Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation — The accompanying condensed consolidated financial statements include the results of operations of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Unaudited Interim Condensed Consolidated Financial Statements

Unaudited Interim Condensed Consolidated Financial Statements — The accompanying condensed consolidated financial statements and the related interim information contained within the notes to the condensed consolidated financial statements are unaudited and have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read along with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 22, 2013. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results for the interim periods presented are not necessarily indicative of future results. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Use of Estimates

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.

Marketable Securities

Marketable Securities — The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of earnings based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2012 and June 30, 2013, marketable securities consisted of U.S. government agency securities that have remaining maturities within two years and have an aggregate amortized cost of $100,082,602 and $100,387,064 and an aggregate fair value of $100,160,889 and $100,357,728, including $82,787 and $29,692 of unrealized gains and $4,500 and $59,028 of unrealized losses, respectively.

Revenue Recognition

Revenue Recognition — The Company derives revenue primarily from subscription fees related to its LogMeIn premium services, the licensing of its Ignition for iPhone, iPad, and Android software products, and from the licensing of its RemotelyAnywhere software and its related maintenance.

Revenue from the Company’s LogMeIn premium services is recognized on a daily basis over the subscription term as the services are delivered, provided that there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is deemed reasonably assured. Subscription periods range from monthly to five years, but are generally one year in duration. The Company’s software cannot be run on another entity’s hardware nor do customers have the right to take possession of the software and use it on their own or another entity’s hardware.

Revenue from the sales of the Company’s Ignition for iPhone, iPad and Android software products, which are sold as a perpetual license, is recognized when there is persuasive evidence of an arrangement, the product has been provided to the customer, the collection of the fee is probable, and the amount of fees to be paid by the customer is fixed or determinable.

The Company’s multi-element arrangements typically include subscription and professional services, which may include development services. The Company evaluates each element within the arrangement to determine if they can be accounted for as separate units of accounting. If the delivered item or items have value to the customer on a standalone basis, either because they are sold separately by any vendor or the customer could resell the delivered item or items on a standalone basis, the Company has determined that the deliverables within these arrangements qualify for treatment as separate units of accounting. Accordingly, the Company recognizes revenue for each delivered item or items as a separate earnings process commencing when all of the significant performance obligations have been performed and when all of the revenue recognition criteria have been met. In cases where the Company has determined that the delivered items within its multi-element arrangements do not have value to the customer on a stand-alone basis, the arrangement is accounted for as a single unit of accounting and the total consideration is recognized ratably over the estimated customer life, commencing when all of the significant performance obligations have been delivered and when all of the revenue recognition criteria have been met.

Revenues are reported net of applicable sales and use tax, value-added tax, and other transaction taxes imposed on the related transaction.

Concentrations of Credit Risk and Significant Customers

Concentrations of Credit Risk and Significant Customers — The Company’s principal credit risk relates to its cash, cash equivalents, marketable securities, restricted cash, and accounts receivable. Cash, cash equivalents, and restricted cash are deposited primarily with financial institutions that management believes to be of high-credit quality and custody of its marketable securities is with an accredited financial institution. To manage accounts receivable credit risk, the Company regularly evaluates the creditworthiness of its customers and maintains allowances for potential credit losses. To date, losses resulting from uncollected receivables have not exceeded management’s expectations.

As of December 31, 2012, no customers accounted for 10% or more of accounts receivable and no customers accounted for 10% or more of revenue for the three and six months ended June 30, 2012 or 2013. As of June 30, 2013, one customer accounted for 10% of accounts receivable.

Research and Development

Research and Development — Research and development expenditures are expensed as incurred.

In June 2013, the Company received approval of a grant from the Hungarian government which reimburses it for a portion of its Hungarian research and development related costs for a two and a half year period, beginning in April 2013. These reimbursements are recorded as a reduction of research and development expenses and total approximately $35,000 for the three month ended June 30, 2013.

Goodwill

Goodwill — Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill, but performs an annual impairment test of goodwill on the last day of its fiscal year and whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. Through June 30, 2013, no impairments have occurred

Long-Lived Assets and Intangible Assets

Long-Lived Assets and Intangible Assets — The Company records intangible assets at their estimated fair values at the date of acquisition. Intangible assets are amortized based upon the pattern in which their economic benefit will be realized, or if this pattern cannot be reliably determined, using the straight-line method over their estimated useful lives. The Company’s intangible assets have estimated useful lives which range from one to seven years.

Foreign Currency Translation

Foreign Currency Translation — The functional currency of operations outside the United States of America is deemed to be the currency of the local country. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars using the period-end exchange rate, and income and expense items are translated using the average exchange rate during the period. Cumulative translation adjustments are reflected as a separate component of equity. Foreign currency transaction gains and losses are charged to operations. The Company had foreign currency losses of approximately $269,000 and $506,000 for the three and six months ended June 30, 2012, respectively, and foreign currency losses of approximately $199,000 for the three months ended June 30, 2013 and foreign currency gains of approximately $454,000 for the six months ended June 30, 2013.

Stock-Based Compensation

Stock-Based Compensation — Stock-based compensation is measured based upon the grant date fair value and recognized as an expense on a straight-line basis in the financial statements over the vesting period of the award for those awards expected to vest. The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of stock awards. The Company uses the with-or-without method to determine when it will realize excess tax benefits from stock based compensation. Under this method, the Company will realize these excess tax benefits only after it realizes the tax benefits of net operating losses from operations.

Income Taxes

Income Taxes — Deferred income taxes are provided for the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss carry-forwards and credits using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. At each balance sheet date, the Company assesses the likelihood that deferred tax assets will be realized, and recognizes a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction.

The Company evaluates its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized. Potential interest and penalties associated with any uncertain tax positions are recorded as a component of income tax expense. Through December 31, 2012 and June 30, 2013, the Company has provided a liability for approximately $251,000 and $272,000 for uncertain tax positions, respectively. These uncertain tax positions would impact the Company’s effective tax rate if recognized.

Segment Data

Segment Data — Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision making group, in making decisions regarding resource allocation and assessing performance. The Company, which uses consolidated financial information in determining how to allocate resources and assess performance, has determined that it operates in one segment.

The Company’s revenue by geography (based on customer address) is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
Revenues:
United States	$	21,887,000	$	26,695,000	$	43,084,000	$	51,483,000
United Kingdom		3,087,000		3,643,000		6,095,000		7,105,000
International - all other		8,823,000		10,332,000		17,306,000		19,518,000
Total revenue	$	33,797,000	$	40,670,000	$	66,485,000	$	78,106,000

Guarantees and Indemnification Obligations

Guarantees and Indemnification Obligations — As permitted under Delaware law, the Company has agreements whereby the Company indemnifies certain of its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. As permitted under Delaware law, the Company also has similar indemnification obligations under its certificate of incorporation and by-laws. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director’s and officer’s insurance coverage that the Company believes limits its exposure and enables it to recover a portion of any future amounts paid.

The Company has entered into agreements with certain customers that contractually obligate the Company to indemnify the customer from certain claims alleging that the Company’s products infringe third-party patents, copyrights, or trademarks. The term of these indemnification obligations is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited. Through June 30, 2013, the Company has not experienced any losses related to these indemnification obligations.

During 2012, certain of the Company’s customers received letters from Pragmatus Telecom LLC, or Pragmatus, claiming that their use of certain LogMeIn services infringed upon three patents allegedly owned by Pragmatus. In response, the Company filed suit against Pragmatus in the U.S. District Court for the District of Delaware on November 21, 2012 seeking a declaratory judgment that the Company’s products did not infringe the three patents allegedly owned by Pragmatus and further requesting a declaratory judgment that those three patents be declared invalid. On March 29, 2013, the Company and Pragmatus entered into a License Agreement, which granted the Company a fully-paid license covering the patents at issue. In connection with the License Agreement, the Company agreed to pay Pragmatus a one-time licensing fee, a portion of which was reimbursed from a designated escrow arrangement associated with a prior acquisition. The Company recorded approximately $1.2 million of expense related to this matter in general and administrative expenses in March 2013. The reimbursement funds were received by the Company in March 2013 and the licensing fee was paid to Pragmatus in April 2013. As a result, the Company’s declaratory judgment action against Pragmatus was dismissed by the court on May 3, 2013. For additional information regarding the Pragmatus matter please refer to Part II, Item 1 entitled “Legal Proceedings” and note 10 of the notes to consolidated financial statements.

Net Income (loss) Per Share

Net Income (loss) Per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding during the period and the weighted average number of potential common shares outstanding from the assumed exercise of stock options and the vesting of restricted stock units. For the three and six months ended June 30, 2013, the Company incurred a net loss and therefore, the effect of the Company’s outstanding common stock equivalents were not included in the calculation of diluted loss per share as they were anti-dilutive. Accordingly, basic and dilutive net loss per share for each period were identical.

The Company excluded the following options to purchase common shares and restricted stock units from the computation of diluted net income (loss) per share either because they had an anti-dilutive impact or because the Company had a net loss in the period:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
Options to purchase common shares		1,587,310		2,946,607		1,586,910		2,946,607
Restricted stock units		141,837		1,134,804		940		1,134,804
Total options and restricted stock units		1,729,147		4,081,411		1,587,850		4,081,411

Basic and diluted net income per share was calculated as follows:

	Three Months Ended June 30, 2012		Six Months Ended June 30, 2012
Basic:
Net income	$	575,677	$	651,917
Weighted average common shares outstanding, basic		24,677,893		24,625,851
Net income, basic	$	0.02	$	0.03
Diluted:
Net income	$	575,677	$	651,917
Weighted average common shares outstanding		24,677,893		24,625,851
Add: Options to purchase common shares		689,334		735,099
Weighted average common shares outstanding, diluted		25,367,227		25,360,950
Net income, diluted	$	0.02	$	0.03

	Three Months Ended June 30, 2013			Six Months Ended June 30, 2013
Basic and diluted net loss per share:
Net loss	$	(1,359,941	)	$	(7,166,596	)
Weighted average common shares outstanding		24,262,417			24,485,429
Basic and diluted net loss per share	$	(0.06	)	$	(0.29	)

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements — In February 2013, the FASB issued ASU 2013-02 relating to comprehensive income (FASB ASC Topic 220), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component (the respective line items of net income). This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this ASU and the impact was not material to its disclosures.