As filed with the Securities and Exchange Commission on
November 16, 2009
Registration
No. 333-162936
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
LOGMEIN, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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7372
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20-1515952
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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500 Unicorn Park Drive
Woburn, Massachusetts
01801
(781) 638-9050
(Address, including zip code,
and telephone number, including
area code, of registrants
principal executive offices)
Michael K. Simon
Chairman, President and Chief
Executive Officer
500 Unicorn Park Drive
Woburn, Massachusetts
01801
(781) 638-9050
(Name, address, including zip
code, and telephone
number, including area code, of
agent for service)
Copies to:
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John H. Chory, Esq.
Philip P. Rossetti, Esq.
Susan L. Mazur, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
1100 Winter Street
Waltham, Massachusetts 02451
(781) 966-2000
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Keith F. Higgins, Esq.
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
(617) 951-7000
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Approximate date of commencement of proposed sale to
public: As soon as practicable after this
Registration Statement is declared effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering
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Aggregate
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Registration
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Securities to be Registered
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Registered(1)
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Price per Share(2)
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Offering Price
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Fee
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Common Stock, par value $0.01 per share
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3,593,750
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$19.525
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$70,167,969
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$3,915
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(1)
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Includes 468,750 shares of
common stock that may be purchased by the underwriters to cover
over-allotments, if any.
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(2)
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Estimated solely for the purpose of
computing the registration fee in accordance with
Rule 457(c) under the Securities Act, as amended, and is
based upon the average of the high and low prices of the
registrants common stock on November 12, 2009.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
The information
in this prospectus is not complete and may be changed. Neither
we nor the selling stockholders may sell these securities until
the registration statement filed with the Securities and
Exchange Commission is effective. This preliminary prospectus is
not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to Completion, dated
November 16, 2009
Prospectus
3,125,000 Shares
LogMeIn, Inc.
Common Stock
We are offering 99,778 shares of common stock. The selling
stockholders identified in this prospectus, including certain
members of management, are offering an additional
3,025,222 shares of common stock. We will not receive any
proceeds from the sale of shares by the selling stockholders.
Our common stock is listed on The NASDAQ Global Market under the
symbol LOGM. On November 12, 2009, the closing
price of our common stock as reported on The NASDAQ Global
Market was $19.40
Investing in our common stock involves risks. See Risk
Factors beginning on page 8 of this
prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts
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$
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$
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Proceeds to us (before expenses)
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$
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$
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Proceeds to selling stockholders (before expenses)
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$
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$
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The selling stockholders have granted the underwriters a 30-day
option to purchase up to an additional 468,750 shares on
the same terms and conditions as set forth above if the
underwriters sell more than 3,125,000 shares of common
stock in this offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares on or
about ,
2009.
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J.P.
Morgan |
Barclays Capital |
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Thomas
Weisel Partners LLC |
Piper Jaffray |
RBC Capital Markets |
Over 86 Million Devices Connected Worldwide by LogMeln
LogMeIn remote hosts at noon ET on 11/4/09
Remote Support On-demand remote support solution used by helpdesk and IT professionals to assist remote PC, Mac and smartphone users and applications.
Remote Systems Management Web-based management console used by business and IT professionals to deploy and administer remote access, management and networking.
Remote Backup Remote Access
Premium access to remote computers used by consumers, businesses and IT professionals that includes file transfer, remote printing, remote sound, file sharing, desktop sharing, drive mapping, file sync and other capabilities.
Free remote control of PC and Mac computer desktops.
One-click access to remote computers without a web browser that works from a desktop, a portable USB drive, or an iPhone or iPod touch.
VPN Connectivity
Rescue Central Pro2 Free Ignition
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TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus. We have not, the selling stockholders have not, and
the underwriters have not, authorized anyone to provide you with
different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
the selling stockholders are not, and the underwriters are not,
making an offer to sell these securities in any jurisdiction
where an offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of
the date on the front cover of this prospectus only, regardless
of the time of delivery of this prospectus or of any sale of our
common stock. Our business, prospects, financial condition and
results of operations may have changed since that date.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information you should consider before investing in our common
stock. You should read this entire prospectus carefully,
especially the Risk Factors section of this
prospectus and our consolidated financial statements and related
notes appearing at the end of this prospectus, before making an
investment decision.
Overview
LogMeIn provides on-demand, remote-connectivity solutions to
small and medium-sized businesses, or SMBs, IT service providers
and consumers. We believe our solutions are used to connect more
Internet-enabled
devices worldwide than any other connectivity service.
Businesses and IT service providers use our solutions to deliver
end-user support and to access and manage computers and other
Internet-enabled devices more effectively and efficiently from a
remote location, or remotely. Consumers and mobile workers use
our solutions to access computer resources remotely, thereby
facilitating their mobility and increasing their productivity.
Our solutions, which are deployed and accessed from anywhere
through a web browser, or on-demand, are secure,
scalable and easy for our customers to try, purchase and use.
We believe LogMeIn Free and LogMeIn
Hamachi2,
our popular free services, provide on-demand remote access, or
remote-connectivity, to computing resources for more users than
any other on-demand connectivity service, giving us access to a
diverse group of users and increasing awareness of our
fee-based, or premium, services. As of September 30, 2009,
over 27.1 million registered users have connected over
86 million computers and other Internet-enabled devices to
a LogMeIn service. We complement our free services with nine
premium services that offer additional features and
functionality. These premium services include LogMeIn Rescue and
LogMeIn Central, our flagship remote support and management
services, and LogMeIn
Pro2, our
premium remote access service. Sales of our premium services are
generated through word-of-mouth referrals, web-based
advertising, expiring free trials that we convert to paid
subscriptions and direct marketing to new and existing customers.
We deliver each of our on-demand solutions as a service that
runs on Gravity, our proprietary platform consisting of software
and customized database and web services. Gravity establishes
secure connections over the Internet between remote computers
and other Internet-enabled devices and manages the direct
transmission of data between remotely-connected devices. This
robust and scalable platform connects
over eleven million computers to our services each day.
During the nine months ended September 30, 2009, we
generated revenues of $54.2 million, as compared to
$35.7 million in the nine months ended September 30,
2008, an increase of approximately 52%. In fiscal 2008, we
generated revenues of $51.7 million.
Industry
Background
Mobile workers, IT professionals and consumers save time and
money by accessing computing resources remotely. Remote access
allows mobile workers and consumers to use applications, manage
documents and collaborate with others whenever and wherever an
Internet connection is available. Remote-connectivity solutions
also allow IT professionals to deliver support and management
services to remote end users and computers and other
Internet-enabled devices.
A number of trends are increasing the demand for
remote-connectivity solutions:
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Increasingly mobile workforce. Workers are
spending less of their time in a traditional office environment
and are increasingly telecommuting and traveling with
Internet-enabled devices.
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Increasing use of IT outsourcing by SMBs. SMBs
generally have limited internal IT expertise and IT budgets and
are therefore increasingly turning to third-party service
providers to manage the complexity of IT services at an
affordable cost.
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1
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Growing adoption of on-demand solutions. By
accessing hosted, on-demand solutions through a web browser,
companies can avoid the time and costs associated with
installing, configuring and maintaining IT support applications
within their existing IT infrastructure.
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Increasing need to support the growing number of
Internet-enabled consumer devices. Consumer
adoption of Internet-enabled devices is growing rapidly.
Manufacturers, retailers and service providers struggle to
provide cost-effective support for these devices and often turn
to remote support and management solutions in order to increase
customer satisfaction while lowering the cost of providing that
support.
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Proliferation of Internet-enabled mobile devices
(smartphones). The rapid proliferation and
increased functionality of smartphones is creating a growing
need for remote support of these devices.
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Our
Solutions
Our solutions allow our users to remotely access, support and
manage computers and other
Internet-enabled
devices on demand. We believe our solutions benefit users in the
following ways:
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Reduced
set-up,
support and management costs. Businesses easily
set up our on-demand services with little or no modification to
the remote locations network or security systems and
without the need for upfront technology or software investment.
In addition, our customers lower their support and management
costs by performing management-related tasks remotely.
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Increased mobile worker productivity. Our
remote-access services allow non-technical users to access and
control remote computers and other Internet-enabled devices,
increasing their mobility and allowing them to remain productive
while away from the office.
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Increased end-user satisfaction. Our services
enable help desk technicians to quickly and easily gain control
of a remote users computer. Once connected, the technician
can diagnose and resolve problems while interacting with and
possibly training the end user.
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Reliable, fast and secure services. Our
services possess built-in redundancy of servers and other
infrastructure in three data centers, two located in the United
States and one located in Europe. Our proprietary platform
enables our services to connect and manage devices at enhanced
speeds. Our services implement industry-standard security
protocols and authenticate and authorize users of our services
without storing passwords.
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Easy to try, buy and use. Our services are
simple to install, and our customers can use our services to
manage their remote systems from any web browser. In addition,
our low service delivery costs and hosted delivery model allow
us to offer each of our services at competitive prices and to
offer flexible payment options.
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Our
Competitive Strengths
We believe that the following competitive strengths
differentiate us from our competitors and are key to our success:
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Large established user community. Our large
and growing community of users drives awareness of our services
through personal recommendations, blogs and other online
communication methods and provides us with a significant
audience to which we can market and sell premium services.
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Efficient customer acquisition model. We
believe our free products and our large user base help generate
word-of-mouth referrals, which in turn increases the efficiency
of our paid marketing activities, the large majority of which
are focused on
pay-per-click
search engine advertising.
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Technology-enabled cost advantage. Our
patented service delivery platform, Gravity, reduces our
bandwidth and other infrastructure requirements, which we
believe makes our services faster and less expensive to deliver
as compared to competing services.
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On-demand delivery. Delivering our services
on-demand allows us to serve additional customers with little
incremental expense and to deploy new applications and upgrades
quickly and efficiently to our existing customers.
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High recurring revenue and high transaction
volumes. We believe that our sales model of a
high volume of new and renewed subscriptions at low transaction
prices increases the predictability of our revenues compared to
perpetual license-based software businesses.
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Growth
Strategy
Our objective is to extend our position as a leading provider of
on-demand, remote-connectivity solutions. To accomplish this, we
intend to:
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Acquire new customers. We seek to continue to
attract new customers by aggressively marketing our solutions
and encouraging trials of our services while expanding our sales
force.
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Increase sales to existing customers. We plan
to continue upselling and cross-selling our broad portfolio of
services to our existing customer base by actively marketing our
portfolio of services through
e-commerce
and by expanding our sales force.
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Continue to build our user community. We plan
to grow our community of users by marketing our services through
paid advertising to target prospective customers who are seeking
remote-connectivity solutions and by continuing to offer our
popular free services, LogMeIn Free and LogMeIn
Hamachi2.
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Expand internationally. We intend to expand
our international sales and marketing staff and increase our
international marketing expenditures to take advantage of this
opportunity.
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Continue to expand our service portfolio. We
intend to continue to invest in the development of new
on-demand, remote-connectivity services for businesses, IT
service providers and consumers. We also intend to extend our
services to work with other types of Internet-connected devices.
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Pursue strategic acquisitions. We plan to
pursue acquisitions that complement our existing business,
represent a strong strategic fit and are consistent with our
overall growth strategy.
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Intel
Relationship
In December 2007, we entered into a service and marketing
agreement with Intel Corporation to jointly develop a service
that delivers connectivity to computers built with Intel
components. Under the terms of this four-year agreement, we are
adapting our service delivery platform, Gravity, to work with
specific technology delivered with Intel hardware and software
products. The agreement provides that Intel will market and sell
the services to its customers. Intel pays us a minimum license
and service fee on a quarterly basis during the term of the
agreement. We began recognizing revenue associated with the
Intel service and marketing agreement in the quarter ended
September 30, 2008. In addition, we share with Intel
revenue generated by the use of the services by third parties to
the extent it exceeds the minimum payments.
Risks
That We Face
You should carefully consider the risks described under the
Risk Factors section beginning on page 8, and
elsewhere in this prospectus. These risks could materially and
adversely impact our business, financial condition, operating
results and cash flow, which could cause the trading price of
our common stock to decline and could result in a partial or
total loss of your investment.
3
Our
Corporate Information
In February 2003, we incorporated under the laws of Bermuda. In
August 2004, we completed a domestication in the State of
Delaware under the name 3am Labs, Inc. We changed our name to
LogMeIn, Inc. in March 2006. Our principal executive
offices are located at 500 Unicorn Park Drive, Woburn,
Massachusetts 01801, and our telephone number is
(781) 638-9050.
Our website address is www.logmein.com. The information
contained on, or that can be accessed through, our website is
not a part of this prospectus. We have included our website
address in this prospectus solely as an inactive textual
reference.
Unless the context otherwise requires, the terms
LogMeIn, our company, we,
us and our in this prospectus refer to
LogMeIn, Inc. and our subsidiaries on a consolidated basis.
LogMeIn®,
Gravity, LogMeIn
Backup®,
LogMeIn Central, LogMeIn
Free®,
LogMeIn
Hamachi®,
LogMeIn®
Ignition, LogMeIn
Rescue®,
LogMeIn®
Rescue+Mobile, LogMeIn
Pro®,
LogMeIn IT
Reach®
and
RemotelyAnywhere®
are trademarks or registered trademarks of LogMeIn, Inc. Other
trademarks or service marks appearing in this prospectus are the
property of their respective holders.
4
THE
OFFERING
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Common stock offered by us |
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99,778 shares |
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Common stock offered by the selling stockholders
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3,025,222 shares |
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Common stock to be outstanding after this offering
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22,302,879 shares |
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Over-allotment option offered by selling stockholders
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468,750 shares |
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Use of proceeds |
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We intend to use the net proceeds to us from this offering for
general corporate purposes. We will not receive any of the
proceeds from the sale of shares by the selling stockholders.
The selling stockholders include certain members of management.
See the Use of Proceeds section of this prospectus
for more information. |
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Risk factors |
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You should read the Risk Factors section beginning
on page 8 of this prospectus for a discussion of factors to
consider carefully before deciding to invest in shares of our
common stock. |
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NASDAQ Global Market symbol
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LOGM |
The number of shares of our common stock to be outstanding after
this offering is based on 22,203,101 shares of common stock
outstanding as of September 30, 2009, and excludes:
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3,127,300 shares of common stock issuable upon exercise of
stock options outstanding as of September 30, 2009
(including an aggregate of 66,330 shares of our common
stock that we expect to be sold in this offering by selling
stockholders upon the exercise of vested options) at a weighted
average exercise price of $4.39 per share; and
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842,332 shares of common stock reserved for future issuance
under our equity compensation plans as of September 30,
2009.
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Unless otherwise indicated, all information in this prospectus
assumes no exercise of the underwriters over-allotment
option. All common share and per common share information
referenced in this prospectus have been retroactively adjusted
to reflect the
1-for-2.5
reverse split of our common stock effected on June 25, 2009.
5
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated financial data
for our business as of and for the periods presented. You should
read this information together with the Selected
Consolidated Financial Data and Managements
Discussion and Analysis of Financial Condition and Results of
Operations sections of this prospectus and our
consolidated financial statements and related notes included
elsewhere in this prospectus.
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Year Ended December 31,
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Nine Months Ended September 30,
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2006
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2007
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2008
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2008
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2009
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(In thousands, except per share data)
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(Unaudited)
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Consolidated Statement of Operations Data:
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Revenue
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$
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11,307
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$
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26,998
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$
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51,723
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$
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35,727
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$
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54,175
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Cost of revenue(1)
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2,033
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3,925
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5,970
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4,292
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5,508
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Gross profit
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9,274
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23,073
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45,753
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31,435
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48,667
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Operating expenses:
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Research and development(2)
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3,232
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6,661
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11,997
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8,987
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9,487
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Sales and marketing(2)
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10,050
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19,488
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31,631
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23,407
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26,378
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General and administrative(2)
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2,945
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3,611
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6,583
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4,848
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5,787
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Legal settlements
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2,225
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600
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600
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Amortization of intangibles(3)
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141
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328
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328
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246
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246
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Total operating expenses
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16,368
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32,313
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51,139
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38,088
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41,898
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Income (loss) from operations
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(7,094
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)
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(9,240
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(5,386
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)
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(6,653
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)
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6,769
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Interest, net
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365
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260
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216
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202
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67
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Other income (expense), net
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28
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(25
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)
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|
(110
|
)
|
|
|
(105
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(6,701
|
)
|
|
|
(9,005
|
)
|
|
|
(5,280
|
)
|
|
|
(6,556
|
)
|
|
|
6,535
|
|
Provision for income taxes
|
|
|
|
|
|
|
(50
|
)
|
|
|
(122
|
)
|
|
|
(89
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(6,701
|
)
|
|
|
(9,055
|
)
|
|
|
(5,402
|
)
|
|
|
(6,645
|
)
|
|
|
6,323
|
|
Accretion of redeemable convertible preferred stock
|
|
|
(1,790
|
)
|
|
|
(1,919
|
)
|
|
|
(2,348
|
)
|
|
|
(1,761
|
)
|
|
|
(1,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(8,491
|
)
|
|
$
|
(10,974
|
)
|
|
$
|
(7,750
|
)
|
|
$
|
(8,406
|
)
|
|
$
|
5,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.47
|
)
|
|
$
|
(2.98
|
)
|
|
$
|
(1.97
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
0.28
|
|
Diluted
|
|
$
|
(2.47
|
)
|
|
$
|
(2.98
|
)
|
|
$
|
(1.97
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
0.27
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,434
|
|
|
|
3,686
|
|
|
|
3,933
|
|
|
|
3,919
|
|
|
|
9,858
|
|
Diluted
|
|
|
3,434
|
|
|
|
3,686
|
|
|
|
3,933
|
|
|
|
3,919
|
|
|
|
11,675
|
|
|
|
|
(1) |
|
Includes stock-based compensation expense and
acquisition-related intangible amortization expense. |
|
(2) |
|
Includes stock-based compensation expense. |
|
(3) |
|
Consists of acquisition-related intangible amortization expense. |
6
The following table summarizes our balance sheet data as of
September 30, 2009:
|
|
|
|
|
on an actual basis; and
|
|
|
|
|
|
on an as adjusted basis to reflect (i) the receipt by us of
estimated net proceeds of $1.3 million from the sale of
99,778 shares of common stock offered by us, at an assumed
public offering price of $19.40 per share, which is the last
reported sale price of our common stock on November 12,
2009, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us, and
(ii) the receipt by us of proceeds of $0.1 million
from the exercise of options to purchase 66,330 shares of
common stock by certain selling stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
121,007
|
|
|
$
|
122,413
|
|
Working capital (excluding deferred revenue)
|
|
|
119,013
|
|
|
|
120,419
|
|
Total assets
|
|
|
134,815
|
|
|
|
136,221
|
|
Deferred revenue, including long-term portion
|
|
|
31,964
|
|
|
|
31,964
|
|
Total liabilities
|
|
|
41,003
|
|
|
|
41,003
|
|
Total stockholders equity
|
|
|
93,812
|
|
|
|
95,218
|
|
7
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below
before making an investment decision. Our business, prospects,
financial condition or operating results could be harmed by any
of these risks, as well as other risks not currently known to us
or that we currently consider immaterial. The trading price of
our common stock could decline due to any of these risks, and,
as a result, you may lose all or part of your investment. Before
deciding whether to invest in our common stock you should also
refer to the other information contained in this prospectus,
including our consolidated financial statements and the related
notes.
Risks
Related to Our Business
We
have had a history of losses.
We experienced net losses of $6.7 million for 2006,
$9.1 million for 2007, and $5.4 million for 2008. In
the quarter ended September 30, 2008, we achieved
profitability and reported net income for the first time. We
cannot predict if we will sustain this profitability or, if we
fail to sustain this profitability, again attain profitability
in the near future or at all. We expect to continue making
significant future expenditures to develop and expand our
business. In addition, as a newly public company, we incur
additional significant legal, accounting and other expenses that
we did not incur as a private company. These increased
expenditures make it harder for us to achieve and maintain
future profitability. Our recent growth in revenue and customer
base may not be sustainable, and we may not achieve sufficient
revenue to achieve or maintain profitability. We may incur
significant losses in the future for a number of reasons,
including due to the other risks described in this prospectus,
and we may encounter unforeseen expenses, difficulties,
complications and delays and other unknown events. Accordingly,
we may not be able to achieve or maintain profitability, and we
may incur significant losses for the foreseeable future.
Our
limited operating history makes it difficult to evaluate our
current business and future prospects.
Our company has been in existence since 2003, and much of our
growth has occurred in recent periods. Our limited operating
history may make it difficult for you to evaluate our current
business and our future prospects. We have encountered and will
continue to encounter risks and difficulties frequently
experienced by growing companies in rapidly changing industries,
including increasing expenses as we continue to grow our
business. If we do not manage these risks successfully, our
business will be harmed.
Our
business is substantially dependent on market demand for, and
acceptance of, the on-demand model for the use of
software.
We derive, and expect to continue to derive, substantially all
of our revenue from the sale of on-demand solutions, a
relatively new and rapidly changing market. As a result,
widespread acceptance and use of the
on-demand
business model is critical to our future growth and success.
Under the perpetual or periodic license model for software
procurement, users of the software typically run applications on
their hardware. Because companies are generally predisposed to
maintaining control of their IT systems and infrastructure,
there may be resistance to the concept of accessing the
functionality that software provides as a service through a
third party. If the market for on-demand, software solutions
fails to grow or grows more slowly than we currently anticipate,
demand for our services could be negatively affected.
Growth
of our business may be adversely affected if businesses, IT
support providers or consumers do not adopt remote access or
remote support solutions more widely.
Our services employ new and emerging technologies for remote
access and remote support. Our target customers may hesitate to
accept the risks inherent in applying and relying on new
technologies or methodologies to supplant traditional methods of
remote connectivity. Our business will not be successful if our
target customers do not accept the use of our remote access and
remote support technologies.
8
Adverse
economic conditions or reduced IT spending may adversely impact
our revenues and profitability.
Our business depends on the overall demand for IT and on the
economic health of our current and prospective customers. The
use of our service is often discretionary and may involve a
commitment of capital and other resources. Weak economic
conditions, or a reduction in IT spending even if economic
conditions improve, would likely adversely impact our business,
operating results and financial condition in a number of ways,
including by lengthening sales cycles, lowering prices for our
services and reducing sales.
Failure
to renew or early termination of our agreement with Intel would
adversely impact our revenues.
In December 2007, we entered into a service and marketing
agreement with Intel Corporation to jointly develop and market a
service that delivers connectivity to computers built with Intel
components. Under the terms of this four-year agreement, we are
adapting our service delivery platform, Gravity, to work with
specific technology delivered with Intel hardware and software
products. If we are unable to renew our agreement with Intel
after the initial four-year term on commercially reasonable
terms, or at all, our revenue would decrease. In addition, the
agreement grants Intel early termination rights in certain
circumstances, such as a failure of the parties to exceed
certain minimum revenue levels after the second and third years
of the agreement. If Intel exercises any of its early
termination rights, even after Intels payment of required
early termination fees, our revenues would decrease.
Assertions
by a third party that our services infringe its intellectual
property, whether or not correct, could subject us to costly and
time-consuming litigation or expensive licenses.
There is frequent litigation in the software and technology
industries based on allegations of infringement or other
violations of intellectual property rights. As we face
increasing competition and become increasingly visible as a
publicly-traded company, the possibility of intellectual
property rights claims against us may grow. During 2007 and
2008, we were a defendant in three patent infringement lawsuits
and paid approximately $2.8 million to settle these
lawsuits. In addition, on July 20, 2009 we received service
of a complaint from PB&J Software, LLC, alleging that we
have infringed on one of their patents relating to a particular
application or system for transferring or storing
back-up
copies of files from one computer to a second computer. While we
believe we have meritorious defenses to this claim, we could be
required to spend significant resources investigating and
defending this claim. In addition, any adverse determination or
settlement of this claim could prevent us from offering a
portion of our services or require us to pay damages or license
fees.
In addition, although we have licensed proprietary technology,
we cannot be certain that the owners rights in such
technology will not be challenged, invalidated or circumvented.
Furthermore, many of our service agreements require us to
indemnify our customers for certain third-party intellectual
property infringement claims, which could increase our costs as
a result of defending such claims and may require that we pay
damages if there were an adverse ruling related to any such
claims. These types of claims could harm our relationships with
our customers, may deter future customers from subscribing to
our services or could expose us to litigation for these claims.
Even if we are not a party to any litigation between a customer
and a third party, an adverse outcome in any such litigation
could make it more difficult for us to defend our intellectual
property in any subsequent litigation in which we are a named
party.
Any intellectual property rights claim against us or our
customers, with or without merit, could be time-consuming,
expensive to litigate or settle and could divert management
attention and financial resources. An adverse determination also
could prevent us from offering our services, require us to pay
damages, require us to obtain a license or require that we stop
using technology found to be in violation of a third
partys rights or procure or develop substitute services
that do not infringe, which could require significant resources
and expenses.
We
depend on search engines to attract a significant percentage of
our customers, and if those search engines change their listings
or increase their pricing, it would limit our ability to attract
new customers.
Many of our customers locate our website through search engines,
such as Google. Search engines typically provide two types of
search results, algorithmic and purchased listings, and we rely
on both types.
9
Algorithmic listings cannot be purchased and are determined and
displayed solely by a set of formulas designed by the search
engine. Search engines revise their algorithms from time to time
in an attempt to optimize search result listings. If the search
engines on which we rely for algorithmic listings modify their
algorithms in a manner that reduces the prominence of our
listing, fewer potential customers may click through to our
website, requiring us to resort to other costly resources to
replace this traffic. Any failure to replace this traffic could
reduce our revenue and increase our costs. In addition, costs
for purchased listings have increased in the past and may
increase in the future, and further increases could have
negative effects on our financial condition.
If we
are unable to attract new customers to our services on a
cost-effective basis, our revenue and results of operations will
be adversely affected.
We must continue to attract a large number of customers on a
cost-effective basis, many of whom have not previously used
on-demand, remote-connectivity solutions. We rely on a variety
of marketing methods to attract new customers to our services,
such as paying providers of online services and search engines
for advertising space and priority placement of our website in
response to Internet searches. Our ability to attract new
customers also depends on the competitiveness of the pricing of
our services. If our current marketing initiatives are not
successful or become unavailable, if the cost of such
initiatives were to significantly increase, or if our
competitors offer similar services at lower prices, we may not
be able to attract new customers on a cost-effective basis and,
as a result, our revenue and results of operations would be
adversely affected.
If we
are unable to retain our existing customers, our revenue and
results of operations would be adversely affected.
We sell our services pursuant to agreements that are generally
one year in duration. Our customers have no obligation to renew
their subscriptions after their subscription period expires, and
these subscriptions may not be renewed on the same or on more
profitable terms. As a result, our ability to grow depends in
part on subscription renewals. We may not be able to accurately
predict future trends in customer renewals, and our
customers renewal rates may decline or fluctuate because
of several factors, including their satisfaction or
dissatisfaction with our services, the prices of our services,
the prices of services offered by our competitors or reductions
in our customers spending levels. If our customers do not
renew their subscriptions for our services, renew on less
favorable terms, or do not purchase additional functionality or
subscriptions, our revenue may grow more slowly than expected or
decline, and our profitability and gross margins may be harmed.
If we
fail to convert our free users to paying customers, our revenue
and financial results will be harmed.
A significant portion of our user base utilizes our services
free of charge through our free services or free trials of our
premium services. We seek to convert these free and trial users
to paying customers of our premium services. If our rate of
conversion suffers for any reason, our revenue may decline and
our business may suffer.
We use
a limited number of data centers to deliver our services. Any
disruption of service at these facilities could harm our
business.
We host our services and serve all of our customers from three
third-party data center facilities, of which two are located in
the United States and one is located in Europe. We do not
control the operation of these facilities. The owners of our
data center facilities have no obligation to renew their
agreements with us on commercially reasonable terms, or at all.
If we are unable to renew these agreements on commercially
reasonable terms, we may be required to transfer to new data
center facilities, and we may incur significant costs and
possible service interruption in connection with doing so.
Any changes in third-party service levels at our data centers or
any errors, defects, disruptions or other performance problems
with our services could harm our reputation and may damage our
customers
10
businesses. Interruptions in our services might reduce our
revenue, cause us to issue credits to customers, subject us to
potential liability, cause customers to terminate their
subscriptions or harm our renewal rates.
Our data centers are vulnerable to damage or interruption from
human error, intentional bad acts, pandemics, earthquakes,
hurricanes, floods, fires, war, terrorist attacks, power losses,
hardware failures, systems failures, telecommunications failures
and similar events. At least one of our data facilities is
located in an area known for seismic activity, increasing our
susceptibility to the risk that an earthquake could
significantly harm the operations of these facilities. The
occurrence of a natural disaster or an act of terrorism, or
vandalism or other misconduct, a decision to close the
facilities without adequate notice or other unanticipated
problems could result in lengthy interruptions in our services.
If the
security of our customers confidential information stored
in our systems is breached or otherwise subjected to
unauthorized access, our reputation may be harmed, and we may be
exposed to liability and a loss of customers.
Our system stores our customers confidential information,
including credit card information and other critical data. Any
accidental or willful security breaches or other unauthorized
access could expose us to liability for the loss of such
information, time-consuming and expensive litigation and other
possible liabilities as well as negative publicity. Techniques
used to obtain unauthorized access or to sabotage systems change
frequently and generally are difficult to recognize and react
to. We and our third-party data center facilities may be unable
to anticipate these techniques or to implement adequate
preventative or reactionary measures. In addition, many states
have enacted laws requiring companies to notify individuals of
data security breaches involving their personal data. These
mandatory disclosures regarding a security breach often lead to
widespread negative publicity, which may cause our customers to
lose confidence in the effectiveness of our data security
measures. Any security breach, whether successful or not, would
harm our reputation, and it could cause the loss of customers.
Failure
to comply with data protection standards may cause us to lose
the ability to offer our customers a credit card payment option
which would increase our costs of processing customer orders and
make our services less attractive to our customers, the majority
of which purchase our services with a credit card.
Major credit card issuers have adopted data protection standards
and have incorporated these standards into their contracts with
us. If we fail to maintain our compliance with the data
protection and documentation standards adopted by the major
credit card issuers and applicable to us, these issuers could
terminate their agreements with us, and we could lose our
ability to offer our customers a credit card payment option.
Most of our individual and SMB customers purchase our services
online with a credit card, and our business depends
substantially upon our ability to offer the credit card payment
option. Any loss of our ability to offer our customers a credit
card payment option would make our services less attractive to
them and hurt our business. Our administrative costs related to
customer payment processing would also increase significantly if
we were not able to accept credit card payments for our services.
Failure
to effectively and efficiently service SMBs would adversely
affect our ability to increase our revenue.
We market and sell a significant amount of our services to SMBs.
SMBs are challenging to reach, acquire and retain in a
cost-effective manner. To grow our revenue quickly, we must add
new customers, sell additional services to existing customers
and encourage existing customers to renew their subscriptions.
Selling to, and retaining SMBs is more difficult than selling to
and retaining large enterprise customers because SMB customers
generally:
|
|
|
|
|
have high failure rates;
|
|
|
|
are price sensitive;
|
|
|
|
are difficult to reach with targeted sales campaigns;
|
11
|
|
|
|
|
have high churn rates in part because of the scale of their
businesses and the ease of switching services; and
|
|
|
|
generate less revenues per customer and per transaction.
|
In addition, SMBs frequently have limited budgets and may choose
to spend funds on items other than our services. Moreover, SMBs
are more likely to be significantly affected by economic
downturns than larger, more established companies, and if these
organizations experience economic hardship, they may be
unwilling or unable to expend resources on IT.
If we are unable to market and sell our services to SMBs with
competitive pricing and in a cost-effective manner, our ability
to grow our revenue quickly and become profitable will be harmed.
We may
not be able to respond to rapid technological changes with new
services, which could have a material adverse effect on our
sales and profitability.
The on-demand, remote-connectivity solutions market is
characterized by rapid technological change, frequent new
service introductions and evolving industry standards. Our
ability to attract new customers and increase revenue from
existing customers will depend in large part on our ability to
enhance and improve our existing services, introduce new
services and sell into new markets. To achieve market acceptance
for our services, we must effectively anticipate and offer
services that meet changing customer demands in a timely manner.
Customers may require features and capabilities that our current
services do not have. If we fail to develop services that
satisfy customer preferences in a timely and cost-effective
manner, our ability to renew our services with existing
customers and our ability to create or increase demand for our
services will be harmed.
We may experience difficulties with software development,
industry standards, design or marketing that could delay or
prevent our development, introduction or implementation of new
services and enhancements. The introduction of new services by
competitors, the emergence of new industry standards or the
development of entirely new technologies to replace existing
service offerings could render our existing or future services
obsolete. If our services become obsolete due to wide-spread
adoption of alternative connectivity technologies such as other
Web-based computing solutions, our ability to generate revenue
may be impaired. In addition, any new markets into which we
attempt to sell our services, including new countries or
regions, may not be receptive.
If we are unable to successfully develop or acquire new
services, enhance our existing services to anticipate and meet
customer preferences or sell our services into new markets, our
revenue and results of operations would be adversely affected.
The
market in which we participate is competitive, with low barriers
to entry, and if we do not compete effectively, our operating
results may be harmed.
The markets for remote-connectivity solutions are competitive
and rapidly changing, with relatively low barriers to entry.
With the introduction of new technologies and market entrants,
we expect competition to intensify in the future. In addition,
pricing pressures and increased competition generally could
result in reduced sales, reduced margins or the failure of our
services to achieve or maintain widespread market acceptance.
Often we compete against existing services that our potential
customers have already made significant expenditures to acquire
and implement.
Certain of our competitors offer, or may in the future offer,
lower priced, or free, products or services that compete with
our solutions. This competition may result in reduced prices and
a substantial loss of customers for our solutions or a reduction
in our revenue.
We compete with Citrix Systems, WebEx (a division of Cisco
Systems) and others. Certain of our solutions, including our
free remote access service, also compete with current or
potential services offered by Microsoft and Apple. Many of our
actual and potential competitors enjoy competitive advantages
over us, such as greater name recognition, longer operating
histories, more varied services and larger marketing budgets, as
12
well as greater financial, technical and other resources. In
addition, many of our competitors have established marketing
relationships and access to larger customer bases, and have
major distribution agreements with consultants, system
integrators and resellers. If we are not able to compete
effectively, our operating results will be harmed.
Industry
consolidation may result in increased competition.
Some of our competitors have made or may make acquisitions or
may enter into partnerships or other strategic relationships to
offer a more comprehensive service than they individually had
offered. In addition, new entrants not currently considered to
be competitors may enter the market through acquisitions,
partnerships or strategic relationships. We expect these trends
to continue as companies attempt to strengthen or maintain their
market positions. Many of the companies driving this trend have
significantly greater financial, technical and other resources
than we do and may be better positioned to acquire and offer
complementary services and technologies. The companies resulting
from such combinations may create more compelling service
offerings and may offer greater pricing flexibility than we can
or may engage in business practices that make it more difficult
for us to compete effectively, including on the basis of price,
sales and marketing programs, technology or service
functionality. These pressures could result in a substantial
loss of customers or a reduction in our revenues.
Original
equipment manufacturers may adopt solutions provided by our
competitors.
Original equipment manufacturers may in the future seek to build
the capability for on-demand, remote-connectivity solutions into
their products. We may compete with our competitors to sell our
services to, or partner with, these manufacturers. Our ability
to attract and partner with these manufacturers will, in large
part, depend on the competitiveness of our services. If we fail
to attract or partner with, or our competitors are successful in
attracting or partnering with, these manufacturers, our revenue
and results of operations would be affected adversely.
Our
quarterly operating results may fluctuate in the future. As a
result, we may fail to meet or exceed the expectations of
research analysts or investors, which could cause our stock
price to decline.
Our quarterly operating results may fluctuate as a result of a
variety of factors, many of which are outside of our control. If
our quarterly operating results or guidance fall below the
expectations of research analysts or investors, the price of our
common stock could decline substantially. Fluctuations in our
quarterly operating results or guidance may be due to a number
of factors, including, but not limited to, those listed below:
|
|
|
|
|
our ability to renew existing customers, increase sales to
existing customers and attract new customers;
|
|
|
|
the amount and timing of operating costs and capital
expenditures related to the operation, maintenance and expansion
of our business;
|
|
|
|
service outages or security breaches;
|
|
|
|
whether we meet the service level commitments in our agreements
with our customers;
|
|
|
|
changes in our pricing policies or those of our competitors;
|
|
|
|
the timing and success of new application and service
introductions and upgrades by us or our competitors;
|
|
|
|
changes in sales compensation plans or organizational structure;
|
|
|
|
the timing of costs related to the development or acquisition of
technologies, services or businesses;
|
|
|
|
seasonal variations or other cyclicality in the demand for our
services;
|
|
|
|
general economic, industry and market conditions and those
conditions specific to Internet usage and online businesses;
|
|
|
|
the purchasing and budgeting cycles of our customers;
|
13
|
|
|
|
|
the financial condition of our customers; and
|
|
|
|
geopolitical events such as war, threat of war or terrorist acts.
|
We believe that our quarterly revenue and operating results may
vary significantly in the future and that period-to-period
comparisons of our operating results may not be meaningful. You
should not rely on the results of one quarter as an indication
of future performance.
If our
services are used to commit fraud or other similar intentional
or illegal acts, we may incur significant liabilities, our
services may be perceived as not secure and customers may
curtail or stop using our services.
Our services enable direct remote access to third-party computer
systems. We do not control the use or content of information
accessed by our customers through our services. If our services
are used to commit fraud or other bad or illegal acts, such as
posting, distributing or transmitting any software or other
computer files that contain a virus or other harmful component,
interfering or disrupting third-party networks, infringing any
third partys copyright, patent, trademark, trade secret or
other proprietary rights or rights of publicity or privacy,
transmitting any unlawful, harassing, libelous, abusive,
threatening, vulgar or otherwise objectionable material, or
accessing unauthorized third-party data, we may become subject
to claims for defamation, negligence, intellectual property
infringement or other matters. As a result, defending such
claims could be expensive and time-consuming, and we could incur
significant liability to our customers and to individuals or
businesses who were the targets of such acts. As a result, our
business may suffer and our reputation will be damaged.
We
provide minimum service level commitments to some of our
customers, our failure of which to meet could cause us to issue
credits for future services or pay penalties, which could
significantly harm our revenue.
Some of our customer agreements now, and may in the future,
provide minimum service level commitments regarding items such
as uptime, functionality or performance. If we are unable to
meet the stated service level commitments for these customers or
suffer extended periods of unavailability for our service, we
are or may be contractually obligated to provide these customers
with credits for future services or pay other penalties. Our
revenue could be significantly impacted if we are unable to meet
our service level commitments and are required to provide a
significant amount of our services at no cost or pay other
penalties. We do not currently have any reserves on our balance
sheet for these commitments.
We
have experienced rapid growth in recent periods. If we fail to
manage our growth effectively, we may be unable to execute our
business plan, maintain high levels of service or address
competitive challenges adequately.
We increased our number of full-time employees from 209 at
December 31, 2007, to 287 at December 31, 2008 and to
334 at September 30, 2009, and our revenue increased from
$27.0 million in 2007 to $51.7 million in 2008 and was
$54.2 million for the nine months ended September 30,
2009. Our growth has placed, and may continue to place, a
significant strain on our managerial, administrative,
operational, financial and other resources. We intend to further
expand our overall business, customer base, headcount and
operations both domestically and internationally. Creating a
global organization and managing a geographically dispersed
workforce will require substantial management effort and
significant additional investment in our infrastructure. We will
be required to continue to improve our operational, financial
and management controls and our reporting procedures and we may
not be able to do so effectively. As such, we may be unable to
manage our expenses effectively in the future, which may
negatively impact our gross profit or operating expenses in any
particular quarter.
If we
do not effectively expand and train our work force, our future
operating results will suffer.
We plan to continue to expand our work force both domestically
and internationally to increase our customer base and revenue.
We believe that there is significant competition for qualified
personnel with the
14
skills and technical knowledge that we require. Our ability to
achieve significant revenue growth will depend, in large part,
on our success in recruiting, training and retaining sufficient
numbers of personnel to support our growth. New hires require
significant training and, in most cases, take significant time
before they achieve full productivity. Our recent hires and
planned hires may not become as productive as we expect, and we
may be unable to hire or retain sufficient numbers of qualified
individuals. If our recruiting, training and retention efforts
are not successful or do not generate a corresponding increase
in revenue, our business will be harmed.
Our
sales cycles for enterprise customers, currently approximately
10% of our overall sales, can be long, unpredictable and require
considerable time and expense, which may cause our operating
results to fluctuate.
The timing of our revenue from sales to enterprise customers is
difficult to predict. These efforts require us to educate our
customers about the use and benefit of our services, including
the technical capabilities and potential cost savings to an
organization. Enterprise customers typically undertake a
significant evaluation process that has in the past resulted in
a lengthy sales cycle, typically several months. We spend
substantial time, effort and money on our enterprise sales
efforts without any assurance that our efforts will produce any
sales. In addition, service subscriptions are frequently subject
to budget constraints and unplanned administrative, processing
and other delays. If sales expected from a specific customer for
a particular quarter are not realized in that quarter or at all,
our results could fall short of public expectations and our
business, operating results and financial condition could be
adversely affected.
Our
long-term success depends, in part, on our ability to expand the
sales of our services to customers located outside of the United
States, and thus our business is susceptible to risks associated
with international sales and operations.
We currently maintain offices and have sales personnel or
independent consultants outside of the United States and
are attempting to expand our international operations. In
November 2007, we opened our Europe, Middle East and Africa
sales and marketing headquarters in Amsterdam, The Netherlands
and in January 2009, we opened our Asia-Pacific sales and
marketing headquarters in Sydney, Australia. Our international
expansion efforts may not be successful. In addition, conducting
international operations subjects us to new risks that we have
not generally faced in the United States.
These risks include:
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localization of our services, including translation into foreign
languages and adaptation for local practices and regulatory
requirements;
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lack of familiarity with and unexpected changes in foreign
regulatory requirements;
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longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
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difficulties in managing and staffing international operations;
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fluctuations in currency exchange rates;
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potentially adverse tax consequences, including the complexities
of foreign value added or other tax systems and restrictions on
the repatriation of earnings;
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dependence on certain third parties, including channel partners
with whom we do not have extensive experience;
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the burdens of complying with a wide variety of foreign laws and
legal standards;
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increased financial accounting and reporting burdens and
complexities;
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political, social and economic instability abroad, terrorist
attacks and security concerns in general; and
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reduced or varied protection for intellectual property rights in
some countries.
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Operating in international markets also requires significant
management attention and financial resources. The investment and
additional resources required to establish operations and manage
growth in other countries may not produce desired levels of
revenue or profitability.
Our
success depends on our customers continued high-speed
access to the Internet and the continued reliability of the
Internet infrastructure.
Because our services are designed to work over the Internet, our
revenue growth depends on our customers high-speed access
to the Internet, as well as the continued maintenance and
development of the Internet infrastructure. The future delivery
of our services will depend on third-party Internet service
providers to expand high-speed Internet access, to maintain a
reliable network with the necessary speed, data capacity and
security, and to develop complementary products and services,
including high-speed modems, for providing reliable and timely
Internet access and services. The success of our business
depends directly on the continued accessibility, maintenance and
improvement of the Internet as a convenient means of customer
interaction, as well as an efficient medium for the delivery and
distribution of information by businesses to their employees.
All of these factors are out of our control.
To the extent that the Internet continues to experience
increased numbers of users, frequency of use or bandwidth
requirements, the Internet may become congested and be unable to
support the demands placed on it, and its performance or
reliability may decline. Any future Internet outages or delays
could adversely affect our ability to provide services to our
customers.
Our
success depends in large part on our ability to protect and
enforce our intellectual property rights.
We rely on a combination of copyright, service mark, trademark
and trade secret laws, as well as confidentiality procedures and
contractual restrictions, to establish and protect our
proprietary rights, all of which provide only limited
protection. In addition, we have one issued patent and three
patents pending, and we are in the process of filing additional
patents. We cannot assure you that any patents will issue from
our currently pending patent applications in a manner that gives
us the protection that we seek, if at all, or that any future
patents issued to us will not be challenged, invalidated or
circumvented. Any patents that may issue in the future from
pending or future patent applications may not provide
sufficiently broad protection or they may not prove to be
enforceable in actions against alleged infringers. Also, we
cannot assure you that any future service mark or trademark
registrations will be issued for pending or future applications
or that any registered service marks or trademarks will be
enforceable or provide adequate protection of our proprietary
rights.
We endeavor to enter into agreements with our employees and
contractors and agreements with parties with whom we do business
to limit access to and disclosure of our proprietary
information. The steps we have taken, however, may not prevent
unauthorized use or the reverse engineering of our technology.
Moreover, others may independently develop technologies that are
competitive to ours or infringe our intellectual property.
Enforcement of our intellectual property rights also depends on
our successful legal actions against these infringers, but these
actions may not be successful, even when our rights have been
infringed.
Furthermore, effective patent, trademark, service mark,
copyright and trade secret protection may not be available in
every country in which our services are available. In addition,
the legal standards relating to the validity, enforceability and
scope of protection of intellectual property rights in
Internet-related industries are uncertain and still evolving.
Our
use of open source software could negatively affect
our ability to sell our services and subject us to possible
litigation.
A portion of the technologies licensed by us incorporate
so-called open source software, and we may
incorporate open source software in the future. Such open source
software is generally licensed by its authors or other third
parties under open source licenses. If we fail to comply with
these licenses, we may be subject to certain conditions,
including requirements that we offer our services that
incorporate the open source software for no cost, that we make
available source code for modifications or derivative works we
create based
16
upon, incorporating or using the open source software
and/or that
we license such modifications or derivative works under the
terms of the particular open source license. If an author or
other third party that distributes such open source software
were to allege that we had not complied with the conditions of
one or more of these licenses, we could be required to incur
significant legal expenses defending against such allegations
and could be subject to significant damages, enjoined from the
sale of our services that contained the open source software and
required to comply with the foregoing conditions, which could
disrupt the distribution and sale of some of our services.
We
rely on third-party software, including server software and
licenses from third parties to use patented intellectual
property that is required for the development of our services,
which may be difficult to obtain or which could cause errors or
failures of our services.
We rely on software licensed from third parties to offer our
services, including server software from Microsoft and patented
third-party technology. In addition, we may need to obtain
future licenses from third parties to use intellectual property
associated with the development of our services, which might not
be available to us on acceptable terms, or at all. Any loss of
the right to use any software required for the development and
maintenance of our services could result in delays in the
provision of our services until equivalent technology is either
developed by us, or, if available, is identified, obtained and
integrated, which could harm our business. Any errors or defects
in third-party software could result in errors or a failure of
our services which could harm our business.
If we
fail to maintain proper and effective internal controls, our
ability to produce accurate and timely financial statements
could be impaired, which could harm our operating results, our
ability to operate our business and investors views of
us.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place so that we can produce accurate
financial statements on a timely basis is a costly and
time-consuming effort that needs to be evaluated frequently. Our
internal controls over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
in accordance with generally accepted accounting principles in
the United States of America. We are in the process of
documenting, reviewing and improving, to the extent necessary,
our internal controls over financial reporting for compliance
with Section 404 of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, which requires an annual management
assessment of the effectiveness of our internal controls over
financial reporting and a report from our independent registered
public accounting firm addressing the effectiveness of our
internal controls over financial reporting. Both we and our
independent registered public accounting firm will be attesting
to the effectiveness of our internal controls over financial
reporting in connection with the filing of our Annual Report on
Form 10-K for the year ending December 31, 2010 with
the Securities and Exchange Commission. As part of our process
of documenting and testing our internal controls over financial
reporting, we may identify areas for further attention and
improvement.
Implementing any appropriate changes to our internal controls
may distract our officers and employees, entail substantial
costs to modify our existing processes and take significant time
to complete. These changes may not, however, be effective in
maintaining the adequacy of our internal controls, and any
failure to maintain that adequacy, or consequent inability to
produce accurate financial statements on a timely basis, could
increase our operating costs and harm our business. In addition,
investors perceptions that our internal controls are
inadequate or that we are unable to produce accurate financial
statements on a timely basis may harm our stock price and make
it more difficult for us to effectively market and sell our
services to new and existing customers.
Material
defects or errors in the software we use to deliver our services
could harm our reputation, result in significant costs to us and
impair our ability to sell our services.
The software applications underlying our services are inherently
complex and may contain material defects or errors, particularly
when first introduced or when new versions or enhancements are
released. We
17
have from time to time found defects in our services, and new
errors in our existing services may be detected in the future.
Any defects that cause interruptions to the availability of our
services could result in:
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a reduction in sales or delay in market acceptance of our
services;
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sales credits or refunds to our customers;
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loss of existing customers and difficulty in attracting new
customers;
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diversion of development resources;
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harm to our reputation; and
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increased insurance costs.
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After the release of our services, defects or errors may also be
identified from time to time by our internal team and by our
customers. The costs incurred in correcting any material defects
or errors in our services may be substantial and could harm our
operating results.
Government
regulation of the Internet and
e-commerce
and of the international exchange of certain technologies is
subject to possible unfavorable changes, and our failure to
comply with applicable regulations could harm our business and
operating results.
As Internet commerce continues to evolve, increasing regulation
by federal, state or foreign governments becomes more likely.
For example, we believe increased regulation is likely in the
area of data privacy, and laws and regulations applying to the
solicitation, collection, processing or use of personal or
consumer information could affect our customers ability to
use and share data, potentially reducing demand for our products
and services. In addition, taxation of products and services
provided over the Internet or other charges imposed by
government agencies or by private organizations for accessing
the Internet may also be imposed. Any regulation imposing
greater fees for Internet use or restricting the exchange of
information over the Internet could result in reduced growth or
a decline in the use of the Internet and could diminish the
viability of our Internet-based services, which could harm our
business and operating results.
Our software products contain encryption technologies, certain
types of which are subject to U.S. and foreign export
control regulations and, in some foreign countries, restrictions
on importation
and/or use.
We have submitted our encryption products for technical review
under U.S. export regulations and have received the
necessary approvals. Any failure on our part to comply with
encryption or other applicable export control requirements could
result in financial penalties or other sanctions under the
U.S. export regulations, which could harm our business and
operating results. Foreign regulatory restrictions could impair
our access to technologies that we seek for improving our
products and services and may also limit or reduce the demand
for our products and services outside of the United States.
Our
operating results may be harmed if we are required to collect
sales or other related taxes for our subscription services in
jurisdictions where we have not historically done
so.
Primarily due to the nature of our services in certain states
and countries, we do not believe we are required to collect
sales or other related taxes from our customers in certain
states or countries. However, one or more other states or
countries may seek to impose sales or other tax collection
obligations on us, including for past sales by us or our
resellers and other partners. A successful assertion that we
should be collecting sales or other related taxes on our
services could result in substantial tax liabilities for past
sales, discourage customers from purchasing our services or
otherwise harm our business and operating results.
We may
expand by acquiring or investing in other companies, which may
divert our managements attention, result in additional
dilution to our stockholders and consume resources that are
necessary to sustain our business.
Although we have no ongoing negotiations or current agreements
or commitments for any acquisitions, our business strategy may
include acquiring complementary services, technologies or
businesses. We also may
18
enter into relationships with other businesses to expand our
portfolio of services or our ability to provide our services in
foreign jurisdictions, which could involve preferred or
exclusive licenses, additional channels of distribution,
discount pricing or investments in other companies. Negotiating
these transactions can be time-consuming, difficult and
expensive, and our ability to close these transactions may often
be subject to conditions or approvals that are beyond our
control. Consequently, these transactions, even if undertaken
and announced, may not close.
An acquisition, investment or new business relationship may
result in unforeseen operating difficulties and expenditures. In
particular, we may encounter difficulties assimilating or
integrating the businesses, technologies, products, personnel or
operations of the acquired companies, particularly if the key
personnel of the acquired company choose not to work for us, the
companys software is not easily adapted to work with ours
or we have difficulty retaining the customers of any acquired
business due to changes in management or otherwise. Acquisitions
may also disrupt our business, divert our resources and require
significant management attention that would otherwise be
available for development of our business. Moreover, the
anticipated benefits of any acquisition, investment or business
relationship may not be realized or we may be exposed to unknown
liabilities. For one or more of those transactions, we may:
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issue additional equity securities that would dilute our
stockholders;
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use cash that we may need in the future to operate our business;
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incur debt on terms unfavorable to us or that we are unable to
repay;
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incur large charges or substantial liabilities;
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encounter difficulties retaining key employees of the acquired
company or integrating diverse software codes or business
cultures; and
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become subject to adverse tax consequences, substantial
depreciation or deferred compensation charges.
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Any of these risks could harm our business and operating results.
The
loss of key personnel or an inability to attract and retain
additional personnel may impair our ability to grow our
business.
We are highly dependent upon the continued service and
performance of our senior management team and key technical and
sales personnel, including our President and Chief Executive
Officer and Chief Technical Officer. These officers are not
party to an employment agreement with us, and they may terminate
employment with us at any time with no advance notice. The
replacement of these officers likely would involve significant
time and costs, and the loss of these officers may significantly
delay or prevent the achievement of our business objectives.
We face intense competition for qualified individuals from
numerous technology, software and manufacturing companies. For
example, our competitors may be able attract and retain a more
qualified engineering team by offering more competitive
compensation packages. If we are unable to attract new engineers
and retain our current engineers, we may not be able to develop
and maintain our services at the same levels as our competitors
and we may, therefore, lose potential customers and sales
penetration in certain markets. Our failure to attract and
retain suitably qualified individuals could have an adverse
effect on our ability to implement our business plan and, as a
result, our ability to compete would decrease, our operating
results would suffer and our revenues would decrease.
Risks
Related to this Offering and Ownership of our Common
Stock
Our
failure to raise additional capital or generate the cash flows
necessary to expand our operations and invest in our services
could reduce our ability to compete successfully.
We may need to raise additional funds, and we may not be able to
obtain additional debt or equity financing on favorable terms,
if at all. If we raise additional equity financing, our
stockholders may experience significant dilution of their
ownership interests, and the per share value of our common stock
could decline. If
19
we engage in debt financing, we may be required to accept terms
that restrict our ability to incur additional indebtedness and
force us to maintain specified liquidity or other ratios. If we
need additional capital and cannot raise it on acceptable terms,
we may not be able to, among other things:
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develop or enhance our services;
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continue to expand our development, sales and marketing
organizations;
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acquire complementary technologies, products or businesses;
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expand our operations, in the United States or internationally;
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hire, train and retain employees; or
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respond to competitive pressures or unanticipated working
capital requirements.
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Our
stock price may be volatile, and the market price of our common
stock after this offering may drop below the price you
pay.
Shares of our common stock were sold in our initial public
offering, or IPO, at a price of $16.00 per share, and our common
stock has subsequently traded as high as $23.50. An active,
liquid and orderly market for our common stock may not develop
or be sustained, which could depress the trading price of our
common stock. Some of the factors that may cause the market
price of our common stock to fluctuate include:
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fluctuations in our quarterly financial results or the quarterly
financial results of companies perceived to be similar to us;
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fluctuations in our recorded revenue, even during periods of
significant sales order activity;
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changes in estimates of our financial results or recommendations
by securities analysts;
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failure of any of our services to achieve or maintain market
acceptance;
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changes in market valuations of similar companies;
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success of competitive products or services;
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changes in our capital structure, such as future issuances of
securities or the incurrence of debt;
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announcements by us or our competitors of significant services,
contracts, acquisitions or strategic alliances;
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regulatory developments in the United States, foreign countries
or both;
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litigation involving our company, our general industry or both;
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additions or departures of key personnel;
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general perception of the future of the remote-connectivity
market or our services;
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investors general perception of us; and
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changes in general economic, industry and market conditions.
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In addition, if the market for technology stocks or the stock
market in general experiences a loss of investor confidence, the
trading price of our common stock could decline for reasons
unrelated to our business, financial condition or results of
operations. If any of the foregoing occurs, it could cause our
stock price to fall and may expose us to class action lawsuits
that, even if unsuccessful, could be costly to defend and a
distraction to management.
A
significant portion of our total outstanding shares may be sold
into the public market in the near future, which could cause the
market price of our common stock to drop significantly, even if
our business is doing well.
Based on shares outstanding as of September 30, 2009, upon
the completion of this offering, we will have 22,302,879 shares
of our common stock outstanding, assuming no exercise of our
outstanding options other than those options exercised by
selling stockholders for the purpose of selling shares in this
offering. Of these shares, the shares of common stock sold in
our IPO are, and the shares sold in this offering will be,
freely tradable, except for any shares purchased by our
affiliates as defined in Rule 144 under the
Securities Act of 1933. The holders of 8,698,051 shares of
common stock have signed
lock-up
agreements under which they
20
have agreed not to sell, transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities
into or exercisable or exchangeable for shares of our common
stock without the prior written consent of J.P. Morgan
Securities Inc. and Barclays Capital Inc. for a period of
90 days, subject to a possible extension under certain
circumstances, after the date of this prospectus. Another
2,565,322 shares will not be subject to the new
90-day
restricted period but remain subject to the
180-day
restricted period in connection with our IPO, ending
December 27, 2009, subject to a possible extension under
certain circumstances. After the expiration of the
lock-up
period, these shares may be sold in the public market, subject
to prior registration or qualification for an exemption from
registration, including, in the case of shares held by
affiliates, compliance with the volume restrictions of
Rule 144. To the extent that any of these stockholders
sell, or indicate an intent to sell, substantial amounts of our
common stock in the public market after the contractual
lock-ups and
other legal restrictions on resale discussed in this prospectus
lapse, the trading price of our common stock could decline
significantly.
In addition, (i) the 3,127,300 shares subject to
outstanding options as of September 30, 2009, and
(ii) the 842,332 shares reserved for future issuance
under our equity compensation plans, as of September 30,
2009, will become eligible for sale in the public market in the
future, subject to certain legal and contractual limitations. If
these additional shares are sold, or if it is perceived that
they will be sold, in the public market, the price of our common
stock could decline substantially.
If
securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our
stock adversely, our stock price and trading volume could
decline.
The trading market for our common stock is influenced by the
research and reports that industry or securities analysts
publish about us, our business, our market or our competitors.
If any of the analysts who cover us or may cover us in the
future change their recommendation regarding our stock
adversely, or provide more favorable relative recommendations
about our competitors, our stock price would likely decline. If
any analyst who covers us or may cover us in the future were to
cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading
volume to decline.
Our
management has broad discretion over the use of our existing
cash resources and of the proceeds we receive in this offering
and might not use such funds in ways that increase the value of
your investment.
Our management will continue to have broad discretion to use our
cash resources. In addition, although we have not allocated the
net proceeds we will receive from this offering for any specific
purposes other than the payment of expenses incurred by us in
connection with this offering, we expect to use any remaining
net proceeds for general corporate purposes. Our management will
therefore have discretion over the use of the proceeds we
receive in this offering. You will be relying on the judgment of
our management regarding the application of these proceeds. Our
management might not apply these proceeds and our other cash
resources in ways that increase the value of your investment and
you may be unable to yield a significant return, if any, on any
investment of these net proceeds. You will not have the
opportunity to influence our decisions on how to use our net
proceeds from our IPO or this offering.
We do
not expect to declare any dividends in the foreseeable
future.
We do not anticipate declaring any cash dividends to holders of
our common stock in the foreseeable future. Consequently,
investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize
any future gains on their investment. Investors seeking cash
dividends should not purchase our common stock.
As a
newly public company, we incur significant costs which could
harm our operating results.
As a newly public company, we incur significant additional
legal, accounting and other expenses that we did not incur as a
private company, including costs associated with public company
reporting requirements.
21
We also have incurred and will continue to incur costs
associated with current corporate governance requirements,
including requirements under Section 404 and other
provisions of the Sarbanes-Oxley Act, as well as rules
implemented by the Securities and Exchange Commission, or SEC,
and The NASDAQ Global Market. The expenses incurred by public
companies for reporting and corporate governance purposes have
increased dramatically. We expect these rules and regulations to
substantially increase our legal and financial compliance costs
and to make some activities more time-consuming and costly. We
are unable to currently estimate these costs with any degree of
certainty. We also expect these new rules and regulations may
make it more difficult and more expensive for us to obtain
director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage previously available. As a result, it may be more
difficult for us to attract and retain qualified individuals to
serve on our board of directors or as our executive officers.
Anti-takeover
provisions contained in our certificate of incorporation and
bylaws, as well as provisions of Delaware law, could impair a
takeover attempt.
Our certificate of incorporation, bylaws and Delaware law
contain provisions that could have the effect of rendering more
difficult or discouraging an acquisition deemed undesirable by
our board of directors. Our corporate governance documents
include provisions:
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authorizing blank check preferred stock, which could be issued
with voting, liquidation, dividend and other rights superior to
our common stock;
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limiting the liability of, and providing indemnification to, our
directors and officers;
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limiting the ability of our stockholders to call and bring
business before special meetings and to take action by written
consent in lieu of a meeting;
|
|
|
|
requiring advance notice of stockholder proposals for business
to be conducted at meetings of our stockholders and for
nominations of candidates for election to our board of directors;
|
|
|
|
controlling the procedures for the conduct and scheduling of
board of directors and stockholder meetings;
|
|
|
|
providing the board of directors with the express power to
postpone previously scheduled annual meetings and to cancel
previously scheduled special meetings;
|
|
|
|
limiting the determination of the number of directors on our
board of directors and the filling of vacancies or newly created
seats on the board to our board of directors then in
office; and
|
|
|
|
providing that directors may be removed by stockholders only for
cause.
|
These provisions, alone or together, could delay hostile
takeovers and changes in control of our company or changes in
our management.
As a Delaware corporation, we are also subject to provisions of
Delaware law, including Section 203 of the Delaware General
Corporation law, which prevents some stockholders holding more
than 15% of our outstanding common stock from engaging in
certain business combinations without approval of the holders of
substantially all of our outstanding common stock. Any provision
of our amended and restated certificate of incorporation or
bylaws or Delaware law that has the effect of delaying or
deterring a change in control could limit the opportunity for
our stockholders to receive a premium for their shares of our
common stock, and could also affect the price that some
investors are willing to pay for our common stock.
22
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, contained in this prospectus,
including statements about our strategy, future operations,
future financial position, future revenues, projected costs,
prospects, plans and objectives of management, are
forward-looking statements. The words anticipate,
believe, estimate, expect,
intend, may, plan,
predict, project, target,
potential, will, would,
could, should, continue and
similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. The forward-looking statements in this
prospectus include, among other things, statements about:
|
|
|
|
|
our plans to develop, improve, commercialize and market our
services;
|
|
|
|
our financial performance;
|
|
|
|
the potential benefits of collaboration agreements and our
ability to enter into selective collaboration arrangements;
|
|
|
|
our ability to quickly and efficiently identify and develop new
products and services;
|
|
|
|
our ability to establish and maintain intellectual property
rights; and
|
|
|
|
our estimates regarding expenses, future revenues, capital
requirements and needs for additional financing.
|
We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements, and
you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important
factors in the cautionary statements included in this
prospectus, particularly in the Risk Factors section
of this prospectus, that we believe could cause actual results
or events to differ materially from the forward-looking
statements that we make. Our forward-looking statements do not
reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments we may make.
You should read this prospectus and the documents that we have
filed as exhibits to the registration statement, of which this
prospectus is a part, completely and with the understanding that
our actual future results may be materially different from what
we expect. We do not assume any obligation to update any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
MARKET
AND INDUSTRY DATA
In this prospectus, we rely on and refer to information and
statistics regarding the industries and the markets in which we
compete. We obtained this information and these statistics from
various third-party sources. We believe that these sources and
the estimates contained therein are reliable, but we have not
independently verified them. Such information involves risks and
uncertainties and is subject to change based on various factors,
including those discussed in the Risk Factors
section of this prospectus.
23
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock we are offering at the assumed public offering
price of $19.40 per share, which is the last reported sale price
of our common stock on November 12, 2009, will be
approximately $1.3 million. Net proceeds is
what we expect to receive after paying the underwriting
discounts and commissions and other expenses of the offering. We
will not receive any proceeds from the sale of shares by the
selling stockholders. In addition, we will receive
$0.1 million from the payment of the exercise price from
outstanding options that certain selling stockholders will sell
to acquire the shares they are selling in this offering.
We intend to use the net proceeds to us from this offering for
general corporate purposes, including the development of new
services, sales and marketing activities and capital
expenditures.
In addition, the other principal purposes for this offering are
to:
|
|
|
|
|
increase our visibility in our markets;
|
|
|
|
|
|
provide liquidity for our existing stockholders; and
|
|
|
|
|
|
increase our public float.
|
We have not yet determined with any certainty the manner in
which we will allocate the net proceeds. Management will retain
broad discretion in the allocation and use of the net proceeds
to us from this offering. The amounts and timing of these
expenditures will vary depending on a number of factors,
including the amount of cash generated by our operations,
competitive and technological developments, and the rate of
growth, if any, of our business.
Pending specific use of the net proceeds as described above, we
intend to invest the net proceeds to us from this offering in
short-term investment grade and U.S. government securities.
PRICE
RANGE OF COMMON STOCK
Our common stock began trading on The NASDAQ Global Market under
the symbol LOGM on July 1, 2009. Before then,
there was no public market for our common stock. The following
table sets forth, for the periods indicated, the high and low
sales prices of our common stock as reported by The NASDAQ
Global Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Third Quarter 2009
|
|
$
|
20.99
|
|
|
$
|
15.15
|
|
Fourth Quarter 2009 (through November 12, 2009)
|
|
$
|
23.50
|
|
|
$
|
17.90
|
|
On November 12, 2009, the closing price as reported on The
NASDAQ Global Market of our common stock was $19.40 per share.
As of November 12, 2009, we had approximately 89 holders of
record of our common stock.
DIVIDEND
POLICY
We have never declared or paid dividends on our common stock. We
currently intend to retain any future earnings to finance our
research and development efforts, improvements to our existing
services, the development of our proprietary technologies and
the expansion of our business. We do not intend to declare or
pay cash dividends on our capital stock in the foreseeable
future. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend upon a
number of factors, including our results of operations,
financial condition, future prospects, contractual restrictions,
restrictions imposed by applicable law and other factors our
board of directors deems relevant.
24
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 2009:
|
|
|
|
|
on an actual basis; and
|
|
|
|
|
|
on an as adjusted basis to give effect to the issuance and sale
by us of 99,778 shares of common stock at an assumed
offering price of $19.40 per share, which was the last reported
sale price of our common stock on November 12, 2009, after
deducting the estimated underwriting discounts and offering
expenses payable by us, and receipt by us of proceeds of
$0.1 million from the exercise of options to purchase
66,330 shares of common stock by certain selling
stockholders.
|
You should read this table together with our consolidated
financial statements and the related notes appearing at the end
of this prospectus and the Managements Discussion
and Analysis of Financial Condition and Results of
Operations section of this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except
|
|
|
|
share data)
|
|
|
Cash and cash equivalents
|
|
$
|
121,007
|
|
|
$
|
122,413
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 75,000,000 shares
authorized and 22,203,101 shares issued and outstanding,
actual; 22,302,879 shares issued and outstanding, as
adjusted
|
|
|
222
|
|
|
|
223
|
|
Additional paid-in capital
|
|
|
120,069
|
|
|
|
121,501
|
|
Accumulated deficit
|
|
|
(26,657
|
)
|
|
|
(26,657
|
)
|
Accumulated other comprehensive income
|
|
|
151
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
93,812
|
|
|
|
95,218
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
93,812
|
|
|
$
|
95,218
|
|
|
|
|
|
|
|
|
|
|
The table above does not include:
|
|
|
|
|
3,127,300 shares of common stock issuable upon exercise of
stock options outstanding as of September 30, 2009
(including an aggregate of 66,330 shares of our common
stock that we expect to be sold in this offering by selling
stockholders upon the exercise of vested options) at a weighted
average exercise price of $4.39 per share;
|
|
|
|
|
|
an additional 842,332 shares of common stock reserved for
future issuance under our equity compensation plans as of
September 30, 2009.
|
All common share and per common share information referenced
throughout this prospectus have been retroactively adjusted to
reflect a
1-for-2.5
reverse stock split of our common stock effected on
June 25, 2009.
25
DILUTION
If you invest in shares of our common stock in this offering,
your interest will be diluted immediately to the extent of the
difference between the public offering price per share of our
common stock and the as adjusted net tangible book value per
share of our common stock after this offering. Our net tangible
book value as of September 30, 2009 was $92.3 million,
or $4.16 per share of common stock. Our net tangible book value
per share set forth below represents our total tangible assets
less our total liabilities, divided by the number of shares of
our common stock outstanding on September 30, 2009.
After giving effect to (i) our issuance and sale of
99,778 shares of our common stock in this offering at the
offering price of $19.40 per share, and (ii) the issuance of
66,330 shares upon exercise of stock options by certain
selling stockholders with net proceeds to us of approximately
$0.1 million and after deducting the estimated offering
expenses payable by us, our as adjusted net tangible book value
as of September 30, 2009 would have been
$93.7 million, or $4.19 per share of our common stock.
This represents an immediate increase in our net tangible book
value to our existing stockholders of $0.03 per share. The
public offering price per share of our common stock
significantly exceeds the as adjusted net tangible book value
per share. Accordingly, new investors who purchase shares of our
common stock in this offering will suffer an immediate dilution
of their investment of $15.21 per share. The following table
illustrates this per share dilution to new investors purchasing
shares of our common stock in this offering without giving
effect to the option granted to the underwriters to purchase
additional shares of our common stock in this offering:
|
|
|
|
|
|
|
|
|
Public offering price per share
|
|
|
|
|
|
$
|
19.40
|
|
Net tangible book value per share as of September 30, 2009
|
|
$
|
4.16
|
|
|
|
|
|
Increase per share attributable to sale of shares of our common
stock in this offering
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per share after this offering
|
|
|
|
|
|
|
4.19
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
15.21
|
|
|
|
|
|
|
|
|
|
|
If the underwriters exercise their over-allotment option in
full, the pro forma as adjusted net tangible book value will
increase to $4.18 per share, representing an immediate increase
to existing stockholders of $0.02 per share and an immediate
dilution of $15.22 per share to new investors. If any shares are
issued upon exercise of outstanding options you will experience
further dilution.
The following table summarizes, as of September 30, 2009,
the differences between the number of shares of our common stock
purchased from us, the total consideration paid to us, and the
average price per share paid by existing stockholders and by new
investors purchasing shares of our common stock in this
offering. The calculations below are based on the offering price
of $19.40 per share, before the deduction of the estimated
offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
per Share
|
|
|
Existing stockholders
|
|
|
22,203,101
|
|
|
|
99.6
|
%
|
|
$
|
122,527,134
|
|
|
|
98.4
|
%
|
|
$
|
5.52
|
|
New investors
|
|
|
99,778
|
|
|
|
0.4
|
%
|
|
|
1,935,693
|
|
|
|
1.6
|
%
|
|
|
19.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,302,879
|
|
|
|
100
|
%
|
|
$
|
124,462,827
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The sale of 3,025,222 shares of our common stock to be sold
by the selling stockholders in this offering, which assumes no
exercise of the underwriters over-allotment option, will
reduce the number of shares of our common stock held by existing
stockholders to 19,244,209, or 86.0% of the total shares
outstanding, and will increase the number of shares of our
common stock held by new investors to 3,125,000, or 14.0% of the
total shares of our common stock outstanding.
26
SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the following selected financial data together
with our consolidated financial statements and the related notes
appearing at the end of this prospectus and the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section of this
prospectus. We have derived the consolidated statements of
operations data for the years ended December 31, 2006, 2007
and 2008 and the balance sheet data as of December 31, 2007
and 2008 from our audited financial statements included
elsewhere in this prospectus. We have derived the consolidated
statement of operations data for the years ended
December 31, 2004 and 2005 and balance sheet data as of
December 31, 2004, 2005 and 2006 from our audited financial
statements not included in this prospectus. We have derived the
consolidated statements of operations data for the nine months
ended September 30, 2008 and 2009 and the balance sheet
data as of September 30, 2009 from our unaudited
consolidated financial statements included elsewhere in this
prospectus. Our unaudited consolidated financial statements for
the nine months ended September 30, 2008 and 2009 have been
prepared on the same basis as the annual consolidated financial
statements and include all adjustments, which include only
normal recurring adjustments, necessary for fair presentation of
this data in all material respects. Our historical results for
any prior period are not necessarily indicative of results to be
expected in any future period, and our results for any interim
period are not necessarily indicative of results for a full
fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,574
|
|
|
$
|
3,518
|
|
|
$
|
11,307
|
|
|
$
|
26,998
|
|
|
$
|
51,723
|
|
|
$
|
35,727
|
|
|
$
|
54,175
|
|
Cost of revenue(1)
|
|
|
359
|
|
|
|
767
|
|
|
|
2,033
|
|
|
|
3,925
|
|
|
|
5,970
|
|
|
|
4,292
|
|
|
|
5,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,215
|
|
|
|
2,751
|
|
|
|
9,274
|
|
|
|
23,073
|
|
|
|
45,753
|
|
|
|
31,435
|
|
|
|
48,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
1,349
|
|
|
|
1,634
|
|
|
|
3,232
|
|
|
|
6,661
|
|
|
|
11,997
|
|
|
|
8,987
|
|
|
|
9,487
|
|
Sales and marketing(1)
|
|
|
2,020
|
|
|
|
5,758
|
|
|
|
10,050
|
|
|
|
19,488
|
|
|
|
31,631
|
|
|
|
23,407
|
|
|
|
26,378
|
|
General and administrative(1)
|
|
|
1,070
|
|
|
|
1,351
|
|
|
|
2,945
|
|
|
|
3,611
|
|
|
|
6,583
|
|
|
|
4,848
|
|
|
|
5,787
|
|
Legal settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,225
|
|
|
|
600
|
|
|
|
600
|
|
|
|
|
|
Amortization of intangibles(1)
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
328
|
|
|
|
328
|
|
|
|
246
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,439
|
|
|
|
8,743
|
|
|
|
16,368
|
|
|
|
32,313
|
|
|
|
51,139
|
|
|
|
38,088
|
|
|
|
41,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(2,224
|
)
|
|
|
(5,992
|
)
|
|
|
(7,094
|
)
|
|
|
(9,240
|
)
|
|
|
(5,386
|
)
|
|
|
(6,653
|
)
|
|
|
6,769
|
|
Interest, net
|
|
|
2
|
|
|
|
105
|
|
|
|
365
|
|
|
|
260
|
|
|
|
216
|
|
|
|
202
|
|
|
|
67
|
|
Other income (expense), net
|
|
|
3
|
|
|
|
(27
|
)
|
|
|
28
|
|
|
|
(25
|
)
|
|
|
(110
|
)
|
|
|
(105
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(2,219
|
)
|
|
|
(5,914
|
)
|
|
|
(6,701
|
)
|
|
|
(9,005
|
)
|
|
|
(5,280
|
)
|
|
|
(6,556
|
)
|
|
|
6,535
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
(122
|
)
|
|
|
(89
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,219
|
)
|
|
|
(5,914
|
)
|
|
|
(6,701
|
)
|
|
|
(9,055
|
)
|
|
|
(5,402
|
)
|
|
|
(6,645
|
)
|
|
|
6,323
|
|
Accretion of redeemable convertible preferred stock
|
|
|
(38
|
)
|
|
|
(279
|
)
|
|
|
(1,790
|
)
|
|
|
(1,919
|
)
|
|
|
(2,348
|
)
|
|
|
(1,761
|
)
|
|
|
(1,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(2,257
|
)
|
|
$
|
(6,193
|
)
|
|
$
|
(8,491
|
)
|
|
$
|
(10,974
|
)
|
|
$
|
(7,750
|
)
|
|
$
|
(8,406
|
)
|
|
$
|
5,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.64
|
)
|
|
$
|
(1.86
|
)
|
|
$
|
(2.47
|
)
|
|
$
|
(2.98
|
)
|
|
$
|
(1.97
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
0.28
|
|
Diluted
|
|
$
|
(0.64
|
)
|
|
$
|
(1.86
|
)
|
|
$
|
(2.47
|
)
|
|
$
|
(2.98
|
)
|
|
$
|
(1.97
|
)
|
|
$
|
(2.15
|
)
|
|
$
|
0.27
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,510
|
|
|
|
3,324
|
|
|
|
3,434
|
|
|
|
3,686
|
|
|
|
3,933
|
|
|
|
3,919
|
|
|
|
9,858
|
|
Diluted
|
|
|
3,510
|
|
|
|
3,324
|
|
|
|
3,434
|
|
|
|
3,686
|
|
|
|
3,933
|
|
|
|
3,919
|
|
|
|
11,675
|
|
|
|
|
(1) |
|
Includes stock-based compensation expense and
acquisition-related intangible amortization expense as indicated
in the following table: |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year Ended December 31,
|
|
September 30,
|
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2008
|
|
2009
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
64
|
|
|
$
|
45
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related intangible amortization
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
415
|
|
|
|
415
|
|
|
|
311
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
19
|
|
|
|
10
|
|
|
|
11
|
|
|
|
105
|
|
|
|
419
|
|
|
|
301
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
177
|
|
|
|
962
|
|
|
|
700
|
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
222
|
|
|
|
1,304
|
|
|
|
974
|
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related intangible amortization
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
328
|
|
|
|
328
|
|
|
|
246
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of December 31,
|
|
September 30,
|
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,844
|
|
|
$
|
11,962
|
|
|
$
|
7,983
|
|
|
$
|
18,676
|
|
|
$
|
22,913
|
|
|
$
|
121,007
|
(1)
|
Working capital (excluding deferred revenue)
|
|
|
6,993
|
|
|
|
12,026
|
|
|
|
6,527
|
|
|
|
15,499
|
|
|
|
22,577
|
|
|
|
119,013
|
|
Total assets
|
|
|
7,578
|
|
|
|
13,255
|
|
|
|
14,656
|
|
|
|
28,302
|
|
|
|
37,415
|
|
|
|
134,815
|
|
Deferred revenue, including long-term portion
|
|
|
1,135
|
|
|
|
2,849
|
|
|
|
7,288
|
|
|
|
16,104
|
|
|
|
28,358
|
|
|
|
31,964
|
|
Long-term debt, including current portion
|
|
|
44
|
|
|
|
|
|
|
|
2,281
|
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,452
|
|
|
|
3,640
|
|
|
|
11,615
|
|
|
|
23,238
|
|
|
|
35,191
|
|
|
|
41,003
|
|
Redeemable convertible preferred stock
|
|
|
9,136
|
|
|
|
18,806
|
|
|
|
20,596
|
|
|
|
32,495
|
|
|
|
34,843
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(3,009
|
)
|
|
|
(9,191
|
)
|
|
|
(17,554
|
)
|
|
|
(27,431
|
)
|
|
|
(32,619
|
)
|
|
|
93,812
|
|
|
|
|
(1) |
|
Comparability affected by proceeds received from our initial
public offering, which closed in July 2009. |
28
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with our
consolidated financial statements and the related notes and
other financial information included elsewhere in this
prospectus. Some of the information contained in this discussion
and analysis or set forth elsewhere in this prospectus,
including information with respect to our plans and strategy for
our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should
review the Risk Factors and Special Note
Regarding Forward-Looking Statements sections of this
prospectus for a discussion of important factors that could
cause actual results to differ materially from the results
described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
LogMeIn provides on-demand, remote-connectivity solutions to
small and medium businesses, or SMBs, IT service providers and
consumers. Businesses and IT service providers use our solutions
to deliver end-user support and to remotely access and manage
computers and other Internet-enabled devices more effectively
and efficiently. Consumers and mobile workers use our solutions
to access computer resources remotely, thereby facilitating
their mobility and increasing their productivity. Our solutions,
which are deployed on-demand and accessible through a web
browser, are secure, scalable and easy for our customers to try,
purchase and use.
We offer two free services and nine premium services. Sales of
our premium services are generated through word-of-mouth
referrals, web-based advertising, expiring free trials that we
convert to paid subscriptions and direct marketing to new and
existing customers.
We derive our revenue principally from subscription fees from
SMBs, IT service providers and consumers. The majority of our
customers subscribe to our services on an annual basis. Our
revenue is driven primarily by the number and type of our
premium services for which our paying customers subscribe. For
the nine months ended September 30, 2009, we generated
revenues of $54.2 million, compared to $35.7 million
for the nine months ended September 30, 2008, an increase
of approximately 52%. In fiscal 2008, we generated revenues of
$51.7 million.
In addition to selling our services to end-users, we entered
into a service and marketing agreement with Intel Corporation in
December 2007 pursuant to which we are adapting our service
delivery platform, Gravity, to work with specific technology
delivered with Intel hardware and software products. The
agreement provides that Intel will market and sell the services
to its customers. Intel pays us a minimum license and service
fee on a quarterly basis during the term of the agreement, and
we share with Intel revenue generated by the use of the services
by third parties to the extent it exceeds the minimum payments.
We began recognizing revenue associated with the Intel service
and marketing agreement in the quarter ended September 30,
2008. During the nine months ended September 30, 2009, we
recognized $4.5 million in revenue from this agreement.
In February 2003, we incorporated under the laws of Bermuda. In
August 2004, we completed a domestication in the State of
Delaware under the name 3am Labs, Inc. We changed our name to
LogMeIn, Inc. in March 2006. We have funded our operations
through September 30, 2009, primarily through net proceeds
of approximately $27.8 million received from the sale of
redeemable convertible preferred stock, cash flows from
operations and to a lesser extent from the approximately
$83.0 million of net proceeds received in connection with
our IPO. We incurred net losses of $6.7 million for 2006,
$9.1 million for 2007 and $5.4 million for 2008 and
earned net income of $6.3 million for the nine months ended
September 30, 2009. We expect to continue making
significant future expenditures to develop and expand our
business.
Certain
Trends and Uncertainties
The following represents a summary of certain trends and
uncertainties, which could have a significant impact on our
financial condition and results of operations. This summary is
not intended to be a complete list of potential trends and
uncertainties that could impact our business in the long or
short term. The summary, however, should be considered along
with the factors identified in the section titled Risk
Factors of this prospectus.
29
|
|
|
|
|
We continue to closely monitor current adverse economic
conditions, particularly as they impact SMBs, IT service
providers and consumers. We are unable to predict the likely
duration and severity of the current adverse economic conditions
in the United States and other countries, but the longer
the duration the greater risks we face in operating our business.
|
|
|
|
We believe that competition will continue to increase. Increased
competition could result from existing competitors or new
competitors that enter the market because of the potential
opportunity. We will continue to closely monitor competitive
activity and respond accordingly. Increased competition could
have an adverse effect on our financial condition and results of
operations.
|
|
|
|
We believe that as we continue to grow revenue at expected
rates, our cost of revenue and operating expenses, including
sales and marketing, research and development and general and
administrative expenses will increase in absolute dollar
amounts. For a description of the general trends we anticipate
in various expense categories, see Cost of Revenue and
Operating Expenses below.
|
Sources
of Revenue
We derive our revenue principally from subscription fees from
SMBs, IT service providers and consumers. Our revenue is driven
primarily by the number and type of our premium services for
which our paying customers subscribe and is not concentrated
within one customer or group of customers. The majority of our
customers subscribe to our services on an annual basis and pay
in advance, typically with a credit card, for their
subscription. A smaller percentage of our customers subscribe to
our services on a monthly basis through either month-to-month
commitments or annual commitments that are then paid monthly
with a credit card. We initially record a subscription fee as
deferred revenue and then recognize it ratably, on a daily
basis, over the life of the subscription period. Typically, a
subscription automatically renews at the end of a subscription
period unless the customer specifically terminates it prior to
the end of the period.
In addition to our subscription fees, to a lesser extent, we
also generate revenue from license and annual maintenance fees
from the licensing of our RemotelyAnywhere product. We license
RemotelyAnywhere to our customers on a perpetual basis. Because
we do not have vendor specific objective evidence of fair value,
or VSOE, for our maintenance arrangements, we record the initial
license and maintenance fee as deferred revenue and recognize
the fees as revenue ratably, on a daily basis, over the initial
maintenance period. We also initially record maintenance fees
for subsequent maintenance periods as deferred revenue and
recognize revenue ratably, on a daily basis, over the
maintenance period. We also generate revenue from the license of
our Ignition for iPhone product which is sold as a perpetual
license and is recognized as delivered. Revenue from
RemotelyAnywhere and Ignition for iPhone represented less than
5% of our revenue for the nine months ended September 30,
2009.
Employees
We have increased our number of full-time employees to 334 at
September 30, 2009 as compared to 287 at December 31,
2008 and 262 at September 30, 2008.
Cost of
Revenue and Operating Expenses
We allocate certain overhead expenses, such as rent and
utilities, to expense categories based on the headcount in or
office space occupied by personnel in that expense category as a
percentage of our total headcount or office space. As a result,
an overhead allocation associated with these costs is reflected
in the cost of revenue and each operating expense category.
Cost of Revenue. Cost of revenue consists
primarily of costs associated with our data center operations
and customer support centers, including wages and benefits for
personnel, telecommunication and hosting fees for our services,
equipment maintenance, maintenance and license fees for software
licenses and depreciation. Additionally, amortization expense
associated with the software and technology acquired as part of
our acquisition of substantially all the assets of Applied
Networking, Inc. is included in cost of revenue. The expenses
related to hosting our services and supporting our free and
premium customers is related to the number of customers who
subscribe to our services and the complexity and redundancy of
our services and
30
hosting infrastructure. We expect these expenses to increase in
absolute dollars as we continue to increase our number of
customers over time but, in total, to remain relatively constant
as a percentage of revenue.
Research and Development. Research and
development expenses consist primarily of wages and benefits for
development personnel, consulting fees associated with
outsourced development projects, facilities rent and
depreciation associated with assets used in development. We have
focused our research and development efforts on both improving
ease of use and functionality of our existing services, as well
as developing new offerings. The majority of our research and
development employees are located in our development centers in
Hungary. Therefore, a majority of research and development
expense is subject to fluctuations in foreign exchange rates. We
expect that research and development expenses will increase in
absolute dollars as we continue to enhance and expand our
services but decrease as a percentage of revenue.
Sales and Marketing. Sales and marketing
expenses consist primarily of online search and advertising
costs, wages, commissions and benefits for sales and marketing
personnel, offline marketing costs such as media advertising and
trade shows, and credit card processing fees. Online search and
advertising costs consist primarily of
pay-per-click
payments to search engines and other online advertising media
such as banner ads. Offline marketing costs include radio and
print advertisements as well as the costs to create and produce
these advertisements, and tradeshows, including the costs of
space at trade shows and costs to design and construct trade
show booths. Advertising costs are expensed as incurred. In
order to continue to grow our business and awareness of our
services, we expect that we will continue to commit resources to
our sales and marketing efforts. We expect that sales and
marketing expenses will increase in absolute dollars but
decrease as a percentage of revenue over time as our revenue
increases.
General and Administrative. General and
administrative expenses consist primarily of wages and benefits
for management, human resources, internal IT support, finance
and accounting personnel, professional fees, insurance and other
corporate expenses. We expect that general and administrative
expenses will increase as we continue to add personnel and
enhance our internal information systems in connection with the
growth of our business. In addition, we anticipate that we will
incur additional personnel expenses, professional service fees,
including auditing, legal and insurance costs, related to
operating as a public company. We expect that our general and
administrative expenses will increase in both absolute dollars
and as a percentage of revenue.
Critical
Accounting Policies
Our financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of our financial statements and related
disclosures requires us to make estimates, assumptions and
judgments that affect the reported amount of assets,
liabilities, revenue, costs and expenses, and related
disclosures. We base our estimates and assumptions on historical
experience and other factors that we believe to be reasonable
under the circumstances. We evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ
from these estimates under different assumptions and conditions.
Our most critical accounting policies are summarized below. See
Note 2 to our financial statements included elsewhere in
this prospectus for additional information about these critical
accounting policies, as well as a description of our other
significant accounting policies.
Revenue Recognition. We provide our customers
access to our services through subscription arrangements for
which our customers pay us a fee. Our customers enter into a
subscription agreement with us for the use of our software, our
connectivity service and access to our customer support
services, such as telephone and email support. Subscription
periods range from monthly to four years, and they are generally
one year in duration. We follow the guidance of Revenue
Recognition in Financial Statements, Software
Revenue Recognition, and Arrangements that
Include the Right to Use Software Stored on Another
Entitys Hardware. Arrangements that
Include the Right to Use Software Stored on Another
Entitys Hardware applies when the software being
provided cannot be run on another entitys hardware or when
customers do not have the right to take possession of the
software and use it on another entitys hardware as is the
case with our software. We begin to recognize revenue when there
is persuasive evidence of an arrangement, the fee is fixed or
determinable and collectability is deemed probable. We recognize
the subscription fee as revenue on a daily basis over the
subscription period.
31
We recognize revenue under multi-element agreements in
accordance with Revenue Recognition in Financial
Statements and Software Revenue
Recognition. The terms of these agreements typically
include multiple deliverables by us such as subscription and
professional services, including development services.
Agreements with multiple element deliverables are analyzed to
determine if fair value exists for each element on a stand-alone
basis. If the value of each deliverable is determinable then
revenue is recognized separately when or as the services are
delivered, or if applicable, when milestones associated with the
deliverable are achieved and accepted by the customer. If the
fair value of any of the undelivered performance obligations
cannot be determined, the arrangement is accounted for as a
single element and we recognize revenue on a straight-line basis
over the period in which we expect to complete performance
obligations under the agreement.
Our arrangements for the licensing of RemotelyAnywhere permit
our customers to use the software on their hardware and include
one year of maintenance services, which includes the right to
support and upgrades, on a when and if available basis. We
follow the guidance of Software Revenue
Recognition, as amended by, Modification With
Respect to Certain Transactions. We do not have VSOE
for our maintenance service arrangements and thus recognize
revenue ratably on a daily basis over the initial maintenance
period, which is generally one year. We begin to recognize
revenue when there is persuasive evidence of an arrangement, the
fee is fixed or determinable and collectability is deemed
probable.
Income Taxes. We are subject to federal and
various state income taxes in the United States, The
Netherlands, Hungary and Australia, and we use estimates in
determining our provision for these income taxes and deferred
tax assets. Deferred tax assets, related valuation allowances,
current tax liabilities and deferred tax liabilities are
determined separately by tax jurisdiction. In making these
determinations, we estimate tax assets, related valuation
allowances, current tax liabilities and deferred tax
liabilities, and we assess temporary differences resulting from
differing treatment of items for tax and accounting purposes. At
December 31, 2008, our deferred tax assets consisted
primarily of net operating losses and research and development
credit carryforwards. As of December 31, 2008, we had
U.S. federal and state net operating loss carryforwards of
approximately $19.2 million and $18.1 million,
respectively, which expire at varying dates through 2028 for
U.S. federal income tax purposes and primarily through 2013
for state income tax purposes. We used approximately
$6.9 million of federal and $5.6 million of state net
operating loss carryforwards during the nine months ended
September 30, 2009. We assess the likelihood that deferred
tax assets will be realized, and we recognize a valuation
allowance if it is more likely than not that some portion of the
deferred tax assets will not be realized. This assessment
requires judgment as to the likelihood and amounts of future
taxable income by tax jurisdiction. To date, we have provided a
full valuation allowance against our deferred tax assets.
Although we believe that our tax estimates are reasonable, the
ultimate tax determination involves significant judgment that is
subject to audit by tax authorities in the ordinary course of
business.
Software Development Costs. We account for
software development costs, including costs to develop software
products or the software components of our solutions to be
marketed to external users, as well as software programs to be
used solely to meet our internal needs, in accordance with,
Accounting for Costs of Computer Software to be Sold,
Leased or Otherwise Marketed, and, Accounting
for Costs of Computer Software Developed or Obtained for
Internal Use. We have determined that technological
feasibility of our software products and the software component
of our solutions to be marketed to external users is reached
shortly before their introduction to the marketplace. As a
result, the development costs incurred after the establishment
of technological feasibility and before their release to the
marketplace have not been material, and such costs have been
expensed as incurred. In addition, costs incurred during the
application development stage for software programs to be used
solely to meet our internal needs have not been material.
Valuation of Long-Lived and Intangible Assets, Including
Goodwill. We review long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets, including intangible
assets, may not be recoverable. Our recorded intangible assets
are associated with our acquisition of substantially all of the
assets of Applied Networking, Inc. in July 2006. We are
amortizing the recorded values of such intangible assets over
their estimated useful lives, which range from four to five
years. Through September 30, 2009, we have not recorded any
impairment charges associated with our long-lived and intangible
assets.
32
We test goodwill for impairment on an annual basis and whenever
events or changes in circumstances indicate that the carrying
amount of goodwill may exceed its fair value. Our annual
goodwill impairment test is at December 31 of each year.
The recorded amount of goodwill at September 30, 2009
represents the goodwill from our acquisition of Applied
Networking, Inc. Through September 30, 2009, we have not
recorded any impairments of goodwill.
Stock-Based Compensation. Prior to
January 1, 2006, we accounted for share-based awards,
including stock options, to employees using the intrinsic value
method prescribed by Accounting for Stock Issued to
Employees, and related interpretations. Under the
intrinsic value method, compensation expense was measured on the
date of award as the difference, if any, between the deemed fair
value of our common stock and the option exercise price,
multiplied by the number of options granted. The option exercise
prices and fair value of our common stock are determined by our
management and board of directors based on a review of various
objective and subjective factors. No compensation expense was
recorded for stock options issued to employees prior to
January 1, 2006 in fixed amounts and with fixed exercise
prices at least equal to the fair value of our common stock at
the date of grant.
Effective January 1, 2006, we adopted Share-Based
Payment, and related interpretations.
Share-Based Payment supersedes
Accounting for Stock Issued to Employees and
related interpretations. We adopted this statement using the
prospective transition method, which requires us to recognize
compensation expense for all share-based awards granted,
modified, repurchased or cancelled on or after January 1,
2006. These costs will be recognized on a straight-line basis
over the requisite service period for all
time-based
vested awards. We continue to account for
share-based
awards granted prior to January 1, 2006 following the
provisions of Accounting for Stock Issued to
Employees.
For
share-based
awards subsequent to January 1, 2006, we estimate the fair
value of the share-based awards, including stock options, using
the Black-Scholes option-pricing model. Determining the fair
value of share-based awards requires the use of highly
subjective assumptions, including the expected term of the award
and expected stock price volatility. The assumptions used in
calculating the fair value of
share-based
awards granted in 2007 and 2008 are set forth below:
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2008
|
|
Expected dividend yield
|
|
0%
|
|
0%
|
Risk-free interest rate
|
|
3.40% to 4.93%
|
|
2.52% - 3.33%
|
Expected term (in years)
|
|
2.00 to 6.25
|
|
5.54 - 6.25
|
Volatility
|
|
90%
|
|
75% - 80%
|
The assumptions used in determining the fair value of
share-based awards represent managements best estimates,
but these estimates involve inherent uncertainties and the
application of managements judgment. As a result, if
factors change, and we use different assumptions, our
share-based compensation could be materially different in the
future. The risk-free interest rate used for each grant is based
on a U.S. Treasury instrument with a term similar to the
expected term of the share-based award. The expected term of
options has been estimated utilizing the vesting period of the
option, the contractual life of the option and our option
exercise history. Because there was no public market for our
common stock prior to our IPO, we lacked company-specific
historical and implied volatility information. Therefore, we
estimate our expected stock volatility based on that of
publicly-traded peer companies, and we expect to continue to use
this methodology until such time as we have adequate historical
data regarding the volatility of our publicly-traded stock
price. Also, Share-Based Payment requires
that we recognize compensation expense for only the portion of
options that are expected to vest. Accordingly, we have
estimated expected forfeitures of stock options upon the
adoption of Share-Based Payment based on our
historical forfeiture rate and used these rates in developing a
future forfeiture rate. If our actual forfeiture rate varies
from our historical rates and estimates, additional adjustments
to compensation expense may be required in future periods.
33
The following table summarizes by grant date the number of stock
options granted since the adoption of Share-Based
Payment on January 1, 2006 through
November 13, 2009, the per share exercise price of options,
the estimated per share weighted average fair value of options
and the per share estimated value of our common stock on each
grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Per Share
|
|
Average
|
|
Per Share
|
|
|
Number of Shares
|
|
Exercise
|
|
Estimated
|
|
Estimated Fair
|
|
|
Subject to Options
|
|
Price of
|
|
Fair Value of
|
|
Value of
|
|
|
Granted
|
|
Options(1)
|
|
Options(2)
|
|
Common Stock(3)
|
|
April 27, 2006
|
|
|
8,000
|
|
|
$
|
1.25
|
|
|
$
|
0.88
|
|
|
$
|
0.55
|
|
July 20, 2006
|
|
|
396,400
|
|
|
$
|
1.25
|
|
|
$
|
0.88
|
|
|
$
|
0.58
|
|
October 26, 2006
|
|
|
118,000
|
|
|
$
|
1.25
|
|
|
$
|
0.88
|
|
|
$
|
0.55
|
|
January 24, 2007
|
|
|
659,000
|
|
|
$
|
1.25
|
|
|
$
|
2.73
|
|
|
$
|
2.20
|
|
April 27, 2007
|
|
|
94,000
|
|
|
$
|
1.25
|
|
|
$
|
5.60
|
|
|
$
|
5.05
|
|
August 3, 2007
|
|
|
69,000
|
|
|
$
|
9.28
|
|
|
$
|
8.65
|
|
|
$
|
6.65
|
|
November 5, 2007
|
|
|
100,000
|
|
|
$
|
9.65
|
|
|
$
|
9.65
|
|
|
$
|
7.43
|
|
November 21, 2007
|
|
|
498,000
|
|
|
$
|
9.65
|
|
|
$
|
9.35
|
|
|
$
|
7.35
|
|
January 17, 2008
|
|
|
214,000
|
|
|
$
|
10.75
|
|
|
$
|
10.75
|
|
|
$
|
7.60
|
|
April 18, 2008(4)
|
|
|
53,800
|
|
|
$
|
11.40
|
|
|
$
|
11.23
|
|
|
$
|
8.10
|
|
July 17, 2008
|
|
|
95,000
|
|
|
$
|
11.40
|
|
|
$
|
11.25
|
|
|
$
|
7.75
|
|
October 23, 2008
|
|
|
22,000
|
|
|
$
|
11.78
|
|
|
$
|
11.78
|
|
|
$
|
7.98
|
|
February 5, 2009
|
|
|
58,000
|
|
|
$
|
10.08
|
|
|
$
|
10.08
|
|
|
$
|
6.75
|
|
May 7, 2009
|
|
|
10,800
|
|
|
$
|
12.10
|
|
|
$
|
8.18
|
|
|
$
|
12.10
|
|
August 6, 2009
|
|
|
24,400
|
|
|
$
|
19.03
|
|
|
$
|
12.97
|
|
|
$
|
19.03
|
|
November 5, 2009
|
|
|
92,500
|
|
|
$
|
20.02
|
|
|
$
|
13.14
|
|
|
$
|
20.02
|
|
|
|
|
(1)
|
|
For the April 27, 2006 through
May 7, 2009 grants, the per share exercise price of options
represents the exercise price as determined by our board of
directors on the date of the grant. For the August 6, 2009
and November 5, 2009 grants, the exercise price per share
is the closing price per share on The NASDAQ Global Market on
the date of grant.
|
|
|
|
(2)
|
|
The per share weighted average
estimated fair value of options was estimated for the date of
grant using the Black-Scholes options pricing model.
|
|
|
|
(3)
|
|
For the April 27, 2006 through
May 7, 2009 grants, the per share estimated fair value of
common stock represents the determination by our board of
directors of the fair value of our common stock as of the date
of grant, taking into account various objective and subjective
factors and including the results, if applicable, of valuations
of our common stock by an independent valuation specialist. For
the August 6, 2009 and November 5, 2009 grants, the
per share estimated fair value of common stock represents the
closing sales price per share on NASDAQ on the date of grant.
|
|
|
|
(4)
|
|
Excludes the modification on
April 18, 2008 related to stock options previously granted
on April 27, 2007 to increase the exercise price from $1.25
per share to $5.60 per share.
|
Based on the last reported sale price of our common stock on
September 30, 2009, the aggregate intrinsic value of our
vested outstanding stock options as of September 30, 2009
was $33.1 million and the aggregate intrinsic value of our
unvested outstanding stock options as of September 30, 2009
was $10.5 million.
Our board of directors has historically estimated the fair value
of our common stock, with input from management, as of the date
of each stock option grant. Because there was no public market
for our common stock prior to our IPO, our board of directors
determined the fair value of our common stock by considering a
number of objective and subjective factors including:
|
|
|
|
|
the original sale price of common stock prior to any preferred
stock financing rounds, which was $1.25 per share of
common stock;
|
|
|
|
the per share value of any preferred stock financing rounds and
the amount of redeemable convertible preferred stock liquidation
preferences, including any additional fund-raising activities
that may have occurred in the period;
|
|
|
|
any third-party trading activity in our common stock and the
illiquid nature of our common stock, including the opportunity
for any liquidity events;
|
34
|
|
|
|
|
our size and historical operating and financial performance,
including our updated operating and financial projections;
|
|
|
|
achievement of enterprise milestones;
|
|
|
|
the stock price performance of a peer group comprised of
selected publicly-traded companies identified as being
comparable to us; and
|
|
|
|
trends in the broad market for software and other technology
stocks.
|
Our board of directors considered and applied these and other
factors in determining an estimate of the fair value of our
common stock on each stock option grant date prior to our IPO.
Additionally, beginning in August 2006, our board of directors
engaged Shields & Company, or Shields, an independent
valuation specialist, to prepare third-party independent
valuations of our common stock.
Shields initial valuation report, as described in detail
below, was as of July 31, 2006 and was used by our board of
directors to estimate the fair value of our common stock as of
October 26, 2006, the first option grant date after the
initial valuation report. Additionally, the July 31, 2006
valuation report was also initially used to estimate the fair
value of our common stock for the January 24, 2007 and
April 27, 2007 stock option grants. However, in December
2007 and in connection with our IPO, our board of directors
undertook a reassessment of the fair value of our common stock
as of each option grant date during 2007. As part of that
reassessment, our board of directors obtained from Shields
retrospective fair market valuation reports for each option
grant date during 2007. The retrospective valuations, as
described in detail below for each option grant date, have been
used to estimate the fair value of our common stock as of each
option grant date in 2007 and in calculating stock-based
compensation expense.
Stock
Option Grants on April 27, 2006
Our board of directors granted stock options on April 27,
2006, with each option having an exercise price of $1.25 per
share. In order to determine the estimated fair value of our
common stock, our board of directors considered the objective
and subjective factors listed above with particular emphasis on
our size and operating performance, peer group trading
multiples, previous per share prices for issuances of our common
and convertible preferred stock and the preferences of our
convertible preferred stock. Based on these factors, we believe
that our estimate of the fair value of our common stock at
April 27, 2006, was reasonable.
Stock
Option Grants on July 20, 2006
Our board of directors granted stock options on July 20,
2006, with each option having an exercise price of $1.25 per
share. Because there had been no material change in our
business, our board of directors maintained its April 27,
2006 estimated fair value of our common stock. Additionally,
subsequent to the board meeting, and as described in more detail
below, we engaged Shields to complete an independent fair market
valuation report. Shields estimated that the fair value of our
common stock as of July 31, 2006 was $0.88 per share. Based
on our boards analysis and, supported by the subsequent
valuation report from Shields, we believe that the exercise
price of the July 20, 2006 options was greater than fair value
of our common stock on that date.
July 31,
2006 Valuation
In August 2006, we engaged Shields to perform a fair market
valuation of our common stock as of July 31, 2006. Shields
used a probability-weighted expected return methodology and
performed the valuation in accordance with Valuation of
Privately-Held-Company Equity Securities Issued As
Compensation.
Under the probability-weighted expected return method, the fair
market value of our common stock was estimated based upon an
analysis of our future value assuming various future outcomes.
The common stock per share value was based on the
probability-weighted present value of expected future values
considering each of the possible outcomes, as well as the rights
of common and preferred stockholders. The possible outcomes
considered in the valuation were a liquidation event in the form
of an initial public offering, or an IPO scenario, a sale or
merger assuming we continue to experience significant growth, or
a growth scenario, a sale or merger assuming we continue to grow
but not at a desired rate, but that our intellectual property
would separately be of interest to an acquirer, or a technology
scenario, our continued operation as a private company in which
we have not experienced
35
significant growth, or a private company scenario, and a
dissolution of the company. All scenarios utilized assumptions
and estimates that were consistent with the operating plans and
estimates that we use to manage our business.
The IPO scenario utilized trading multiples of revenue of
comparable public companies in a similar industry, the
application software industry. The trading revenue multiple was
then applied to our projected operating results to produce a
theoretical terminal value in the event of an IPO. The growth
scenario utilized completed sale transactions involving
companies in the application software industry. To calculate the
theoretical terminal value under the growth scenario, Shields
utilized the median multiple of completed sales transactions in
the software industry for the one-year period ending
July 31, 2006. Many of these completed sales transactions
involved more mature, lower growth companies. Accordingly,
Shields refined the list of completed sale transactions to
include only comparable companies based on our size and growth
projections. The resulting multiple was a 20% premium to the
median multiple of all completed sale transactions and was used
by Shields in determining our theoretical terminal value under
the growth scenario. The technology scenario assumed that we
still met our short-term projected operating results but could
not obtain and attract the high revenue growth multiples beyond
our short-term operating results. The private company scenario
assumed we continued in operation but did not meet our growth
projections. Shields applied a growth rate of 3% to the
normalized annual free cash flow to compute the theoretical
value under the private company scenario. The dissolution
scenario assumed we do not continue in operations and thus the
theoretical terminal value is $0.
Prior to calculating the value of the common stock in each of
the scenarios, the conversion rights of the preferred
stockholders were reviewed based on each of the theoretical
terminal values. Giving effect to a 1-for-2.5 reverse split of
our common stock to be effected prior to this offering, each 2.5
shares of preferred stock is convertible into one share of
common stock at the option of the preferred stockholder. In the
event of a sale, liquidation or dissolution of the company, the
preferred stockholders have preference over any common
stockholder at an amount equal to the original purchase price
per share of preferred stock and have the right to participate
with the common stockholder until they receive an amount equal
to two times the original purchase price per share of preferred
stock. In the event that converting the preferred stock into
common stock would yield the preferred stockholder greater than
two times the original purchase price per share of preferred
stock, the preferred stockholder would elect to convert
preferred shares into common shares.
The present value of our projected free cash flow is determined
by discounting our projected future cash flows back to the
valuation date. The discount rate used in the analysis was 50%.
To determine this discount rate, Shields constructed a weighted
average cost of capital based on our cost of equity and
after-tax cost of debt. Shields then weighted those costs based
on the debt-to-equity ratio associated with our optimal capital
structure, as of the valuation date. Based on these
calculations, discussions with management, Shields
analysis of our projections, and our stage of development as of
the valuation date, we and Shields believe a 50% discount rate
is appropriate and that our equity holders would require a rate
of return similar to that as outlined in Valuation of
Privately-Held-Company Equity Securities Issued As
Compensation for venture capital investors. The
implied equity value per common share under each scenario was
weighted based on estimates of the probability of each of the
five scenarios by management, the board of directors and
Shields. The resulting value, which represented the estimated
fair market value of our common stock at the valuation date,
July 31, 2006, was $0.88 per share.
Stock
Option Grants on October 26, 2006
Our board of directors granted stock options on October 26,
2006, with each option having an exercise price of $1.25 per
share. Our board of directors reviewed and considered the
July 31, 2006 valuation report as well as the objective and
subjective factors described previously. Additionally, during
the period following the valuation report, there had not been
any material changes in our business or operating results. Our
operating performance for the quarter ended September 30,
2006 and through October 26, 2006 was consistent with our
forecasts and projections used in the valuation report.
Accordingly, our board of directors determined that $0.88
represented a reasonable fair value per share of our common
stock as of October 26, 2006. Therefore, we believe the
exercise price of the October 26, 2006 options was greater
than the fair value of the common stock on that date.
36
Stock
Option Grants on January 24, 2007
Our board of directors granted stock options on January 24,
2007 with each option having an exercise price of $1.25 per
share. As previously discussed, in December 2007 our board of
directors obtained from Shields a retrospective fair market
valuation report as of January 24, 2007. In its
retrospective fair market valuation report, Shields considered
the valuation methodologies outlined in Valuation of
Privately-Held-Company Equity Securities Issued As
Compensation. These methodologies included the
current-value method, option-pricing method and the previously
utilized probability-weighted expected return method.
Shields utilized the option-pricing method for its retrospective
valuation because of the significant changes in our operations
during 2007. Specifically, in 2007, our financial results
improved significantly, including positive cash flow from
operations. The option-pricing method is more appropriate than
the probability-weighted expected return method once a
companys operations have matured enough to indicate that
the company may have unlimited potential liquidity options over
the course of its lifecycle, and assumptions of any one
particular scenario, as is done in the probability-weighted
expected return method, would be highly speculative. Based on
the market conditions at the time and our improving operating
performance, we began to believe that completing an initial
public offering was possible. Additionally, during 2007, there
were several arms length negotiated transactions involving
our common and preferred stock.
Shields factored the arms length negotiated equity
transactions into the retrospective valuations. For the purpose
of the valuations, Shields did not utilize these equity
transactions as a means of calculating the underlying asset
value for the option-pricing model, but used it as a data point
to validate the conclusions derived from the option-pricing
model. The per-share purchase price in these arms length
transactions was a negotiated purchase price, predominantly
derived by applying a revenue multiple to our projected results.
As a result of the forward-looking methodology utilized by
investors, Shields adjusted its analyses by placing more weight
on the forward-looking methodologies.
Under the option-pricing method, the common stock is priced
under the Black-Scholes option pricing model based on an
analysis of guideline companies, precedent transactions and
discounted cash flow. The option-pricing model is sensitive to
the following key assumptions: the underlying asset value,
liquidation preferences, volatility, time to liquidity, and the
risk-free rate. The underlying-asset value is the market price
of the underlying security on which the option is based. Our
underlying-asset value was determined by taking a weighted
average of the equity values that resulted from the guideline
companies, precedent transaction and discounted cash flow
analyses. The liquidation preferences are the amounts at which
an investor is indifferent between exercising the option or not.
Our preferred stockholders have the right to participate with
the common stockholders until they receive an amount equal to
two times the original purchase price per share of preferred
stock. The conversion rights of the preferred stockholders were
considered in determining the per share value of our common
stock. In analyzing guideline companies in the remote systems
software industry, Shields identified eight publicly-traded
guideline companies for the purpose of estimating our fair
market value as of each valuation date. Of these, Shields
determined that one publicly-traded company, Citrix Systems,
Inc., or Citrix, is the most comparable to us in that they
provide products that are very similar to and are directly
competitive with our products, while the other companies
identified had more diverse product offerings and did not
compete directly with us. As a result, we believe it is
appropriate to use Citrix as our representative public company.
Accordingly, as of each valuation date our volatility was based
on Citrixs volatility. However, in determining our
volatility Shields elected not to base our volatility only on
the volatility of Citrix and determined it to be more
representative of our volatility to also include other publicly
traded guideline companies. Thus, as of each valuation date the
volatility of Citrix was increased by ten percentage points to
more closely reflect the median volatility of the publicly
traded guideline companies. Time to liquidity is an estimated
earliest exit date to effect a transaction. For the purpose of
these analyses this was based on estimates, from management and
our investment bankers, of when an initial public offering might
occur. The risk-free rate of return is deemed to be the rate of
return on a less risky security. As of each valuation date, the
risk-free rate of return was determined by utilizing the return
of U.S. treasury notes with maturities consistent with our
time to liquidity. These assumptions represent managements
and Shields best estimates, but involve inherent
uncertainties and the application of judgment.
37
Under the guideline company analysis, we used the revenue
trading multiples of our representative public company. Under
the precedent transactions analysis, we identified completed
sale transactions of software companies in a similar market to
us that were completed in the prior twelve months. Under the
discounted cash flow analysis, our equity value is equal to the
projected future free cash flows and expected terminal value of
the company, adjusted for cash, net of debt.
The expected terminal value was calculated by applying the
representative public companys forward looking revenue
multiple to our projected future revenue results. The present
value of our projected free cash flow is determined by
discounting our projected future cash flows back to the
valuation date. The discount rate used in the analysis was 35%.
In determining the appropriate discount rate, Shields
constructed a weighted average cost of capital which determined
our cost of equity and after-tax cost of debt, and then weighed
those costs based on the debt-to-equity ratio associated with
our optimal capital structure, as of each valuation date. Based
on these calculations, discussions with management and
Shields analysis of our projections, Shields believes that
our equity holders would require a rate of return similar to a
company as outlined in Valuation of
Privately-Held-Company
Equity Securities Issued as Compensation for venture
capital investors based on a companys stage of development.
To calculate our underlying asset value, the equity values of
the guideline company, completed sale transaction and discounted
cash flow analyses are weighted. The weightings of the
methodologies were based on the judgments of Shields. As we were
progressing closer to an initial public offering, Shields
increased the weight of the methodologies utilizing our
projected financial results versus our historical financial
results because investors and our investment bankers were
determining our anticipated valuation on forward-looking
multiples and projections versus historical multiples. In
addition, Shields also increased the weighting of the cash flow
based analysis, the discounted cash flow, versus the market
based methodologies as we started to generate positive cash flow.
For the January 24, 2007 valuation, Sheilds weighted the
methodologies applied to the current financial results at 85%
and to the projected financial results at 15%, since as of the
January 24, 2007 valuation date we were just beginning to
achieve significantly improved financial results. Additionally,
for the January 24, 2007 valuation, Shields weighted the
various analysis used in the option-pricing method as follows:
|
|
|
|
|
guideline company analysis based on historical results at 45%
and projected results at 5%;
|
|
|
|
completed sale transaction analysis based on historical results
at 40% and projected results at 5%; and
|
|
|
|
discounted cash flow analysis at 5%.
|
The resulting fair value of our common stock as of
January 24, 2007 was $2.73 per common share. Following a
review of this retrospective valuation and the objective and
subjective factors previously reviewed, our board of directors
retrospectively determined that the fair value of our common
stock as of January 24, 2007 was $2.73 per share. As a
result of this determination, the exercise price of the options
granted on January 24, 2007 was less than the fair value of
our common stock. Consequently, the fair value of the stock
options calculated pursuant to Share-Based
Payment increased to $1,457,000 from $371,000, and
this increased value will be recorded as stock compensation
expense over the vesting period of the options, which is
generally four years.
Additionally, certain of the options granted on January 24,
2007 were performance-based options, as defined under
Share-Based Payment. The performance criteria
associated with these options were based upon the successful
completion of our initial public offering or other liquidation
event at predefined enterprise values. We recorded an expense of
approximately $338,000 at the closing of our IPO as the criteria
were achieved.
Stock
Option Grants on April 27, 2007
Our board of directors granted stock options on April 27,
2007, with each option having an exercise price of $1.25 per
share. Consistent with its January 24, 2007 retrospective
valuation report, Shields utilized the same valuation
methodologies, updated for our actual results through the
quarter ended March 31, 2007 for its retrospective
valuation report as of April 27, 2007. The respective
valuation methodologies used to calculate
38
the underlying asset value of the company were updated as of the
valuation date. Under the completed sales transaction analysis,
Shields updated the revenue multiple for the acquisition of
WebEx by Cisco Systems, which was announced on March 15,
2007. A portion of WebExs business competes directly with
us and therefore was relevant to our valuation. The weightings
used for historical and projected results and for the various
analyses under the option-pricing method were the same as the
previous valuation.
The resulting fair value of our common stock as of
April 27, 2007 was $5.60 per common share, an increase of
$2.87 from January 24, 2007. The increase was largely due
to an increase in the multiple for completed sales transactions
as a result of the WebEx acquisition. Following a review of this
retrospective valuation and the objective and subjective factors
previously reviewed, our board of directors retrospectively
determined that the fair value of our common stock as of
April 27, 2007 was $5.60 per share. Thus, the exercise
price of the options granted on April 27, 2007 was less
than the reassessed fair value of our common stock.
Consequently, the fair value of the stock options calculated
pursuant to Share-Based Payment increased to
$476,000 from $58,000. This increased value will be recorded as
stock compensation expense over the vesting period of these
options, which range from two to four years. In order to
mitigate the potential unfavorable tax consequences to
individuals holding options granted on April 27, 2007, on
April 18, 2008, our board of directors approved a plan to
allow the affected option holders to amend the exercise prices
of their original options from $1.25 to $5.60 per share. As part
of this amendment, we will compensate the affected option
holders of 80,000 shares who elected to amend their options
for the difference in the exercise price with a cash bonus
payment upon the vesting of the respective stock option. The
financial impact from the change in the valuation as a result of
this amendment is approximately $283,000, of which approximately
$209,000 has been recorded as stock compensation expense during
the year ended December 31, 2008, and approximately $48,000
has been recorded as stock compensation expense during the nine
month period ended September 30, 2009. Approximately
$26,000 will be recorded over the remaining vesting period of
the affected options.
Stock
Option Grants on August 3, 2007
Our board of directors granted stock options on August 3,
2007, with each option having an exercise price of
$9.28 per share. Consistent with its previous retrospective
valuation reports, Shields utilized the option-pricing method
updated for our actual results for the quarter ended June 30,
2007 and our projected results as of July 17, 2007.
During the quarter ended June 30, 2007, we continued to
operate our business in the ordinary course, and we experienced
increases in our number of customers and subscription revenue
and orders forecasts, including a potential large transaction
with an original equipment manufacturer. We also had preliminary
discussions during this period with third parties interested in
potentially acquiring the company. While these inquiries were
very preliminary, our board of directors considered the various
exit scenarios presented by these inquiries. Our board of
directors and management began to more seriously consider the
possibility of an initial public offering and continued to
discuss this scenario with several investment banks.
Additionally, three founding employees began discussions to sell
up to 19% of their common stock to three of our largest
stockholders. During July and August 2007, the three founding
employees and five other smaller stockholders, including several
non-employee stockholders, sold an aggregate of
719,068 shares of common stock at $9.73 per share and
71,522 shares of preferred stock at $3.89 per share to
existing stockholders, representing an aggregate purchase price
of approximately $7,271,000.
Shields factored the founding employees equity transaction
into its analyses and retrospective valuation, placing more
weight on the forward-looking methodologies because the
negotiated purchase price was predominantly derived by applying
a revenue multiple to our projected revenues. Our weightings
were adjusted to 60% on projected financial results, increased
from 15% in the previous valuation, and 40% to current financial
results, decreased from 85% in the previous valuation. The
weightings used for the guideline company analysis based on
historical results were decreased to 10% from 45% while the
weighting used for projected results was increased to 15% from
5%. The weighting used for the completed sale transaction
analysis based on historical results was decreased to 30% from
40% while the weighting used for projected results was increased
to 15% from 5%. Finally, as a result of our improved performance
and the founding
39
employees equity transaction, the discounted cash flow
weighting was increased to 30% from 5%. The expected term was
updated to June 2008, from December 2009, based on our more
substantive discussions with investment bankers regarding the
possibility of an initial public offering or other liquidity
event. The respective valuation methodologies used to calculate
the underlying asset value of the company were updated as of the
valuation date.
The resulting fair value of our common stock from the
retrospective valuation as of July 17, 2007 was $8.65 per
common share, an increase of $3.05 from April 27, 2007. The
increase was largely due to the weighting shift to projected
financial results from current financial results. Following a
review of this retrospective valuation and the objective and
subjective factors previously reviewed, our board of directors
retrospectively determined that the fair value of our common
stock as of July 17, 2007 was $8.62 per share. As a result
of this determination, the exercise price of the options granted
on August 3, 2007 was greater than the fair market value of
our common stock for accounting purposes. Consequently, the fair
value of the stock options calculated pursuant to
Share-Based Payment decreased slightly to
$459,000 from $490,000, and this decreased value will be
recorded as stock compensation expense over the vesting period
of the options, which is generally four years.
Stock
Option Grants on November 5, 2007
Our board of directors granted stock options on November 5,
2007, with each option having an exercise price of $9.65 per
share.
During the quarter ended September 30, 2007, we continued
to operate our business in the ordinary course. We continued to
expend resources on developing new services and on marketing to
attract additional customers. Management and our board of
directors continued to discuss a potential initial public
offering, and we initiated steps to file our registration
statement with the Securities and Exchange Commission.
Shields prepared a contemporaneous valuation as of
September 30, 2007 using the option-pricing method as
described above. In the analysis our actual and projected
financial results were updated based on our actual results
through the quarter ended September 30, 2007. The
respective valuation methodologies used to calculate the
underlying asset value of the company were updated as of the
valuation date. The weightings used for historical and projected
results and for the various analyses under the option-pricing
method were the same as the previous valuation. The resulting
fair value of our common stock as of September 30, 2007 was
$9.65 per common share, an increase of $1.00 from July 17,
2007. The increase was largely due to our increased operating
results in the prior twelve months and increases in the
representative public companys revenue trading multiple.
During the period from September 30, 2007 to
November 5, 2007, we continued to operate our business in
the normal course and continued to make progress in our
potential initial public offering. On November 5, 2007, our
board of directors reviewed the September 30, 2007
valuation report, our operating results since the date of the
valuation report and our progress regarding our proposed initial
public offering, and determined that the fair value of our
common stock as of November 5, 2007 was $9.65 per share.
Stock
Option Grants on November 21, 2007
Our board of directors granted stock options on
November 21, 2007, with each option having an exercise
price of $9.65 per share. From November 5, 2007 to November 21,
2007, we continued to operate our business in the normal course.
There was no material change in our business operations or
projected financials results. There was no trading in our common
or preferred stock, however, on November 21, 2007 our board of
directors and stockholders increased the number of shares of
common stock available for option grants by 760,000 shares.
In determining the fair value per share of our common stock, our
board of directors again reviewed the valuation report as of
September 30, 2007, which had estimated the fair value of
common stock at $9.65 per share. Also, subsequent to the
November 21, 2007 board meeting, and in connection with our
filing of a registration statement on January 11, 2008, our
board of directors obtained a retrospective valuation report
from Shields as of November 21, 2007.
40
Shields utilized the option-pricing method for its retrospective
valuation. In the analysis, our actual and projected financial
results were updated based on our actual results through
October 31, 2007. The weightings used for historical and
projected results and for the various analyses under the
option-pricing method were the same as the previous valuation.
The resulting fair value of our common stock as of
November 21, 2007 was $9.35 per common share, a decrease of
$0.30 from the previous valuation report. This decrease was
primarily due to a reduction in the revenue multiple of our
representative company, a decrease in our estimated volatility
and a reduction in our estimated time to liquidity. The
reduction in revenue multiple and estimated volatility was due
to a decrease in our representative companys actual stock
price and volatility since the previous valuation report. The
reduction in our estimated time to liquidity was due to the
passage of time since the previous valuation report and not a
change in the estimated date of a liquidity event. Additionally,
our per share enterprise value decreased due to an increase of
760,000 shares of common stock associated with an increase
in the shares of common stock approved under our 2007 stock
incentive plan, which at the time we intended to grant prior to
the estimated date of a liquidity event in the valuation report.
Following a review of this valuation report and the objective
and subjective factors previously reviewed, our board of
directors determined that the fair value of our common stock as
of November 21, 2007 was $9.35 per share. As a result of
this determination, the exercise price of the options granted on
November 21, 2007, $9.65, was greater than the fair value
of our common stock.
Stock
Option Grants on January 17, 2008
Our board of directors granted stock options on January 17,
2008, with each option having an exercise price of $10.75 per
share. During the quarter ended December 31, 2007, and
through January 17, 2008, we continued to operate our
business in the ordinary course. Both the number of our
customers and our subscription revenue continued to grow, but we
continued to operate at a loss. Additionally in December 2007,
we entered into a strategic multi-year service and marketing
agreement with Intel Corporation. In conjunction with this
agreement, Intel Capital purchased 2,222,223 shares of our
series B-1
redeemable convertible preferred stock for $10 million, or
$4.50 per share. The terms and preferences of our
series B-1
redeemable convertible preferred stock were similar to the terms
and preferences of our series B preferred stock. The
preferences of the
series B-1
were included in our updated valuation analysis.
Shields prepared a contemporaneous valuation as of
January 14, 2008 using the option-pricing method. In the
analysis our actual and projected financial results were updated
based on our actual results through the quarter and year ended
December 31, 2007. The discount rate was decreased to 20%
from the 30% used in the September 30, 2007 valuation
because of our continued improved financial performance, the
completion of the $10 million preferred investment by Intel
Capital and the successful filing of our registration statement.
The weightings used for historical and projected results and for
the various analyses under the option-pricing method were the
same as the previous valuation. The resulting fair value of our
common stock as of January 14, 2008 was $10.75 per common
share, an increase of $1.40 per share from November 21,
2007. The increase was largely due to the reduction in the
discount rate due to the Intel Capital investment and the
successful filing of our registration statement. Following a
review of this valuation report and the objective and subjective
factors previously listed, our board of directors determined
that the fair value of our common stock as of January 17,
2008 was $10.75 per share.
Stock
Option Grants on April 18, 2008
Our board of directors granted stock options on April 18, 2008,
each with an exercise price of $11.40 per share. During the
quarter ended March 31, 2008, and through the period ended April
18, 2008, we continued to operate our business in the ordinary
course. The number of our customers and our subscription revenue
continued to grow. However, we continued to operate at a loss
during these periods, and we were not cash flow positive. There
was no trading of our common or preferred stock during these
periods.
Shields prepared a contemporaneous valuation as of April 17,
2008 using the same option-pricing method employed in the
previous valuation. The weightings and discount rate used in the
analysis were consistent with the previous valuation. Our actual
and projected financials results were updated based on our
actual results for the quarter ended March 31, 2008 and our
projections as of April 17, 2008, which resulted in an
increase in both our
41
last twelve months revenue and projected fiscal year 2008
revenue when compared to the previous valuation report. Our
estimated time to liquidity was increased to October 2008 from
July 2008 and our representative companys revenue multiple
was updated to reflect the decrease in the stock market from the
previous valuation report.
The resulting fair value of our common stock as of April 17,
2008 was $11.23 per common share, an increase of $0.48 per share
from January 17, 2008. The increase was largely due to an
increase in our actual last twelve months and projected fiscal
year 2008 revenue offset by a decrease in external revenue
multiples. Following a review of this valuation report and the
objective and subjective factors previously listed, our board of
directors determined that the fair value of our common stock as
of April 18, 2008 was $11.23 per share, which was less than the
exercise price of the options, $11.40 granted on April 18, 2008.
Stock
Option Grants on July 17, 2008
Our board of directors granted stock options on July 17,
2008, with each option having an exercise price of $11.40 per
share. During the quarter ended June 30, 2008, and through
the period ended July 17, 2008, we continued to operate our
business in the ordinary course. Both the number of our
customers and our subscription revenue continued to grow. We
continued to operate at a loss but achieved positive cash flow
from operations. There was no trading of any our common or
preferred stock during these periods.
Shields prepared a contemporaneous valuation as of July 17,
2008 using the option-pricing method, consistent with its
previous valuation reports. The weightings and discount rate
used in the analysis were consistent with previous valuations.
Our actual and projected financials results were updated based
on our actual results for the six month period ended
June 30, 2008 and our projections as of July 17, 2008,
which, when compared to the previous valuation report resulted
in an increase in both our last twelve months revenue and a
slight increase in our projected fiscal year 2008 revenue. Our
estimated time to liquidity continued to be estimated at October
2008. Our representative companys stock volatility and
revenue multiple was updated to reflect the increased volatility
and decreased value of the stock market from the previous
valuation report.
The resulting fair value of our common stock as of July 17,
2008 was $11.25 per common share, an increase of $0.02 per share
from April 17, 2008. The slight increase was largely due to
increase in our actual last twelve months and projected fiscal
year 2008 revenue offset by a decrease in external revenue
multiples. Following a review of this valuation report and the
objective and subjective factors previously listed our board of
directors determined that the fair value of our common stock as
of July 17, 2008 was $11.25 per share, which was less than
the exercise price of the options, $11.40, granted on
July 17, 2008.
Stock
Options Granted on October 23, 2008
Our board of directors granted stock options on October 23,
2008, with each option having an exercise price of $11.78 per
share. During the quarter ended September 30, 2008, and
through the period ended October 23, 2008, we continued to
operate our business in the ordinary course. Both the number of
our customers and our subscription revenue continued to grow. We
completed the development work associated with our service and
marketing agreement with Intel Corporation and recognized
revenue related to that agreement during this period. We
achieved positive net income during the quarter ended
September 30, 2008 and generated positive cash flow for the
quarter. There was no trading of any our common or preferred
stock during the period.
Shields prepared a contemporaneous valuation as of
October 20, 2008 using the option-pricing method, with
weightings and a discount rate consistent with its previous
valuations. Our actual financial results used by Shields were
updated based on our results for the nine month period ended
September 30, 2008, which reflected the continued increase
in our revenues through the quarter ended September 30,
2008. We updated our projected financial results based on our
preliminary budget for the fiscal year ended December 31,
2009. Additionally, our estimated time to liquidity was extended
from October 2008 to September 2009 due largely to stock market
conditions. Our representative companys revenue multiple
was decreased to reflect the decrease in the stock market from
the previous valuation report and to reflect that our projected
financial results were based on fiscal year 2009 projections.
The precedent transaction analysis multiples were also updated
and decreased slightly, largely driven by precedent transaction
trends due to current market conditions, since the last
valuation report.
42
The resulting fair value of our common stock as of
October 20, 2008 was $11.78 per common share, an increase
of $0.53 per share from July 17, 2008. The increase was
largely due to an increase in our actual revenue in the last
twelve months and the use of our projected fiscal year 2009
revenue, offset by a decrease in external revenue multiples and
precedent transactions multiples. Following a review of this
valuation report and the objective and subjective factors
previously listed, our board of directors determined that the
fair value of our common stock as of October 23, 2008 was
$11.78 per share.
Stock
Options Granted on February 5, 2009
Our board of directors granted stock options on February 5,
2009, with each option having an exercise price of $10.08 per
share. During the quarter ended December 31, 2008, and
through the period ended February 5, 2009, we continued to
operate our business in the ordinary course. Both the number of
our customers and our subscription revenue continued to grow. We
achieved positive net income during the quarter ended
December 31, 2008 and generated positive cash flow for the
quarter. There was no trading of our common or preferred stock
during the period.
Shields prepared a contemporaneous valuation as of
February 4, 2009 using the option-pricing method,
consistent with its previous valuation reports. The weightings
used in the analysis were consistent with the previous
valuation. The discount rate used in the discounted cash flow
valuation was decreased from 20% to 15% to reflect our updated
financial performance in the quarter ended December 31,
2008. Our actual financial results were updated based on our
results for the three months and year ended December 31,
2008. This resulted in an increase in our last twelve months
revenue from our previous valuation report since our revenue
continued to increase in the quarter ended December 31,
2008. Our projected financial results were updated based on our
budget for the fiscal year ended December 31, 2009. Our
estimated time to liquidity was increased from September 2009 to
March 2010 due largely to stock market conditions existing at
the time of the valuation. Our representative company revenue
multiple was decreased to reflect the decrease in the stock
market from the previous valuation report. Additionally, the
precedent transaction analysis multiples were also updated to
reflect transactions completed since the last valuation report
and decreased, largely to reflect the decrease in the stock
market, since the last valuation report.
The resulting fair value of our common stock as of
February 4, 2009 was $10.08 per common share, a decrease of
$1.70 per share from October 20, 2008. The decrease was
largely due to decreases in our representative company revenue
multiple and precedent transaction multiples since the last
valuation report due to decreases in the general stock market
offset in part by an increase in our actual revenue in the last
twelve months and our projected financial results. Following a
review of this valuation report and the objective and subjective
factors previously listed, our board of directors determined
that the fair value of our common stock as of February 5,
2009 was $10.08 per share.
Stock
Options Granted on May 7, 2009
Our board of directors granted stock options on May 7,
2009, with each option having an exercise price of $12.10 per
share. During the quarter ended March 31, 2009, and through
the period ended May 7, 2009, we continued to operate our
business in the ordinary course. Both the number of our
customers and our subscription revenue continued to grow. We
achieved positive net income during the quarter ended
March 31, 2009 and generated positive cash flow for the
quarter. There was no trading of our common or preferred stock
during the period.
Shields prepared a contemporaneous valuation as of May 7,
2009 using the option-pricing method, consistent with its
previous valuation reports. The weightings and discount rate
used in the discounted cash flow analysis were consistent with
the previous valuation. Our actual financial results were
updated based on our results for the three months ended
March 31, 2009. This resulted in an increase in our last
twelve months revenue from our previous valuation report since
our revenue continued to increase in the quarter ended
March 31, 2009. Our projected financial results were
updated for our actual results for the quarter ended
March 31, 2009 and based upon our updated financial
forecast. This resulted in a slight increase of our projected
revenue and positive cash flow from our previous valuation
report. Our estimated time to liquidity
43
was consistent at March 2010 due largely to stock market
conditions with regards to the initial public offering market
existing at the time of the valuation. Our representative
company revenue multiple was increased to reflect the increase
in its stock market valuation from the previous valuation
report. Additionally, the precedent transaction analysis
multiples were updated to reflect transactions completed since
the last valuation report and remained consistent since the last
valuation report. Also, during the period since the last
valuation report to May 7, 2009, we, in conjunction with
one of our preferred shareholders, explored the sale of a
minority interest in the Company to provide liquidity to the
preferred shareholder. Shields took note of the non-binding
offers in preparing its valuation report but due to the fact
that the non-binding offers were non-binding, and based mainly
on public information and brief meetings with management
determined that, although interesting to note, the non-binding
offers received from third parties were not a useful indication
of our value.
The resulting fair value of our common stock as of May 7,
2009 was $12.10 per common share, an increase of $2.02 per share
or 20% from February 4, 2009. The increase was largely due
to increases in our representative company revenue multiple
since the last valuation report due to increases in the general
stock market and increases in our actual revenue in the last
twelve months and our projected financial results. Following a
review of this valuation report and the objective and subjective
factors previously listed, our board of directors determined
that the fair value of our common stock as of May 7, 2009
was $12.10 per share.
Post-IPO
Valuation of Common Stock
On August 6, 2009, after our IPO, we granted options to
purchase 24,400 shares of common stock at an exercise price of
$19.03 per share and an aggregate fair value of $316,468. The
exercise price per share of the August 2009 grants was set at
the grant date fair value of our common stock as measured by the
closing sales price per share of our common stock as quoted on
The NASDAQ Global Market on the date of the grant.
On November 5, 2009, our board of directors granted options
to purchase 92,500 shares of common stock at an exercise
price of $20.02 per share and an aggregate fair value of
$1,215,450. The exercise price per share of the November 2009
grants was set at the grant date fair value of our common stock
as measured by the closing sales price per share of our common
stock as quoted on The NASDAQ Global Market on the date of the
grant.
44
Results
of Consolidated Operations
The following table sets forth selected consolidated statements
of operations data for each of the periods:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
11,307
|
|
|
$
|
26,998
|
|
|
$
|
51,723
|
|
|
$
|
14,386
|
|
|
$
|
18,971
|
|
|
$
|
35,727
|
|
|
$
|
54,175
|
|
Cost of revenue
|
|
|
2,033
|
|
|
|
3,925
|
|
|
|
5,970
|
|
|
|
1,576
|
|
|
|
1,910
|
|
|
|
4,292
|
|
|
|
5,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,274
|
|
|
|
23,073
|
|
|
|
45,753
|
|
|
|
12,810
|
|
|
|
17,061
|
|
|
|
31,435
|
|
|
|
48,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,232
|
|
|
|
6,661
|
|
|
|
11,997
|
|
|
|
3,281
|
|
|
|
3,579
|
|
|
|
8,987
|
|
|
|
9,487
|
|
Sales and marketing
|
|
|
10,050
|
|
|
|
19,488
|
|
|
|
31,631
|
|
|
|
7,865
|
|
|
|
9,059
|
|
|
|
23,407
|
|
|
|
26,378
|
|
General and administrative
|
|
|
2,945
|
|
|
|
3,611
|
|
|
|
6,583
|
|
|
|
1,580
|
|
|
|
2,344
|
|
|
|
4,848
|
|
|
|
5,787
|
|
Legal settlements
|
|
|
|
|
|
|
2,225
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
141
|
|
|
|
328
|
|
|
|
328
|
|
|
|
82
|
|
|
|
82
|
|
|
|
246
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
16,368
|
|
|
|
32,313
|
|
|
|
51,139
|
|
|
|
12,808
|
|
|
|
15,064
|
|
|
|
38,088
|
|
|
|
41,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(7,094
|
)
|
|
|
(9,240
|
)
|
|
|
(5,386
|
)
|
|
|
2
|
|
|
|
1,997
|
|
|
|
(6,653
|
)
|
|
|
6,769
|
|
Interest and other income, net
|
|
|
393
|
|
|
|
235
|
|
|
|
106
|
|
|
|
42
|
|
|
|
(99
|
)
|
|
|
97
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(6,701
|
)
|
|
|
(9,005
|
)
|
|
|
(5,280
|
)
|
|
|
44
|
|
|
|
1,898
|
|
|
|
(6,556
|
)
|
|
|
6,535
|
|
Provision for income taxes
|
|
|
|
|
|
|
(50
|
)
|
|
|
(122
|
)
|
|
|
(35
|
)
|
|
|
(48
|
)
|
|
|
(89
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,701
|
)
|
|
$
|
(9,055
|
)
|
|
$
|
(5,402
|
)
|
|
$
|
9
|
|
|
$
|
1,850
|
|
|
$
|
(6,645
|
)
|
|
$
|
6,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth selected consolidated statements
of operations data for each of the periods indicated as a
percentage of total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of revenue
|
|
|
18
|
|
|
|
15
|
|
|
|
12
|
|
|
|
11
|
|
|
|
10
|
|
|
|
12
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82
|
|
|
|
85
|
|
|
|
88
|
|
|
|
89
|
|
|
|
90
|
|
|
|
88
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
29
|
|
|
|
25
|
|
|
|
23
|
|
|
|
23
|
|
|
|
19
|
|
|
|
25
|
|
|
|
18
|
|
Sales and marketing
|
|
|
89
|
|
|
|
72
|
|
|
|
61
|
|
|
|
55
|
|
|
|
48
|
|
|
|
66
|
|
|
|
49
|
|
General and administrative
|
|
|
26
|
|
|
|
14
|
|
|
|
13
|
|
|
|
11
|
|
|
|
12
|
|
|
|
14
|
|
|
|
11
|
|
Legal settlements
|
|
|
|
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
145
|
|
|
|
120
|
|
|
|
99
|
|
|
|
89
|
|
|
|
79
|
|
|
|
107
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(63
|
)
|
|
|
(34
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
11
|
|
|
|
(19
|
)
|
|
|
12
|
|
Interest and other income, net
|
|
|
4
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(59
|
)
|
|
|
(33
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
10
|
|
|
|
(18
|
)
|
|
|
12
|
|
Provision for income taxes
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(59
|
)%
|
|
|
(34
|
)%
|
|
|
(10
|
)%
|
|
|
|
%
|
|
|
10
|
%
|
|
|
(19
|
)%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Three
Months Ended September 30, 2009 and 2008
Revenue. Revenue for the three months ended
September 30, 2009 was $19.0 million, an increase of
$4.6 million, or 32%, over revenue of $14.4 million
for the three months ended September 30, 2008, primarily
due to revenue generated from new customers. The remaining
increase in revenue was due to incremental subscription revenue
from our existing customers.
Cost of Revenue. Cost of revenue for the three
months ended September 30, 2009 was $1.9 million, an
increase of $0.3 million, or 21%, over cost of revenue of
$1.6 million for the three months ended September 30,
2008. As a percentage of revenue, cost of revenue was 10% for
the three months ended September 30, 2009 versus 11% for
the three months ended September 30, 2008. The decrease in
cost of revenue as a percentage of revenue was primarily the
result of more efficient utilization of our data center and
customer support organizations. The increase in absolute dollars
resulted primarily from an increase in both the number of
customers using our premium services and the total number of
devices that connected to our services, including devices owned
by free users, which resulted in increased hosting and customer
support costs. The increase in data center costs was due to the
expansion of our data center facilities as we added capacity to
our hosting infrastructure. Additionally, $0.1 million of
the increase in cost of revenue was due to the increased costs
in our customer support organization we incurred, primarily as a
result of hiring new employees to support our customer growth.
Research and Development Expenses. Research
and development expenses for the three months ended
September 30, 2009 were $3.6 million, an increase of
$0.3 million, or 9%, over research and development expenses
of $3.3 million for the three months ended
September 30, 2008. The increase was primarily due to a
$0.1 million increase in personnel-related costs, including
salary and other compensation related costs, as we increased the
number of research and development personnel to 141 at
September 30, 2009 from 112 at September 30, 2008. The
increase was also due to a $0.1 million increase in
consultant costs and a $0.1 million increase in
rent-related costs.
Sales and Marketing Expenses. Sales and
marketing expenses for the three months ended September 30,
2009 were $9.1 million, an increase of $1.2 million,
or 15%, over sales and marketing expenses of $7.9 million
for the three months ended September 30, 2008. The increase
was primarily due to a $0.7 million increase in personnel
related and recruiting costs from additional employees hired to
support our growth in sales and expand our marketing efforts.
The total number of sales and marketing personnel increased to
115 at September 30, 2009 from 89 at September 30,
2008. The increase was also due to $0.2 million increase in
marketing programs costs, a $0.1 million increase in
travel-related costs and a $0.1 million increase in
telephone costs.
General and Administrative Expenses. General
and administrative expenses for the three months ended
September 30, 2009 were $2.3 million, an increase of
$0.8 million, or 48%, over general and administrative
expenses of $1.6 million for the three months ended
September 30, 2008. The increase was primarily due to a
$0.3 million increase in personnel-related costs as we
increased the number of general and administrative employees to
support our overall growth. The increase was also due to a
$0.2 million increase in legal costs and a
$0.1 million increase in corporate insurance costs.
Amortization of Acquired
Intangibles. Amortization of acquired intangibles
for the three months ended September 30, 2009 and 2008 was
$0.1 million and related to the value of intangible assets
acquired in our July 2006 acquisition of Applied Networking, Inc.
Interest and Other (Income) Expense,
Net. Interest and other (income) expense, net for
the three months ended September 30, 2009 was an expense of
$99,000, compared to income of $42,000, for the three months
ended September 30, 2008. The change was mainly due to an a
decrease in interest income and an increase in foreign exchange
losses offset by a decrease in interest expense associated with
a note payable related to our acquisition of Applied Networking,
Inc.
Income Taxes. During the three months ended
September 30, 2009 and 2008, we recorded a deferred tax
provision of $4,000 related to the different book and tax
treatment for goodwill and a provision for alternative minimum
taxes, foreign and state income taxes totaling $44,000 and
$30,000, respectively. We recorded a
46
federal income tax provision for the three months ended
September 30, 2009 and a federal income tax benefit for the
three months ended September 30, 2008 which were offset by
the change in the valuation allowance. We have also provided a
full valuation allowance for our net deferred tax assets as we
believe it is not more likely than not that any future benefits
from these deferred tax assets would be realized.
Net Income (Loss). We recognized net income of
$1.8 million for the three months ended September 30,
2009 compared to net income of $9,500 for the three months ended
September 30, 2008. The increase in net income was
associated with the increase in revenues partially offset by an
increase in operating expenses.
Nine
Months Ended September 30, 2009 and 2008
Revenue. Revenue for the nine months ended
September 30, 2009 was $54.2 million, an increase of
$18.4 million, or 52%, over revenue of $35.7 million
for the nine months ended September 30, 2008, primarily due
to increased revenue from new customers (including
$3.0 million of incremental revenue from Intel). The
remaining increase in revenue was due to incremental
subscription revenue from our existing customers.
Cost of Revenue. Cost of revenue for the nine
months ended September 30, 2009 was $5.5 million, an
increase of $1.2 million, or 28%, over cost of revenue of
$4.3 million for the nine months ended September 30,
2008. As a percentage of revenue, cost of revenue was 10% for
the nine months ended September 30, 2009 versus 12% for the
nine months ended September 30, 2008. The decrease in cost
of revenue as a percentage of revenue was primarily the result
of more efficient utilization of our data center and customer
support organizations. The increase in absolute dollars
primarily resulted from an increase in both the number of
customers using our premium services and the total number of
devices that connected to our services, including devices owned
by free users, which resulted in increased hosting and customer
support costs. Of the increase in cost of revenue,
$0.7 million resulted from increased data center costs
associated with the hosting of our services. The increase in
data center costs was due to the expansion of our data center
facilities as we added capacity to our hosting infrastructure.
Additionally, $0.5 million of the increase in cost of
revenue was due to the increased costs in our customer support
organization we incurred, primarily as a result of hiring new
employees to support our customer growth.
Research and Development Expenses. Research
and development expenses for the nine months ended
September 30, 2009 were $9.5 million, an increase of
$0.5 million, or 6%, over research and development expenses
of $9.0 million for the nine months ended
September 30, 2008. The increase was primarily due to a
$0.1 million increase in personnel-related costs, including
salary and other compensation related costs, as we increased the
number of research and development personnel to 141 at
September 30, 2009 from 112 at September 30, 2008. The
increase was also due to a $0.1 million increase in
consultant costs, a $0.1 million increase in rent costs and
a $0.1 million increase in telephone costs.
Sales and Marketing Expenses. Sales and
marketing expenses for the nine months ended September 30,
2009 were $26.4 million, an increase of $2.9 million,
or 13%, over sales and marketing expenses of $23.4 million
for the nine months ended September 30, 2008. The increase
was primarily due to a $2.0 million increase in personnel
related and recruiting costs from additional employees hired to
support our growth in sales and expand our marketing efforts.
The total number of sales and marketing personnel increased to
115 at September 30, 2009 from 89 at September 30,
2008. The increase was also due to a $0.2 million increase
in consultant costs, a $0.2 million increase in travel
related costs and a $0.2 million increase in telephone
costs.
General and Administrative Expenses. General
and administrative expenses for the nine months ended
September 30, 2009 were $5.8 million, an increase of
$0.9 million, or 19%, over general and administrative
expenses of $4.8 million for the nine months ended
September 30, 2008. The increase was primarily due to a
$0.6 million increase in personnel related costs as we
increased the number of general and administrative employees to
support our overall growth. The increase was also due to a
$0.2 million increase in legal costs and a
$0.1 million increase in corporate insurance costs.
47
Legal Settlement Expenses. Legal settlement
expenses for the nine months ended September 30, 2009 were
zero, a decrease of $0.6 million, or 100%, over legal
settlement expenses of $0.6 million for the nine months
ended September 30, 2008. In May 2008, we settled a lawsuit
which began in 2007 related to an alleged patent infringement.
Amortization of Acquired
Intangibles. Amortization of acquired intangibles
for the nine months ended September 30, 2009 and 2008 was
$0.2 million and related to the value of intangible assets
acquired in our July 2006 acquisition of Applied Networking, Inc.
Interest and Other (Income) Expense,
Net. Interest and other (income) expense, net for
the nine months ended September 30, 2009 was an expense of
$234,000, compared to income of $97,000, for the nine months
ended September 30, 2008. The change was mainly due to a
decrease in interest income and an increase in foreign exchange
losses offset by a decrease in interest expense associated with
a note payable related to our acquisition of Applied Networking,
Inc.
Income Taxes. During the nine months ended
September 30, 2009 and 2008, we recorded a deferred tax
provision of approximately $12,000 related to the different book
and tax treatment for goodwill and a provision for alternative
minimum taxes, foreign and state income taxes totaling $200,000
and $77,000, respectively. We recorded a federal income tax
provision for the nine months ended September 30, 2009 and
a federal income tax benefit for the nine months ended
September 30, 2008 which were offset by the change in the
valuation allowance. We have provided a full valuation allowance
for our net deferred tax assets as we believe it is not more
likely than not that any future benefits from these deferred tax
assets would be realized.
Net Income (Loss). We recognized a net income
of $6.3 million for the nine months ended
September 30, 2009 compared to a net loss of
$6.6 million for the nine months ended September 30,
2008. The increase in net income arose principally from an
increase in revenues partially offset by an increase in
operating expenses.
Years
Ended December 31, 2008 and 2007
Revenue. Revenue for the year ended
December 31, 2008 was $51.7 million, an increase of
$24.7 million, or 92%, over revenue of $27.0 million
for the year ended December 31, 2007. Our revenue consists
of fees for our subscription services. Of the 92% increase in
revenue, the majority of the increase was due to increases in
revenue from new customers, as our total number of premium
accounts increased by 67% to 174,000 at December 31, 2008
from 104,000 premium accounts at December 31, 2007. The
remaining increase in revenue was due to incremental
subscription revenue from our existing customers and revenue
associated with the Intel agreement.
Cost of Revenue. Cost of revenue for the year
ended December 31, 2008 was $6.0 million, an increase
of $2.1 million, or 54%, over cost of revenue of
$3.9 million for the year ended December 31, 2007. As
a percentage of revenue, cost of revenue was 12% for the year
ended December 31, 2008 versus 15% for the year ended
December 31, 2007. The decrease in costs of revenue as a
percentage of revenue was primarily the result of more efficient
utilization of our data center and customer support
organizations. The increase in cost of revenue in absolute
dollars is primarily due to increased hosting and customer
support costs resulting from an increase in both the number of
customers using our premium services and the total number of
devices that connected to our services, including devices owned
by free users. The total number of devices connected to our
service increased to approximately 60 million as of
December 31, 2008 from approximately 32 million as of
December 31, 2007. Of the increase in cost of revenue,
$1.3 million resulted from increased data center costs
associated with the hosting of our services. The increase in
data center costs was due to expansion of our data center
facilities as we added capacity to our hosting infrastructure,
including the establishment of two new data centers in 2007,
including one in Europe and one in the United States.
Additionally, $0.8 million of the increase in cost of
revenue was due to increased costs in our customer support
organization primarily associated with costs of new employees
hired to support our customer growth.
Research and Development Expenses. Research
and development expenses for the year ended December 31,
2008 were $12.0 million, an increase of $5.3 million,
or 79%, over research and development
48
expenses of $6.7 million for the year ended
December 31, 2007. The increase was primarily due to
additional personnel-related costs, including salary and other
compensation related costs, as we increased the number of
research and development employees to enhance the functionality
of our services and to develop new offerings. The total number
of research and development personnel increased by 39% to 122 at
December 31, 2008 from 88 at December 31, 2007.
Sales and Marketing Expenses. Sales and
marketing expenses for the year ended December 31, 2008
were $31.6 million, an increase of $12.1 million, or
62%, over sales and marketing expenses of $19.5 million for
the year ended December 31, 2007. The increase was
primarily due to a $6.1 million increase in
personnel-related and recruiting costs, including salary and
other compensation related costs, resulting from increased
headcount mainly to support the growth in sales and expanded
marketing efforts. The total number of sales and marketing
personnel increased to 101 at December 31, 2008 from 69 at
December 31, 2007. The increase was also attributable to a
$2.6 million increase in online search and advertising
costs, a $0.4 million increase in trade show costs, a
$0.6 million increase in travel related costs, a
$0.2 million increase in telephone costs, and a
$0.4 million increase in consulting costs, all a result of
the initiatives to increase awareness of our services and to add
new users and customers. In addition, we experienced a
$0.4 million increase in rent expense in connection with
the expansion of our Woburn, Massachusetts office, as well as
the addition of the office in Amsterdam, The Netherlands.
General and Administrative Expenses. General
and administrative expenses for the year ended December 31,
2008 were $6.6 million, an increase of $3.0 million,
or 83%, over general and administrative expenses of
$3.6 million for the year ended December 31, 2007. The
primary reason for the increase was an increase in
personnel-related and recruiting costs, including salary and
other compensation related costs, of $2.0 million as we
increased the number of general and administrative employees to
support our overall growth. Additionally, professional fees
increased by $0.6 million and travel related costs
increased by $0.1 million.
Legal Settlement Expenses. Legal settlement
expenses for the year ended December 31, 2008 were
$0.6 million, a decrease of $1.6 million, or 73%, over
legal settlement expenses of $2.2 million for the year
ended December 31, 2007. In May 2008, we settled a lawsuit
which began in 2007 related to an alleged patent infringement.
Amortization of Acquired
Intangibles. Amortization of acquired intangibles
for the years ended December 31, 2008 and 2007 was
$0.3 million and related to the value of intangible assets
acquired in our July 2006 acquisition of Applied Networking, Inc.
Interest and Other Income, Net. Interest and
other income, net, for the year ended December 31, 2008 was
$0.1 million, a decrease of $0.1 million over interest
and other income, net of $0.2 million for the year ended
December 31, 2007. The decrease was mainly due to an
increase in foreign exchange losses and a decrease in interest
income offset by a decrease in interest expense associated with
a note payable related to our acquisition of Applied Networking,
Inc.
Income taxes. During the years ended
December 31, 2008 and 2007, we recorded a deferred tax
provision of approximately $17,000 and $25,000, respectively,
related to the different book and tax treatment for goodwill and
a provision for foreign and state income taxes totaling $105,000
and $26,000, respectively. We recorded a federal income tax
benefit for the years ended December 31, 2008 and 2007
related to the net tax losses in the periods. We have also
provided a full valuation allowance for our net deferred tax
assets as it is not more likely than not that any future
benefits from these deferred tax assets would be realized.
Net loss. We recognized a net loss of
$5.4 million for the year ended December 31, 2008
versus $9.1 million for the year ended December 31,
2007. The decrease in net loss was associated with the increase
in revenues partially offset by increase in operating expenses.
Years
Ended December 31, 2007 and 2006
Revenue. Revenue for 2007 was
$27.0 million, an increase of $15.7 million or 139%
over revenue of $11.3 million for 2006. Our revenue
consists of fees for our subscription services. Of the 139%
increase in revenue
49
during 2007, the majority of the increase was due to increases
in revenue from new customers as our total number of premium
accounts increased by 88% to 98,000 at December 31, 2007
from 52,000 premium accounts at December 31, 2006. The
remaining increase in revenue was due to incremental
subscription revenue from our existing customers.
Cost of Revenue. Cost of revenue for 2007 was
$3.9 million, an increase of $1.9 million, or 95%,
over cost of revenue of $2.0 million for 2006. As a
percentage of revenue, cost of revenue was 15% for 2007 versus
18% for 2006. The decrease in costs of revenue as a percentage
of revenue was primarily the result of more efficient
utilization of our data center and customer support
organizations. The increase in absolute dollars primarily
resulted from an increase in both the number of customers using
our premium services and the total number of devices that
connected to our services, including devices owned by free
users, which resulted in increased hosting and customer support
costs. The total number of devices connected to our service
increased to approximately 32 million as of 2007 from
approximately 13 million as of 2006. Of the increase in
cost of revenue, $1.1 million resulted from increased data
center costs associated with the hosting of our services. The
increase in data center costs was due to expansion of our data
center facilities as we added capacity to our hosting
infrastructure, including the establishment of two new data
centers in 2007, including one in Europe and one in the United
States. Additionally, $0.8 million of the increase in cost
of revenue was due to increased costs in our customer support
organization primarily associated with costs of new employees
hired to support our customer growth.
Research and Development Expenses. Research
and development expenses for 2007 were $6.7 million, an
increase of $3.5 million, or 109%, over research and
development expenses of $3.2 million for 2006. The increase
was primarily due to additional personnel-related costs,
including salary and other compensation related costs, as we
increased the number of research and development employees to
enhance the functionality of our services and develop new
offerings. The total number of research and development
personnel increased to 88 at December 31, 2007 from 47 at
December 31, 2006.
Sales and Marketing Expenses. Sales and
marketing expenses for 2007 were $19.5 million, an increase
of $9.5 million, or 95%, over sales and marketing expenses
of $10.0 million for 2006. The increase was primarily due
to increases in online search and advertising costs of
$4.6 million as we expanded our online search and
advertising in order to increase awareness of our services and
to add new users and customers. Additionally, personnel-related
costs, including salary and other compensation related costs,
increased by $3.1 million as we added sales and marketing
employees to accommodate the growth in sales leads and our
expanded marketing efforts.
General and Administrative Expenses. General
and administrative expenses for 2007 were $3.6 million, an
increase of $0.7 million, or 24%, over general and
administrative expenses of $2.9 million for 2006. The
primary reason for the increase was an increase in
personnel-related costs, including salary and other compensation
related costs, of $0.7 million as we increased the number
of general and administrative employees to support our overall
growth.
Legal Settlement Expenses. During 2007, we
recorded $2.2 million of expenses associated with patent
infringement claims. We paid $1.9 million in settlement
amounts in lieu of continuing defense and litigation costs
related to the alleged settled claims and had accrued $0.3
million as of December 31, 2007 related to an ongoing
claim. During the year ended December 31, 2006, there were
no legal settlement expenses.
Amortization of Acquired
Intangibles. Amortization of acquired intangibles
for 2007 were $0.3 million, an increase of
$0.2 million, over amortization expenses of
$0.1 million for 2006. Amortization expenses relate to the
value of trademarks and customer base acquired as part of our
July 2006 acquisition of Applied Networking, Inc. The increase
in amortization expenses is due to a full year of amortization
expenses being included in 2007 versus only six months of such
expenses being included in 2006, since the acquisition was only
completed in July 2006.
Interest and Other Income, Net. Interest and
other income, net for 2007 was $0.2 million, a decrease of
$0.2 million over interest and other income, net of
$0.4 million for 2006. The decrease was due mainly to
50
increased interest expense associated with a note payable
related to our acquisition of Applied Networking, Inc., which
offset an increase in interest income earned on our cash and
cash equivalents.
Income taxes. During the year ended
December 31, 2007, we recorded a deferred tax provision of
approximately $25,000, related to the different book and tax
treatment for goodwill and a provision for foreign and state
income taxes totaling $25,000. We recorded a federal income tax
benefit for the years ended December 31, 2007 and 2006
related to the net tax losses in the periods. We have also
provided a full valuation allowance for our net deferred tax
assets as it is not more likely than not that any future
benefits from these deferred tax assets would be realized.
Net loss. We recognized a net loss of
$9.1 million for 2007 versus $6.7 million for 2006.
The increase in net loss was associated with the
$2.2 million legal settlement expense in 2007 and increased
operating expenses partially offset by higher revenues.
Quarterly
Results of Operations
The following tables sets forth our unaudited consolidated
operating results for each of the eight quarters in the two-year
period ended September 30, 2009 and the percentage of
revenue for each line item shown. This information is derived
from our unaudited financial statements, which in the opinion of
management contain all adjustments consisting of only normal
recurring adjustments, that we consider necessary for a fair
statement of such financial data. Operating results for these
periods are not necessarily indicative of the operating results
for a full year. Historical results are not necessarily
indicative of the results to be expected in future periods. You
should read this data together with our consolidated financial
statements and the related notes included elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
8,580
|
|
|
$
|
9,919
|
|
|
$
|
11,422
|
|
|
$
|
14,386
|
|
|
$
|
15,996
|
|
|
$
|
17,197
|
|
|
$
|
18,007
|
|
|
$
|
18,971
|
|
Cost of revenue(1)
|
|
|
1,170
|
|
|
|
1,343
|
|
|
|
1,374
|
|
|
|
1,575
|
|
|
|
1,678
|
|
|
|
1,744
|
|
|
|
1,853
|
|
|
|
1,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
7,410
|
|
|
|
8,576
|
|
|
|
10,048
|
|
|
|
12,811
|
|
|
|
14,318
|
|
|
|
15,453
|
|
|
|
16,154
|
|
|
|
17,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
2,271
|
|
|
|
2,575
|
|
|
|
3,131
|
|
|
|
3,281
|
|
|
|
3,010
|
|
|
|
3,004
|
|
|
|
2,904
|
|
|
|
3,579
|
|
Sales and marketing(1)
|
|
|
6,144
|
|
|
|
7,554
|
|
|
|
7,987
|
|
|
|
7,866
|
|
|
|
8,224
|
|
|
|
8,446
|
|
|
|
8,874
|
|
|
|
9,059
|
|
General and administrative(1)
|
|
|
1,254
|
|
|
|
1,601
|
|
|
|
1,668
|
|
|
|
1,579
|
|
|
|
1,735
|
|
|
|
1,656
|
|
|
|
1,787
|
|
|
|
2,344
|
|
Legal settlements
|
|
|
300
|
|
|
|
450
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
82
|
|
|
|
82
|
|
|
|
82
|
|
|
|
82
|
|
|
|
82
|
|
|
|
82
|
|
|
|
82
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
10,051
|
|
|
|
12,262
|
|
|
|
13,018
|
|
|
|
12,808
|
|
|
|
13,051
|
|
|
|
13,188
|
|
|
|
13,647
|
|
|
|
15,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(2,641
|
)
|
|
|
(3,686
|
)
|
|
|
(2,970
|
)
|
|
|
3
|
|
|
|
1,267
|
|
|
|
2,265
|
|
|
|
2,507
|
|
|
|
1,997
|
|
Interest and other income, net
|
|
|
84
|
|
|
|
90
|
|
|
|
(34
|
)
|
|
|
41
|
|
|
|
9
|
|
|
|
(43
|
)
|
|
|
(92
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(2,557
|
)
|
|
|
(3,596
|
)
|
|
|
(3,004
|
)
|
|
|
44
|
|
|
|
1,276
|
|
|
|
2,222
|
|
|
|
2,415
|
|
|
|
1,898
|
|
Provision for income taxes
|
|
|
(30
|
)
|
|
|
(47
|
)
|
|
|
(7
|
)
|
|
|
(35
|
)
|
|
|
(33
|
)
|
|
|
(89
|
)
|
|
|
(75
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,587
|
)
|
|
$
|
(3,643
|
)
|
|
$
|
(3,011
|
)
|
|
$
|
9
|
|
|
$
|
1,243
|
|
|
$
|
2,133
|
|
|
$
|
2,340
|
|
|
$
|
1,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts in the table above include stock-based compensation
expense, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
|
2007
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
2009
|
|
|
(In thousands)
|
|
Cost of revenue
|
|
$
|
4
|
|
|
$
|
13
|
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
20
|
|
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
45
|
|
|
|
101
|
|
|
|
98
|
|
|
|
102
|
|
|
|
118
|
|
|
|
81
|
|
|
|
95
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
73
|
|
|
|
207
|
|
|
|
242
|
|
|
|
252
|
|
|
|
261
|
|
|
|
220
|
|
|
|
238
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
118
|
|
|
|
278
|
|
|
|
393
|
|
|
|
303
|
|
|
|
330
|
|
|
|
293
|
|
|
|
258
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
240
|
|
|
$
|
599
|
|
|
$
|
749
|
|
|
$
|
672
|
|
|
$
|
729
|
|
|
$
|
608
|
|
|
$
|
606
|
|
|
$
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
As a percentage of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended,
|
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
|
2007
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
2009
|
|
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of revenue
|
|
|
14
|
|
|
|
14
|
|
|
|
12
|
|
|
|
11
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
86
|
|
|
|
86
|
|
|
|
88
|
|
|
|
89
|
|
|
|
90
|
|
|
|
90
|
|
|
|
90
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
26
|
|
|
|
26
|
|
|
|
27
|
|
|
|
23
|
|
|
|
19
|
|
|
|
17
|
|
|
|
16
|
|
|
|
19
|
|
Sales and marketing
|
|
|
72
|
|
|
|
76
|
|
|
|
70
|
|
|
|
54
|
|
|
|
51
|
|
|
|
49
|
|
|
|
49
|
|
|
|
48
|
|
General and administrative
|
|
|
15
|
|
|
|
16
|
|
|
|
15
|
|
|
|
11
|
|
|
|
11
|
|
|
|
10
|
|
|
|
10
|
|
|
|
12
|
|
Legal settlements
|
|
|
3
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
117
|
|
|
|
123
|
|
|
|
114
|
|
|
|
89
|
|
|
|
82
|
|
|
|
77
|
|
|
|
76
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(31
|
)
|
|
|
(37
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
8
|
|
|
|
13
|
|
|
|
14
|
|
|
|
11
|
|
Interest and other income, net
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(30
|
)
|
|
|
(36
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
8
|
|
|
|
13
|
|
|
|
13
|
|
|
|
10
|
|
Provision for income taxes
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(30
|
)%
|
|
|
(37
|
)%
|
|
|
(26
|
)%
|
|
|
|
%
|
|
|
8
|
%
|
|
|
12
|
%
|
|
|
13
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increased sequentially for all quarters presented
primarily due to increases in the number of services we offered,
the number of total customers and subscription renewals of
existing customers.
Gross profit in absolute dollars also increased sequentially for
all quarters presented, primarily due to revenue growth. The
overall increase in gross profit margins is due to the increase
in revenue and number of customers which allows us to obtain
better leverage from our data centers and customer support
organization.
Operating expenses in absolute dollars in total increased
sequentially for the quarters presented, except the quarter
ended September 30, 2008, primarily due to increased sales
and marketing expenses which resulted from increased marketing
program expenditures and increased number of personnel and
increased research and development expenses, mainly associated
with an increase in the number of research and development
personnel necessary to develop and enhance our services. The
decrease in general and administrative expenses as a percentage
of revenue over the quarters ended December 31, 2007
through June 30, 2009 was due largely to the increase in
revenue which allowed us to better leverage our management,
finance and IT personnel and systems. The increase in general
and administrative expenses as a percentage of revenue for the
quarter ended September 30, 2009 was primarily due to costs
related to operating as a public company. The majority of our
research and development employees are located in our
development centers in Hungary. Therefore, the increase in
research and development expense as a percentage of revenue for
the quarter ended September 30, 2009, was primarily due to
fluctuations in foreign exchange rates. The legal settlement
expenses were associated with settling three outstanding claims
of alleged infringement of third-party patents. We settled these
claims in lieu of continuing defense and litigation costs
related to the alleged claims.
Losses from operations for the quarters presented and net losses
for the quarters ended June 30, 2007 through June 30,
2008 were due to increases in operating expenses that were
greater than increases in revenue.
Net income for the quarters ended September 30, 2008,
through September 30, 2009 were due to increases in revenue
that exceeded increases in expenses.
52
Liquidity
and Capital Resources
The following table sets forth the major sources and uses of
cash for each of the periods set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net cash (used in) provided by operations
|
|
$
|
(889
|
)
|
|
$
|
3,378
|
|
|
$
|
10,131
|
|
|
$
|
6,032
|
|
|
$
|
16,438
|
|
Net cash used in investing activities
|
|
|
(3,152
|
)
|
|
|
(1,695
|
)
|
|
|
(3,775
|
)
|
|
|
(3,033
|
)
|
|
|
(2,930
|
)
|
Net cash (used in) provided by financing activities
|
|
|
32
|
|
|
|
8,965
|
|
|
|
(2,101
|
)
|
|
|
(2,005
|
)
|
|
|
84,453
|
|
Effect of exchange rate changes
|
|
|
29
|
|
|
|
46
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
$
|
(3,980
|
)
|
|
$
|
10,694
|
|
|
$
|
4,237
|
|
|
$
|
994
|
|
|
$
|
98,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since our inception and through September 30, 2009, we have
financed our operations primarily through the sale of redeemable
convertible preferred stock, cash flows from operations and to a
lesser extent proceeds received in connection with our IPO. At
September 30, 2009, our principal source of liquidity was
cash and cash equivalents totaling $121.0 million.
Cash
Flows From Operating Activities
Net cash inflows from operating activities during the nine
months ended September 30, 2009 were mainly due to
$6.3 million of net income for the period, non-cash
operating expenses, including $2.3 million for depreciation
and amortization and $2.1 million for stock compensation,
as well as a $2.0 million increase in current liabilities,
a $3.6 million increase in deferred revenue associated with
the increase in subscription sales orders and customer growth, a
$0.3 million increase in other long-term liabilities and a
$0.2 million decrease in accounts receivable. These were
offset by a $0.5 million increase in prepaid expenses and
other current assets.
Net cash inflows from operating activities during the nine
months ended September 30, 2008 resulted from a
$10.6 million increase in deferred revenue associated with
the increase in subscription sales orders and customer growth as
well as an increase in current liabilities. These increases and
increases in non-cash operating expenses, including
$1.7 million for depreciation and amortization and
$2.0 million for stock compensation, offset a
$6.6 million operating loss for the period, a
$1.5 million increase in accounts receivable and a
$0.8 million increase in prepaid expenses and other current
assets.
Net cash provided by (used in) operating activities was
$10.1 million, $3.4 million, and ($0.9) million for
the years ended December 31, 2008, 2007 and 2006,
respectively.
Net cash inflows from operating activities during the year ended
December 31, 2008 resulted from a $12.3 million
increase in deferred revenue associated with the increase in
subscription sales orders and customer growth as well as an
increase in current liabilities. These increases and increases
in non-cash operating expenses, including $2.4 million for
depreciation and amortization and $2.8 million for stock
compensation, offset a $5.4 million operating loss for the
period, a $1.5 million increase in accounts receivable and
a $1.0 million increase in prepaid expenses and other
current assets.
Net cash inflows from operating activities during 2007 resulted
from increases in subscription sales orders and increases in
current liabilities. Increases in these items and increases in
non-cash operating expenses such as depreciation, amortization
and stock compensation offset a net loss for the period of
$9.1 million, including legal settlements paid of
$1.9 million, and an increase in accounts receivable. The
majority of our revenue is derived from annual subscriptions
paid at the beginning of the subscription period, which resulted
in an increase in deferred revenue of $8.8 million.
Accounts receivable increased $1.9 million associated with
increases in subscription orders and customer growth.
Depreciation and amortization was $1.7 million, an increase
of $0.9 million over 2006, due mainly to increased
depreciation from purchases of computer equipment associated
with expanding our data center and increased amortization costs
associated with the intangible assets acquired as
53
part of our acquisition of Applied Networking, Inc. Current
liabilities increased due mainly to increased operating costs of
our business in 2007 from 2006.
Net cash outflows from operating activities for the year ended
December 31, 2006 resulted primarily from an operating loss
and increases to account receivable balances partially offset by
non-cash related expenses, such as depreciation and amortization
and increases in our deferred revenue associated with increases
in our customer growth. The majority of our revenue is derived
from annual subscriptions paid at the beginning of the
subscription period.
Cash
Flows From Investing Activities
Net cash used in investing activities during the nine months
ended September 30, 2009 and 2008 consisted primarily of
the purchase of equipment. Purchases of equipment resulted from
the expansion of our data centers as well as an increase in the
number of our employees in connection with the expansion of our
office and related infrastructure.
Net cash used in investing activities was $3.8 million
$1.7 million and $3.2 million for the years ended
December 31, 2008 2007 and 2006, respectively.
Net cash used in investing activities during the years ended
December 31, 2008 and 2007 consisted primarily of the
purchase of equipment related to the expansion of our data
centers. Net cash used in investing activities during the year
ended December 31, 2008 was also due to the purchase of
equipment related to the increase in the number of our employees
in connection with the expansion of our office and related
infrastructure, as well as two certificate of deposits that
serve as a security deposit for corporate credit cards and a
security deposit related to a new lease agreement for office
space in Budapest, Hungary. Net cash used in investing
activities for 2006 consisted primarily of the initial
$1.7 million payment made toward the acquisition of Applied
Networking, Inc. as well as the purchase of equipment and
leasehold improvements associated with expanding our operations.
Our capital expenditures totaled $3.3 million, $1.7 million
and $1.3 million for the years ended December 31,
2008, 2007 and 2006, respectively.
Our future capital requirements may vary materially from those
currently planned and will depend on many factors, including,
but not limited to, development of new services, market
acceptance of our services, the expansion of our sales, support,
development and marketing organizations, the establishment of
additional offices in the United States and worldwide and the
expansion of our data center infrastructure necessary to support
our growth. Since our inception, we have experienced increases
in our expenditures consistent with the growth in our operations
and personnel, and we anticipate that our expenditures will
continue to increase in the future. We also intend to make
investments in computer equipment and systems and infrastructure
related to existing and new offices as we move and expand our
facilities, add additional personnel and continue to grow our
business. We are not currently party to any purchase contracts
related to future capital expenditures.
Cash
Flows From Financing Activities
Net cash flows provided by financing activities were
$84.5 million for the nine months ended September 30,
2009 and were mainly the result of net proceeds received related
to our IPO and proceeds received from the issuance of common
stock upon the exercise of stock options.
Net cash flows used in financing activities were
$2.0 million for the nine months ended September 30,
2008 and were mainly associated with the final payment of
$1.3 million associated with a note payable related to our
acquisition of Applied Networking, Inc. and the payment of
approximately $0.8 million associated with fees related to
our IPO partially offset by proceeds received from the issuance
of common stock upon the exercise of stock options.
Net cash flows used in financing activities were
$2.1 million for the year ended December 31, 2008 and
were mainly associated with the final payment of
$1.3 million associated with a note payable related to our
acquisition of Applied Networking, Inc. and the payment of
approximately $1.0 million associated with fees
54
related to our IPO partially offset by proceeds received from
the issuance of common stock upon the exercise of stock options.
Net cash flows from financing activities were $9.0 million
and $0.03 million for the years ended December 31,
2007 and 2006, respectively.
Net cash flows from financing activities for 2007 were mainly
associated with the issuance of 2,222,223 shares of our
series B-1 redeemable convertible preferred stock in
December 2007 for an aggregate purchase price of
$10.0 million and $0.5 million from the issuance of
common stock as a result of common stock option exercises. These
increases were offset by the payment of $1.3 million
associated with a note payable related to our acquisition of
Applied Networking, Inc. and the payment of approximately
$0.3 million associated with fees related to our IPO.
Net cash flows from financing activities for 2006 were solely
associated with the issuance of common stock as a result of
common stock option exercises.
On July 7, 2009, we closed our IPO raising net proceeds of
approximately $83.0 million after deducting underwriting
discounts and commissions and offering costs. We believe that
our current cash and cash equivalents will be sufficient to meet
our working capital and capital expenditure requirements for at
least the next twelve months.
During the last three years, inflation and changing prices have
not had a material effect on our business and we do not expect
that inflation or changing prices will materially affect our
business in the foreseeable future.
Off-Balance
Sheet Arrangements
We do not engage in any off-balance sheet financing activities,
nor do we have any interest in entities referred to as variable
interest entities.
Contractual
Obligations
The following table summarizes our contractual obligations at
December 31, 2008 and the effect such obligations are
expected to have on our liquidity and cash flow in future
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations
|
|
$
|
9,005,000
|
|
|
$
|
1,809,000
|
|
|
$
|
4,086,000
|
|
|
$
|
3,039,000
|
|
|
$
|
71,000
|
|
Hosting service agreements
|
|
$
|
547,000
|
|
|
$
|
547,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,552,000
|
|
|
$
|
2,356,000
|
|
|
$
|
4,086,000
|
|
|
$
|
3,039,000
|
|
|
$
|
71,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The commitments under our operating leases shown above consist
primarily of lease payments for our Woburn, Massachusetts
corporate headquarters, our international sales and marketing
offices located in Amsterdam, The Netherlands, and Sydney,
Australia and our research and development offices in Budapest
and Szeged Hungary, and contractual obligations related to our
data centers.
Quantitative
and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk. Our results of
operations and cash flows are subject to fluctuations due to
changes in foreign currency exchange rates as a result of the
majority of our research and development expenditures being made
from our Hungarian research and development facilities, and in
our international sales and marketing offices in Amsterdam, The
Netherlands and Sydney, Australia. In the nine months ended
September 30, 2009, approximately 16%, 13% and 2% of our
operating expenses occurred in our operations in Hungary,
Amsterdam and Sydney, respectively. In the year ended
December 31, 2008, approximately 17% and
55
10% of our operating expenses occurred in our operations in
Hungary and Amsterdam, respectively. Additionally, more than 40%
of our sales outside the United States are denominated in local
currencies and, thus, also subject to fluctuations due to
changes in foreign currency exchange rates. To date, changes in
foreign currency exchange rates have not had a material impact
on our operations, and a future change of 20% or less in foreign
currency exchange rates would not materially affect our
operations. At this time we do not, but may in the future, enter
into any foreign currency hedging programs or instruments that
would hedge or help offset such foreign currency exchange rate
risk.
Interest Rate Sensitivity. Interest income is
sensitive to changes in the general level of U.S. interest
rates. However, based on the nature and current level of our
cash and cash equivalents, which are primarily invested in
deposits and money market funds, we believe there is no material
risk of exposure to changes in the fair value of our cash and
cash equivalents as a result of changes in interest rates.
Recent
Accounting Pronouncements
In October 2009, an update was made to Revenue
Recognition Multiple Deliverable Revenue
Arrangements. This update removes the
objective-and-reliable-evidence-of-fair-value
criterion from the separation criteria used to determine whether
an arrangement involving multiple deliverables contains more
than one unit of accounting, replaces references to fair
value with selling price to distinguish from
the fair value measurements required under the Fair
Value Measurements and Disclosures guidance, provides
a hierarchy that entities must use to estimate the selling
price, eliminates the use of the residual method for allocation,
and expands the ongoing disclosure requirements. This update is
effective beginning January 1, 2011 and can be applied
prospectively or retrospectively. We are currently evaluating
the effect that adoption of this update will have on our
consolidated financial statements.
56
BUSINESS
Overview
LogMeIn provides on-demand, remote-connectivity solutions to
small and medium-sized businesses, or SMBs, IT service providers
and consumers. We believe our solutions are used to connect more
Internet-enabled devices worldwide than any other connectivity
service. Businesses and IT service providers use our remote
connectivity solutions to deliver remote, end-user support and
to access and manage computers and other Internet-enabled
devices more effectively and efficiently. Consumers and mobile
workers use our remote connectivity solutions to access computer
resources remotely, thereby facilitating their mobility and
increasing their productivity. Our solutions, which are deployed
on-demand and accessible through a web browser, are secure,
scalable and easy for our customers to try, purchase and use.
In 2004, we introduced LogMeIn Free, a service that allows users
to access computer resources remotely. We believe LogMeIn Free
and LogMeIn
Hamachi2,
our popular free services, attract a large and diverse group of
users and increase awareness of our premium services, which we
sell on a subscription basis. As of September 30, 2009, our
users have connected over 86 million computers and other
Internet-enabled devices to a LogMeIn service. We believe our
service attracts more users than any other on-demand,
remote-connectivity service.
We complement our free services with nine premium services sold
on a subscription basis including LogMeIn Rescue and LogMeIn
Central, our flagship remote support and management services,
and LogMeIn
Pro2, our
premium remote access service. Sales of our premium services are
generated through word-of-mouth referrals, web-based
advertising, expiring free trials that we convert to paid
subscriptions and direct marketing to new and existing customers.
All of our free and premium solutions are delivered as hosted
services, which means that the technology enabling the use of
our solutions resides on our servers and IT hardware, rather
than those of our users. We call the software, hardware and
networking technology used to deliver our solutions Gravity. The
Gravity proprietary platform consists of software applications,
customized databases and web servers. Gravity establishes secure
connections over the Internet between remote computers and other
Internet-enabled devices and manages the direct transmission of
data between remotely connected devices. This robust and
scalable platform connects over ten million computers to
our services each day.
We believe that our sales model of a high volume of new and
renewed subscriptions at low transaction prices increases the
predictability of our revenues compared to perpetual
licensed-based software businesses. During the nine months ended
September 30, 2009, we generated revenues of
$54.2 million, as compared to $35.7 million in the
nine months ended September 30, 2008, an increase of
approximately 52%. In fiscal 2008, we generated revenues of
$51.7 million.
Industry
Background
Mobile workers, IT professionals and consumers save time and
money by accessing computing resources remotely. Remote access
allows mobile workers and consumers to use applications, manage
documents and collaborate with others whenever and wherever an
Internet connection is available. Remote-connectivity solutions
also allow IT professionals to deliver support and management
services to remote end users and computers and other
Internet-enabled devices.
A number of trends are increasing the demand for
remote-connectivity solutions:
|
|
|
|
|
Increasingly mobile workforce. Workers are
spending less of their time in a traditional office environment
and are increasingly telecommuting and traveling with
Internet-enabled devices. According to IDC Research, the
percentage of the global workforce that works remotely will
increase from approximately 25% in 2006 to 30% in 2011, to a
total of 1 billion workers. This trend increases the demand
for remote connectivity for workers and for IT professionals who
support and manage their computers and other Internet-enabled
devices.
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Increasing use of IT outsourcing by SMBs. SMBs
generally have limited internal IT expertise and IT budgets and
are therefore increasingly turning to third-party service
providers to manage the complexity of IT services at an
affordable cost. For example, based on Forresters
Enterprise and SMB Hardware Survey, North America and
Europe, Q3 2008 published on December 18, 2008,
Forrester estimates that out of 1,723 respondents, 22% of SMBs
outsource their PC and laptop support to third-party service
providers and that an additional 12% of SMBs plan to do so in
the next 12 months. SMBs are also looking to third-party
service providers to manage their servers. The same survey
estimates that 28% of SMBs already outsource server management
responsibilities and another 13% are planning to in the next
12 months. We believe that IT service providers will
increasingly turn to on-demand, remote-connectivity solutions to
help address the growing demand for outsourced support and
management of these computers.
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Growing adoption of on-demand solutions. By
accessing hosted, on-demand solutions through a Web browser,
companies can avoid the time and costs associated with
installing, configuring and maintaining IT support applications
within their existing IT infrastructure. These advantages are
leading companies to adopt on-demand solutions at an increasing
rate. For example, IDC estimates that the global on-demand
software market reached $6.2 billion in 2007 and expects it
to increase to $19.8 billion in 2012, a compounded annual
growth rate of 26%.
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Increasing need to support the growing number of
Internet-enabled consumer devices. Consumer
adoption of Internet-enabled devices is growing rapidly.
Manufacturers, retailers and service providers struggle to
provide cost-effective support for these devices and often turn
to remote support and management solutions in order to increase
customer satisfaction while lowering the cost of providing that
support. We believe the need for remote support services for
consumers will increase rapidly as they purchase more PCs and
Internet-enabled consumer electronics. IDC estimates that the
worldwide installed base of consumer-owned personal computers
will grow from 557.9 million in 2008 to
1,030.4 million in 2013, a compounded annual growth rate of
13%. In addition, the research firm Strategy Analytics estimates
that the installed base of Internet-enabled consumer electronics
devices, such as game consoles, televisions and set top boxes,
will grow from 36 million in 2006 to 400 million
worldwide in 2010.
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Proliferation of Internet-enabled mobile devices
(Smartphones). Mobile devices are increasingly
being used for Internet-based computing and communications. IDC
estimates that 151 million converged mobile devices were
shipped worldwide in 2008, and annual shipments are expected to
grow to more than 291 million by 2013, which represents a
compound annual growth rate of 14%. We believe the rapid
proliferation and increasing functionality of these devices
create a growing need for remote support of these devices.
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Remote-connectivity technology has existed for many years.
However, most solutions have been delivered as either hardware
or software products designed to operate on the customers
premises. These solutions typically require time and technical
expertise to configure and deploy. They also often require
ongoing maintenance, as they can fail when networking
environments change. As a result, most traditional
remote-connectivity solutions are best suited for large
organizations with onsite IT staff. Because of the setup and
maintenance costs, technical complexity and connection failure
rates, we believe these traditional remote-access technologies
are not suitable for many SMBs and consumers.
Our
Solutions
Our solutions allow our users to remotely access, support and
manage computers and other Internet-enabled devices on demand.
We believe our solutions benefit users in the following ways:
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Reduced
set-up,
support and management costs. Our services enable
IT staff to administer, monitor and support computers and other
Internet-enabled devices at a remote location. Businesses easily
set up our on-demand services with little or no modification to
the remote locations network or security systems and
without the need for upfront technology or software investment.
In addition, our customers lower their support and management
costs by performing management-related tasks remotely, reducing
or eliminating the costs of
on-site
support and management.
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Increased mobile worker productivity. Our
remote-access services allow non-technical users to access and
control remote computers and other Internet-enabled devices,
increasing their mobility and allowing them to remain productive
while away from the office.
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Increased end-user satisfaction. Our customers
rely on our on-demand services to improve the efficiency and
effectiveness of end-user support. Satisfaction with support
services is primarily measured by call-handling time and whether
or not the problem is resolved on the first call. Our services
enable help desk technicians to quickly and easily gain control
of a remote users computer. Once connected, the technician
can diagnose and resolve problems while interacting with and
possibly training the end user. By using our solutions to
support remote users, our customers have reported increased user
satisfaction while reducing call handling time by as much as 50%
over phone-only support.
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Reliable, fast and secure service. Our service
possesses built-in redundancy of servers and other
infrastructure in three data centers, two located in the United
States and one located in Europe. Our proprietary platform
enables our services to connect and manage devices at enhanced
speeds. Our services implement industry-standard security
protocols and authenticate and authorize users of our services
without storing passwords.
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Easy to try, buy and use. Our services are
simple to install, which allows our prospective customers to use
our services within minutes of registering for a trial. Our
customers can use our services to manage their remote systems
from any Web browser. In addition, our low service-delivery
costs and hosted delivery model allow us to offer each of our
services at competitive prices and to offer flexible payment
options.
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Our
Competitive Strengths
We believe that the following competitive strengths
differentiate us from our competitors and are key to our success:
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Large established user community. As of
September 30, 2009, over 27.1 million registered users
have connected over 86 million Internet-enabled devices to
a LogMeIn service. These users drive awareness of our services
through personal recommendations, blogs and other online
communication methods and provide us with a significant audience
to which we can market and sell premium services.
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Efficient customer acquisition model. We
believe our free products and our large installed user base help
to generate word-of-mouth referrals, which in turn increases the
efficiency of our paid marketing activities, the large majority
of which are focused on
pay-per-click
search engine advertising. Sales of our premium services are
generated through word-of-mouth referrals, Web-based
advertising, expiring free trials that we convert to paying
customers and marketing to our existing customer and user base.
We believe this direct approach to acquiring new customers
generates an attractive and predictable return on our sales and
marketing expenditures.
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Technology-enabled cost advantage. Our service
delivery platform, Gravity, establishes secure connections over
the Internet between remote computing devices and manages the
direct transmission of data between them. This patented platform
reduces our bandwidth and other infrastructure requirements,
which we believe makes our services faster and less expensive to
deliver as compared to competing services. We believe this cost
advantage allows us to offer free services and serve a broader
user community than our competitors.
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On-demand delivery. Delivering our services
on-demand allows us to serve additional customers with little
incremental expense and to deploy new applications and upgrades
quickly and efficiently to our existing customers.
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High recurring revenue and high transaction
volumes. We sell our services on a monthly or
annual subscription basis, which provides greater levels of
recurring revenues and predictability compared to traditional
perpetual, license-based business models. Approximately 94% of
our subscriptions have a one-year term. We believe that our
sales model of a high volume of new and renewed subscriptions at
low
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transaction prices increases the predictability of our revenues
compared to perpetual licensed-based software businesses.
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Growth
Strategy
Our objective is to extend our position as a leading provider of
on-demand, remote-connectivity solutions. To accomplish this, we
intend to:
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Acquire new customers. We acquire new
customers through word-of-mouth referrals from our existing user
community and from paid, online advertising designed to attract
visitors to our website. We also encourage our website visitors
to register for free trials of our premium services. We
supplement our online efforts with email, newsletter and radio
campaigns and by participating in trade events and Web-based
seminars. To increase our sales, we plan to continue
aggressively marketing our solutions and encouraging trials of
our services while expanding our sales force.
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Increase sales to existing customers. We
upsell and cross-sell our broad portfolio of services to our
existing customer base. In the first twelve months after their
initial purchase, our customers, on average, subscribe to
additional services worth 40% of their initial purchase. To
further penetrate our customer base, we plan to continue
actively marketing our portfolio of services through
e-commerce
and by expanding our sales force.
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Continue to build our user community. We grow
our community of users by marketing our services through paid
advertising that targets prospective customers who are seeking
remote-connectivity solutions and by offering our popular free
services, LogMeIn Free and LogMeIn
Hamachi2.
This strategy improves the effectiveness of our online
advertising by increasing our response rates when people seeking
remote-connectivity solutions conduct online searches. In
addition, our large and growing community of users drives
awareness of our services and increases referrals of potential
customers and users.
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Expand internationally. We believe there is a
significant opportunity to increase our sales internationally.
We offer solutions in 12 different languages. Our solutions are
used in more than 200 countries, and approximately 27% of
our sales orders during the nine months ended September 30,
2009 and more than 60% of our user base as of September 30,
2009 came from outside North America. We intend to expand our
international sales and marketing staff and increase our
international marketing expenditures to take advantage of this
opportunity. As part of this international expansion, in January
2009, we opened our Asia-Pacific sales and marketing
headquarters in Sydney, Australia.
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Continue to expand our service portfolio. We
intend to continue to invest in the development of new
on-demand, remote-connectivity solutions for businesses, IT
service providers and consumers.
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Pursue strategic acquisitions. We plan to
pursue acquisitions that complement our existing business,
represent a strong strategic fit and are consistent with our
overall growth strategy. We may also target future acquisitions
to expand or add functionality and capabilities to our existing
portfolio of services, as well as add new solutions to our
portfolio.
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Services
and Technology
Our services are accessed on the Web and delivered on-demand via
our service delivery platform, Gravity. Our services generally
fall into one of two categories:
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Remote user access services. These services
allow users to access computers and other Internet-enabled
devices in order to continue working while away from the office
or to access personal systems while away from home. These
services include free remote access offerings and premium
versions that include additional features.
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Remote support and management services. These
services are used by internal IT departments and by external
service and support organizations to deliver support and
management of IT resources remotely.
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Remote
User Access Services
LogMeIn Free is our free remote access service. It
provides secure access to a remote computer or other
Internet-enabled device. Once installed on a device, a user can
quickly and easily access that devices desktop, files,
applications and network resources.
LogMeIn
Pro2
is our premium remote access service. It can be rapidly
installed without IT expertise. Users typically engage in a
trial prior to purchase.
LogMeIn
Pro2
offers several premium features not available through LogMeIn
Free, including:
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File transfer. Files and folders can be moved
easily between computers using
drag-and-drop
or dual-pane file transfer capabilities.
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Remote sound. A user can hear on his local
computer
e-mail
notifications, music and podcasts originating from a remote PC.
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File share. Large files can be distributed by
sending a link that permits remote third parties to download a
file directly from a LogMeIn subscribers computer.
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Remote to local printing. Files from a remote
PC are automatically printed to a local printer without
downloading drivers or manually configuring printer settings.
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Desktop sharing. A remote third-party user can
be invited to view or control a LogMeIn users desktop for
online meetings and collaboration.
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File sync. Files and folders can be
synchronized between remote and local computers.
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Drive mapping. Drives on a remote PC can be
accessed as if they are local.
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LogMeIn
Hamachi2
is a hosted virtual private network, or VPN, service that sets
up a computer network among remote computers. It typically works
with existing network and firewall configurations and can be
managed from a web browser or the users software. Using
LogMeIn
Hamachi2,
users can securely communicate over the Internet as if their
computers are on the same local area network, allowing for
remote access and virtual networking. LogMeIn
Hamachi2
is offered both as a free service for non-commercial use and as
a paid service for commercial use.
LogMeIn Ignition is a premium service that delivers one
click access to remote computers that subscribe to LogMeIn Free
or LogMeIn
Pro2.
Users can install LogMeIn Ignition on a computer or run the
application from a universal storage device in order to directly
access their subscribed computer, eliminating the need for
installation of additional software. LogMeIn Ignition also
delivers access through an Apple iPhone or Apple iPod touch.
Remote
Support and Management Services
LogMeIn Rescue is a Web-based remote support service used
by helpdesk professionals to support remote computers and
applications and assist computer users via the Internet. LogMeIn
Rescue enables the delivery of interactive support to a remote
computer without having pre-installed software. The end user
grants permission to the help desk technician before the
technician can access, view or control the end users
computer. Using LogMeIn Rescue, support professionals can
communicate with end users through an Internet chat window while
diagnosing and repairing computer problems. If given additional
permission by the computer user, the support professional can
take over keyboard and mouse control of the end users
computer to take necessary support actions and to train the end
user on the use of software and operating system applications.
Upon completion of the session, all LogMeIn software is removed
from the remote computer. LogMeIn Rescue is used by companies of
varying sizes, from one-person support organizations to Fortune
100 companies servicing employees and customers.
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LogMeIn Rescue includes the following features:
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Rapid incident resolution. Helpdesk
professionals can gain access to the target PC quickly, often in
under 60 seconds, and can take advantage of our remote control
capabilities to perform support functions available through a
technician console, including: reading critical system
information, deploying scripts, copying files through drag and
drop and rebooting the machine.
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Seamless end-user experience. LogMeIn Rescue
facilitates an end users receipt of customer support. End
users remain in control of the support session and can initiate
a session in a variety of ways, such as by clicking a link on a
website or in an email or by entering a pin code provided by the
support provider. The end user then sees a chat window, branded
with the support providers logo, and responds to a series
of access and control requests while chatting with the support
provider.
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Support session and queue management. The
helpdesk professional can use the LogMeIn Technician Console to
manage a queue of support incident requests and up to ten
simultaneous live remote sessions. The support queue can be
shared and current live sessions can be transferred to other
co-workers
as needed.
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Administration Center. The Administration
Center is used to create and assign permissions for groups of
support technicians. It is also used to create support
channels the web-based links
and/or icons
that automatically connect customers to technicians
and assign them to specific groups. Support managers use the
Administration Center to generate reports about individual
sessions, post-session survey data and technician activity.
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Integrated security. LogMeIn Rescue includes
security features designed to safeguard the security and privacy
of both the support provider and the end user. All data
transmission is encrypted using industry-standard encryption
often used by financial institutions. Sessions can be recorded
by the support provider and will create a record of each level
of access permission granted by the end user. Any files
transferred between computers are uniquely identified to
demonstrate that no changes were made to original files.
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LogMeIn Rescue+Mobile is an extension of LogMeIn
Rescues web based remote support service that allows call
center technicians and IT professionals to remotely access and
support smartphones. Smartphone users requesting help will
receive a text message from a technician to download a small
software application onto the smartphone. Once installed, the
user enters a code connecting the device to the technician.
After the user grants the technician permission, the technician
can remotely access and control the phone from their
Rescue+Mobile Technician Console to remotely control and update
the phones configuration settings, access system
information, file transfer and reboot the smartphone.
LogMeIn Central is a web-based management console that
helps business users, IT professionals and other users deploy
and administer LogMeIn
Pro2,
LogMeIn Free and LogMeIn
Hamachi2.
LogMeIn Central is offered as a premium service and includes the
following features:
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User management. LogMeIn Central provides
account holders with the ability to manage additional users for
an account, including user access controls and permissions.
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Software deployment. LogMeIn Central allows
the deployment of LogMeIn host software over the web.
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Reporting. LogMeIn Central provides the
ability to report on account, device and session data.
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Integrated Security. LogMeIn Central utilizes
industry-standard encryption and authentication methods. In
addition, LogMeIn Central also supports detailed account audit
logging, including changes to account email addresses, failed
attempts to login, and changes to account security settings.
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Host configuration. LogMeIn Central enables
the configuration of LogMeIn host software, including access
settings, network restrictions and other compliance options.
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Computer grouping and account
personalization. LogMeIn Central allows users to
organize their devices into specific groups, and personalize the
console to meet specific needs, including the saved searches,
links to resources and customized charting and graphing.
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When combined with LogMeIn
Pro2 host
software, LogMeIn Central also provides alerting and monitoring,
computer inventory tracking, background login and advanced
reporting and analysis. When combined with LogMeIn
Hamachi2
host software, LogMeIn Central provides additional web-based
management capabilities for VPN connectivity services, such as
hub-and-spoke,
gateway and mesh networking and advanced reporting and analysis.
We also offer a systems administration product called
RemotelyAnywhere. RemotelyAnywhere is used to manage personal
computers and servers from within the IT system of an
enterprise. Unlike our LogMeIn services, RemotelyAnywhere is
licensed to our customers on a perpetual basis, and we offer
maintenance covering upgrades and service supporting this
application.
LogMeIn Backup is a service that subscribers install on
two or more computers to create a backup network and is
generally sold as a complement to the LogMeIn Central or
Pro2
services. LogMeIn Backup is easy to install and provides IT
service providers a simple backup alternative to offer their
customers using storage capacity that they control. Users can
transfer specified files and folders from one computer to
another either manually or automatically in accordance with a
pre-determined schedule. Files can be stored on, and restored
to, any PC that the subscriber chooses, using industry-standard
encryption protocols for the transmission and storage of the
data.
LogMeIn
Gravity Service Delivery Platform
The Gravity proprietary platform consists of software
applications, customized databases and web servers. Gravity
establishes secure connections over the Internet between remote
computers and other Internet-enabled devices and manages the
direct transmission of data between remotely connected devices.
This patented platform reduces our bandwidth and other
infrastructure requirements, which we believe makes our services
faster and less expensive to deliver as compared to competing
services. Gravity consists of proprietary software applications
that run on standard hardware servers and operating systems and
is designed to be scalable and serve our large-scale user
community at low cost.
The infrastructure-related costs of delivering our services
include bandwidth, power, server depreciation and co-location
fees. Gravity transmits data using a combination of methods
working together to relay data via our data centers and to
transmit data over the Internet directly between end-point
devices. During the nine months ended September 30, 2009,
more than 90% of the data transmitted by our services was
transmitted directly between end-point devices, reducing our
bandwidth and bandwidth-related costs.
Gravity is physically hosted in three separate data centers. We
lease space in co-location hosting facilities operated by third
parties. Two of our Gravity data centers are located in the
United States, and the third is located in Europe. During the
nine months ended September 30, 2009, we averaged
10.5 million computers connecting to our Gravity service
each day. Our goal is to maintain sufficient excess capacity
such that any one of the data centers could fail, and the
remaining data centers could handle the load without extensive
disruption to our service. During the twelve months ended
September 30, 2009, our Gravity service was available
99.95% of the time.
Gravity also implements multiple layers of security. Our service
utilizes industry-standard security protocols for encryption and
authentication. Access to a device through our service requires
system passwords such as the username and password for Windows.
We also add additional layers of security such as single-use
passwords, IP address filtering and IP address lockout. For
security purposes, Gravity does not save end-user passwords for
devices.
Sales and
Marketing
Our sales and marketing efforts are designed to attract
prospects to our website, enroll them in free trials of our
services and convert them to and retain them as paying
customers. We also expend sales and marketing resources to
attract users of our free services. We acquire new customers
through a combination of paid and
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unpaid sources. We also invest in public relations to broaden
the general awareness of our services and to highlight the
quality and reliability of our services for specific audiences.
We are constantly seeking and employing new methods to reach
more users and to convert them to paying customers.
Paid
Sources of Demand Generation
Online Advertising. We advertise online
through
pay-per-click
spending with search engines, banner advertising with online
advertising networks and other websites and email newsletters
likely to be frequented by our target consumers, SMBs and IT
professionals.
Tradeshows. We showcase our suite of services
at technology and industry-specific tradeshows. Our
participation in these shows ranges from elaborate presentations
in front of large groups to
one-on-one
discussions and demonstrations at manned booths. In 2008, we
attended eighteen trade shows and in the nine months ended
September 30, 2009 we attended 18 trade shows in the United
States and Europe.
Offline Advertising. Our offline print
advertising is comprised of publications, such as
WinITPro, CRN, and VAR Business, which are
targeted at IT professionals. We sponsor advertorials in
regional newspapers, which target IT consumers. Additionally, we
have advertised using nationwide radio campaigns and outdoor
advertising, such as taxi tops and taxi receipts, in regional
markets.
Unpaid
Sources of Demand Generation
Word-of-Mouth Referrals. We believe that we
have developed a loyal customer and user base, and new customers
frequently claim to have heard about us from a current LogMeIn
user. Many of our users arrive at our website via word-of-mouth
referrals from existing users of our services.
Direct Advertising Into Our User Community. We
have a large existing community of free users and paying
customers. Users of most of our services, including our most
popular service, LogMeIn Free, come to our website each time
they initiate a new remote access session. We use this
opportunity to promote additional premium services to them.
Other
Marketing Initiatives
Web-Based Seminars. We offer free online
seminars to current and prospective customers designed to
educate them about the benefits of remote access, support and
administration, particularly with LogMeIn, and guide them in the
use of our services. We often highlight customer success stories
and focus the seminar on business problems and key market and IT
trends.
Public Relations. We engage in targeted public
relations programs, including press releases announcing
important company events and product releases, interviews with
reporters and analysts, both general and industry specific,
attending panel and group discussions and making speeches at
industry events. We also register our services in awards
competitions and encourage bloggers to comment on our products.
Sales
Efforts and Other Initiatives
New Account Sales. Our sales are typically
preceded by a trial of one of our services, and 98% of our
purchase transactions are settled via credit card. Our sales
operations team determines whether or not a trial should be
managed by a telephone-based sales representative or handled via
our
e-commerce
sales process. As of September 30, 2009, we employed
56 telephone-based sales representatives to manage newly
generated trials. In addition, a small sales and business
development team concentrates on sales to larger organizations
and the formulation of strategic technology partnerships that
are intended to generate additional sales.
Renewal Sales. All of our services are sold on
a subscription basis. Approximately 94% of our subscriptions
have a term of one year.
International Sales. We currently have sales
teams located in Europe and Australia focusing on international
sales. In the nine months ended September 30, 2009, we
generated 27% of our sales orders outside of North America.
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In the nine months ended September 30, 2009 and 2008, we
spent $26.4 million and $23.4 million, respectively,
on sales and marketing.
Intel
Relationship
In December 2007, we entered into a service and marketing
agreement with Intel Corporation to jointly develop a service
that delivers connectivity to computers built with Intel
components. Under the terms of this four-year agreement, we are
adapting our service delivery platform, Gravity, to work with
specific technology delivered with Intel hardware and software
products. This agreement provides that Intel will market and
sell the service to its customers. Intel pays us a minimum
license and service fee on a quarterly basis during the term of
the agreement. We began recognizing revenue associated with the
Intel service and marketing agreement in the quarter ended
September 30, 2008. In addition, we share revenue generated
by the use of the services by third parties with Intel to the
extent it exceeds the minimum payments. In conjunction with this
agreement, Intel Capital purchased 2,222,223 shares of our
series B-1
redeemable convertible preferred stock for $10.0 million in
December 2007, which converted into 888,889 shares of
common stock upon the closing of our IPO.
In June 2009, we entered into a license, royalty and referral
agreement with Intel Americas, Inc., pursuant to which we will
pay Intel a specified royalty so that we may distribute the
technology covered by the service and marketing agreement with
Intel Corporation. In addition, in the event Intel refers
customers to us under this agreement, we will pay Intel
specified fees.
Research
and Development
We have made and intend to continue making significant
investments in research and development in order to continue to
improve the efficiency of our service delivery platform, improve
existing services and bring new services to market. Our primary
engineering organization is based in Budapest, Hungary, where
the first version of our service was developed. Our founding
engineering team has worked together for over 10 years,
designing and running highly large-scale Internet services.
Approximately 42% of our employees, as of September 30,
2009, work in research and development.
Competition
The market for remote-access based products and services is
evolving, and we expect to face additional competition in the
future. We believe that the key competitive factors in the
market include:
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service reliability;
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ease of initial setup and use;
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fitness for use and the design of features that best meet the
needs of the target customer;
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the ability to support multiple device types and operating
systems;
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cost of customer acquisition;
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product and brand awareness;
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the ability to reach large fragmented groups of users;
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cost of service delivery; and
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pricing flexibility.
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We believe that our large-scale user base, efficient customer
acquisition model and low service delivery costs enable us to
compete effectively.
Citrixs Online division and Ciscos WebEx division
are our two most significant competitors. Both companies offer a
service that provides hosted remote access and remote
access-based services. Both of these competitors focus a greater
percentage of their product offerings on collaboration than we
do, while we
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continue to focus our development and marketing efforts on
serving the needs of IT staff and IT service providers.
Both of these competitors attract new customers through
traditional marketing and sales efforts, while we have focused
first on building a large-scale community of users. Our approach
is differentiated from both Citrix and WebEx because we believe
we reach significantly more users which allows us to attract
paying customers efficiently.
In addition, certain of our solutions, including our free remote
access service, also compete with current or potential services
offered by Microsoft and Apple. Certain of our competitors may
also offer, currently or in the future, lower priced, or free,
products or services that compete with our solutions.
We believe our large user base also gives us an advantage over
smaller competitors and potential new entrants into the market
by making it more expensive for them to gain general market
awareness. We currently compete against several smaller
competitors, including NTRglobal (headquartered in Spain),
NetViewer (headquartered in Germany) and Bomgar. In addition,
potential customers may look to software-based and free
solutions, including Symantecs PCAnywhere and
Microsofts Remote Desktop and others, which comes bundled
into most current versions of the Microsoft operating system.
Many of our actual and potential competitors enjoy greater name
recognition, longer operating histories, more varied products
and services and larger marketing budgets, as well as
substantially greater financial, technical and other resources
than we do. In addition, we may also face future competition
from new market entrants. We believe that our large user base,
efficient customer acquisition model and low service delivery
position us well to compete effectively in the future.
Intellectual
Property
Our intellectual property rights are important to our business.
We rely on a combination of copyright, trade secret, trademark
and other rights in the United States and other jurisdictions,
as well as confidentiality procedures and contractual provisions
to protect our proprietary technology, processes and other
intellectual property. We also have one issued patent and three
patents pending and are in the process of filing additional
patent applications that cover many features of our services.
We enter into confidentiality and other written agreements with
our employees, customers, consultants and partners, and through
these and other written agreements, we attempt to control access
to and distribution of our software, documentation and other
proprietary technology and other information. Despite our
efforts to protect our proprietary rights, third parties may, in
an unauthorized manner, attempt to use, copy or otherwise obtain
and market or distribute our intellectual property rights or
technology or otherwise develop products or services with the
same functionality as our services. In addition,
U.S. patent filings are intended to provide the holder with
a right to exclude others from making, using, selling or
importing in the United States the inventions covered by the
claims of granted patents. If granted, our patents may be
contested, circumvented or invalidated. Moreover, the rights
that may be granted in those pending patents may not provide us
with proprietary protection or competitive advantages, and we
may not be able to prevent third parties from infringing these
patents. Therefore, the exact effect of our pending patents, if
issued, and the other steps we have taken to protect our
intellectual property cannot be predicted with certainty.
Although the protection afforded by copyright, trade secret and
trademark law, written agreements and common law may provide
some advantages, we believe that the following factors help us
maintain a competitive advantage:
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the technological skills of our research and development
personnel;
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frequent enhancements to our services; and
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continued expansion of our proprietary technology.
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LogMeIn is a registered trademark in the
United States and in the European Union. We also hold a number
of other trademarks and service marks identifying certain of our
services or features of our services. We also have a number of
trademark applications pending.
Employees
As of September 30, 2009, we had 334 full-time
employees. None of our employees are represented by labor unions
or covered by collective bargaining agreements. We consider our
relationship with our employees to be good.
Properties
Our principal facilities consist of approximately
31,200 square feet of office space located at 500 Unicorn
Park Drive, Woburn, Massachusetts, and approximately 25,200
square feet of space at our development facility located in
Budapest, Hungary. Additionally, we also have leased office
space in Szeged, Hungary, Amsterdam, The Netherlands and Sydney,
Australia. We believe our facilities in Woburn, Budapest,
Szeged, Amsterdam and Sydney are sufficient to support our needs
through 2010.
We also lease space in three data centers operated by third
parties, of which two are located in the United States and
the third is located in Europe.
Legal
Proceedings
On June 3, 2009, we learned that PB&J Software, LLC,
or PB&J, had filed a complaint on June 2, 2009 that
named us and four other companies as defendants in a lawsuit in
the U.S. District Court for the District of Minnesota
(Civil Action
No. 09-cv-206-JMR/SRN).
We received service of the complaint on July 20, 2009. The
complaint alleges that we have infringed U.S. Patent
No. 7,310,736, which allegedly is owned by PB&J and
has claims directed to a particular application or system for
transferring or storing
back-up
copies of files from one computer to a second computer. The
complaint seeks damages in an unspecified amount and injunctive
relief. We believe we have meritorious defenses to the claims
and intend to defend the lawsuit vigorously.
We are from time to time subject to various legal proceedings
and claims, either asserted or unasserted, which arise in the
ordinary course of business. While the outcome of these other
claims cannot be predicted with certainty, management does not
believe that the outcome of any of these other legal matters
will have a material adverse effect on our consolidated
financial statements.
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MANAGEMENT
Our executive officers and directors and their respective ages
and positions as of October 31, 2009 are as follows:
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Name
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Age
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Position
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Michael K. Simon
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Chairman of the Board of Directors, President and Chief
Executive Officer
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Marton B. Anka
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Chief Technology Officer
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Michael J. Donahue
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35
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Vice President and General Counsel
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Kevin K. Harrison
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Senior Vice President, Sales
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James F. Kelliher
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Chief Financial Officer and Treasurer
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David E. Barrett(1)(2)
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Director
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Steven J. Benson(1)(2)
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Director
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Kenneth D. Cron(3)
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53
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Director
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Edwin J. Gillis(1)(3)
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60
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Director
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Irfan Salim(2)(3)
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Director
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(1) |
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Member of the Audit Committee. |
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Member of the Compensation Committee. |
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Member of the Nominating and Corporate Governance Committee. |
Michael K. Simon founded LogMeIn and has served as our
President and Chief Executive Officer and as Chairman of our
board of directors since our inception in February 2003. Prior
to founding LogMeIn, Mr. Simon served as Chairman of the
board of directors of Red Dot, Ltd., a digital content provider,
and Fathom Technology ApS, a software outsourcing company sold
to EPAM Systems, Inc. in March 2004. In 1995, Mr. Simon
founded Uproar Inc., a publicly-traded provider of online game
shows and interactive games acquired by Vivendi Universal Games,
Inc. in March 2001. Mr. Simon holds a B.S. in Electrical
Engineering from the University of Notre Dame and an M.B.A. from
Washington University St. Louis.
Marton B. Anka founded LogMeIn and has served as our
Chief Technology Officer since February 2003. From September
1998 to February 2003, Mr. Anka was the founder and
Managing Director of 3am Labs BT, the developer of
RemotelyAnywhere. Mr. Anka graduated in Informatics from
the Szamalk Institute in Hungary.
Michael J. Donahue has served as our Vice President and
General Counsel since June 2007. From August 2005 to June 2007,
Mr. Donahue was Vice President and General Counsel of C.P.
Baker & Company, Ltd., a Boston-based private equity
firm. From September 1999 to August 2005, Mr. Donahue was a
corporate lawyer at Wilmer Cutler Pickering Hale and Dorr LLP.
Mr. Donahue holds a B.A. in Philosophy from Boston College
and a J.D. from the Northeastern University School of Law.
Kevin K. Harrison served as our Vice President, Sales
from November 2004 to February 2008, and he has served as our
Senior Vice President, Sales, since February 2008. From February
2001 to October 2004, Mr. Harrison served as Vice
President, Sales at Ximian, a Linux application company, where
he was responsible for worldwide sales strategy.
Mr. Harrison holds a B.S. in Accounting from Boston College.
James F. Kelliher has served as our Chief Financial
Officer since June 2006. From December 2002 to March 2006,
Mr. Kelliher served as Chief Financial Officer of IMlogic,
Inc., a venture-backed enterprise instant messaging company,
where he was responsible for finance, legal and human resource
activities. From 1991 to September 2002, Mr. Kelliher
served in a number of capacities, including Senior Vice
President, Finance, at Parametric Technology Corporation, a
software development company. Mr. Kelliher holds a B.S. in
Accountancy from Bentley College.
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David E. Barrett has served as a Director since December
2005. Since April 2000, Mr. Barrett has served as a General
Partner of Polaris Venture Partners, a venture capital and
private equity firm. Mr. Barrett holds a B.S. in Management
from the University of Rhode Island.
Steven J. Benson has served as a Director since October
2004. Since March 2004, Mr. Benson has served as a General
Partner of Prism VentureWorks, a venture capital firm. From
September 2001 to March 2004, Mr. Benson served as a
Principal of Lazard Technology Partners, a venture capital firm.
Mr. Benson holds a B.S in Business Communication from
Bentley College.
Kenneth D. Cron has served as a Director since April
2007. From June 2004 to December 2007, Mr. Cron served as a
member of the board of directors of Midway Games Inc., a
publicly-traded developer and publisher of interactive
entertainment software for the global video game market. Since
October 2007, Mr. Cron has served as the president of
Structured Portfolio Management, LLC, an investment advising
firm. From April 2004 to February 2005, Mr. Cron served as
interim Chief Executive Officer of Computer Associates
International Inc., a publicly-traded management software
company, and was also a director of Computer Associates. From
June 2001 to January 2004, Mr. Cron was Chairman and Chief
Executive Officer Vivendi Universal Games, Inc., a publisher of
online, PC and console-based interactive entertainment.
Mr. Cron holds a B.A. in Psychology from the University of
Colorado.
Edwin J. Gillis has served as a Director since November
2007. From November 2007 to July 2008, Mr. Gillis served as
Interim Chief Financial Officer of Avaya, Inc., a communications
company. Mr. Gillis has worked as a business consultant and
private investor since January 2006. From July 2005 to December
2005, Mr. Gillis served as the Senior Vice President of
Administration and Integration of Symantec Corporation, a
publicly-traded internet security company. From November 2002 to
July 2005, Mr. Gillis was Executive Vice President and
Chief Financial Officer of Veritas Software Corporation, an
internet security company. Mr. Gillis was a partner at
Coopers & Lybrand L.L.P. Mr. Gillis also serves
as a director of Teradyne, Inc., a global supplier of automatic
test equipment, and several private companies. Mr. Gillis
holds a B.A. from Clark University, an M.A. in International
Relations from the University of Southern California and an
M.B.A. from Harvard Business School.
Irfan Salim has served as a Director since July
2006. Since October 2006, Mr. Salim has served
as President, Chief Executive Officer and a director of Mark
Monitor, Inc., an online corporate identity protection company.
From August 2005 to June 2006, Mr. Salim served as
President and Chief Executive Officer of Tenebril Inc., an
internet security and privacy company. From March 2001 to July
2005, Mr. Salim served as President and Chief Operating
Officer of Zone Labs, Inc., an Internet security company.
Mr. Salim holds a B.sc. in Aeronautical Engineering from
Imperial College, England, and an M.B.A. from Manchester
Business School, England.
Board
Composition and Election of Directors
The size of our board of directors is set at seven directors,
and is comprised of six directors and one vacancy. In accordance
with the terms of our certificate of incorporation and bylaws,
our board of directors is divided into three classes. The
members of each class serve for staggered three-year terms. At
each annual meeting of stockholders, the successors to directors
whose terms then expire will be elected to serve from the time
of election and qualification until the third annual meeting
following election. Our directors are divided among the three
classes as follows:
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the class I directors are Messrs. Barrett and Salim,
and their term will expire at the annual meeting of stockholders
to be held in 2010;
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the class II directors are Messrs. Benson and Cron,
and their term will expire at the annual meeting of stockholders
to be held in 2011; and
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the class III directors are Messrs. Gillis and Simon,
and their term will expire at the annual meeting of stockholders
to be held in 2012.
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Our certificate of incorporation and our bylaws provide that the
authorized number of directors may be changed only by resolution
of our board of directors. Our certificate of incorporation and
bylaws provide that
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our directors may be removed only for cause by the affirmative
vote of the holders of at least 75% of the votes that all our
stockholders would be entitled to cast in an annual election of
directors. Any vacancy on our board of directors, including a
vacancy resulting from an enlargement of our board of directors,
may be filled only by vote of a majority of our directors then
in office. Upon the expiration of the term of a class of
directors, directors in that class will be eligible to be
elected for a new three-year term at the annual meeting of
stockholders in the year in which their term expires.
Director
Independence
Under Rule 5605(b)(1) of the Nasdaq Marketplace Rules,
independent directors must comprise a majority of a listed
companys board of directors within one year of listing. In
addition, Nasdaq Marketplace Rules require that, subject to
specified exceptions, each member of a listed companys
audit, compensation and nominating and governance committees be
independent. Audit committee members must also satisfy the
independence criteria set forth in
Rule 10A-3
under the Securities Exchange Act of 1934, as amended. Under
Nasdaq Marketplace Rule 5605(a)(2), a director will only
qualify as an independent director if, in the
opinion of that companys board of directors, that person
does not have a relationship that would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director. In order to be considered to be
independent for purposes of
Rule 10A-3,
a member of an audit committee of a listed company may not,
other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee:
(1) accept, directly or indirectly, any consulting,
advisory, or other compensatory fee from the listed company or
any of its subsidiaries; or (2) be an affiliated person of
the listed company or any of its subsidiaries.
Our board of directors has determined that none of
Messrs. Barrett, Benson, Cron, Gillis and Salim,
representing five of our six directors, has a relationship that
would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and that each of
these directors is independent as that term is
defined under Nasdaq Marketplace Rule 5605(a)(2). Our board
of directors has also determined that Messrs. Barrett,
Benson and Gillis, who comprise our audit committee,
Messrs. Barrett, Benson and Salim, who comprise our
compensation committee, and Messrs. Cron, Gillis and Salim,
who comprise our nominating and governance committee, satisfy
the independence standards for those committees established by
applicable SEC rules and the Nasdaq Marketplace Rules. In making
this determination, our board of directors considered the
relationships that each non-employee director has with our
company and all other facts and circumstances our board of
directors deemed relevant in determining their independence,
including the beneficial ownership of our capital stock by each
non-employee director.
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee. Each committee operates under a charter that has been
approved by our board of directors. The composition of each
committee was effective upon the closing of our IPO on
July 7, 2009.
Audit
Committee
The members of our audit committee are Messrs. Barrett,
Benson and Gillis. Mr. Gillis chairs the audit committee.
Our board of directors has determined that each audit committee
member satisfies the requirements for financial literacy under
the current requirements of the Nasdaq Marketplace Rules.
Mr. Gillis is an audit committee financial
expert, as defined by SEC rules and satisfies the
financial sophistication requirements of The NASDAQ Global
Market. Our audit committee assists our board of directors in
its oversight of our accounting and financial reporting process
and the audits of our financial statements. The audit
committees responsibilities include:
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appointing, approving the compensation of, and assessing the
independence of our independent registered public accounting
firm;
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overseeing the work of our independent registered public
accounting firm, including through the receipt and consideration
of reports from such firm;
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reviewing and discussing with management and the independent
registered public accounting firm our annual and quarterly
financial statements and related disclosures;
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monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct
and ethics;
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discussing our risk management policies;
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establishing policies regarding hiring employees from the
independent registered public accounting firm and procedures for
the receipt and resolution of accounting related complaints and
concerns;
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meeting independently with our independent registered public
accounting firm and management;
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reviewing and approving or ratifying any related person
transactions; and
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preparing the audit committee report required by SEC rules.
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All audit and non-audit services, other than de minimus
non-audit services, to be provided to us by our independent
registered public accounting firm must be approved in advance by
our audit committee.
Compensation
Committee
The members of our compensation committee are
Messrs. Barrett, Benson and Salim. Mr. Benson chairs
the compensation committee. The compensation committees
responsibilities include:
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annually reviewing and approving corporate goals and objectives
relevant to chief executive officer compensation;
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determining our chief executive officers compensation;
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reviewing and approving, or making recommendations to our board
of directors with respect to, the compensation of our other
executive officers;
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overseeing an evaluation of our senior executives;
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overseeing and administering our cash and equity incentive plans;
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reviewing and making recommendations to our board of directors
with respect to director compensation;
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reviewing and discussing annually with management our
Compensation Discussion and Analysis disclosure
required by SEC rules; and
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preparing the compensation committee report required by SEC
rules.
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Nominating
and Corporate Governance Committee
The members of our nominating and corporate governance committee
are Messrs. Cron, Gillis and Salim. Mr. Salim chairs
the nominating and corporate governance committee. The
nominating and corporate governance committees
responsibilities include:
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identifying individuals qualified to become members of our board
of directors;
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recommending to our board of directors the persons to be
nominated for election as directors and to each board committee;
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reviewing and making recommendations to our board of directors
with respect to management succession planning;
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developing and recommending corporate governance principles to
our board of directors; and
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overseeing an annual evaluation of our board of directors.
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Compensation
Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee, or other committee
serving an equivalent function, of any entity that has one or
more executive officers who serve as members of our board of
directors or our compensation committee. None of the members of
our compensation committee is an officer or employee of our
company, nor have they ever been an officer or employee of our
company.
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Code of
Business Conduct and Ethics
We have adopted a code of business conduct and ethics that
applies to all of our employees, officers and directors,
including those officers responsible for financial reporting.
The code of business conduct and ethics is available on our
website at www.logmein.com. Any amendments to the code, or any
waivers of its requirements, will be disclosed on our website.
Director
Compensation
Prior to our IPO, we did not pay cash compensation to any
director for his service as a director. However, we reimbursed
our non-employee directors for reasonable travel and other
expenses incurred in connection with attending board of director
and committee meetings.
Our president and chief executive officer has not received any
compensation in connection with his service as a director. The
compensation that we pay to our president and chief executive
officer is discussed in the Executive Compensation
section of this prospectus.
The following table sets forth information regarding
compensation earned by our non-employee directors during 2008.