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| LOGM > SEC Filings for LOGM > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-2009
Quarterly Report
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated
financial statements and notes thereto and management's discussion and analysis
of financial condition and results of operations for the year ended December 31,
2008 included in our final prospectus dated June 30, 2009 and filed with the
Securities and Exchange Commission, or SEC. This Quarterly Report on Form 10-Q
contains "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. These
statements are often identified by the use of words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "estimate," or "continue,"
and similar expressions or variations. Such forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual
results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the section titled "Risk Factors," set forth in Part II,
Item 1A of this Quarterly Report on Form 10-Q and elsewhere in this Report. The
forward-looking statements in this Quarterly Report on Form 10-Q represent our
views as of the date of this Quarterly Report on Form 10-Q. We anticipate that
subsequent events and developments will cause our views to change. However,
while we may elect to update these forward-looking statements at some point in
the future, we have no current intention of doing so except to the extent
required by applicable law. You should, therefore, not rely on these
forward-looking statements as representing our views as of any date subsequent
to the date of this Quarterly Report on Form 10-Q.
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.
Through September 30, 2009, we have primarily funded our operations through
the sale of redeemable convertible preferred stock which resulted in proceeds of
approximately $27.8 million, cash flows from operations and to a lesser extent
approximately $83.0 million of net proceeds received in connection with our
initial public offering of common stock, or 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" set forth in Part II, Item 1A of
this Quarterly Report on Form 10-Q and elsewhere in this report.
• 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 U.S. 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 the 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 interim periods covered by this report.
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 our 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 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 listed below:
• Revenue recognition;
• Income taxes;
• Software development costs;
• Valuation of long lived and intangible assets, including goodwill; and
• Stock-based compensation.
During the three and nine months ended September 30, 2009, there were no
significant changes in our critical accounting policies or estimates. See Notes
2 and 8 to our condensed consolidated financial statements included elsewhere in
this Quarterly Report on Form 10-Q and in our prospectus filed on June 30, 2009
for additional information about these critical accounting policies, as well as
a description of our other significant accounting policies.
Results of Consolidated Operations
The following table sets forth selected consolidated statements of operations
data for each of the periods:
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