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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-35264
 
CARBONITE, INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
33-1111329
(State or other jurisdiction of
incorporation)
(I.R.S. Employer
Identification No.)
Two Avenue de Lafayette, Boston, Massachusetts 02111
(Address of principal executive offices, including ZIP code)
(617) 587-1100
(Registrant’s telephone number, including area code)
 
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
 
 
 
 
Common Stock, par value $0.01 per share
 
CARB
 
The NASDAQ Stock Market LLC
(Title of each class)
 
(Trading symbol)
 
(Name of each exchange on which registered)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes No
As of July 31, 2019, there were 34,689,712 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.
 


Table of Contents

CARBONITE, INC.
Table of Contents

 
Page
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2

Table of Contents

PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
Carbonite, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
June 30, 2019
 
December 31, 2018
 
(in thousands, except share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
83,378

 
$
198,087

Trade accounts receivable, less allowances for doubtful accounts of $1,389 and $892
47,110

 
31,569

Prepaid expenses and other current assets
22,573

 
10,409

Total current assets
153,061

 
240,065

Property and equipment, net
45,961

 
34,101

Right-of-use lease assets
48,299

 

Other assets
24,176

 
13,876

Acquired intangible assets, net
417,827

 
117,963

Goodwill
543,524

 
155,086

Total assets
$
1,232,848

 
$
561,091

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
7,787

 
$
2,114

Accrued compensation
20,919

 
11,620

Accrued expenses and other current liabilities
29,947

 
15,844

Current portion of deferred revenue
180,053

 
121,553

Total current liabilities
238,706

 
151,131

Long-term debt
598,301

 
118,305

Long-term lease liabilities
46,750

 

Deferred revenue, net of current portion
43,727

 
29,151

Long-term deferred tax liabilities
43,052

 
1,456

Other long-term liabilities
3,140

 
3,838

Total liabilities
973,676

 
303,881

Commitments and contingencies (Note 13)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 6,000,000 shares authorized; no shares issued

 

Common stock, $0.01 par value; 45,000,000 shares authorized; 37,360,504 shares issued and 34,679,755 shares outstanding at June 30, 2019; 36,641,317 shares issued and 33,923,135 shares outstanding at December 31, 2018
374

 
366

Additional paid-in capital
461,633

 
451,618

Treasury stock, at cost (2,680,749 and 2,718,182 shares as of June 30, 2019 and December 31, 2018, respectively)
(47,850
)
 
(48,522
)
Accumulated other comprehensive income
2,188

 
1,650

Accumulated deficit
(157,173
)
 
(147,902
)
Total stockholders’ equity
259,172

 
257,210

Total liabilities and stockholders’ equity
$
1,232,848

 
$
561,091

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Table of Contents

Carbonite, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands, except share and per share amounts)
Revenue:


 


 


 


Services
$
114,431

 
$
68,814

 
$
185,934

 
$
123,388

Product
7,079

 
8,920

 
16,791

 
18,372

Total revenue
121,510

 
77,734

 
202,725

 
141,760

Cost of revenue:
 
 
 
 
 
 
 
Services
23,956

 
18,358

 
41,058

 
33,688

Product
440

 
374

 
823

 
931

Amortization of intangible assets
9,081

 
4,325

 
12,375

 
6,750

Total cost of revenue
33,477

 
23,057

 
54,256

 
41,369

Gross profit
88,033

 
54,677

 
148,469

 
100,391

Operating expenses:
 
 
 
 
 
 
 
Research and development
27,879

 
15,719

 
43,686

 
28,238

General and administrative
17,567

 
13,460

 
38,556

 
27,920

Sales and marketing
36,945

 
22,086

 
58,710

 
41,946

Amortization of intangible assets
9,765

 
3,652

 
14,065

 
4,591

Restructuring charges
702

 
41

 
702

 
903

Total operating expenses
92,858

 
54,958

 
155,719

 
103,598

Loss from operations
(4,825
)
 
(281
)
 
(7,250
)
 
(3,207
)
Interest expense
(11,844
)
 
(3,420
)
 
(15,855
)
 
(6,021
)
Interest income
418

 
169

 
1,383

 
413

Other income (expense), net
175

 
183

 
387

 
195

Loss before income taxes
(16,076
)
 
(3,349
)
 
(21,335
)
 
(8,620
)
(Benefit) provision for income taxes
(4,802
)
 
2,338

 
(12,064
)
 
(14,877
)
Net (loss) income
$
(11,274
)
 
$
(5,687
)
 
$
(9,271
)
 
$
6,257

Net (loss) income per common share:
 
 
 
 
 
 
 
Basic
$
(0.33
)
 
$
(0.20
)
 
$
(0.27
)
 
$
0.22

Diluted
$
(0.33
)
 
$
(0.20
)
 
$
(0.27
)
 
$
0.20

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
34,459,359

 
28,628,173

 
34,312,971

 
28,485,695

Diluted
34,459,359

 
28,628,173

 
34,312,971

 
30,885,633

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Carbonite, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Net (loss) income
$
(11,274
)
 
$
(5,687
)
 
$
(9,271
)
 
$
6,257

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
173

 
1,149

 
538

 
510

Total other comprehensive income
173

 
1,149

 
538

 
510

Total comprehensive (loss) income
$
(11,101
)
 
$
(4,538
)
 
$
(8,733
)
 
$
6,767

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Carbonite, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
in thousands, except share data
Number of
Shares
 
Amount
 
Balance as of December 31, 2018
36,641,317

 
$
366

 
$
451,618

 
$
(147,902
)
 
$
(48,522
)
 
$
1,650

 
$
257,210

Stock options exercised and vesting of restricted stock units
532,141

 
6

 
130

 
 
 
 
 
 
 
136

Stock-based compensation expense
 
 
 
 
4,223

 
 
 
 
 
 
 
4,223

Payments of withholding taxes in connection with restricted stock unit vesting
 
 
 
 
 
 
 
 
(754
)
 
 
 
(754
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
365

 
365

Net income
 
 
 
 
 
 
2,003

 
 
 
 
 
2,003

Balance as of March 31, 2019
37,173,458

 
372

 
455,971

 
(145,899
)
 
(49,276
)
 
2,015

 
263,183

Stock options exercised and vesting of restricted stock units
187,046

 
2

 
133

 
 
 
 
 
 
 
135

Stock-based compensation expense
 
 
 
 
5,524

 
 
 
 
 
 
 
5,524

Issuance of treasury stock in connection with employee stock purchase plan
 
 
 
 
5

 
 
 
1,577

 
 
 
1,582

Payments of withholding taxes in connection with restricted stock unit vesting
 
 
 
 
 
 
 
 
(151
)
 
 
 
(151
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
173

 
173

Net loss
 
 
 
 
 
 
(11,274
)
 
 
 
 
 
(11,274
)
Balance as of June 30, 2019
37,360,504

 
$
374

 
$
461,633

 
$
(157,173
)
 
$
(47,850
)
 
$
2,188

 
$
259,172


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
in thousands, except share data
Number of
Shares
 
Amount
 
Balance as of December 31, 2017
30,130,856

 
$
301

 
$
233,343

 
$
(169,344
)
 
$
(26,616
)
 
$
581

 
$
38,265

Stock options exercised and vesting of restricted stock units
408,764

 
4

 
722

 
 
 
 
 
 
 
726

Stock-based compensation expense
 
 
 
 
3,818

 
 
 
 
 
 
 
3,818

Payments of withholding taxes in connection with restricted stock unit vesting
 
 
 
 
 
 
 
 
(550
)
 
 
 
(550
)
Adjustment resulting from the adoption of Topic 606
 
 
 
 
 
 
13,880

 
 
 
 
 
13,880

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
(639
)
 
(639
)
Net income
 
 
 
 
 
 
11,944

 
 
 
 
 
11,944

Balance as of March 31, 2018
30,539,620

 
305

 
237,883

 
(143,520
)
 
(27,166
)
 
(58
)
 
67,444

Stock options exercised and vesting of restricted stock units
230,794

 
3

 
213

 
 
 
 
 
 
 
216

Stock-based compensation expense
 
 
 
 
4,699

 
 
 
 
 
 
 
4,699

Issuance of treasury stock in connection with employee stock purchase plan
 
 
 
 
282

 
 
 
933

 
 
 
1,215

Payments of withholding taxes in connection with restricted stock unit vesting
 
 
 
 
 
 
 
 
(634
)
 
 
 
(634
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
1,149

 
1,149

Net loss
 
 
 
 
 
 
(5,687
)
 
 
 
 
 
(5,687
)
Balance as of June 30, 2018
30,770,414

 
$
308

 
$
243,077

 
$
(149,207
)
 
$
(26,867
)
 
$
1,091

 
$
68,402


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Carbonite, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
 
(in thousands)
Operating activities
 
 
 
Net (loss) income
$
(9,271
)
 
$
6,257

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
34,214

 
17,763

Amortization of right-of-use assets
3,556

 

Amortization of deferred costs
1,413

 
931

Gain on disposal of equipment
(17
)
 
(141
)
Impairment of capitalized software

 
653

Stock-based compensation expense
9,717

 
8,478

Benefit for deferred income taxes
(12,241
)
 
(16,317
)
Non-cash interest expense related to amortization of debt discount
3,955

 
3,101

Other non-cash items, net
(262
)
 
64

Changes in assets and liabilities:
 
 
 
Accounts receivable
3,401

 
(6,437
)
Prepaid expenses and other current assets
(394
)
 
(1,541
)
Other assets
(1,512
)
 
(3,771
)
Accounts payable
4,553

 
(3,895
)
Accrued expenses and other current liabilities
(6,254
)
 
2,549

Other long-term liabilities
(6,858
)
 
53

Deferred revenue
15,020

 
9,099

Net cash provided by operating activities
39,020

 
16,846

Investing activities
 
 
 
Purchases of property and equipment
(6,023
)
 
(7,795
)
Proceeds from sale of property and equipment and businesses
77

 
534

Proceeds from maturities of derivatives
1,340

 
1,680

Purchases of derivatives
(6
)
 
(1,403
)
Payment for intangibles

 
(1,250
)
Payment for acquisition, net of cash acquired
(622,009
)
 
(144,597
)
Net cash used in investing activities
(626,621
)
 
(152,831
)
Financing activities
 
 
 
Proceeds from exercise of stock options
263

 
942

Proceeds from issuance of treasury stock under employee stock purchase plan
1,582

 
1,215

Payments of withholding taxes in connection with restricted stock unit vesting
(905
)
 
(1,184
)
Proceeds from long-term borrowings, net of debt issuance costs
529,483

 
88,068

Payments on long-term borrowings
(55,000
)
 
(10,000
)
Net cash provided by financing activities
475,423

 
79,041

Effect of currency exchange rate changes on cash
(92
)
 
(305
)
Net decrease in cash, cash equivalents and restricted cash
(112,270
)
 
(57,249
)
Cash, cash equivalents and restricted cash, beginning of period
198,087

 
128,231

Cash, cash equivalents and restricted cash, end of period
$
85,817

 
$
70,982


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



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Carbonite, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Supplemental disclosure of cash flow information
 
 
 
Cash paid for income taxes, net
$
591

 
$
524

Cash paid for interest
$
10,501

 
$
2,614

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Capitalization of stock-based compensation
$
29

 
$
39

Acquisition of property and equipment included in accounts payable and accrued expenses
$
1,150

 
$
(5
)
Accrued payment for intangibles
$

 
$
4,500


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Carbonite, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business
Carbonite, Inc. ("we" or the “Company”) provides a robust data protection platform for businesses, including backup, disaster recovery, high availability and workload migration technology. The Carbonite data protection platform supports businesses on a global scale with secure cloud infrastructure. The Company was incorporated in the State of Delaware on February 10, 2005.
In March 2019, Carbonite acquired Webroot Inc. ("Webroot"), a next-generation cloud-based security and threat intelligence provider for consumers and businesses. Webroot is a leading security provider for managed service providers to protect small businesses, who rely on Webroot for endpoint protection, network protection, and security awareness training.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q, and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on February 28, 2019.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position for the periods presented. The results for the periods presented are not necessarily indicative of future results.
Restricted Cash
Restricted cash is defined as cash and cash equivalents subject to contractual restrictions and not readily available for use. As of June 30, 2019, the Company's restricted cash balance related to deposits maintained for a lease of office space and corporate credit card accounts. As of December 31, 2018, the Company did not have a restricted cash balance.
The following tables summarizes the Company's cash, cash equivalents and restricted cash for the period presented:
 
June 30, 2019
Cash and cash equivalents
$
83,378

Restricted cash, included in other assets
2,439

Total cash, cash equivalents and restricted cash
$
85,817


Reclassification
The Company has reclassified certain prior period amounts in its condensed consolidated balance sheets to conform to the current period presentation. The reclassification relates to separately presenting long-term deferred tax liabilities previously included within other long-term liabilities. For the year ended December 31, 2018, the Company reclassified $1.5 million from other long-term liabilities into long-term deferred tax liabilities.
Recently Adopted Accounting Standards
The Company's significant accounting policies are presented in Note 2 - Summary of Significant Accounting Policies, in the Company's Annual Report on Form 10-K for fiscal year ended December 31, 2018 filed with the SEC on February 28, 2019. Summarized below are the accounting pronouncements adopted subsequent to December 31, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize the assets and liabilities on their balance sheet for the rights and obligations created by leases and continue to recognize

10

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expenses on their income statements over the lease term. It also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted this standard effective January 1, 2019 using the modified retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company elected the package of transition practical expedients for existing contracts. Adoption of the new standard resulted in the recording of right-of-use assets of $22.6 million and lease liabilities of $28.8 million, as of January 1, 2019. The difference between the right-of-use assets and lease liabilities relates to deferred and prepaid rent balances, the net impact of which reduced the right-of-use assets. The adoption of the standard did not impact the Company's consolidated net earnings and had no impact on cash flows. Refer to Note 12 - Leases for additional information related to the Company’s lease obligations.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
3. Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company primarily sells services in the form of “Software-as-a-Service” ("SaaS") and "Hardware-as-a-Service" ("HaaS") offerings as well as maintenance and support ("M&S") and professional services consisting of implementation, training, migration, protection and consulting. The Company also sells products in the form of on-premise data protection and migration software and hardware on a standalone basis. Revenues related to services are recorded over the performance period of the service. Revenues from product licenses and hardware sales are recorded when control of the product has been transferred to the customer.
Disaggregation of Revenue
The following tables depict disaggregated revenue for the three and six months ended June 30, 2019 and 2018, by type, customer type, sales channel, timing of revenue recognition, and geography (in thousands):
 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
 
Products
 
Services
 
Total
 
Products
 
Services
 
Total
Customer type
 
 
 
 
 
 
 
 
 
 
 
Consumer
$

 
$
51,658

 
$
51,658

 
$
(6
)
 
$
23,997

 
$
23,991

Business
7,079

 
62,773

 
69,852

 
8,926

 
44,817

 
53,743

Total
$
7,079

 
$
114,431

 
$
121,510

 
$
8,920

 
$
68,814

 
$
77,734

 
 
 
 
 
 
 
 
 
 
 
 
Sales channel
 
 
 
 
 
 
 
 
 
 
 
Direct
$
937

 
$
60,393

 
$
61,330

 
$
1,038

 
$
45,995

 
$
47,033

Indirect
6,142

 
54,038

 
60,180

 
7,882

 
22,819

 
30,701

Total
$
7,079

 
$
114,431

 
$
121,510

 
$
8,920

 
$
68,814

 
$
77,734

 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Transferred at a point in time
$
7,079

 
$

 
$
7,079

 
$
8,920

 
$

 
$
8,920

Transferred over time

 
114,431

 
114,431

 

 
68,814

 
68,814

Total
$
7,079

 
$
114,431

 
$
121,510

 
$
8,920

 
$
68,814

 
$
77,734

 
 
 
 
 
 
 
 
 
 
 
 
Geography
 
 
 
 
 
 
 
 
 
 
 
United States
$
2,999

 
$
98,833

 
$
101,832

 
$
3,644

 
$
61,013

 
$
64,657

Other
4,080

 
15,598

 
19,678

 
5,276

 
7,801

 
13,077

Total
$
7,079

 
$
114,431

 
$
121,510

 
$
8,920

 
$
68,814

 
$
77,734


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Table of Contents

 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
 
Products
 
Services
 
Total
 
Products
 
Services
 
Total
Customer type
 
 
 
 
 
 
 
 
 
 

Consumer
$

 
$
78,990

 
$
78,990

 
$

 
$
44,940

 
$
44,940

Business
16,791

 
106,944

 
123,735

 
18,372

 
78,448

 
96,820

Total
$
16,791

 
$
185,934

 
$
202,725

 
$
18,372

 
$
123,388

 
$
141,760

 
 
 
 
 
 
 
 
 
 
 

Sales channel
 
 
 
 
 
 
 
 
 
 

Direct
$
2,903

 
$
108,986

 
$
111,889

 
$
2,081

 
$
83,876

 
$
85,957

Indirect
13,888

 
76,948

 
90,836

 
16,291

 
39,512

 
55,803

Total
$
16,791

 
$
185,934

 
$
202,725

 
$
18,372

 
$
123,388

 
$
141,760

 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Transferred at a point in time
$
16,791

 
$

 
$
16,791

 
$
18,372

 
$

 
$
18,372

Transferred over time

 
185,934

 
185,934

 

 
123,388

 
123,388

Total
$
16,791

 
$
185,934

 
$
202,725

 
$
18,372

 
$
123,388

 
$
141,760

 
 
 
 
 
 
 
 
 
 
 
 
Geography
 
 
 
 
 
 
 
 
 
 
 
United States
$
6,080

 
$
162,579

 
$
168,659

 
$
8,294

 
$
110,010

 
$
118,304

Other
10,711

 
23,355

 
34,066

 
10,078

 
13,378

 
23,456

Total
$
16,791

 
$
185,934

 
$
202,725

 
$
18,372

 
$
123,388

 
$
141,760


Contract Assets and Liabilities
Contract assets are rights to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditional on something other than the passage of time. Contract assets are transferred to accounts receivable once the rights become unconditional. As of June 30, 2019 and December 31, 2018, the Company did not have contract assets.
Contract liabilities (deferred revenue) primarily consist of billings and payments received in advance of revenue recognition. The Company primarily bills and collects payments from customers for its services in advance on a monthly and annual basis. The Company initially records fees associated with performance obligations delivered over time as deferred revenue and then recognizes revenue as performance obligations are satisfied. The Company classifies deferred revenue as current or noncurrent based on the timing revenue recognition.
Changes in contract liabilities for the six months ended June 30, 2019 are as follows (in thousands):
 
Deferred Revenue (Current)
 
Deferred Revenue (Noncurrent)
Balance as of December 31, 2018
$
121,553

 
$
29,151

Increase, net
58,500

 
14,576

Balance as of June 30, 2019
$
180,053

 
$
43,727


For the three and six months ended June 30, 2019, revenue recognized related to deferred revenue at December 31, 2018 was approximately $38.6 million and $87.3 million, respectively. In addition, for the three and six months ended June 30, 2019, the Company recognized $27.3 million and $29.3 million of revenue from deferred revenue related to the acquisition of Webroot, respectively.
On June 30, 2019, the Company had $274.0 million of remaining performance obligations. This amount does not include any variable consideration for sales or usage-based royalties. The Company expects to recognize 56.0% of its remaining performance obligations as revenue during the year ended December 31, 2019, an additional 34.0% during the year ended December 31, 2020 and the remaining balance thereafter.
Accounts Receivable, Net 
Accounts receivable, net, are amounts due from customers where there is an unconditional right to consideration. Unbilled receivables of $9.6 million and $3.9 million are included in this balance at June 30, 2019 and December 31, 2018, respectively. The payment of consideration related to these unbilled receivables is conditioned only on the passage of time.

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Table of Contents

4. Net (Loss) Income Per Share
Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per share is calculated by dividing net (loss) income by the sum of the weighted average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method. For the periods in which the Company incurs a net loss, the effect of the Company's outstanding common stock equivalents is not included in the calculation of diluted net loss per share as they would be anti-dilutive.
The following table sets forth the computation of basic and diluted net (loss) income per share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
      Net (loss) income
$
(11,274
)
 
$
(5,687
)
 
$
(9,271
)
 
$
6,257

Denominator:
 
 
 
 
 
 
 
      Weighted average common shares outstanding, basic
34,459

 
28,628

 
34,313

 
28,486

      Effect of potential dilutive common shares

 

 

 
2,400

Weighted average shares outstanding, diluted
34,459

 
28,628

 
34,313

 
30,886

Basic net (loss) income per share
$
(0.33
)
 
$
(0.20
)
 
$
(0.27
)
 
$
0.22

Diluted net (loss) income per share
$
(0.33
)
 
$
(0.20
)
 
$
(0.27
)
 
$
0.20


The Company has the ability and intent to settle the principal of the convertible senior notes (the "Convertible Notes"), issued in April 2017, in cash. As the Company's common stock price exceeded the $25.84 conversion price during the six months ended June 30, 2018, the Company has included the dilutive effect of shares in excess of the principal amount in the calculation of diluted net income per share as of June 30, 2018, using the treasury stock method. Since the Company incurred a net loss during the three months ended June 30, 2018, the dilutive effect of shares in excess of the principal amount have been excluded in the calculation as they are anti-dilutive. The Company's stock price did not exceed the conversion price during the three and six months ended June 30, 2019, therefore the impact of the Convertible Notes was excluded from the calculation of diluted net income per share.
The following options to purchase common shares, restricted stock units/awards and shares of common stock purchasable under the Company’s 2017 Employee Stock Purchase Plan (“2017 ESPP”) have been excluded from the computation of diluted net (loss) income per share because they had an anti-dilutive impact, or because they related to share-based awards that were contingently issuable, for which the applicable vesting conditions had not been satisfied (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Options to purchase common shares1
1,017

 
1,053

 
1,017

 

Restricted stock units/awards
2,664

 
1,902

 
2,664

 
93

Total
3,681

 
2,955

 
3,681

 
93

 
 
 
 
 
 
 
 
(1) This balance includes shares purchasable under the Company's 2017 ESPP which were determined to be anti-dilutive.

5. Fair Value of Financial Instruments
Derivative Instruments
Non-designated Foreign Currency Contracts
The Company uses foreign currency forward contracts as part of its strategy to manage exposure related to Euro denominated intercompany monetary assets and liabilities. The Company has not designated these forward contracts as hedging instruments. Accordingly, the Company recorded the fair value of these contracts at the end of each reporting period in the condensed consolidated balance sheets, with changes in the fair value recorded in earnings as other income (expense), net in the condensed consolidated statements of operations. Cash flows from the settlement of these non-designated foreign currency contracts are reported in cash flows from investing activities. These currency forward contracts are entered into for periods consistent with currency transaction exposures, generally less than one year. At June 30, 2019 and December 31, 2018, the Company had outstanding contracts with a total notional value of $44.2 million and $43.8 million, respectively.

13

Table of Contents

The following table provides a quantitative summary of the fair value of derivative instruments not designated as hedging instruments as of June 30, 2019 and December 31, 2018 (in thousands):
 
 
 
Fair Value
Description
Balance Sheet Classification
 
June 30, 2019
 
December 31, 2018
Derivative liabilities:
 
 
 
 
 
Non-designated hedging instruments
 
 
 
 
 
Foreign currency contracts
Accrued expenses and other current liabilities
 
$
740

 
$
195

Total derivative liabilities
 
 
$
740

 
$
195


The following table summarizes the (losses) gains related to derivative instruments not designated as hedging instruments for the three and six months ended June 30, 2019 and 2018 (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Description
Location in Statement of Operations
 
2019
 
2018
 
2019
 
2018
Foreign currency contracts
Other income (expense), net
 
$
(338
)
 
$
2,580

 
$
787

 
$
1,509


Other Fair Value Measurements and Disclosures
The Company applies the guidance in ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), which provides that fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible in its assessment of fair value.
The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy are summarized as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents - money market funds
$
41,925

 
$

 
$

 
$
41,925

 
$
156,200

 
$

 
$

 
$
156,200

Total
$
41,925

 
$

 
$

 
$
41,925