LOGM 2017 Annual Report

Amounts for the years ended December 31, 2015 and 2016 presented in our revenue by product grouping table below include reclassifications between product groups to conform to the current year classification of our prod- ucts (in thousands): Years Ended December 31, 2015 2016 2017 Revenues: Communications and collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,751 $ 40,616 $527,412 Identity and access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,194 196,952 289,181 Customer engagement and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,655 98,500 173,193 Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $271,600 $336,068 $989,786 Employees We have increased our number of full-time employees to 2,760 as of December 31, 2017 compared to 1,124 as of December 31, 2016. 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. Included in these costs are wages and benefits for personnel, telecommunications, hosting fees, hardware and software maintenance costs, consulting fees associated with outsourced customer support staffing and professional services team projects, depreciation associated with our data centers and retention-based bonus expense related to our acquisitions (see Note 4 to the Consolidated Financial Statements). Additionally, amortization expense associated with the acquired software, technology and documented know-how, as well as internally developed software is included in cost of revenue. The expenses related to host- ing our services and supporting our free and premium customers are dependent on the number of customers who subscribe to our services and the complexity and redundancy of our services and hosting infrastructure. Research and Development. Research and development expenses consist primarily of wages and benefits for development personnel, retention-based bonus expense related to our acquisitions, facility expense, consulting fees associated with outsourced development projects, travel-related costs for development personnel and depreciation of assets used in development. Our research and development efforts are focused on both improving ease of use and functionality of our existing services, as well as developing new offerings. More than half of our research and development employees are located internationally in our development centers in Hungary, Ger- many and India. Therefore, a large portion of research and development expense is subject to fluctuations in for- eign exchange rates. We capitalized costs of $2.2 million, $1.6 million, and $29.8 million for the years ended December 31, 2015, 2016 and 2017, respectively, related to internally developed software to be sold as a service, which were incurred during the application development stage. The majority of research and development costs have been expensed as incurred. We expect that research and development expenses will remain relatively con- stant 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 adver- tising and trade shows, consulting fees, credit card processing fees, rent expense and hardware and software maintenance costs. 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 tradeshows and costs to design and construct tradeshow booths. Advertising costs are expensed 37