the United States, our country of domicile, was approximately $137,267, $139,217, and $121,160, respectively, for the years ended December 31, 2021, 2020, and 2019.
During the year ended December 31, 2021, we had two countries: Japan, and the United States, which accounted for 10% or more of our total revenue.
During the years ended December 31, 2020, and 2019, respectively, we had three countries: Japan, the United Kingdom, and the United States, which accounted for 10% or more of our total revenue.
20. Income Taxes
Our income (loss) before income taxes consists of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Loss before income taxes: | | | | | |
United States | $ | (57,278) | | | $ | (20,882) | | | $ | (17,230) | |
Foreign | 3,671 | | | 2,250 | | | 1,936 | |
| $ | (53,607) | | | $ | (18,632) | | | $ | (15,294) | |
The components of the provision for income taxes are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current: | | | | | |
Federal | $ | — | | | $ | — | | | $ | — | |
State | 121 | | | 85 | | | 60 | |
Foreign | 1,447 | | | 654 | | | 420 | |
Total current | 1,568 | | | 739 | | | 480 | |
Deferred: | | | | | |
Federal | 7 | | | 8 | | | 8 | |
State | 3 | | | 2 | | | (1) | |
Foreign | (424) | | | (104) | | | 263 | |
Total deferred | (414) | | | (94) | | | 270 | |
Total provision | $ | 1,154 | | | $ | 645 | | | $ | 750 | |
A reconciliation of the U.S. federal statutory rate to our effective income tax rate is shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
U.S. federal statutory tax rate | $ | (11,258) | | | 21.0 | % | | $ | (3,913) | | | 21.0 | % | | $ | (3,212) | | | 21.0 | % |
Valuation allowance | 9,133 | | | (17.0) | % | | 5,388 | | | (28.9) | % | | 2,435 | | | (15.9) | % |
Foreign income taxes | 251 | | | (0.5) | % | | 88 | | | (0.5) | % | | 216 | | | (1.4) | % |
State income taxes | 79 | | | (0.2) | % | | 59 | | | (0.3) | % | | 51 | | | (0.3) | % |
Non-deductible expenses | 799 | | | (1.5) | % | | 58 | | | (0.3) | % | | 190 | | | (1.2) | % |
Uncertain tax positions | — | | | — | % | | (11) | | | 0.1 | % | | (2) | | | — | % |
Non-deductible officer compensation | 38 | | | (0.1) | % | | 418 | | | (2.3) | % | | 573 | | | (3.8) | % |
Share-based compensation | 2,059 | | | (3.8) | % | | (1,478) | | | 7.9 | % | | 420 | | | (2.8) | % |
| | | | | | | | | | | |
Other | 53 | | | (0.1) | % | | 36 | | | (0.2) | % | | 79 | | | (0.5) | % |
Provision for income taxes | $ | 1,154 | | | (2.2) | % | | $ | 645 | | | (3.5) | % | | $ | 750 | | | (4.9) | % |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purpose. Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Share-based compensation | $ | 5,674 | | | $ | 5,360 | |
Net operating loss and tax credit carry-forwards | 69,749 | | | 57,153 | |
Interest expense | 1,191 | | | 390 | |
Deferred revenue | 1,698 | | | 247 | |
Accounts receivable reserves | 371 | | | 248 | |
Fixed assets | 3,010 | | | 2,217 | |
Compensation | 247 | | | 443 | |
Lease liability | 2,567 | | | 3,112 | |
Other | 408 | | | 146 | |
Total deferred tax assets | 84,915 | | | 69,316 | |
Deferred tax liabilities: | | | |
Convertible debt conversion feature | — | | | (5,112) | |
Intangible assets | (3,740) | | | — | |
Right-of-use asset | (1,396) | | | (2,259) | |
Prepaid expenses | (381) | | | (365) | |
Other | (310) | | | (26) | |
Total deferred tax liabilities | (5,827) | | | (7,762) | |
Valuation allowance | (77,503) | | | (60,303) | |
Net deferred tax assets | $ | 1,585 | | | $ | 1,251 | |
The federal and state net operating loss (NOL) carryforwards relate to prior years’ NOLs, which may be used to reduce tax liabilities in future years. At December 31, 2021, we had $278,300 federal and $183,600 state NOL carryforwards. Our federal NOL will begin to expire in 2027 and the state NOL carryforwards will begin to expire in 2022. Pursuant to Sections 382 and 383 of the Internal Revenue Code, the utilization of NOLs and other tax attributes may be subject to substantial limitations if certain ownership changes occur during a three-year testing period (as defined by the Internal Revenue Code). We did not have any state tax credit carryforwards as of December 31, 2021.
We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the evidence available, it is more-likely-than-not that such assets will not be realized. In making the assessment under the more-likely-than-not standard, appropriate consideration must be given to all positive and negative evidence related to the realization of the deferred tax assets.
This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods by jurisdiction, unitary versus stand-alone state tax filings, our experience with loss carryforwards not expiring unutilized, and all tax planning alternatives that may be available.
A valuation allowance has been recorded against our deferred tax assets, with the exception of deferred tax assets at certain foreign subsidiaries as management cannot conclude that it is more-likely-than-not that these assets will be realized. As of December 31, 2021, no valuation allowance was provided on $1,600 of deferred tax assets associated with certain NOLs because we would use them to offset our liabilities relating to our uncertain tax benefits.
Estimated liabilities for unrecognized tax benefits are included in “other liabilities” on the consolidated balance sheet. These contingent liabilities relate to various tax matters that result from uncertainties in the application of complex income tax regulations in the numerous jurisdictions in which we operate. As of December 31, 2021, unrecognized tax benefits were $1,796, of which approximately $199, if recognized, would favorably impact the effective tax rate and the remaining balance would be substantially offset by valuation allowances.
A summary of the activities associated with our reserve for unrecognized tax benefits, interest and penalties follow:
| | | | | |
| Unrecognized Tax Benefits |
Balance at January 1, 2020 | $ | 1,802 | |
Additions for tax positions related to current year | — | |
Additions for tax positions related to prior years | — | |
Settlements | — | |
Adjustment related to foreign currency translation | (2) | |
Reductions related to the lapse of applicable statute of limitations | (5) | |
Reduction for tax positions of prior years | — | |
Balance at December 31, 2020 | 1,795 | |
Additions for tax positions related to current year | — | |
Additions for tax positions related to prior years | — | |
Settlements | — | |
Adjustment related to foreign currency translation | 1 | |
Reductions related to the lapse of applicable statute of limitations | — | |
Reduction for tax positions of prior years | — | |
Balance at December 31, 2021 | $ | 1,796 | |
We recognize interest and penalties related to unrecognized tax benefits in our tax provision. As of December 31, 2021, we had an interest and penalties accrual related to unrecognized tax benefits of $0, which remained unchanged from December 31, 2020. We anticipate our unrecognized tax benefits may increase or decrease within twelve months of the reporting date, as audits or reviews are initiated or settled and as a result of settled potential tax liabilities in certain foreign jurisdictions. It is not currently reasonably possible to estimate the range of change.
We file income tax returns in jurisdictions with varying statues of limitations. Tax years 2018 through 2020 remain subject to examination by federal tax authorities. Tax years 2017 through 2020 generally remain subject to examination by state tax authorities. As of December 31, 2021, we are not under any federal or state income tax examinations.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) significantly revised the U.S. corporate income tax law, by among other things, reducing the corporate income tax rate to 21% for tax years beginning in 2018.
Also effective in 2018 was a new Global Intangible Low-Taxed Income inclusion (GILTI). The GILTI did not have a material impact on our 2021, 2020, and 2019 earnings due to our NOL and valuation allowance position.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. We have evaluated the impact of the CARES Act, and do not expect the provisions of the CARES Act to have an impact on us.
21. 401(k) Plan
We manage the Limelight Networks 401(k) Plan covering effectively all of our employees. The plan is a 401(k) profit sharing plan in which participating employees are fully vested in any contributions they make.
We will match employee deferrals as follows: a dollar-for-dollar match on eligible employee’s deferral that does not exceed 3% of compensation for the year and a 50% match on the next 2% of the employee deferrals. Our employees may elect to reduce their current compensation up to the statutory limit. We made matching contributions of approximately $1,215, $1,535, and $1,501 during the years ended December 31, 2021, 2020, and 2019, respectively.
22. Segment Reporting and Geographic Information
Our chief operating decision maker (who is our Chief Executive Officer) reviews our financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance. We operate in one industry segment — edge services for outcome buyers and we operate in three geographic areas — Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific.
Revenue by geography is based on the location of the client from which the revenue is earned. The following table sets forth revenue by geographic area:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Americas | $ | 141,917 | | 65 | % | | $ | 142,345 | | 62 | % | | $ | 125,075 | | 62 | % |
EMEA | 24,568 | | 11 | % | | 36,958 | | 16 | % | | 32,008 | | 16 | % |
Asia Pacific | 51,145 | | 24 | % | | 50,891 | | 22 | % | | 43,551 | | 22 | % |
Total revenue | $ | 217,630 | | 100 | % | | $ | 230,194 | | 100 | % | | $ | 200,634 | | 100 | % |
The following table sets forth the individual countries and their respective revenue for those countries whose revenue exceeded 10% of our total revenue:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Country / Region | | | | | |
United States / Americas | $ | 137,267 | | | $ | 139,217 | | | $ | 121,160 | |
United Kingdom / EMEA | $ | 13,945 | | | $ | 29,623 | | | $ | 24,004 | |
Japan / Asia Pacific | $ | 27,281 | | | $ | 32,369 | | | $ | 25,339 | |
The following table sets forth long-lived assets by geographic area:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Long-lived Assets | | | | | |
Americas | $ | 23,733 | | | $ | 32,626 | | | $ | 33,450 | |
International | 9,889 | | | 13,792 | | | 12,686 | |
Total long-lived assets | $ | 33,622 | | | $ | 46,418 | | | $ | 46,136 | |
23. Fair Value Measurements
We evaluate our financial instruments within the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1 - defined as observable inputs such as quoted prices in active markets;
Level 2 - defined as other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of December 31, 2020 and 2019, we held certain assets that were required to be measured at fair value on a recurring basis.
The following is a summary of fair value measurements at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
Description | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Money market funds (2) | $ | 7,310 | | | $ | 7,310 | | | $ | — | | | $ | — | |
Certificate of deposit (1) | 40 | | | — | | | 40 | | | — | |
Corporate notes and bonds (1) | 18,259 | | | — | | | 18,259 | | | — | |
Municipal securities (1) | 19,108 | | | — | | | 19,108 | | | — | |
Total assets measured at fair value | $ | 44,717 | | | $ | 7,310 | | | $ | 37,407 | | | $ | — | |
____________
(1)Classified in marketable securities
(2)Classified in cash and cash equivalents
The following is a summary of fair value measurements at December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
Description | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Money market funds (2) | $ | 12,370 | | | $ | 12,370 | | | $ | — | | | $ | — | |
Certificate of deposit (1) | 551 | | | — | | | 551 | | | — | |
Corporate notes and bonds (1) | 45,385 | | | — | | | 45,385 | | | — | |
Municipal securities (1) | 31,032 | | | — | | | 31,032 | | | — | |
Total assets measured at fair value | $ | 89,338 | | | $ | 12,370 | | | $ | 76,968 | | | $ | — | |
____________
(1)Classified in marketable securities
The carrying amount of cash equivalents approximates fair value because their maturity is less than three months. The carrying amount of short-term and long-term marketable securities approximates fair value as the securities are marked to market as of each balance sheet date with any unrealized gains and losses reported in stockholders’ equity. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term maturity of the amounts.