LOGM 2017 Annual Report

Cost of Revenue. Cost of revenue increased $157.7 million, or 347%, from $45.5 million for the year ended December 31, 2016 to $203.2 million for the year ended December 31, 2017. As a percentage of revenue, cost of revenue was 14% and 21% for the years ended December 31, 2016 and 2017, respectively. Cost of revenue for the years ended December 31, 2016 and 2017, includes personnel-related costs, including salary, bonus, recruit- ing, relocation, travel, training, benefits and taxes of $14.9 million and $52.3 million, respectively; facility- related costs of $2.2 million and $6.7 million, respectively; depreciation, maintenance, and amortization of internally developed software expense of $11.1 million and $34.8 million, respectively; costs from outside serv- ice providers of $1.9 million and $12.8 million, respectively; data center and telecommunications costs of $10.3 million and $45.2 million, respectively; and amortization of acquired intangible assets of $4.6 million and $48.7 million, respectively. Cost of revenue for the year ended December 31, 2017 also includes royalty expense of $1.8 million. As of the Merger date, cost of revenue expense included an additional 326 employees. The increase in cost of revenue as a percentage of revenue is primarily attributable to the increase in amortization of intangible assets. Included in personnel-related costs in the years ended December 31, 2016 and 2017, is $2.3 million and $5.2 million, respectively, of stock-based compensation expense and $0.7 million and $1.3 million, respectively, of acquisition-related retention-based bonuses. Research and Development Expenses. Research and development expenses increased $99.5 million, or 174%, from $57.2 million for the year ended December 31, 2016 to $156.7 million for the year ended December 31, 2017. As a percentage of revenue, research and development expenses were 17% and 16% for the years ended December 31, 2016 and 2017, respectively. Research and development expenses for the years ended December 31, 2016 and 2017, includes personnel-related costs, including salary, bonus, recruiting, relocation, travel, training, benefits and taxes, of $46.1 million and $118.5 million, respectively; facility-related costs of $4.8 million and $17.7 million, respectively; depreciation and maintenance expense of $3.6 million and $14.3 million, respectively; and professional services expense of $2.2 million and $4.9 million, respectively. We capitalized $1.6 million and $29.8 million during the years ended December 31, 2016 and 2017, respectively, of costs related to internally developed software to be sold as a service incurred during the application development stage. As of the Merger date, research and development expense included an additional 647 employees. Included in personnel-related costs for the years ended December 31, 2016 and 2017 is $6.2 million and $22.1 million, respectively, of stock-based compensation expense and $5.9 million and $7.3 million, respectively, of acquisition-related retention-based bonuses. Sales and Marketing Expenses. Sales and marketing expenses increased $184.2 million, or 113%, from $162.8 million for the year ended December 31, 2016 to $347.0 million for the year ended December 31, 2017. As a percentage of revenue, sales and marketing expenses were 48% and 35% for the years ended December 31, 2016 and 2017, respectively. Sales and marketing expenses for the years ended December 31, 2016 and 2017, includes personnel-related costs, including salary, bonus, recruiting, relocation, travel, training, benefits and taxes, of $85.6 million and $170.6 million, respectively; marketing costs of $48.2 million and $119.5 million, respectively; credit card transaction fees of $8.8 million and $20.8 million, respectively; facility-related costs of $8.8 million and $15.5 million, respectively; depreciation and maintenance expense of $8.1 million and $14.4 million, respectively; and professional services expense of $2.9 million and $3.1 million, respectively. As of the Merger date, sales and marketing expense included an additional 621 employees resulting from the Merger. Included in personnel-related costs in the years ended December 31, 2016 and 2017 is $16.2 million in both years of stock-based compensation expense and $1.5 million and $3.1 million, respectively, of acquisition- related retention-based bonuses. General and Administrative Expenses. General and administrative expenses increased $99.7 million, or 164%, from $60.7 million for the year ended December 31, 2016 to $160.4 million for the year ended December 31, 2017. As a percentage of revenue, general and administrative expenses were 18% and 16% for the years ended December 31, 2016 and 2017, respectively. For the year ended December 31, 2017, general and administrative expenses included acquisition-related costs of $48.2 million primarily related to the Merger, consisting of $29.4 million in transaction, transition and integration-related costs, $12.8 million in integration-related severance costs and $5.0 million of retention-based bonuses. For the year ended December 31, 2016, general and administrative expenses included acquisition related costs of $25.1 million primarily related to the Merger, as well as $8.2 million in retention-based bonuses related to our 2014 and 2015 acquisitions. General and admin- 42