QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
No. | ||||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
þ | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company |
September 30, 2020 (unaudited) | December 31, 2019 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net | |||||||||||
Prepaid expenses | |||||||||||
Other current assets | |||||||||||
Total current assets | |||||||||||
Property and equipment, net | |||||||||||
Operating lease right-of-use assets | |||||||||||
Goodwill | |||||||||||
Intangible assets, net | |||||||||||
Other non-current assets | |||||||||||
Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Other current liabilities | |||||||||||
Total current liabilities | |||||||||||
Long-term debt, net | |||||||||||
Operating lease liabilities | |||||||||||
Other non-current liabilities | |||||||||||
Total liabilities | $ | $ | |||||||||
Stockholders’ equity: | |||||||||||
Preferred stock (par value $ | $ | $ | |||||||||
Common stock (par value $ | |||||||||||
Additional paid-in capital | |||||||||||
Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost ( | ( | ( | |||||||||
Retained earnings | |||||||||||
Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Revenues | |||||||||||||||||||||||
Services | $ | $ | $ | $ | |||||||||||||||||||
Software and hardware | |||||||||||||||||||||||
Total revenues | |||||||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization, shown separately below) | |||||||||||||||||||||||
Cost of services | |||||||||||||||||||||||
Total cost of revenues | |||||||||||||||||||||||
Selling, general and administrative | |||||||||||||||||||||||
Depreciation | |||||||||||||||||||||||
Amortization | |||||||||||||||||||||||
Acquisition costs | |||||||||||||||||||||||
Adjustment to fair value of contingent consideration | ( | ( | |||||||||||||||||||||
Income from operations | |||||||||||||||||||||||
Net interest expense | |||||||||||||||||||||||
Loss on extinguishment of debt | |||||||||||||||||||||||
Net other (income) expense | ( | ( | ( | ||||||||||||||||||||
Income before income taxes | |||||||||||||||||||||||
Provision for income taxes | |||||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
Basic net income per share | $ | $ | $ | $ | |||||||||||||||||||
Diluted net income per share | $ | $ | $ | $ | |||||||||||||||||||
Shares used in computing basic net income per share | |||||||||||||||||||||||
Shares used in computing diluted net income per share |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation adjustment, net of tax | ( | ( | ( | ( | |||||||||||||||||||
Comprehensive income | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||
Beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
Stock compensation related to restricted stock vesting and retirement savings plan contributions | ||||||||||||||||||||||||||
End of period | ||||||||||||||||||||||||||
Additional Paid-in Capital | ||||||||||||||||||||||||||
Beginning of period | ||||||||||||||||||||||||||
Proceeds from the sales of stock through the Employee Stock Purchase Plan | ||||||||||||||||||||||||||
Stock compensation related to restricted stock vesting and retirement savings plan contributions | ||||||||||||||||||||||||||
Issuance of stock in conjunction with acquisition including stock attributed to future compensation | ||||||||||||||||||||||||||
Equity component of 2025 convertible notes, net of tax | ||||||||||||||||||||||||||
Debt issuance costs of 2025 convertible notes allocated to equity, net of tax | ( | ( | ||||||||||||||||||||||||
Purchase of hedges on 2025 convertible notes, net of tax | ( | ( | ||||||||||||||||||||||||
Proceeds from issuance of warrants on 2025 convertible notes | ||||||||||||||||||||||||||
Equity component of repurchase of 2023 convertible notes | ( | ( | ||||||||||||||||||||||||
Proceeds from sale of hedges related to 2023 convertible notes | ||||||||||||||||||||||||||
Purchases of warrants related to 2023 convertible notes | ( | ( | ||||||||||||||||||||||||
End of period | ||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||
Beginning of period | ( | ( | ( | ( | ||||||||||||||||||||||
Foreign currency translation adjustment | ( | ( | ( | ( | ||||||||||||||||||||||
End of period | ( | ( | ( | ( | ||||||||||||||||||||||
Treasury Stock | ||||||||||||||||||||||||||
Beginning of period | ( | ( | ( | ( | ||||||||||||||||||||||
Purchases of treasury stock and buyback of shares for taxes | ( | ( | ( | ( | ||||||||||||||||||||||
End of period | ( | ( | ( | ( | ||||||||||||||||||||||
Retained Earnings | ||||||||||||||||||||||||||
Beginning of period | ||||||||||||||||||||||||||
Cumulative effect of accounting changes (See Note 3) | — | ( | — | |||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||
End of period | ||||||||||||||||||||||||||
Total Shareholders’ Equity | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
Common Stock, shares | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Beginning of period | ||||||||||||||||||||||||||
Sales of stock through the Employee Stock Purchase Plan | ||||||||||||||||||||||||||
Stock compensation related to restricted stock vesting and retirement savings plan contributions | ||||||||||||||||||||||||||
Purchases of treasury stock and buyback of shares for taxes | ( | ( | ( | ( | ||||||||||||||||||||||
Issuance of stock in conjunction with acquisition including stock attributed to future compensation | ||||||||||||||||||||||||||
End of period |
Nine Months Ended September 30, | |||||||||||
2020 | 2019 | ||||||||||
Operating Activities | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operations: | |||||||||||
Depreciation | |||||||||||
Amortization | |||||||||||
Loss on extinguishment of debt | |||||||||||
Deferred income taxes | ( | ||||||||||
Non-cash stock compensation and retirement savings plan contributions | |||||||||||
Amortization of debt discount and issuance costs | |||||||||||
Adjustment to fair value of contingent consideration for purchase of businesses | ( | ||||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
Accounts receivable | ( | ||||||||||
Other assets | ( | ||||||||||
Accounts payable | ( | ( | |||||||||
Other liabilities | ( | ( | |||||||||
Net cash provided by operating activities | |||||||||||
Investing Activities | |||||||||||
Purchase of property and equipment | ( | ( | |||||||||
Capitalization of internally developed software costs | ( | ( | |||||||||
Purchase of businesses, net of cash acquired | ( | ( | |||||||||
Net cash used in investing activities | ( | ( | |||||||||
Financing Activities | |||||||||||
Proceeds from issuance of 2025 convertible notes | |||||||||||
Payment for 2025 convertible notes issuance costs | ( | ||||||||||
Purchase of 2025 convertible notes hedges | ( | ||||||||||
Proceeds from issuance of 2025 convertible notes warrants | |||||||||||
Payments for repurchase of 2023 convertible notes | ( | ||||||||||
Proceeds from sale of of hedges related to 2023 convertible notes | |||||||||||
Repurchase of warrants related to 2023 convertible notes | ( | ||||||||||
Proceeds from line of credit | |||||||||||
Payments on line of credit | ( | ||||||||||
Payment of contingent consideration for purchase of business | ( | ( | |||||||||
Proceeds from the sale of stock through the Employee Stock Purchase Plan | |||||||||||
Purchases of treasury stock | ( | ( | |||||||||
Remittance of taxes withheld as part of a net share settlement of restricted stock vesting | ( | ( | |||||||||
Net cash provided by (used in) financing activities | ( | ||||||||||
Effect of exchange rate on cash and cash equivalents | ( | ||||||||||
Change in cash and cash equivalents | ( | ( | |||||||||
Cash and cash equivalents at beginning of period | |||||||||||
Cash and cash equivalents at end of period | $ | $ | |||||||||
Supplemental Disclosures: | |||||||||||
Cash paid for income taxes | $ | $ | |||||||||
Cash paid for interest | $ | $ | |||||||||
Non-Cash Investing Activity: | |||||||||||
Stock issued for purchase of businesses | $ | $ | |||||||||
Liability incurred for purchase of property and equipment | $ | $ |
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||||||||||||||
Over Time | Point In Time | Total Revenues | Over Time | Point In Time | Total Revenues | ||||||||||||||||||||||||||||||
Time and materials contracts | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Fixed fee percent complete contracts | |||||||||||||||||||||||||||||||||||
Fixed fee contracts | |||||||||||||||||||||||||||||||||||
Reimbursable expenses | |||||||||||||||||||||||||||||||||||
Total professional services fees | |||||||||||||||||||||||||||||||||||
Other services revenue* | |||||||||||||||||||||||||||||||||||
Total services | |||||||||||||||||||||||||||||||||||
Software and hardware | |||||||||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | $ |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||||||||||||||
Over Time | Point In Time | Total Revenues | Over Time | Point In Time | Total Revenues | ||||||||||||||||||||||||||||||
Time and materials contracts | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Fixed fee percent complete contracts | |||||||||||||||||||||||||||||||||||
Fixed fee contracts | |||||||||||||||||||||||||||||||||||
Reimbursable expenses | |||||||||||||||||||||||||||||||||||
Total professional services fees | |||||||||||||||||||||||||||||||||||
Other services revenue* | |||||||||||||||||||||||||||||||||||
Total services | |||||||||||||||||||||||||||||||||||
Software and hardware | |||||||||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
United States | $ | $ | $ | $ | |||||||||||||||||||
Canada | |||||||||||||||||||||||
Other countries | |||||||||||||||||||||||
Total revenues | $ | $ | $ | $ |
Shares | Weighted-Average Grant Date Fair Value | ||||||||||
Restricted stock awards outstanding at December 31, 2019 | $ | ||||||||||
Awards granted | |||||||||||
Awards vested | ( | ||||||||||
Awards forfeited | ( | ||||||||||
Restricted stock awards outstanding at September 30, 2020 | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
Basic: | |||||||||||||||||||||||
Weighted-average shares of common stock outstanding | |||||||||||||||||||||||
Shares used in computing basic net income per share | |||||||||||||||||||||||
Effect of dilutive securities: | |||||||||||||||||||||||
Restricted stock subject to vesting | |||||||||||||||||||||||
Shares issuable for acquisition consideration (1) | |||||||||||||||||||||||
Shares issuable for conversion of convertible senior notes | — | — | |||||||||||||||||||||
Shares used in computing diluted net income per share | |||||||||||||||||||||||
Basic net income per share | $ | $ | $ | $ | |||||||||||||||||||
Diluted net income per share | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Restricted stock subject to vesting | |||||||||||||||||||||||
Convertible senior notes | |||||||||||||||||||||||
Warrants related to the issuance of convertible senior notes | |||||||||||||||||||||||
Total anti-dilutive securities |
September 30, 2020 (unaudited) | December 31, 2019 | ||||||||||
Accounts receivable: | (in thousands) | ||||||||||
Billed accounts receivable, net | $ | $ | |||||||||
Unbilled revenues, net | |||||||||||
Total | $ | $ |
Property and equipment: | |||||||||||
Computer hardware (useful life of | $ | $ | |||||||||
Software (useful life of | |||||||||||
Furniture and fixtures (useful life of | |||||||||||
Leasehold improvements (useful life of | |||||||||||
Less: Accumulated depreciation | ( | ( | |||||||||
Total | $ | $ |
Other current liabilities: | |||||||||||
Estimated fair value of contingent consideration liability (1) | $ | $ | |||||||||
Current operating lease liabilities | |||||||||||
Accrued variable compensation | |||||||||||
Deferred revenues | |||||||||||
Other current liabilities | |||||||||||
Payroll related costs | |||||||||||
Professional fees | |||||||||||
Accrued medical claims expense | |||||||||||
Accrued subcontractor fees | |||||||||||
Total | $ | $ |
Other non-current liabilities: | |||||||||||
Deferred income taxes | $ | $ | |||||||||
Deferred compensation liability | |||||||||||
Non-current software accrual | |||||||||||
Deferred employer FICA payments | |||||||||||
Other non-current liabilities | |||||||||||
Total | $ | $ |
Nine Months Ended September 30, 2020 | ||||||||
Balance at December 31, 2019 | $ | |||||||
Impact of ASU No. 2016-13 adoption | ||||||||
Opening balance at January 1, 2020 | ||||||||
Charges to expense | ||||||||
Uncollected balances written off, net of recoveries | ( | |||||||
Balance at September 30, 2020 | $ |
Acquired tangible assets | $ | ||||
Identified intangible assets | |||||
Liabilities assumed | ( | ||||
Goodwill | |||||
Total purchase price | $ |
Acquired tangible assets | $ | ||||
Identified intangible assets | |||||
Liabilities assumed | ( | ||||
Goodwill | |||||
Total purchase price | $ |
Acquired tangible assets | $ | ||||
Identified intangible assets | |||||
Liabilities assumed | ( | ||||
Goodwill | |||||
Total purchase price | $ |
Weighted Average Useful Life | Estimated Useful Life | Aggregate Acquisitions | |||||||||
Customer relationships | $ | ||||||||||
Customer backlog | |||||||||||
Non-compete agreements | |||||||||||
Trade name | |||||||||||
Developed software | |||||||||||
Total acquired intangible assets | $ |
Acquisition Date to September 30, 2020 | |||||
Revenues | $ | ||||
Net income | $ |
Nine Months Ended September 30, | |||||||||||
2020 | 2019 | ||||||||||
Revenues | $ | $ | |||||||||
Net income | $ | $ | |||||||||
Basic net income per share | $ | $ | |||||||||
Diluted net income per share | $ | $ | |||||||||
Shares used in computing basic net income per share | |||||||||||
Shares used in computing diluted net income per share |
Balance at December 31, 2019 | $ | ||||
Purchase price allocation for acquisitions | |||||
Effect of foreign currency translation adjustments | ( | ||||
Balance at September 30, 2020 | $ |
September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amounts | Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amounts | ||||||||||||||||||||||||||||||
Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Non-compete agreements | ( | ( | |||||||||||||||||||||||||||||||||
Customer backlog | ( | ( | |||||||||||||||||||||||||||||||||
Trade name | ( | ( | |||||||||||||||||||||||||||||||||
Developed software | ( | ( | |||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | $ | ( | $ |
Customer relationships | |||||
Non-compete agreements | |||||
Customer backlog | |||||
Trade name | |||||
Developed software |
2020 remaining | $ | ||||
2021 | $ | ||||
2022 | $ | ||||
2023 | $ | ||||
2024 | $ | ||||
Thereafter | $ |
September 30, 2020 (unaudited) | December 31, 2019 | ||||||||||||||||||||||
Liability component: | 2025 Notes | 2023 Notes | 2025 Notes | 2023 Notes | |||||||||||||||||||
Principal | $ | $ | $ | $ | |||||||||||||||||||
Less: Unamortized debt discount | ( | ( | ( | ||||||||||||||||||||
Unamortized debt issuance costs | ( | ( | ( | ||||||||||||||||||||
Net carrying amount | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Coupon interest | $ | $ | $ | $ | |||||||||||||||||||
Amortization of debt discount | |||||||||||||||||||||||
Amortization of debt issuance costs | |||||||||||||||||||||||
Total interest expense recognized | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Coupon interest | $ | $ | $ | $ | |||||||||||||||||||
Amortization of debt discount | |||||||||||||||||||||||
Amortization of debt issuance costs | |||||||||||||||||||||||
Total interest expense recognized | $ | $ | $ | $ |
September 30, 2020 (unaudited) | December 31, 2019 | ||||||||||
Derivatives not designated as hedges | |||||||||||
Foreign exchange contracts | $ | $ | |||||||||
Total derivatives not designated as hedges | $ | $ |
September 30, 2020 (unaudited) | December 31, 2019 | ||||||||||
Other current liabilities | $ | $ | |||||||||
Operating lease liabilities | |||||||||||
Total | $ | $ |
September 30, 2020 (unaudited) | |||||
2020 remaining | $ | ||||
2021 | |||||
2022 | |||||
2023 | |||||
2024 | |||||
Thereafter | |||||
Total future lease payments | |||||
Less implied interest | ( | ||||
Total | $ |
Financial Results (in thousands) | Explanation for Increases (Decreases) Over Prior Year Period (in thousands) | ||||||||||||||||||||||||||||
Three Months Ended September 30, | Total Increase Over Prior Year Period | Increase Attributable to Revenue Delivered by Resources of Acquired Companies | (Decrease) Increase Attributable to Revenue Delivered by Base Business Resources | ||||||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||||||||
Services revenues | $ | 156,755 | $ | 144,060 | $ | 12,695 | $ | 15,930 | $ | (3,235) | |||||||||||||||||||
Software and hardware revenues | 923 | 624 | 299 | — | 299 | ||||||||||||||||||||||||
Total revenues | $ | 157,678 | $ | 144,684 | $ | 12,994 | $ | 15,930 | $ | (2,936) |
Financial Results (in thousands) | Explanation for Increases (Decreases) Over Prior Year Period (in thousands) | ||||||||||||||||||||||||||||
Nine Months Ended September 30, | Total Increase (Decrease) Over Prior Year Period | Increase Attributable to Revenue Delivered by Resources of Acquired Companies | Decrease Attributable to Revenue Delivered by Base Business Resources | ||||||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||||||||
Services revenues | $ | 447,993 | $ | 418,160 | $ | 29,833 | $ | 32,473 | $ | (2,640) | |||||||||||||||||||
Software and hardware revenues | 1,586 | 2,208 | (622) | — | (622) | ||||||||||||||||||||||||
Total revenues | $ | 449,579 | $ | 420,368 | $ | 29,211 | $ | 32,473 | $ | (3,262) |
September 30, 2020 | December 31, 2019 | ||||||||||
Cash and cash equivalents (1) | $ | 50.0 | $ | 70.7 | |||||||
Working capital (including cash and cash equivalents) (2) | $ | 97.2 | $ | 127.3 | |||||||
Amounts available under credit facility | $ | 124.8 | $ | 124.8 |
Period | Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
Beginning balance as of June 30, 2020 | 15,390,569 | $ | 14.30 | 15,390,569 | $ | 44,964,924 | ||||||||||||||||||||
July 1-31, 2020 | — | $ | — | — | $ | 44,964,924 | ||||||||||||||||||||
August 1-31, 2020 | 215,000 | $ | 43.66 | 215,000 | $ | 35,579,020 | ||||||||||||||||||||
September 1-30, 2020 | 40,000 | $ | 43.16 | 40,000 | $ | 33,852,752 | ||||||||||||||||||||
Ending balance as of September 30, 2020 | 15,645,569 | $ | 14.77 | 15,645,569 |
Exhibit Number | Description | ||||
3.1 | Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference | ||||
3.2 | Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Form 8-A (File No. 000-51167) filed with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 on February 15, 2005 and incorporated herein by reference | ||||
3.3 | Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form S-8 (File No. 333-130624) filed on December 22, 2005 and incorporated herein by reference | ||||
3.4 | Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q (File No. 001-15169) filed August 3, 2017 and incorporated herein by reference | ||||
3.5 | Amended and Restated Bylaws of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-15169) filed March 7, 2013 and incorporated herein by reference | ||||
4.1 | Specimen Certificate for shares of Perficient, Inc. common stock, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q (File No. 001-15169) filed May 7, 2009 and incorporated herein by reference | ||||
4.2 | Indenture, dated August 14, 2020, between Perficient, Inc. and U.S. Bank National Association, as trustee, relating to the Company’s 1.250% Convertible Senior Notes due 2025, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 8-K (File No. 001-15169) filed August 18, 2020 and incorporated herein by reference | ||||
10.1 | Form of Convertible Note Hedge Transaction Confirmation, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 8-K (File No. 001-15169) filed August 18, 2020 and incorporated herein by reference | ||||
10.2 | Form of Warrant Transaction Confirmation, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 8-K (File No. 001-15169) filed August 18, 2020 and incorporated herein by reference | ||||
Third Amended and Restated Employment Agreement with Chief Executive Officer of Perficient, Inc., effective as of January 1, 2021 | |||||
Third Amended and Restated Employment Agreement with Chief Financial Officer of Perficient, Inc., effective as of January 1, 2021 | |||||
First Amended and Restated Employment Agreement with Chief Operating Officer of Perficient, Inc., effective as of January 1, 2021 | |||||
Certification by the Chief Executive Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
Certification by the Chief Financial Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
Certification by the Chief Executive Officer and Chief Financial Officer of Perficient, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
101* | The following financial information from Perficient, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019, (ii) Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iv) Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2020 and 2019, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (vi) the Notes to Interim Unaudited Condensed Consolidated Financial Statements | ||||
104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) | ||||
† | Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement. | ||||
* | Filed herewith. | ||||
** | Included but not to be considered “filed”for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. |
PERFICIENT, INC. | |||||||||||
Date: | October 29, 2020 | By: | /s/ Jeffrey S. Davis | ||||||||
Jeffrey S. Davis | |||||||||||
Chief Executive Officer (Principal Executive Officer) |
Date: | October 29, 2020 | By: | /s/ Paul E. Martin | ||||||||
Paul E. Martin | |||||||||||
Chief Financial Officer (Principal Financial Officer) |
Date: | October 29, 2020 | By: | /s/ Jeffrey S. Davis | ||||||||
Jeffrey S. Davis | |||||||||||
Chief Executive Officer |
Date: | October 29, 2020 | By: | /s/ Paul E. Martin | ||||||||
Paul E. Martin | |||||||||||
Chief Financial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||||
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | October 29, 2020 | By: | /s/ Jeffrey S. Davis | ||||||||
Jeffrey S. Davis | |||||||||||
Chief Executive Officer (Principal Executive Officer) |
Date: | October 29, 2020 | By: | /s/ Paul E. Martin | ||||||||
Paul E. Martin | |||||||||||
Chief Financial Officer (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 8,000,000 | 8,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 49,996,293 | 49,272,243 |
Common stock, shares outstanding | 32,041,550 | 31,686,991 |
Treasury stock, shares | 17,954,743 | 17,585,252 |
Unaudited Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 6,177 | $ 9,779 | $ 21,760 | $ 25,333 |
Other comprehensive (loss) income: | ||||
Foreign currency translation adjustment, net of tax | (1,074) | (285) | (2,126) | (48) |
Comprehensive income | $ 5,103 | $ 9,494 | $ 19,634 | $ 25,285 |
Basis of Presentation |
9 Months Ended |
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Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying interim unaudited condensed consolidated financial statements of Perficient, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Accordingly, certain note disclosures have been condensed or omitted. In the opinion of management, the interim unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Through September 30, 2020, the Company had not experienced a material impact to its business, operations or financial results as a result of the novel coronavirus (COVID-19) pandemic. However, operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020, particularly in light of the COVID-19 pandemic and its effects on domestic and global economies. To limit the spread of COVID-19, governments have imposed, and may continue to impose, among other things, travel and business operation restrictions and stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. While certain of these restrictions and guidelines have been lifted or relaxed, they may be reinstituted in response to continuing effects of the pandemic. These disruptions and restrictions could adversely affect our operating results due to, among other things, reduced demand for our services and solutions, requests for discounts or extended payment terms, or customer bankruptcies. For more information, refer to the statements included under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, in “Part II – Item 1A – Risk Factors” in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020, and in “Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II – Item 1A – Risk Factors” in this Form 10-Q.
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Summary of Significant Accounting Policies |
9 Months Ended |
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Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements. Except for the accounting policies related to the allowance for credit losses that were updated as a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments issued by the Financial Accounting Standards Board (the “FASB”), there have been no changes to significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2019 that have had a material impact on the Company’s condensed consolidated financial statements and related notes. See Note 8, Allowance for Credit Losses, for updated policies related to the allowance for credit losses.
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Recent Accounting Pronouncements |
9 Months Ended |
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Sep. 30, 2020 | |
Accounting Standards Update and Change in Accounting Principle [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, which amended the guidance of FASB Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 requires the immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. The Company adopted this ASU on January 1, 2020 using a modified retrospective approach, which allows the impact of adoption to be recorded through a cumulative effect adjustment to retained earnings without restating comparative periods. The cumulative effect adjustment for adoption of ASU No. 2016-13 resulted in a decrease of $0.4 million in Accounts receivable, net and a decrease of $0.3 million in Retained earnings, net of tax, as of January 1, 2020. Refer to Note 8, Allowance for Credit Losses, for additional disclosures resulting from the adoption of ASU No. 2016-13.In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for the exception. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2020. The ASU allows entities to use a modified or full retrospective transition method. Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. Under the full retrospective method, entities will apply the guidance to all outstanding financial instruments for each prior reporting period presented. The Company is currently evaluating the timing and method of adoption and the related impact of the new guidance on earnings per share and on its financial statements. |
Revenue |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | Revenue The Company’s revenues consist of services and software and hardware sales. In accordance with ASC Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of services or goods are transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods. Services Revenues Services revenues are primarily comprised of professional services that include developing, implementing, automating and extending business processes, technology infrastructure, and software applications. The Company’s professional services span multiple industries, platforms and solutions; however, the Company has remained relatively diversified and does not believe that it has significant revenue concentration within any single industry, platform or solution. Professional services revenues are recognized over time as services are rendered. Most projects are performed on a time and materials basis, while a portion of revenues is derived from projects performed on a fixed fee or fixed fee percent complete basis. For time and material contracts, revenues are generally recognized and invoiced by multiplying the number of hours expended in the performance of the contract by the hourly rates. For fixed fee contracts, revenues are generally recognized and invoiced by multiplying the fixed rate per time period established in the contract by the number of time periods elapsed. For fixed fee percent complete contracts, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours, and the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract. Clients are typically billed monthly for services provided during that month but can be billed on a more or less frequent basis as determined by the contract. If the time is worked and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as revenue once the Company verifies all other revenue recognition criteria have been met, and the amount is classified as a receivable as the right to consideration is unconditional at that point. Amounts invoiced in excess of revenues recognized are contract liabilities, which are classified as deferred revenues in the Unaudited Condensed Consolidated Balance Sheet. The term between invoicing and payment due date is not significant. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract. Certain contracts may include volume discounts or holdbacks, which are accounted for as variable consideration, but are not typically significant. The Company estimates variable consideration based on historical experience and forecasted sales and includes the variable consideration in the transaction price. Other services revenues are comprised of hosting fees, partner referral fees, maintenance agreements, training and internally developed software-as-a-service (“SaaS”) sales. Revenues from hosting fees, maintenance agreements, training and internally developed SaaS sales are generally recognized over time using a time-based measure of progress as services are rendered. Partner referral fees are recorded at a point in time upon meeting specified requirements to earn the respective fee. On many professional service projects, the Company is also reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of the transaction price of the respective professional services contract and are invoiced as the expenses are incurred. The Company structures its professional services arrangements to recover the cost of reimbursable expenses without a markup. Software and Hardware Revenues Software and hardware revenues are comprised of third-party software and hardware resales, in which the Company is considered the agent, and sales of internally developed software, in which the Company is considered the principal. Third-party software and hardware revenues are recognized and invoiced when the Company fulfills its obligation to arrange the sale, which occurs when the purchase order with the vendor is executed and the customer has access to the software or the hardware has been shipped to the customer. Internally developed software revenues are recognized and invoiced when control is transferred to the customer, which occurs when the software has been made available to the customer and the license term has commenced. Revenues from third-party software and hardware sales are recorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis. There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales, and the term between invoicing and payment due date is not significant. Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate. Arrangements with Multiple Performance Obligations Arrangements with clients may contain multiple promises such as delivery of software, hardware, professional services or post-contract support services. These promises are accounted for as separate performance obligations if they are distinct. For arrangements with clients that contain multiple performance obligations, the transaction price is allocated to the separate performance obligations based on estimated relative standalone selling price, which is estimated by the expected cost plus a margin approach, taking into consideration market conditions and competitive factors. Because contracts that contain multiple performance obligations are typically short term due to the contract cancellation provisions, the allocation of the transaction price to the separate performance obligations is not considered a significant estimate. Contract Costs In accordance with the terms of the Company’s sales commission plan, commissions are not earned until the related revenue is recognized. Therefore, sales commissions are expensed as they are earned. Certain sales incentives are accrued based on achievement of specified bookings goals. For these incentives, the Company applies the practical expedient that allows the Company to expense the incentives as incurred, since the amortization period would have been one year or less. Deferred Revenue The Company’s deferred revenue balance as of September 30, 2020 and December 31, 2019 was $6.2 million and $7.7 million, respectively. During the nine months ended September 30, 2020, deferred revenue balances of $4.0 million were assumed in the Company’s acquisitions and $7.5 million was recognized in revenue that was included in the deferred revenue balance at the beginning of the period. Transaction Price Allocated to Remaining Performance Obligations Due to the ability of the client or the Company to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required), the majority of the Company’s contracts have a term of less than one year. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original maturity date of one year or less or time and materials contracts for which the Company has the right to invoice for services performed. Revenue related to unsatisfied performance obligations for remaining contracts as of September 30, 2020 was immaterial. Disaggregation of Revenue The following table presents revenue disaggregated by revenue source and pattern of revenue recognition (in thousands):
* Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS revenue and partner referral fees.
* Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS revenue and partner referral fees. The following table presents revenue disaggregated by geographic area, as determined by the billing address of customers (in thousands):
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Stock-Based Compensation |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation – Stock Compensation. Under this guidance, the Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period, which is generally three years. In addition, the Company has elected to estimate the amount of expected forfeitures when calculating share-based compensation, instead of accounting for forfeitures as they occur. The fair value of restricted stock awards is based on the value of the Company’s common stock on the date of the grant. Stock Award Plans The Company’s Second Amended and Restated 2012 Long Term Incentive Plan (as amended, the “Incentive Plan”) allows for the granting of various types of stock awards, not to exceed a total of 7.0 million shares, to eligible individuals. The Compensation Committee of the Board of Directors administers the Incentive Plan and determines the terms of all stock awards made under the Incentive Plan. As of September 30, 2020, there were 1.7 million shares of common stock available for issuance under the Incentive Plan. Stock-based compensation cost recognized for the three and nine months ended September 30, 2020 was $4.7 million and $14.4 million, respectively, which included $0.8 million and $2.5 million, respectively, of expense for retirement savings plan contributions. The associated current and future income tax benefit recognized was $1.5 million and $4.4 million for the three and nine months ended September 30, 2020, respectively. Stock-based compensation cost recognized for the three and nine months ended September 30, 2019 was $4.3 million and $13.2 million, respectively, which included $0.7 million and $2.2 million, respectively, of expense for retirement savings plan contributions. The associated current and future income tax benefit recognized was $0.8 million and $2.6 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, there was $19.7 million of total unrecognized compensation cost related to non-vested share-based awards with a weighted-average remaining life of two years. Restricted stock activity for the nine months ended September 30, 2020 was as follows (shares in thousands):
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Net Income per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income per Share | Net Income per Share The following table presents the calculation of basic and diluted net income per share (in thousands, except per share information):
(1)For the three and nine months ended September 30, 2020, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with RAS & Associates, LLC (“RAS”); (ii) the Asset Purchase Agreement with Zeon Solutions Incorporated and certain related entities (collectively, “Zeon”); (iii) the Asset Purchase Agreement with Stone Temple Consulting Corporation (“Stone Temple”); (iv) the Asset Purchase Agreement with Sundog Interactive, Inc. (“Sundog”); (v) the Asset Purchase Agreement with MedTouch LLC (“MedTouch”); (vi) the Asset Purchase Agreement with Catalyst Networks, Inc. (“Brainjocks”); and (vii) the Stock Purchase Agreement with the shareholders of Productora de Software S.A.S. (“PSL”), as part of the consideration. For the three and nine months ended September 30, 2019, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with Zeon; (ii) the Asset Purchase Agreement with RAS; (iii) the Asset Purchase Agreement with Southport Services Group, LLC (“Southport”); (iv) the Asset Purchase Agreement with Stone Temple; (v) the Agreement and Plan of Merger with Elixiter, Inc. (“Elixiter”); and (vi) the Asset Purchase Agreement with Sundog, as part of the consideration. The number of anti-dilutive securities not included in the calculation of diluted net income per share were as follows (in thousands):
See Note 11, Long-term Debt for further information on the convertible senior notes and warrants related to the issuance of convertible notes. The Company’s Board of Directors authorized the repurchase of up to $265.0 million of Company common stock through a stock repurchase program through June 30, 2021. The program could be suspended or discontinued at any time, based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions, share price, and other factors. Since the program’s inception on August 11, 2008, the Company has repurchased approximately $231.2 million (15.6 million shares) of outstanding common stock through September 30, 2020.
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Balance Sheet Components |
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Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Components | Balance Sheet Components
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Allowance for Credit Losses |
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Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for Credit Losses | Allowance for Credit Losses The Company adopted ASU No. 2016-13 on January 1, 2020. See Note 3, Recent Accounting Pronouncements, for a discussion of the ASU and the impact of adoption. As a result of the adoption, the Company amended its accounting policies for the allowance for credit losses. In accordance with ASU No. 2016-13, the Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss model. The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The allowance is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. A higher allowance for credit losses was recorded during the nine months ended September 30, 2020 due to the likely adverse impact the COVID-19 pandemic has had and will have on factors that affect our estimate of future credit losses. Activity in the allowance for credit losses is summarized as follows (in thousands):
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Business Combinations |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations | Business Combinations 2020 Acquisitions Acquisition of MedTouch On January 6, 2020, the Company acquired substantially all of the assets of MedTouch, pursuant to the terms of an Asset Purchase Agreement. The acquisition of MedTouch expands the Company’s digital healthcare marketing services. The Company’s total allocable purchase price consideration was $20.0 million, subject to finalization of a net working capital settlement. The purchase price was comprised of $13.9 million in cash paid and $1.9 million in Company common stock issued at closing. The purchase price also included $4.2 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the seller 12 months after the closing date of the acquisition with a maximum cash payout of $10.2 million. As of September 30, 2020, the Company’s best estimate of the fair value of the contingent consideration was $8.2 million. The Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $2.0 million and $4.0 million during the three and nine months ended September 30, 2020, respectively. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred. The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):
The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $11.2 million. Acquisition of Brainjocks On March 23, 2020, the Company acquired substantially all of the assets of Brainjocks, pursuant to the terms of an Asset Purchase Agreement. The acquisition of Brainjocks expands the Company’s strategic marketing and technical delivery services. The Company's total allocable purchase price consideration was $21.2 million. The purchase price was comprised of $15.8 million in cash paid and $2.4 million in Company common stock issued at closing, increased by $0.7 million for a net working capital adjustment due to the seller. The purchase price also included $2.3 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the seller 12 months after the closing date of the acquisition with a maximum cash payout of $4.8 million. The Company incurred approximately $1.1 million in transaction costs, which were expensed when incurred. On May 4, 2020 pursuant to a separate Asset Purchase Agreement, a wholly-owned subsidiary of the Company completed the acquisition of substantially all of the assets of Brainjocks Europe d.o.o. Novi Sad, an affiliate of Brainjocks operating in Serbia. With the completion of this acquisition, the Company now has facilities located in Novi Sad, Serbia. The Company has allocated the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):
The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $8.7 million. Acquisition of PSL On June 17, 2020, a wholly-owned subsidiary of the Company acquired PSL pursuant to the terms of a Stock Purchase Agreement. PSL is based in Medellin, Colombia, with additional locations in Bogota and Cali, Colombia. The acquisition of PSL strengthens the Company’s global delivery capabilities, enhancing its nearshore systems and custom software application development, testing, and ongoing support for customers. PSL adds more than 600 professionals and brings strategic client relationships with customers across several industries. The Company has initially estimated the total allocable purchase price consideration to be $82.6 million, net of cash acquired. The purchase price was comprised of $59.9 million in cash paid (net of cash acquired) and $4.5 million in Company common stock issued at closing, increased by $2.0 million for an estimated net working capital adjustment due to the sellers. The purchase price also included $16.2 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the sellers 12 months after the closing date of the acquisition with a maximum cash payout of $22.2 million. The Company incurred approximately $2.0 million in transaction costs, which were expensed when incurred. The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):
As the Company continues its evaluation of the acquired assets and assumed liabilities of PSL, the Company recorded certain adjustments during the measurement period based on facts and circumstances that existed as of acquisition date. The measurement period adjustments resulted in an increase to the total purchase price of $0.6 million, an increase to acquired tangible assets of $0.1 million, a decrease to identified intangible assets of $0.7 million, an increase to liabilities assumed of $2.0 million and an increase to goodwill of $3.2 million during the three months ended September 30, 2020. The goodwill is non-deductible for tax purposes. The above purchase price accounting estimates for MedTouch are pending finalization of a net working capital adjustment, while the purchase price accounting estimates for PSL are pending finalization of certain acquired tangible and intangible assets, contingent consideration valuation, and a net working capital settlement that is subject to final adjustment as the Company evaluates information during the measurement period. The following table presents details of the intangible assets acquired during the nine months ended September 30, 2020 (dollars in millions).
2019 Acquisition Acquisition of Sundog On May 22, 2019, the Company acquired substantially all of the assets of Sundog, pursuant to the terms of an Asset Purchase Agreement. The Company’s total allocable purchase price consideration was $14.1 million. The purchase price was comprised of $10.3 million in cash paid and $1.3 million in Company common stock issued at closing, increased by $0.6 million as a result of the net working capital adjustment paid to the seller in the first quarter of 2020. The purchase price also included $1.9 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, with a maximum cash payout of $3.6 million. The Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $0.4 million during the nine months ended September 30, 2020. Sundog achieved a portion of the potential maximum cash payout pursuant to the Asset Purchase Agreement, and as a result, the Company has accrued $2.5 million of contingent consideration as of September 30, 2020. The results of the 2019 and 2020 acquisitions have been included in the Company’s interim unaudited condensed consolidated financial statements since the respective acquisition dates. The aggregate amounts of revenue and net income of the MedTouch, Brainjocks, and PSL acquisitions in the Unaudited Condensed Consolidated Statements of Operations from the respective acquisition dates to September 30, 2020 are as follows (in thousands):
Pro-forma Results of Operations The following presents the unaudited pro-forma combined results of operations of the Company with PSL for the nine months ended September 30, 2020 and 2019, after giving effect to certain pro-forma adjustments and assuming PSL was acquired as of the beginning of 2019. Pro-forma results of operations have not been presented for MedTouch or Brainjocks because the effect of these acquisitions on the Company's consolidated financial statements were not material individually or in the aggregate. These unaudited pro-forma results are presented in compliance with the adoption of ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, and are not necessarily indicative of the actual consolidated results of operations had the acquisition of PSL actually occurred on January 1, 2019 or of future results of operations of the consolidated entities (in thousands except per share data):
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Goodwill and Intangible Assets |
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Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with ASC Topic 350, Intangibles – Goodwill and Other, the Company performs an annual impairment review in the fourth quarter and more frequently if events or changes in circumstances indicate that goodwill might be impaired. There was no indication that goodwill became impaired as of September 30, 2020. Other intangible assets include customer relationships, non-compete arrangements, trade names, customer backlog, and developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from less than one year to ten years. Amortization of customer relationships, non-compete arrangements, trade names, customer backlog, and developed software is considered an operating expense and is included in “Amortization” in the accompanying Unaudited Condensed Consolidated Statements of Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revised useful life. There was no indication that other intangible assets became impaired as of September 30, 2020. Goodwill The changes in the carrying amount of goodwill for the nine months ended September 30, 2020 are as follows (in thousands):
Intangible Assets with Definite Lives The following table presents a summary of the Company’s intangible assets that are subject to amortization (in thousands):
The estimated useful lives of identifiable intangible assets are as follows:
Estimated annual amortization expense for the next five years ended December 31 and thereafter is as follows: (in thousands):
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Long-term Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | Long-term Debt Revolving Credit Facility On June 9, 2017, the Company entered into a Credit Agreement, as amended (the “Credit Agreement”), with Wells Fargo Bank, National Association, as administrative agent and the other lenders parties thereto. The Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $125.0 million, subject to a commitment increase of $75.0 million. All outstanding amounts owed under the Credit Agreement become due and payable no later than the final maturity date of June 9, 2022. As of September 30, 2020, there was no outstanding balance under the Credit Agreement. The Credit Agreement also allows for the issuance of letters of credit in the aggregate amount of up to $10.0 million at any one time; outstanding letters of credit reduce the credit available for revolving credit borrowings. As of September 30, 2020, the Company had two outstanding letters of credit for $0.2 million. Substantially all of the Company’s assets are pledged to secure the credit facility. Borrowings under the Credit Agreement bear interest at the Company’s option of the prime rate (3.25% on September 30, 2020) plus a margin ranging from 0.00% to 0.50% or one month LIBOR (0.15% on September 30, 2020) plus a margin ranging from 1.00% to 1.75%. The Company incurs an annual commitment fee of 0.15% to 0.20% on the unused portion of the line of credit. The additional margin amount and annual commitment fee are dependent on the level of outstanding borrowings. As of September 30, 2020, the Company had $124.8 million of unused borrowing capacity. The Company is required to comply with various financial covenants under the Credit Agreement. Specifically, the Company is required to maintain a ratio of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) plus stock compensation to interest expense for the previous four consecutive fiscal quarters of not less than 3.00 to 1.00 and a ratio of indebtedness to EBITDA plus stock compensation (“Leverage Ratio”) of not more than 3.00 to 1.00. Additionally, the Credit Agreement currently restricts the payment of dividends that would result in a pro-forma Leverage Ratio of more than 2.00 to 1.00. At September 30, 2020, the Company was in compliance with all covenants under the Credit Agreement. Convertible Senior Notes due 2025 On August 14, 2020, the Company issued $230.0 million aggregate principal amount of 1.250% Convertible Senior Notes Due 2025 (the “2025 Notes”) in a private placement to qualified institutional purchasers pursuant to an exemption from registration provided by Section 4(a)(2) and Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the offerings, after deducting the initial purchasers’ discount and issuance costs of $7.3 million, were $222.7 million. The Company used (i) $172.0 million of the net proceeds to partially repurchase the 2023 Notes (as defined and described below), and (ii) $26.7 million of the net proceeds to fund the cost of entering into the 2025 Notes Hedges (as defined below), after such cost was partially offset by the proceeds that the Company received from entering into the 2025 Notes Warrants (as defined below). The remaining proceeds of $24.0 million will be used for working capital or other general corporate purposes. The 2025 Notes bear interest at a rate of 1.250% per year. Interest is payable in cash on February 1 and August 1 of each year, with the first payment to be made on February 1, 2021. The 2025 Notes mature on August 1, 2025 unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. The initial conversion rate is 19.3538 shares of the Company’s common stock per $1,000 principal amount of 2025 Notes, which is equivalent to an initial conversion price of approximately $51.67 per share of common stock. After consideration of the 2025 Notes Hedges and 2025 Notes Warrants, the conversion rate is effectively hedged to a price of $81.05 per share of common stock. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture governing the 2025 Notes (the “2025 Indenture”). The Company may settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate(s). If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. The Company’s intent is to settle the principal amount of the 2025 Notes in cash upon conversion. In accordance with accounting for debt with conversions and other options, the Company bifurcated the principal amount of the 2025 Notes into liability and equity components. The initial liability component of the 2025 Notes was valued at $181.1 million based on the contractual cash flows discounted at an appropriate comparable market non-convertible debt borrowing rate at the date of issuance of 6.3%. The equity component representing the conversion option and calculated as the residual amount of the proceeds was recorded as an increase in additional paid-in capital within stockholders’ equity of $48.9 million, partially offset by the associated deferred tax effect of $12.6 million. The amount recorded within additional paid-in capital is not to be remeasured as long as it continues to meet the conditions for equity classification. The resulting debt discount of $48.9 million is being amortized to interest expense using the effective interest method with an effective interest rate of 6.3% over the period from the issuance date through the contractual maturity date of August 1, 2025. The Company utilizes the treasury stock method to calculate the effects of the 2025 Notes on diluted earnings per share. Issuance costs totaling $7.3 million were allocated pro rata based on the relative fair values of the liability and equity components. Issuance costs of $5.7 million attributable to the liability component were recorded as a direct deduction from the carrying value of the 2025 Notes and are being amortized to interest expense using the effective interest method over the term of the 2025 Notes. Issuance costs of $1.6 million attributable to the equity component were recorded as a charge to additional paid-in capital within stockholders’ equity, partially offset by the associated deferred tax effect of $0.4 million. Convertible Senior Notes due 2023 On September 11, 2018, the Company issued $143.8 million aggregate principal amount of 2.375% Convertible Senior Notes Due 2023 (the “2023 Notes”) in a private placement to qualified institutional purchasers pursuant to an exemption from registration provided by Section 4(a)(2) and Rule 144A under the Securities Act. The net proceeds from the offerings, after deducting the initial purchasers’ discount and issuance costs of $4.4 million, were $139.4 million. The 2023 Notes bear interest at a rate of 2.375% per year. Interest is payable in cash on March 15 and September 15 of each year, with the first payment made on March 15, 2019. The 2023 Notes mature on September 15, 2023, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. The initial conversion rate is 26.5957 shares of the Company’s common stock per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $37.60 per share of common stock. After consideration of the 2023 Notes Hedges (as defined below) and 2023 Notes Warrants (as defined below), the conversion rate is effectively hedged to a price of $46.62 per share of common stock. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture governing the 2023 Notes (the “2023 Indenture”). The Company may settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate(s). If a “make-whole fundamental change” (as defined in the 2023 Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. The Company’s intent is to settle the principal amount of the 2023 Notes in cash upon conversion. During the quarter-ended September 30, 2020, the Company used a portion of the net cash proceeds from the 2025 Notes issuance to repurchase a portion of the outstanding 2023 Notes through individual, privately negotiated transactions (the “2023 Notes Partial Repurchase”), leaving 2023 Notes with aggregate principal amount of $12.5 million outstanding. The Company used $172.0 million of the net proceeds from the 2025 Notes issuance to complete the 2023 Notes Partial Repurchase, of which $120.9 million and $49.9 million were allocated to the liability and equity components of the 2023 Notes, respectively, and $1.3 million was related to the payment of interest. The cash consideration allocated to the liability component was based on the fair value of the liability component utilizing an effective discount rate of 5.2%. This rate was based on the Company’s estimated rate for a similar liability with the same maturity, but without the conversion option. To derive this effective discount rate, the Company observed the trading details of its 2023 Notes immediately prior to the repurchase date to determine the volatility of its 2023 Notes. The Company utilized the observed volatility to calculate the effective discount rate, which was adjusted to reflect the term of the remaining 2023 Notes. The cash consideration allocated to the equity component was calculated by deducting the fair value of the liability component and interest payment from the aggregate cash consideration. The $4.3 million loss on extinguishment was subsequently determined by comparing the allocated cash consideration with the carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and the remaining unamortized debt issuance costs of $2.3 million. Other Terms of the Notes The 2025 Notes and 2023 Notes (together, the “Notes”) may be converted at the holder’s option prior to the close of business on the business day immediately preceding August 1, 2025 and September 15, 2023 for the 2025 Notes and 2023 Notes, respectively, but only under the following circumstances: •during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 and December 31, 2018 for the 2025 Notes and 2023 Notes, respectively, if the last reported sale price per share of the Company’s common stock exceeds 130% of the applicable conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; •during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the applicable conversion rate on such trading day; •upon the occurrence of certain corporate events or distributions on the Company’s common stock described in the 2025 Indenture or the 2023 Indenture, as applicable; and •at any time from, and including, February 3, 2025 and March 15, 2023 for the 2025 Notes and 2023 Notes, respectively, until the close of business on the second scheduled trading day immediately before the applicable maturity date. The Company may not redeem the Notes at its option before maturity. If a “fundamental change” (as defined in the 2025 Indenture or 2023 Indenture) occurs, then, except as described in the 2025 Indenture or 2023 Indenture, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. As of September 30, 2020, none of the conditions permitting holders to convert their Notes had been satisfied and no shares of the Company’s common stock had been issued in connection with any conversions of the Notes. Based on the closing price of the Company's common stock of $42.74 per share on September 30, 2020, the conversion value of the 2025 Notes was less than the principal amount of the 2025 Notes outstanding on a per note basis, and the conversion value of the 2023 Notes was greater than the principal amount of the 2023 Notes outstanding on a per note basis. The liability component of the 2025 Notes and 2023 Notes consisted of the following (in thousands):
Interest expense for the three and nine months ended September 30, 2020 and 2019 related to the 2025 Notes and 2023 Notes consisted of the following (in thousands): 2025 Notes
2023 Notes
Convertible Notes Hedges In connection with the issuance of the 2025 Notes and 2023 Notes, the Company entered into privately negotiated convertible note hedge transactions (the “2025 Notes Hedges” and the “2023 Notes Hedges,” respectively, and together, the “Notes Hedges”) with certain of the initial purchasers or their respective affiliates and/or other financial institutions (the “Option Counterparties”). The 2025 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 4.5 million shares of common stock at a strike price of $51.67, which is equal to the number of shares of common stock that notionally underlie the 2025 Notes and corresponds to the conversion price of the 2025 Notes. The 2023 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 0.3 million shares (after consideration of the 2023 Notes Partial Repurchase) of common stock at a strike price of $37.60, which is equal to the number of shares of common stock that notionally underlie the 2023 Notes and corresponds to the conversion price of the 2023 Notes after the partial repurchase discussed above. If the Company elects cash settlement and exercises the 2025 Notes Hedges or the 2023 Notes Hedges, the aggregate amount of cash received from the Option Counterparties will cover the aggregate amount of cash that the Company would be required to pay to the holders of the Notes, less the principal amount thereof. The Notes Hedges do not meet the criteria for separate accounting as a derivative as they are indexed to the Company’s stock and are accounted for as freestanding financial instruments. Upon initial purchase, the 2025 Notes Hedges and 2023 Notes Hedges were recorded as a reduction in additional paid-in capital within stockholders’ equity of $48.9 million and $20.7 million, respectively, partially offset by the deferred tax effect of $12.6 million and $5.3 million, respectively. In August 2020, in connection with the 2023 Notes Partial Repurchase, the Company terminated 2023 Notes Hedges corresponding to approximately 3.5 million shares for cash proceeds of $47.3 million. The proceeds were recorded as an increase to additional paid-in capital within stockholders' equity. Convertible Notes Warrants In connection with the issuance of the 2025 Notes and 2023 Notes, the Company also sold net-share-settled warrants (the “2025 Notes Warrants” and the “2023 Notes Warrants,” respectively, and together, the “Notes Warrants”) in privately negotiated transactions with the Option Counterparties. The strike price of the 2025 Notes Warrants and 2023 Notes Warrants was approximately $81.05 and $46.62 per share, respectively, and is subject to certain adjustments under the terms of their respective Notes Warrants. As a result of the 2025 Notes Warrants and 2023 Notes Warrants and related transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price is over $81.05 for any fiscal quarter for the 2025 Notes Warrants and $46.62 for the 2023 Notes Warrants. The 2025 Notes Warrants and 2023 Notes Warrants expire over a period of 100 trading days commencing on November 1, 2025 and December 15, 2023, respectively, and may be settled in net shares of common stock or net cash at the Company’s election. Upon initial sale, the 2025 Notes Warrants and 2023 Notes Warrants were recorded as an increase in additional paid-in capital within stockholders’ equity of $22.2 million and $12.1 million, respectively. In August 2020, in connection with the 2023 Notes Partial Repurchase, the Company repurchased a portion of the 2023 Notes Warrants through a cash payment of $40.7 million. The repurchase was recorded as a reduction in additional paid-in capital within stockholders' equity.
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Income Taxes |
9 Months Ended |
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Sep. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Internal Revenue Service (the “IRS”) has completed examinations of the Company’s U.S. income tax returns or the statute of limitations has passed on returns for the years through 2015. The Company’s 2016 and 2017 U.S. income tax returns are currently under examination by the IRS. The IRS has sought to disallow research credits in the total amount of $5.7 million on the Company’s 2011 through 2015 U.S. income tax returns. The Company has exhausted all administrative appeals and formal mediation and has filed suit to resolve this dispute. The Company is awaiting a court date to be set by the U.S. Tax Court for the 2011 through 2013 returns. Office shutdowns and other disruptions caused by the COVID-19 pandemic have delayed resolution of this dispute. The Company believes the research credits taken are appropriate and intends to vigorously defend its position. An amount of adjustment, if any, and the timing of such adjustment are not reasonably possible to estimate at this time. The total amount of research credits taken, or expected to be taken, in the Company’s income tax returns for 2011 through September 30, 2020 is approximately $19.1 million. Under the provisions of the ASC Subtopic 740-10-25, Income Taxes - Recognition, the Company had an unrecognized tax benefit of $6.7 million (excluding $0.9 million of interest) as of September 30, 2020. The Company’s effective tax rate was 27.6% and 24.2% for the three and nine months ended September 30, 2020, respectively, compared to 29.7% and 25.9% for the three and nine months ended September 30, 2019, respectively. The effective tax rate decreased during the three months ended September 30, 2020 primarily due to estimated research credits, net of uncertain tax positions compared to the prior year. As of September 30, 2020, the Company’s net non-current deferred tax liability was $17.5 million. Deferred tax liabilities primarily relate to goodwill, other intangibles, fixed assets, prepaid expenses and issuance of the Notes. Net non-current deferred tax liabilities are recorded in “Other non-current liabilities” on the Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019. In general, it is the Company’s practice and intention to reinvest the earnings of the Company’s foreign subsidiaries in those operations. However, the Company has determined that the foreign earnings of the Company’s Chinese and Colombian subsidiaries are not permanently reinvested and may repatriate available earnings from time to time. Management currently intends to continue to permanently reinvest all other remaining current and prior earnings in its other foreign subsidiaries. Excluding China and Colombia, foreign unremitted earnings of entities not included in the United States tax return have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable on distribution to the United States because it is not anticipated such earnings will be remitted to the United States. Under current applicable tax laws, if the Company elects to remit some or all of the funds it has designated as indefinitely reinvested outside the United States, the amount remitted would be subject to non-U.S. withholding taxes. As of September 30, 2020, the aggregate unremitted earnings of the Company’s foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $13.5 million, and the unrecognized deferred tax liability on unremitted earnings was approximately $0.7 million.
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Derivatives |
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | Derivatives In the normal course of business, the Company uses derivative financial instruments to manage foreign currency exchange rate risk. Currency exposure is monitored and managed by the Company as part of its risk management program which seeks to reduce the potentially adverse effects that market volatility could have on operating results. The Company’s derivative financial instruments consist of non-deliverable and deliverable foreign currency forward contracts. Derivative financial instruments are neither held nor issued by the Company for trading purposes. Derivatives Not Designated as Hedging Instruments Both the gain or loss on the derivatives not designated as hedging instruments and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Realized gains or losses and changes in the estimated fair value of foreign currency forward contracts that have not been designated as hedges were immaterial during each of the three and nine months ended September 30, 2020 and 2019. Gains and losses on these contracts are recorded in net other expense (income) and net interest expense in the Unaudited Condensed Consolidated Statements of Operations and are offset by losses and gains on the related hedged items. The notional amounts of the Company’s derivative instruments outstanding were as follows (in thousands):
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Fair Value Measurements |
9 Months Ended |
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Sep. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels: •Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities. •Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. •Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. All highly liquid investments with maturities at date of purchase of three months or less are considered to be cash equivalents. Based on their short-term nature, the carrying value of cash equivalents approximate their fair value. As of September 30, 2020, $39.0 million of the Company’s cash and cash equivalents balance related to money-market fund investments. As of December 31, 2019, $64.2 million of the Company’s cash and cash equivalents balance related to money-market fund investments and $3.0 million related to fixed time deposits. These short-term money-market funds and fixed time deposits are considered Level 1 investments. The Company has a deferred compensation plan, which is funded through company-owned life insurance (“COLI”) policies. The COLI asset is carried at fair value derived from quoted market prices of investments within the COLI policies, which are considered Level 2 inputs. The fair value of the COLI asset was $6.6 million and $5.6 million as of September 30, 2020 and December 31, 2019, respectively. The Company estimates the fair value of each foreign exchange forward contract by using the present value of expected cash flows. The estimate takes into account the difference between the current market forward price and contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. Valuations for all derivatives fall within Level 2 of the GAAP valuation hierarchy. The fair value of the Company’s derivative instruments outstanding as of September 30, 2020 was immaterial. The Company has contingent consideration liabilities related to acquisitions which are measured on a recurring basis and recorded at fair value, determined using the discounted cash flow method. The inputs used to calculate the fair value of the contingent consideration liabilities are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. An increase in future cash flows may result in a higher estimated fair value while a decrease in future cash flows may result in a lower estimated fair value of the contingent consideration liabilities. Remeasurements to fair value are recorded in adjustment to fair value of contingent consideration in the Unaudited Condensed Consolidated Statements of Operations. Refer to Note 7, Balance Sheet Components, for the estimated fair value of the contingent consideration liabilities as of September 30, 2020. The fair value of the Notes is measured using quoted price inputs. The Notes are not actively traded, and thus the price inputs represent a Level 2 measurement. As the quoted price inputs are highly variable from day to day, the fair value estimates could significantly increase or decrease. The Notes are carried at their principal amount less unamortized debt discount and issuance costs, and are not carried at fair value at each period end. The original debt discount was calculated at a market interest rate for nonconvertible debt at the time of issuance, which represented a Level 3 fair value measurement. The approximate fair value of the 2023 Notes and 2025 Notes as of September 30, 2020 was $15.9 million and $244.1 million, respectively, which is estimated on the basis of inputs that are observable in the market and is considered a Level 2 fair value measurement.
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Leases |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Leases The Company leases office space under various operating lease agreements, which have remaining lease terms of less than one year to eight years. Operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities on the consolidated balance sheet. Operating lease expense for the three and nine months ended September 30, 2020 was $3.3 million and $9.0 million, respectively, and $2.6 million and $7.2 million for three and nine months ended September 30, 2019, respectively. Supplemental balance sheet information related to leases was as follows (in thousands):
Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows (in thousands):
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Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and ContingenciesFrom time to time the Company is involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. Although the Company cannot predict the outcome of such matters, currently the Company has no reason to believe the disposition of any current matter could reasonably be expected to have a material adverse impact on the Company’s financial position, results of operations or the ability to carry on any of its business activities. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Use of Estimates | The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements. Except for the accounting policies related to the allowance for credit losses that were updated as a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments issued by the Financial Accounting Standards Board (the “FASB”), there have been no changes to significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2019 that have had a material impact on the Company’s condensed consolidated financial statements and related notes. See Note 8, Allowance for Credit Losses, for updated policies related to the allowance for credit losses.
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Recent Accounting Pronouncements | In June 2016, the FASB issued ASU No. 2016-13, which amended the guidance of FASB Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 requires the immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. The Company adopted this ASU on January 1, 2020 using a modified retrospective approach, which allows the impact of adoption to be recorded through a cumulative effect adjustment to retained earnings without restating comparative periods. The cumulative effect adjustment for adoption of ASU No. 2016-13 resulted in a decrease of $0.4 million in Accounts receivable, net and a decrease of $0.3 million in Retained earnings, net of tax, as of January 1, 2020. Refer to Note 8, Allowance for Credit Losses, for additional disclosures resulting from the adoption of ASU No. 2016-13.In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for the exception. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2020. The ASU allows entities to use a modified or full retrospective transition method. Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. Under the full retrospective method, entities will apply the guidance to all outstanding financial instruments for each prior reporting period presented. The Company is currently evaluating the timing and method of adoption and the related impact of the new guidance on earnings per share and on its financial statements. |
Revenue from Contract with Customer | The Company’s revenues consist of services and software and hardware sales. In accordance with ASC Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of services or goods are transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods. Services Revenues Services revenues are primarily comprised of professional services that include developing, implementing, automating and extending business processes, technology infrastructure, and software applications. The Company’s professional services span multiple industries, platforms and solutions; however, the Company has remained relatively diversified and does not believe that it has significant revenue concentration within any single industry, platform or solution. Professional services revenues are recognized over time as services are rendered. Most projects are performed on a time and materials basis, while a portion of revenues is derived from projects performed on a fixed fee or fixed fee percent complete basis. For time and material contracts, revenues are generally recognized and invoiced by multiplying the number of hours expended in the performance of the contract by the hourly rates. For fixed fee contracts, revenues are generally recognized and invoiced by multiplying the fixed rate per time period established in the contract by the number of time periods elapsed. For fixed fee percent complete contracts, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours, and the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract. Clients are typically billed monthly for services provided during that month but can be billed on a more or less frequent basis as determined by the contract. If the time is worked and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as revenue once the Company verifies all other revenue recognition criteria have been met, and the amount is classified as a receivable as the right to consideration is unconditional at that point. Amounts invoiced in excess of revenues recognized are contract liabilities, which are classified as deferred revenues in the Unaudited Condensed Consolidated Balance Sheet. The term between invoicing and payment due date is not significant. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract. Certain contracts may include volume discounts or holdbacks, which are accounted for as variable consideration, but are not typically significant. The Company estimates variable consideration based on historical experience and forecasted sales and includes the variable consideration in the transaction price. Other services revenues are comprised of hosting fees, partner referral fees, maintenance agreements, training and internally developed software-as-a-service (“SaaS”) sales. Revenues from hosting fees, maintenance agreements, training and internally developed SaaS sales are generally recognized over time using a time-based measure of progress as services are rendered. Partner referral fees are recorded at a point in time upon meeting specified requirements to earn the respective fee. On many professional service projects, the Company is also reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of the transaction price of the respective professional services contract and are invoiced as the expenses are incurred. The Company structures its professional services arrangements to recover the cost of reimbursable expenses without a markup. Software and Hardware Revenues Software and hardware revenues are comprised of third-party software and hardware resales, in which the Company is considered the agent, and sales of internally developed software, in which the Company is considered the principal. Third-party software and hardware revenues are recognized and invoiced when the Company fulfills its obligation to arrange the sale, which occurs when the purchase order with the vendor is executed and the customer has access to the software or the hardware has been shipped to the customer. Internally developed software revenues are recognized and invoiced when control is transferred to the customer, which occurs when the software has been made available to the customer and the license term has commenced. Revenues from third-party software and hardware sales are recorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis. There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales, and the term between invoicing and payment due date is not significant. Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate. Arrangements with Multiple Performance Obligations Arrangements with clients may contain multiple promises such as delivery of software, hardware, professional services or post-contract support services. These promises are accounted for as separate performance obligations if they are distinct. For arrangements with clients that contain multiple performance obligations, the transaction price is allocated to the separate performance obligations based on estimated relative standalone selling price, which is estimated by the expected cost plus a margin approach, taking into consideration market conditions and competitive factors. Because contracts that contain multiple performance obligations are typically short term due to the contract cancellation provisions, the allocation of the transaction price to the separate performance obligations is not considered a significant estimate. Contract Costs In accordance with the terms of the Company’s sales commission plan, commissions are not earned until the related revenue is recognized. Therefore, sales commissions are expensed as they are earned. Certain sales incentives are accrued based on achievement of specified bookings goals. For these incentives, the Company applies the practical expedient that allows the Company to expense the incentives as incurred, since the amortization period would have been one year or less.
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Stock-Based Compensation | Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation – Stock Compensation. Under this guidance, the Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period, which is generally three years. In addition, the Company has elected to estimate the amount of expected forfeitures when calculating share-based compensation, instead of accounting for forfeitures as they occur. The fair value of restricted stock awards is based on the value of the Company’s common stock on the date of the grant. |
Allowance for Credit Losses | The Company adopted ASU No. 2016-13 on January 1, 2020. See Note 3, Recent Accounting Pronouncements, for a discussion of the ASU and the impact of adoption. As a result of the adoption, the Company amended its accounting policies for the allowance for credit losses. In accordance with ASU No. 2016-13, the Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss model. The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The allowance is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. A higher allowance for credit losses was recorded during the nine months ended September 30, 2020 due to the likely adverse impact the COVID-19 pandemic has had and will have on factors that affect our estimate of future credit losses. |
Goodwill and Intangible Assets | Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with ASC Topic 350, Intangibles – Goodwill and Other, the Company performs an annual impairment review in the fourth quarter and more frequently if events or changes in circumstances indicate that goodwill might be impaired. There was no indication that goodwill became impaired as of September 30, 2020.Other intangible assets include customer relationships, non-compete arrangements, trade names, customer backlog, and developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from less than one year to ten years. Amortization of customer relationships, non-compete arrangements, trade names, customer backlog, and developed software is considered an operating expense and is included in “Amortization” in the accompanying Unaudited Condensed Consolidated Statements of Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revised useful life. There was no indication that other intangible assets became impaired as of September 30, 2020. |
Long-term Debt | In accordance with accounting for debt with conversions and other options, the Company bifurcated the principal amount of the 2025 Notes into liability and equity components. The initial liability component of the 2025 Notes was valued at $181.1 million based on the contractual cash flows discounted at an appropriate comparable market non-convertible debt borrowing rate at the date of issuance of 6.3%. The equity component representing the conversion option and calculated as the residual amount of the proceeds was recorded as an increase in additional paid-in capital within stockholders’ equity of $48.9 million, partially offset by the associated deferred tax effect of $12.6 million. The amount recorded within additional paid-in capital is not to be remeasured as long as it continues to meet the conditions for equity classification. The resulting debt discount of $48.9 million is being amortized to interest expense using the effective interest method with an effective interest rate of 6.3% over the period from the issuance date through the contractual maturity date of August 1, 2025. The Company utilizes the treasury stock method to calculate the effects of the 2025 Notes on diluted earnings per share. Issuance costs totaling $7.3 million were allocated pro rata based on the relative fair values of the liability and equity components. Issuance costs of $5.7 million attributable to the liability component were recorded as a direct deduction from the carrying value of the 2025 Notes and are being amortized to interest expense using the effective interest method over the term of the 2025 Notes. Issuance costs of $1.6 million attributable to the equity component were recorded as a charge to additional paid-in capital within stockholders’ equity, partially offset by the associated deferred tax effect of $0.4 million. During the quarter-ended September 30, 2020, the Company used a portion of the net cash proceeds from the 2025 Notes issuance to repurchase a portion of the outstanding 2023 Notes through individual, privately negotiated transactions (the “2023 Notes Partial Repurchase”), leaving 2023 Notes with aggregate principal amount of $12.5 million outstanding. The Company used $172.0 million of the net proceeds from the 2025 Notes issuance to complete the 2023 Notes Partial Repurchase, of which $120.9 million and $49.9 million were allocated to the liability and equity components of the 2023 Notes, respectively, and $1.3 million was related to the payment of interest. The cash consideration allocated to the liability component was based on the fair value of the liability component utilizing an effective discount rate of 5.2%. This rate was based on the Company’s estimated rate for a similar liability with the same maturity, but without the conversion option. To derive this effective discount rate, the Company observed the trading details of its 2023 Notes immediately prior to the repurchase date to determine the volatility of its 2023 Notes. The Company utilized the observed volatility to calculate the effective discount rate, which was adjusted to reflect the term of the remaining 2023 Notes. The cash consideration allocated to the equity component was calculated by deducting the fair value of the liability component and interest payment from the aggregate cash consideration. The $4.3 million loss on extinguishment was subsequently determined by comparing the allocated cash consideration with the carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and the remaining unamortized debt issuance costs of $2.3 million.Convertible Notes Hedges In connection with the issuance of the 2025 Notes and 2023 Notes, the Company entered into privately negotiated convertible note hedge transactions (the “2025 Notes Hedges” and the “2023 Notes Hedges,” respectively, and together, the “Notes Hedges”) with certain of the initial purchasers or their respective affiliates and/or other financial institutions (the “Option Counterparties”). The 2025 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 4.5 million shares of common stock at a strike price of $51.67, which is equal to the number of shares of common stock that notionally underlie the 2025 Notes and corresponds to the conversion price of the 2025 Notes. The 2023 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 0.3 million shares (after consideration of the 2023 Notes Partial Repurchase) of common stock at a strike price of $37.60, which is equal to the number of shares of common stock that notionally underlie the 2023 Notes and corresponds to the conversion price of the 2023 Notes after the partial repurchase discussed above. If the Company elects cash settlement and exercises the 2025 Notes Hedges or the 2023 Notes Hedges, the aggregate amount of cash received from the Option Counterparties will cover the aggregate amount of cash that the Company would be required to pay to the holders of the Notes, less the principal amount thereof. The Notes Hedges do not meet the criteria for separate accounting as a derivative as they are indexed to the Company’s stock and are accounted for as freestanding financial instruments. Upon initial purchase, the 2025 Notes Hedges and 2023 Notes Hedges were recorded as a reduction in additional paid-in capital within stockholders’ equity of $48.9 million and $20.7 million, respectively, partially offset by the deferred tax effect of $12.6 million and $5.3 million, respectively. In August 2020, in connection with the 2023 Notes Partial Repurchase, the Company terminated 2023 Notes Hedges corresponding to approximately 3.5 million shares for cash proceeds of $47.3 million. The proceeds were recorded as an increase to additional paid-in capital within stockholders' equity. Convertible Notes Warrants In connection with the issuance of the 2025 Notes and 2023 Notes, the Company also sold net-share-settled warrants (the “2025 Notes Warrants” and the “2023 Notes Warrants,” respectively, and together, the “Notes Warrants”) in privately negotiated transactions with the Option Counterparties. The strike price of the 2025 Notes Warrants and 2023 Notes Warrants was approximately $81.05 and $46.62 per share, respectively, and is subject to certain adjustments under the terms of their respective Notes Warrants. As a result of the 2025 Notes Warrants and 2023 Notes Warrants and related transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price is over $81.05 for any fiscal quarter for the 2025 Notes Warrants and $46.62 for the 2023 Notes Warrants. The 2025 Notes Warrants and 2023 Notes Warrants expire over a period of 100 trading days commencing on November 1, 2025 and December 15, 2023, respectively, and may be settled in net shares of common stock or net cash at the Company’s election. Upon initial sale, the 2025 Notes Warrants and 2023 Notes Warrants were recorded as an increase in additional paid-in capital within stockholders’ equity of $22.2 million and $12.1 million, respectively. In August 2020, in connection with the 2023 Notes Partial Repurchase, the Company repurchased a portion of the 2023 Notes Warrants through a cash payment of $40.7 million. The repurchase was recorded as a reduction in additional paid-in capital within stockholders' equity.
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Derivatives | In the normal course of business, the Company uses derivative financial instruments to manage foreign currency exchange rate risk. Currency exposure is monitored and managed by the Company as part of its risk management program which seeks to reduce the potentially adverse effects that market volatility could have on operating results. The Company’s derivative financial instruments consist of non-deliverable and deliverable foreign currency forward contracts. Derivative financial instruments are neither held nor issued by the Company for trading purposes. Derivatives Not Designated as Hedging Instruments Both the gain or loss on the derivatives not designated as hedging instruments and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Realized gains or losses and changes in the estimated fair value of foreign currency forward contracts that have not been designated as hedges were immaterial during each of the three and nine months ended September 30, 2020 and 2019. Gains and losses on these contracts are recorded in net other expense (income) and net interest expense in the Unaudited Condensed Consolidated Statements of Operations and are offset by losses and gains on the related hedged items.
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Fair Value Measurement | The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels: •Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities. •Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. •Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. All highly liquid investments with maturities at date of purchase of three months or less are considered to be cash equivalents. Based on their short-term nature, the carrying value of cash equivalents approximate their fair value. As of September 30, 2020, $39.0 million of the Company’s cash and cash equivalents balance related to money-market fund investments. As of December 31, 2019, $64.2 million of the Company’s cash and cash equivalents balance related to money-market fund investments and $3.0 million related to fixed time deposits. These short-term money-market funds and fixed time deposits are considered Level 1 investments. The Company has a deferred compensation plan, which is funded through company-owned life insurance (“COLI”) policies. The COLI asset is carried at fair value derived from quoted market prices of investments within the COLI policies, which are considered Level 2 inputs. The fair value of the COLI asset was $6.6 million and $5.6 million as of September 30, 2020 and December 31, 2019, respectively. The Company estimates the fair value of each foreign exchange forward contract by using the present value of expected cash flows. The estimate takes into account the difference between the current market forward price and contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. Valuations for all derivatives fall within Level 2 of the GAAP valuation hierarchy. The fair value of the Company’s derivative instruments outstanding as of September 30, 2020 was immaterial. The Company has contingent consideration liabilities related to acquisitions which are measured on a recurring basis and recorded at fair value, determined using the discounted cash flow method. The inputs used to calculate the fair value of the contingent consideration liabilities are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. An increase in future cash flows may result in a higher estimated fair value while a decrease in future cash flows may result in a lower estimated fair value of the contingent consideration liabilities. Remeasurements to fair value are recorded in adjustment to fair value of contingent consideration in the Unaudited Condensed Consolidated Statements of Operations. Refer to Note 7, Balance Sheet Components, for the estimated fair value of the contingent consideration liabilities as of September 30, 2020. The fair value of the Notes is measured using quoted price inputs. The Notes are not actively traded, and thus the price inputs represent a Level 2 measurement. As the quoted price inputs are highly variable from day to day, the fair value estimates could significantly increase or decrease. The Notes are carried at their principal amount less unamortized debt discount and issuance costs, and are not carried at fair value at each period end. The original debt discount was calculated at a market interest rate for nonconvertible debt at the time of issuance, which represented a Level 3 fair value measurement. The approximate fair value of the 2023 Notes and 2025 Notes as of September 30, 2020 was $15.9 million and $244.1 million, respectively, which is estimated on the basis of inputs that are observable in the market and is considered a Level 2 fair value measurement.
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Commitments and Contingencies | From time to time the Company is involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. Although the Company cannot predict the outcome of such matters, currently the Company has no reason to believe the disposition of any current matter could reasonably be expected to have a material adverse impact on the Company’s financial position, results of operations or the ability to carry on any of its business activities. |
Compensation Related Costs, Share Based Payments (Policies) |
9 Months Ended |
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Sep. 30, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Stock-Based Compensation | Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation – Stock Compensation. Under this guidance, the Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period, which is generally three years. In addition, the Company has elected to estimate the amount of expected forfeitures when calculating share-based compensation, instead of accounting for forfeitures as they occur. The fair value of restricted stock awards is based on the value of the Company’s common stock on the date of the grant. |
Receivables, Loans, Notes Receivable, and Others (Policies) |
9 Months Ended |
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Sep. 30, 2020 | |
Receivables [Abstract] | |
Long-term Debt | In accordance with accounting for debt with conversions and other options, the Company bifurcated the principal amount of the 2025 Notes into liability and equity components. The initial liability component of the 2025 Notes was valued at $181.1 million based on the contractual cash flows discounted at an appropriate comparable market non-convertible debt borrowing rate at the date of issuance of 6.3%. The equity component representing the conversion option and calculated as the residual amount of the proceeds was recorded as an increase in additional paid-in capital within stockholders’ equity of $48.9 million, partially offset by the associated deferred tax effect of $12.6 million. The amount recorded within additional paid-in capital is not to be remeasured as long as it continues to meet the conditions for equity classification. The resulting debt discount of $48.9 million is being amortized to interest expense using the effective interest method with an effective interest rate of 6.3% over the period from the issuance date through the contractual maturity date of August 1, 2025. The Company utilizes the treasury stock method to calculate the effects of the 2025 Notes on diluted earnings per share. Issuance costs totaling $7.3 million were allocated pro rata based on the relative fair values of the liability and equity components. Issuance costs of $5.7 million attributable to the liability component were recorded as a direct deduction from the carrying value of the 2025 Notes and are being amortized to interest expense using the effective interest method over the term of the 2025 Notes. Issuance costs of $1.6 million attributable to the equity component were recorded as a charge to additional paid-in capital within stockholders’ equity, partially offset by the associated deferred tax effect of $0.4 million. During the quarter-ended September 30, 2020, the Company used a portion of the net cash proceeds from the 2025 Notes issuance to repurchase a portion of the outstanding 2023 Notes through individual, privately negotiated transactions (the “2023 Notes Partial Repurchase”), leaving 2023 Notes with aggregate principal amount of $12.5 million outstanding. The Company used $172.0 million of the net proceeds from the 2025 Notes issuance to complete the 2023 Notes Partial Repurchase, of which $120.9 million and $49.9 million were allocated to the liability and equity components of the 2023 Notes, respectively, and $1.3 million was related to the payment of interest. The cash consideration allocated to the liability component was based on the fair value of the liability component utilizing an effective discount rate of 5.2%. This rate was based on the Company’s estimated rate for a similar liability with the same maturity, but without the conversion option. To derive this effective discount rate, the Company observed the trading details of its 2023 Notes immediately prior to the repurchase date to determine the volatility of its 2023 Notes. The Company utilized the observed volatility to calculate the effective discount rate, which was adjusted to reflect the term of the remaining 2023 Notes. The cash consideration allocated to the equity component was calculated by deducting the fair value of the liability component and interest payment from the aggregate cash consideration. The $4.3 million loss on extinguishment was subsequently determined by comparing the allocated cash consideration with the carrying value of the liability component, which includes the proportionate amounts of unamortized debt discount and the remaining unamortized debt issuance costs of $2.3 million.Convertible Notes Hedges In connection with the issuance of the 2025 Notes and 2023 Notes, the Company entered into privately negotiated convertible note hedge transactions (the “2025 Notes Hedges” and the “2023 Notes Hedges,” respectively, and together, the “Notes Hedges”) with certain of the initial purchasers or their respective affiliates and/or other financial institutions (the “Option Counterparties”). The 2025 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 4.5 million shares of common stock at a strike price of $51.67, which is equal to the number of shares of common stock that notionally underlie the 2025 Notes and corresponds to the conversion price of the 2025 Notes. The 2023 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 0.3 million shares (after consideration of the 2023 Notes Partial Repurchase) of common stock at a strike price of $37.60, which is equal to the number of shares of common stock that notionally underlie the 2023 Notes and corresponds to the conversion price of the 2023 Notes after the partial repurchase discussed above. If the Company elects cash settlement and exercises the 2025 Notes Hedges or the 2023 Notes Hedges, the aggregate amount of cash received from the Option Counterparties will cover the aggregate amount of cash that the Company would be required to pay to the holders of the Notes, less the principal amount thereof. The Notes Hedges do not meet the criteria for separate accounting as a derivative as they are indexed to the Company’s stock and are accounted for as freestanding financial instruments. Upon initial purchase, the 2025 Notes Hedges and 2023 Notes Hedges were recorded as a reduction in additional paid-in capital within stockholders’ equity of $48.9 million and $20.7 million, respectively, partially offset by the deferred tax effect of $12.6 million and $5.3 million, respectively. In August 2020, in connection with the 2023 Notes Partial Repurchase, the Company terminated 2023 Notes Hedges corresponding to approximately 3.5 million shares for cash proceeds of $47.3 million. The proceeds were recorded as an increase to additional paid-in capital within stockholders' equity. Convertible Notes Warrants In connection with the issuance of the 2025 Notes and 2023 Notes, the Company also sold net-share-settled warrants (the “2025 Notes Warrants” and the “2023 Notes Warrants,” respectively, and together, the “Notes Warrants”) in privately negotiated transactions with the Option Counterparties. The strike price of the 2025 Notes Warrants and 2023 Notes Warrants was approximately $81.05 and $46.62 per share, respectively, and is subject to certain adjustments under the terms of their respective Notes Warrants. As a result of the 2025 Notes Warrants and 2023 Notes Warrants and related transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price is over $81.05 for any fiscal quarter for the 2025 Notes Warrants and $46.62 for the 2023 Notes Warrants. The 2025 Notes Warrants and 2023 Notes Warrants expire over a period of 100 trading days commencing on November 1, 2025 and December 15, 2023, respectively, and may be settled in net shares of common stock or net cash at the Company’s election. Upon initial sale, the 2025 Notes Warrants and 2023 Notes Warrants were recorded as an increase in additional paid-in capital within stockholders’ equity of $22.2 million and $12.1 million, respectively. In August 2020, in connection with the 2023 Notes Partial Repurchase, the Company repurchased a portion of the 2023 Notes Warrants through a cash payment of $40.7 million. The repurchase was recorded as a reduction in additional paid-in capital within stockholders' equity.
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Revenue (Tables) |
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of revenue | The following table presents revenue disaggregated by revenue source and pattern of revenue recognition (in thousands):
* Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS revenue and partner referral fees.
* Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS revenue and partner referral fees. The following table presents revenue disaggregated by geographic area, as determined by the billing address of customers (in thousands):
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Stock-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock activity | Restricted stock activity for the nine months ended September 30, 2020 was as follows (shares in thousands):
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Net Income per Share (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and diluted net income per share | The following table presents the calculation of basic and diluted net income per share (in thousands, except per share information):
(1)For the three and nine months ended September 30, 2020, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with RAS & Associates, LLC (“RAS”); (ii) the Asset Purchase Agreement with Zeon Solutions Incorporated and certain related entities (collectively, “Zeon”); (iii) the Asset Purchase Agreement with Stone Temple Consulting Corporation (“Stone Temple”); (iv) the Asset Purchase Agreement with Sundog Interactive, Inc. (“Sundog”); (v) the Asset Purchase Agreement with MedTouch LLC (“MedTouch”); (vi) the Asset Purchase Agreement with Catalyst Networks, Inc. (“Brainjocks”); and (vii) the Stock Purchase Agreement with the shareholders of Productora de Software S.A.S. (“PSL”), as part of the consideration. For the three and nine months ended September 30, 2019, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with Zeon; (ii) the Asset Purchase Agreement with RAS; (iii) the Asset Purchase Agreement with Southport Services Group, LLC (“Southport”); (iv) the Asset Purchase Agreement with Stone Temple; (v) the Agreement and Plan of Merger with Elixiter, Inc. (“Elixiter”); and (vi) the Asset Purchase Agreement with Sundog, as part of the consideration.
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Antidilutive securities excluded from computation of earnings per share | The number of anti-dilutive securities not included in the calculation of diluted net income per share were as follows (in thousands):
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Balance Sheet Components (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts receivable |
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Property and equipment |
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Other current liabilities |
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Other non-current liabilities |
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Allowance for Credit Losses (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | Activity in the allowance for credit losses is summarized as follows (in thousands):
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Business Combinations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allocation of total purchase price consideration | The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):
The Company has allocated the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):
The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):
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Schedule of finite-lived intangible assets acquired | The following table presents details of the intangible assets acquired during the nine months ended September 30, 2020 (dollars in millions).
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Pro-forma results of operations | The aggregate amounts of revenue and net income of the MedTouch, Brainjocks, and PSL acquisitions in the Unaudited Condensed Consolidated Statements of Operations from the respective acquisition dates to September 30, 2020 are as follows (in thousands):
Pro-forma Results of Operations The following presents the unaudited pro-forma combined results of operations of the Company with PSL for the nine months ended September 30, 2020 and 2019, after giving effect to certain pro-forma adjustments and assuming PSL was acquired as of the beginning of 2019. Pro-forma results of operations have not been presented for MedTouch or Brainjocks because the effect of these acquisitions on the Company's consolidated financial statements were not material individually or in the aggregate. These unaudited pro-forma results are presented in compliance with the adoption of ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, and are not necessarily indicative of the actual consolidated results of operations had the acquisition of PSL actually occurred on January 1, 2019 or of future results of operations of the consolidated entities (in thousands except per share data):
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Goodwill and Intangible Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | The changes in the carrying amount of goodwill for the nine months ended September 30, 2020 are as follows (in thousands):
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Intangible assets | The following table presents a summary of the Company’s intangible assets that are subject to amortization (in thousands):
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Estimated useful lives of intangible assets | The estimated useful lives of identifiable intangible assets are as follows:
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Estimated annual amortization expense | Estimated annual amortization expense for the next five years ended December 31 and thereafter is as follows: (in thousands):
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Long-term Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt instruments | The liability component of the 2025 Notes and 2023 Notes consisted of the following (in thousands):
Interest expense for the three and nine months ended September 30, 2020 and 2019 related to the 2025 Notes and 2023 Notes consisted of the following (in thousands): 2025 Notes
2023 Notes
|
Derivatives (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of notional amounts of outstanding derivative positions | The notional amounts of the Company’s derivative instruments outstanding were as follows (in thousands):
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Leases (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of lease liabilities | Supplemental balance sheet information related to leases was as follows (in thousands):
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Future minimum leases payments under ASC topic 842 | Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows (in thousands):
|
Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Jan. 01, 2020 |
Dec. 31, 2019 |
Sep. 30, 2019 |
---|---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Accounts receivable, net | $ 137,043 | $ 129,118 | ||
Stockholders' equity attributable to parent | $ (386,425) | $ (381,015) | $ (369,248) | |
Cumulative effect, period of adoption, adjustment | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Stockholders' equity attributable to parent | $ 300 | |||
Accounting standards update 2016-13 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Accounts receivable, net | $ 400 |
Revenue - Services Revenue (Details) - Services |
9 Months Ended |
---|---|
Sep. 30, 2020 | |
Minimum | |
Disaggregation of Revenue [Line Items] | |
Notice period to cancel or terminate contract | 10 days |
Maximum | |
Disaggregation of Revenue [Line Items] | |
Notice period to cancel or terminate contract | 30 days |
Revenue - Deferred Revenue (Details) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Sep. 30, 2020 |
Dec. 31, 2019 |
|
Change in Contract with Customer, Asset and Liability [Abstract] | ||
Deferred revenue balance | $ 6.2 | $ 7.7 |
Deferred revenue assumed in acquistion | 4.0 | |
Impact of ASC topic 606 adoption | ASU 2014-09 | ||
Change in Contract with Customer, Asset and Liability [Abstract] | ||
Recognition of deferred revenue | $ 7.5 |
Revenue - Disaggregation of Revenue by Geographic Area (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Disaggregation of Revenue [Line Items] | ||||
Revenues | $ 157,678 | $ 144,684 | $ 449,579 | $ 420,368 |
United States | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 154,078 | 141,849 | 440,140 | 410,813 |
Canada | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 603 | 913 | 2,565 | 2,195 |
Other countries | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | $ 2,997 | $ 1,922 | $ 6,874 | $ 7,360 |
Stock-Based Compensation - Stock Award Plans (Details) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Stock-Based Compensation [Abstract] | ||||
Requisite service period (in years) | 3 years | |||
Stock-based compensation expense | $ 4.7 | $ 4.3 | $ 14.4 | $ 13.2 |
Stock-based compensation expense for retirement savings plan contributions | 0.8 | 0.7 | 2.5 | 2.2 |
Associated current and future income tax benefits recognized | 1.5 | $ 0.8 | 4.4 | $ 2.6 |
Total unrecognized compensation cost related to non-vested share-based awards | $ 19.7 | $ 19.7 | ||
Unrecognized compensation cost, weighted-average period for recognition (in years) | 2 years | |||
2012 Long term incentive plan | ||||
Stock-Based Compensation [Abstract] | ||||
Maximum number of shares authorized under plan (in shares) | 7.0 | 7.0 | ||
Number of shares available for issuance under the incentive plan (in shares) | 1.7 | 1.7 |
Stock-Based Compensation - Restricted Stock Activity (Details) - 2012 Long term incentive plan - Restricted stock subject to vesting shares in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2020
$ / shares
shares
| |
Shares | |
Restricted stock awards outstanding at beginning of period (in shares) | shares | 1,097 |
Awards granted (in shares) | shares | 182 |
Awards vested (in shares) | shares | (307) |
Awards forfeited (in shares) | shares | (56) |
Restricted stock awards outstanding at end of period (in shares) | shares | 916 |
Weighted-Average Grant Date Fair Value | |
Awards outstanding at beginning of period (in dollars per share) | $ / shares | $ 27.14 |
Awards granted (in dollars per share) | $ / shares | 43.94 |
Awards vested (in dollars per share) | $ / shares | 23.16 |
Awards forfeited (in dollars per share) | $ / shares | 33.09 |
Awards outstanding at end of period (in dollars per share) | $ / shares | $ 31.45 |
Net Income per Share - Basic and Diluted (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Earnings Per Share [Abstract] | ||||
Net income | $ 6,177 | $ 9,779 | $ 21,760 | $ 25,333 |
Basic: | ||||
Weighted-average shares of common stock outstanding | 31,873 | 31,246 | 31,800 | 31,321 |
Shares used in computing basic net income per share | 31,873 | 31,246 | 31,800 | 31,321 |
Effect of dilutive securities: | ||||
Restricted stock subject to vesting | 444 | 694 | 414 | 637 |
Shares issuable for acquisition consideration (in shares) | 310 | 219 | 238 | 239 |
Shares issuable for conversion of convertible senior notes (in shares) | 22 | 57 | ||
Shares used in computing diluted net income per share | 32,649 | 32,159 | 32,509 | 32,197 |
Basic net income per share (in dollars per share) | $ 0.19 | $ 0.31 | $ 0.68 | $ 0.81 |
Diluted net income per share (in dollars per share) | $ 0.19 | $ 0.30 | $ 0.67 | $ 0.79 |
Net Income per Share - Anti-dilutive Securities (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive securities | 16,216 | 7,646 | 12,864 | 7,681 |
Restricted stock subject to vesting | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive securities | 0 | 0 | 139 | 35 |
Convertible senior notes | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive securities | 7,942 | 3,823 | 4,451 | 3,823 |
Warrants related to the issuance of convertible senior notes | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive securities | 8,274 | 3,823 | 8,274 | 3,823 |
Net Income per Share - Additional Information (Details) shares in Millions |
Sep. 30, 2020
USD ($)
shares
|
---|---|
Earnings Per Share [Abstract] | |
Shares authorized to repurchase | $ 265,000,000.0 |
Cumulative amount repurchased | $ 231,200,000 |
Cumulative number of shares repurchased (in shares) | shares | 15.6 |
Balance Sheet Components - Accounts Receivable (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Balance Sheet Related Disclosures [Abstract] | ||
Billed accounts receivable, net | $ 85,354 | $ 87,021 |
Unbilled revenues, net | 51,689 | 42,097 |
Total | $ 137,043 | $ 129,118 |
Balance Sheet Components - Property and Equipment) (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2020 |
Dec. 31, 2019 |
|
Property and Equipment [Abstract] | ||
Less: Accumulated depreciation | $ (19,292) | $ (15,654) |
Property and equipment, net | 12,038 | 12,170 |
Computer hardware | ||
Property and Equipment [Abstract] | ||
Property and equipment | $ 15,070 | 12,995 |
Useful life | 3 years | |
Software | ||
Property and Equipment [Abstract] | ||
Property and equipment | $ 5,334 | 5,272 |
Furniture and fixtures | ||
Property and Equipment [Abstract] | ||
Property and equipment | $ 4,377 | 3,883 |
Useful life | 5 years | |
Leasehold improvements | ||
Property and Equipment [Abstract] | ||
Property and equipment | $ 6,549 | $ 5,674 |
Useful life | 5 years | |
Minimum | Software | ||
Property and Equipment [Abstract] | ||
Useful life | 1 year | |
Maximum | Software | ||
Property and Equipment [Abstract] | ||
Useful life | 7 years |
Balance Sheet Components - Other Current Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Balance Sheet Related Disclosures [Abstract] | ||
Estimated fair value of contingent consideration liability | $ 29,297 | $ 4,196 |
Current operating lease liabilities | 10,257 | 8,992 |
Accrued variable compensation | 21,180 | 27,030 |
Deferred revenues | 6,187 | 7,733 |
Other current liabilities | 7,954 | 5,841 |
Payroll related costs | 5,883 | 3,716 |
Professional fees | 1,032 | 1,758 |
Accrued medical claims expense | 2,225 | 1,905 |
Accrued subcontractor fees | 164 | 332 |
Total | $ 84,179 | $ 61,503 |
Balance Sheet Components - Other Non-Current Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Balance Sheet Related Disclosures [Abstract] | ||
Deferred income taxes | $ 17,530 | $ 11,108 |
Deferred compensation liability | 6,583 | 5,566 |
Non-current software accrual | 6,591 | 5,226 |
Other non-current liabilities | 9,809 | 8,680 |
Deferred employer FICA payments | 8,108 | 0 |
Total | $ 48,621 | $ 30,580 |
Allowance for Credit Losses (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2020
USD ($)
| |
Accounts Receivable, Allowance for Credit Loss [Roll Forward] | |
Balance at December 31, 2019 | $ 1,207 |
Opening balance at January 1, 2020 | 464 |
Charges to expense | 1,138 |
Uncollected balances written off, net of recoveries | (818) |
Balance at September 30, 2020 | 1,207 |
Cumulative effect, period of adoption, adjusted balance | |
Accounts Receivable, Allowance for Credit Loss [Roll Forward] | |
Balance at December 31, 2019 | 887 |
Opening balance at January 1, 2020 | 887 |
Cumulative effect, period of adoption, adjustment | |
Accounts Receivable, Allowance for Credit Loss [Roll Forward] | |
Balance at December 31, 2019 | 423 |
Opening balance at January 1, 2020 | $ 423 |
Business Combinations MedTouch (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Jan. 06, 2020 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
|
Business Acquisition [Line Items] | ||||||
Adjustment to fair value of contingent consideration | $ 2,061 | $ (2) | $ 3,793 | $ (310) | ||
Goodwill | 419,029 | 419,029 | $ 335,564 | |||
MedTouch | ||||||
Business Acquisition [Line Items] | ||||||
Date of acquisition | Jan. 06, 2020 | |||||
Total purchase price | $ 20,000 | |||||
Cash paid for acquisition | 13,900 | |||||
Common stock issued | 1,900 | |||||
Initial fair value estimate of additional earnings-based contingent consideration | 4,200 | |||||
Contingent consideration, maximum cash payout | 10,200 | |||||
Fair value of contingent consideration | 8,200 | 8,200 | ||||
Adjustment to fair value of contingent consideration | $ 2,000 | $ 4,000 | ||||
Transaction costs | 600 | |||||
Acquired tangible assets | 4,700 | |||||
Identified intangible assets | 6,700 | |||||
Liabilities assumed | (6,000) | |||||
Goodwill | 14,600 | |||||
Tax deductible amount of Goodwill | $ 11,200 |
Business Combinations Brainjocks (Details) - USD ($) $ in Thousands |
Mar. 23, 2020 |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|---|
Business Acquisition [Line Items] | |||
Goodwill | $ 419,029 | $ 335,564 | |
Brainjocks | |||
Business Acquisition [Line Items] | |||
Date of acquisition | Mar. 23, 2020 | ||
Total purchase price | $ 21,200 | ||
Cash paid for acquisition | 15,800 | ||
Common stock issued | 2,400 | ||
Net working capital settlement | 700 | ||
Initial fair value estimate of additional earnings-based contingent consideration | 2,300 | ||
Contingent consideration, maximum cash payout | 4,800 | ||
Transaction costs | 1,100 | ||
Acquired tangible assets | 7,000 | ||
Identified intangible assets | 8,400 | ||
Liabilities assumed | (4,900) | ||
Goodwill | 10,700 | ||
Tax deductible amount of Goodwill | $ 8,700 |
Business Combinations PSL (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Jun. 17, 2020 |
Sep. 30, 2020 |
Dec. 31, 2019 |
|
Business Acquisition [Line Items] | |||
Goodwill | $ 419,029,000 | $ 335,564,000 | |
PSL | |||
Business Acquisition [Line Items] | |||
Date of acquisition | Jun. 17, 2020 | ||
Total purchase price | $ 82,600,000 | ||
Cash paid for acquisition | 59,900,000 | ||
Common stock issued | 4,500,000 | ||
Net working capital settlement | 2,000,000.0 | ||
Initial fair value estimate of additional earnings-based contingent consideration | 16,200,000 | ||
Contingent consideration, maximum cash payout | 22,200,000 | ||
Transaction costs | 2,000,000.0 | ||
Acquired tangible assets | 11,200,000 | ||
Identified intangible assets | 29,300,000 | ||
Liabilities assumed | (18,000,000.0) | ||
Goodwill | $ 60,100,000 | ||
Increase to acquired tangible assets | 100,000 | ||
Decrease to identified intangible assets | (700,000) | ||
Increase to liabilities assumed | 2,000,000.0 | ||
Increase to goodwill | 3,200,000 | ||
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Consideration Transferred | $ 0.6 |
Business Combinations Sundog (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
May 22, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Business Acquisition [Line Items] | |||||
Adjustment to fair value of contingent consideration | $ 2,061 | $ (2) | $ 3,793 | $ (310) | |
Sundog Interactive | |||||
Business Acquisition [Line Items] | |||||
Date of acquisition | May 22, 2019 | ||||
Total purchase price | $ 14,100 | ||||
Cash paid for acquisition | 10,300 | ||||
Common stock issued | 1,300 | ||||
Net working capital settlement | 600 | ||||
Initial fair value estimate of additional earnings-based contingent consideration | 1,900 | ||||
Contingent consideration, maximum cash payout | $ 3,600 | ||||
Adjustment to fair value of contingent consideration | 400 | ||||
Fair value of contingent consideration | $ 2,500 | $ 2,500 |
Business Combinations Acquisition Results (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2020
USD ($)
| |
Business Combinations [Abstract] | |
Revenues | $ 28,482 |
Net income | $ 8 |
Business Combinations Pro Forma Results of Operations (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Business Acquisition, Pro Forma Information [Abstract] | ||
Revenues | $ 466,207 | $ 444,608 |
Net income | $ 26,767 | $ 19,696 |
Basic net income per share | $ 0.84 | $ 0.63 |
Diluted net income per share | $ 0.82 | $ 0.61 |
Shares used in computing basic net income per share | 31,933 | 31,321 |
Shares used in computing diluted net income per share | 32,615 | 32,368 |
Goodwill and Intangible Assets - Goodwill (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2020
USD ($)
| |
Goodwill [Roll Forward] | |
Balance at December 31, 2019 | $ 335,564 |
Purchase price allocation for acquisitions | 85,369 |
Effect of foreign currency translation adjustments | (1,904) |
Balance at September 30, 2020 | $ 419,029 |
Goodwill and Intangible Assets - Estimated Useful Lives (Details) |
9 Months Ended |
---|---|
Sep. 30, 2020 | |
Customer relationships | Minimum | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 5 years |
Customer relationships | Maximum | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 10 years |
Non-compete agreements | Minimum | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 4 years |
Non-compete agreements | Maximum | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 5 years |
Customer backlog | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 1 year |
Trade name | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 1 year |
Developed software | Minimum | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 1 year |
Developed software | Maximum | |
Intangible Assets [Abstract] | |
Estimated useful lives (in years) | 7 years |
Goodwill and Intangible Assets - Estimated Amortization Expense (Details) $ in Thousands |
Sep. 30, 2020
USD ($)
|
---|---|
Estimated Amortization Expense [Abstract] | |
2020 remaining | $ 6,978 |
2021 | 20,658 |
2022 | 15,192 |
2023 | 10,436 |
2024 | 7,410 |
Thereafter | $ 6,673 |
Long-term Debt - Liability and Equity Component of Note (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Liability component: | ||
Net carrying amount | $ 187,737 | $ 124,664 |
Convertible debt | 2023 Notes | ||
Liability component: | ||
Principal | 12,510 | 143,750 |
Less: Unamortized debt discount | (1,137) | (16,033) |
Unamortized debt issuance costs | (212) | (3,053) |
Net carrying amount | 11,161 | 124,664 |
Convertible debt | 2025 Notes | ||
Liability component: | ||
Principal | 230,000 | 0 |
Less: Unamortized debt discount | (47,827) | 0 |
Unamortized debt issuance costs | (5,597) | 0 |
Net carrying amount | $ 176,576 | $ 0 |
Long-term Debt - Interest Expense on Note (Details) - Senior notes - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
2025 Notes | ||||
Debt Instrument [Line Items] | ||||
Coupon interest | $ 375 | $ 0 | $ 375 | $ 0 |
Amortization of debt discount | 1,116 | 0 | 1,116 | 0 |
Amortization of debt issuance costs | 151 | 0 | 151 | 0 |
Total interest expense recognized | 1,642 | 0 | 1,642 | 0 |
2023 Notes | ||||
Debt Instrument [Line Items] | ||||
Coupon interest | 446 | 854 | 2,153 | 2,561 |
Amortization of debt discount | 535 | 950 | 2,504 | 2,810 |
Amortization of debt issuance costs | 110 | 206 | 522 | 618 |
Total interest expense recognized | $ 1,091 | $ 2,010 | $ 5,179 | $ 5,989 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Dec. 31, 2019 |
|
Tax Credit [Line Items] | |||||
Unrecognized tax benefits | $ 6,700 | $ 6,700 | |||
Unrecognized tax benefits, interest on income taxes accrued | $ 900 | $ 900 | |||
Effective tax rate | 27.60% | 29.70% | 24.20% | 25.90% | |
Deferred income taxes | $ 17,530 | $ 17,530 | $ 11,108 | ||
Unremitted earnings of foreign subsidiaries | 13,500 | 13,500 | |||
Unrecognized deferred tax liability on unremitted earnings of foreign subsidiaries | 700 | 700 | |||
Internal Revenue Service (IRS) | Tax years 2011 through 2015 | Domestic tax authority | |||||
Tax Credit [Line Items] | |||||
Disallowed research tax credits being litigated | 5,700 | 5,700 | |||
Internal Revenue Service (IRS) | Tax years 2011 through 2019 | Domestic tax authority | |||||
Tax Credit [Line Items] | |||||
Research tax credits | $ 19,100 | $ 19,100 |
Derivatives - Notional Amounts (Details) - Total derivatives not designated as hedges - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Notional Disclosures [Abstract] | ||
Derivative notional amounts | $ 11,757 | $ 2,523 |
Foreign exchange contracts | ||
Notional Disclosures [Abstract] | ||
Derivative notional amounts | $ 11,757 | $ 2,523 |
Leases - Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Lessee, Lease, Description [Line Items] | ||||
Operating lease expense | $ 3.3 | $ 2.6 | $ 9.0 | $ 7.2 |
Minimum | ||||
Lessee, Lease, Description [Line Items] | ||||
Remaining lease terms (in years) | 1 year | 1 year | ||
Maximum | ||||
Lessee, Lease, Description [Line Items] | ||||
Remaining lease terms (in years) | 8 years | 8 years |
Leases - Lease Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Leases [Abstract] | ||
Other current liabilities | $ 10,257 | $ 8,992 |
Operating lease liabilities | 30,813 | 19,649 |
Total | $ 41,070 | $ 28,641 |
Leases - Future Minimum Lease Payments under ASC Topic 842 (Details) - USD ($) $ in Thousands |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
2020 remaining | $ 2,167 | |
2021 | 9,914 | |
2022 | 9,575 | |
2023 | 7,563 | |
2024 | 5,853 | |
Thereafter | 9,841 | |
Total future lease payments | 44,913 | |
Less implied interest | (3,843) | |
Total | $ 41,070 | $ 28,641 |
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