LOGM 2017 Annual Report

istrative expenses for the years ended December 31, 2016 and 2017, included personnel-related costs, including salary, bonus, recruiting, relocation, travel, training, benefits and taxes, of $31.4 million and $73.4 million, respectively; professional services of $7.1 million and $20.9 million, respectively; facility-related costs of $2.1 million and $7.6 million, respectively; and depreciation and maintenance expense of $2.0 million and $6.5 million, respectively. As of the Merger date, general and administrative expense included an additional 138 employees. Included in personnel-related costs in the years ended December 31, 2016 and 2017 is $13.7 million and $23.8 million, respectively, of stock-based compensation expense. Amortization of Acquired Intangibles. Amortization of acquired intangibles was $5.5 million and $134.3 million for the years ended December 31, 2016 and 2017, respectively. The increase was primarily related to the intangible assets acquired as a result of the Merger on January 31, 2017. Interest Income. Interest income was $0.7 million and $1.4 million for the years ended December 31, 2016 and 2017, respectively, and was primarily attributable to interest income earned on marketable securities and money market funds. Interest Expense. Interest expense was $1.4 million for both the years ended December 31, 2016 and 2017, and was primarily associated with interest expense attributable to our credit facility and the amortization of financing fees. Other Income (Expense), Net. Other income (expense), net was expense of $0.5 million and $0.1 million for the years ended December 31, 2016 and 2017, respectively, comprised primarily of realized and unrealized foreign cur- rency gains and losses resulting from multi-currency settlements and re-measurements occurring during the period. Income Taxes . We recorded a provision for federal, state and foreign income taxes of $0.6 million on profit before income taxes of $3.2 million and a benefit of $111.5 million on a loss before income taxes of $12.0 million for the years ended December 31, 2016 and 2017, respectively. Our effective tax rate is different than the U.S. federal statutory rate of 35% primarily due to the impact of the enactment of the U.S. Tax Act and the recording of excess tax benefits related to stock-based awards in 2017 and due to profits earned in certain foreign jurisdictions, primarily our Irish subsidiaries, which are subject to significantly lower tax rates than the U.S. federal statutory rate in both 2016 and 2017. As a result of the U.S. Tax Act, we recognized a one-time mandatory transition tax of $14.8 million on cumulative foreign subsidiary earnings, remeasured our U.S. deferred tax assets and liabilities, which resulted in a benefit from income taxes of $105.1 million, and reassessed the net realizability of our deferred tax assets and liabilities, which resulted in a tax provision of $4.7 million. Further, on January 1, 2017, we adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). Previously, excess tax benefits were recognized in additional paid-in capital on the consolidated balance sheet to the extent they reduced income taxes payable. Beginning in 2017, any excess tax benefits or shortfalls were recorded in the income tax provision upon vest or exercise. In 2017, we recorded a net benefit of $16.0 million related to excess tax benefits. Net Income . We recognized net income of $2.6 million and $99.5 million for the years ended December 31, 2016 and 2017, respectively. Years Ended December 31, 2015 and 2016 Revenue. Revenue increased $64.5 million, or 24%, from $271.6 million for the year ended December 31, 2015 to $336.1 million for the year ended December 31, 2016. This increase was primarily attributable to customers who purchased new, add-on and renewal subscriptions of join.me and existing customers who renewed and received our improved LogMeIn Pro and LogMeIn Central offerings at higher price points. Included in the increase is $16.1 million of revenue related to Marvasol, Inc. d/b/a “LastPass,” or LastPass, which was acquired in October 2015. Cost of Revenue. Cost of revenue increased $10.0 million, or 28%, from $35.5 million for the year ended December 31, 2015 to $45.5 million for the year ended December 31, 2016. As a percentage of revenue, cost of revenue was 13% and 14% for the years ended December 31, 2015 and 2016, respectively. The increase in abso- lute dollars was primarily due to a $5.6 million increase in hosting costs associated with managing our data cen- ters and hosting our services due to an increase in both the number of customers using our services and the total number of devices that connected to our services. The increase was also due to a $2.2 million increase in personnel-related costs, including salary, wages, bonus, recruiting and relocation expense, and benefits and taxes 43