Description of Business and Summary of Significant Accounting Policies and Practices (Policies)

12 Months Ended

Dec. 31, 2015

Description of Business and Basis of Presentation

(a) Description of Business and Basis of Presentation

Marchex, Inc. (the “Company”) was incorporated in the state of Delaware on January 17, 2003. The Company is a mobile advertising and analytics company that helps connect online behavior to real-world, offline actions. The Company provides products and services for businesses that focus on consumer phone calls to drive sales. The Company’s technology can facilitate call quality, analyze phone calls in real time and measure the outcomes of calls while its technology platform delivers performance-based, pay-for-call advertising across numerous mobile and online publishers to connect consumers with businesses over the phone.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements in the prior periods to conform to the current period presentation.

In July 2013, the Company sold certain assets related to Archeo’s pay-per-click advertising services and, in April 2015, the Company sold certain assets related to Archeo’s domain operations, including the bulk of its domain name portfolio. The operating results related to these dispositions are shown as discontinued operations in the consolidated statements of operations for all periods presented. In December 2015, the Company sold the remaining Archeo operations. The December 2015 disposition did not meet the criteria for discontinued operations, and as a result the operating results are reflected in continuing operations. See Note 10. Discontinued Operations and Disposition of the Notes to Consolidated Financial Statements for further discussion. Unless otherwise indicated, information presented in the Notes to Consolidated Financial Statements relates only to the Company’s continuing operations.

Cash and Cash Equivalents

(b) Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds.

Fair Value of Financial Instruments

(c) Fair Value of Financial Instruments

The Company had the following financial instruments as of December 31, 2014 and 2015: cash and cash equivalents, accounts receivable, refundable taxes, accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature.

Accounts Receivable

(d) Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable balances are presented net of allowance for doubtful accounts and allowance for advertiser credits.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on analysis of historical bad debts, advertiser concentrations, advertiser credit-worthiness and current economic trends. Past due balances over 90 days and specific other balances are reviewed individually for collectability. The Company reviews the allowance for collectability quarterly. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The allowance for doubtful accounts activity for the periods indicated is as follows (in thousands):


	Balance at beginning of period		Charged to costs and expenses		Write-offs, net of recoveries		Balance at end of period
December 31, 2013	$	577	$	772	$	728	$	621
December 31, 2014		621		256		294		583
December 31, 2015		583		61		160		484

Allowance for Advertiser Credits

The allowance for advertiser credits is the Company’s best estimate of the amount of expected future reductions in advertisers’ payment obligations related to delivered services. The Company determines the allowance for advertiser credits and adjustments based on analysis of historical credits.

The allowance for advertiser credits activity for the periods indicated is as follows (in thousands):


	Balance at beginning of period		Additions charged against revenue		Credits processed		Balance at end of period
December 31, 2013	$	585	$	994	$	870	$	709
December 31, 2014		709		1,257		948		1,018
December 31, 2015		1,018		263		756		525

Property and Equipment

(e) Property and Equipment

Property and equipment are stated at cost. Depreciation on computers and other related equipment, purchased and internally developed software, and furniture and fixtures is calculated on the straight-line method over the estimated useful lives of the assets, generally averaging three years. Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful lives of the assets ranging from three to eight years.

Goodwill

(f) Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in business combinations accounted for under the purchase method.

The Company applies the provisions of FASB ASC 350 “Goodwill and Intangible Assets”. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of FASB ASC 350. FASB ASC 350 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB ASC 360.

Impairment or Disposal of Long-Lived Assets

(g) Impairment or Disposal of Long-Lived Assets

The Company reviews its long-lived assets for impairment in accordance with FASB ASC 360 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds fair value. Assets to be disposed of would be separately presented on the balance sheet and reported at the lower of their carrying amount or fair value less costs to sell, and no longer depreciated.

Revenue Recognition

(h) Revenue Recognition

The Company generates revenue primarily by delivering performance-based advertising services, which include call advertising, cost-per-action services, and pay-per-click services. These primary sources amounted to greater than 77% of revenue for the years ended December 31, 2013, 2014 and 2015. In addition, the Company generates revenue through its Local Leads platform, which enables partner resellers to sell call advertising and/or search marketing products, and campaign management services. These secondary sources accounted for less than 23% of revenue for the years ended December 31, 2013, 2014 and 2015.

The Company recognizes revenue upon the completion of its performance obligation, provided that: (1) evidence of an arrangement exists; (2) the arrangement fee is fixed and determinable; and (3) collection is reasonably assured. The Company has no barter transactions.

In providing pay-for call marketing services, the Company generates revenue upon delivery of qualified and reported phone calls to advertisers or advertising service providers’ listings. These advertisers and advertising service providers pay the Company a designated transaction fee for each phone call, which occurs when a user makes a phone call or clicks on any of their advertisement listings after it has been placed by the Company or by the Company’s distribution partners. Each phone call on an advertisement listing represents a completed transaction. The advertisement listings are displayed within the Company’s distribution network, which includes mobile and online search engines and applications, directories, destination sites, shopping engines, third party Internet domains or web sites, and other targeted Web-based content, mobile carriers and offline sources. The Company also generates revenue from cost-per-action services, which occurs when a user makes a phone call from the Company’s advertiser’s listing or is redirected from one of the Company’s web sites or a third party web site in the Company’s distribution network to an advertiser web site and completes the specified action.

The Company’s call analytics technology platform provides data and insights that can measure the performance of mobile, online and offline advertising for advertisers and small business resellers. The Company generates revenue from the Company’s call analytics technology platform when advertisers pay the Company a fee for each call or call related data element they receive from calls including call-based ads the Company distributes through our sources of call distribution or for each phone number tracked based on a pre-negotiated rate.

The Company generates revenue from reseller partners and publishers utilizing the Company’s Local Leads platform to sell call advertising, search marketing, and other lead generation products. The Company is paid account fees and also agency fees for the Company’s products in the form of a percentage of the cost of every call or click delivered to advertisers. The reseller partners or publishers engage the advertisers and are the primary obligor, and the Company, in certain instances, is only financially liable to the publishers in the Company’s capacity as a collection agency for the amount collected from the advertisers. The Company recognizes revenue for these fees under the net revenue recognition method. In limited arrangements resellers pay the Company a fee for fulfilling an advertiser’s campaign in its distribution network and the Company acts as the primary obligor. The Company recognizes revenue for these fees under the gross revenue recognition method.

Advertisers pay the Company additional fees for services such as campaign management. Advertisers generally pay the Company on a click-through basis, although in certain cases the Company receives a fixed fee for delivery of these services. In some cases we also deliver banner campaigns for select advertisers. Banner advertising revenue may be based on a fixed fee per click and is generated and recognized on click-through activity. In other cases, banner payment terms are volume-based with revenue generated and recognized when impressions are delivered.

The Company’s revenues are primarily generated using third party distribution networks to deliver the pay-for-call and pay-per-click advertisers’ listings. The distribution network includes mobile and online search engines and applications, directories, destination sites, shopping engines, third party Internet domains or web sites, other targeted Web-based content, mobile carriers and other offline sources. The Company enters into agreements with various distribution partners to provide distribution for pay-for-call and pay-per-click advertisement listings, which contain call tracking numbers and/or URL strings of its advertisers. The Company pays a revenue share to the distribution partners to access their mobile, online, offline and other user traffic. The Company generally pays distribution partners based on a percentage of revenue or a fixed amount per phone call or click-through on these listings. The Company acts as the primary obligor with the advertiser for revenue call or click-through transactions, and is responsible for the fulfillment of services.

The revenue derived from advertisers is generally reported gross based upon the amounts received from the advertiser. The Company also recognizes revenue for certain agency contracts with advertisers under the net revenue recognition method. Under these specific agreements, the Company purchases listings on behalf of advertisers from mobile sources, search engines and applications, directories, other Web-based content providers and offline sources. The Company is paid account fees and also agency fees based on the total amount of the purchase made on behalf of these advertisers. Under these agreements, the advertisers are primarily responsible for choosing the publisher and determining pricing, and the Company, in certain instances, is only financially liable to the publisher for the amount collected from our advertisers. This creates a sequential liability for media purchases made on behalf of advertisers. In certain instances, the web publishers engage the advertisers directly and the Company is paid an agency fee based on the total amount of the purchase made by the advertiser. In other arrangements resellers pay us a fee for fulfilling an advertiser’s campaign in our distribution network and we act as the primary obligor. We recognize revenue for these fees under the gross revenue recognition method.

For arrangements that include multiple deliverables, the entire fee from the arrangement is allocated to each respective deliverable based on its relative selling price and recognized when revenue recognition criteria for each deliverable are met. The selling price for each deliverable is established based on the sales price charged when the same deliverable is sold separately, the price at which a third party sells the same or similar and largely interchangeable deliverable on a standalone basis or the estimated selling price if the deliverable were to be sold separately.

In certain cases, the Company records revenue based on available and reported preliminary information from third parties. Collection on the related receivables may vary from reported information based upon third party refinement of the estimated and reported amounts owed that occurs subsequent to the end of a reporting period.

Service Costs

(i) Service Costs

The largest component of the Company’s service costs consist of user acquisition costs that relate primarily to payments made to distribution partners for access to their mobile, online, and other offline user traffic. The Company enters into agreements of varying durations with distribution partners that integrate the Company’s services into their web sites and indexes. The primary payment structure of the distribution partner agreements is a variable payment based on a specified percentage of revenue. These variable payments are often subject to minimum payment amounts per phone call. Other payment structures that to a lesser degree exist include: 1) variable payments based on a specified metric, such as number of paid calls or other actions, 2) fixed payments, based on a guaranteed minimum amount of usage delivered, and 3) a combination arrangement with both fixed and variable amounts that may be paid in advance.

The Company expenses user acquisition costs based on whether the agreement provides for variable or fixed payments. Agreements with variable payments based on a percentage of revenue, number of paid phone calls or other metrics are expensed as incurred based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate. Agreements with fixed payments with minimum guaranteed amounts of usage are expensed as the greater of the pro-rata amount over the term of arrangement or the actual usage delivered to date based on the contractual revenue share.

Service costs also include network operations and customer service costs that consist primarily of costs associated with providing performance-based advertising and marketing services, network costs and fees paid to outside service providers that provide the Company’s paid listings and customer services. Customer service and other costs associated with serving the Company’s call marketing services include depreciation and colocation charges of network equipment, bandwidth and software license fees, salaries of related personnel, stock-based compensation and telecommunication costs, including the use of telephone numbers for providing call-based advertising services. Other service costs include credit card processing fees and domain name and related costs, including the renewal of the domain name registrations.

Advertising Expenses

(j) Advertising Expenses

Advertising costs are expensed as incurred and include mobile and online advertising and related outside marketing activities, including sponsorships and trade shows. Such costs are included in sales and marketing. Advertising costs were approximately $1.0 million, $742,000 and $2.4 million for the years ended December 31, 2013, 2014 and 2015, respectively.

Product Development and Other Intangible Assets

(k) Product Development and Other Intangible Assets

Product development costs consist primarily of expenses incurred by the Company in the research and development, creation, and enhancement of the Company’s call services and websites. Research and development costs are expensed as incurred and include compensation and related expenses, costs of computer hardware and software, and costs incurred in developing features and functionality of the services. For the periods presented, substantially all of the product development expenses are research and development. Product development costs are expensed as incurred or capitalized into property and equipment in accordance with FASB ASC 350. FASB ASC 350 requires that cost incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized.

The Company capitalizes costs incurred to acquire domain names or URLs, which include the initial registration fees, and amortizes the costs over the expected useful life of the domain names on a straight-line basis. The expected useful lives range from 12 to 36 months. In order to maintain the rights to each domain name acquired, the Company pays periodic registration fees, which generally cover a minimum period of 12 months. The Company records registration renewal fees of domain name intangible assets as a prepaid expense and recognizes the cost over the renewal period.

Income Taxes

(l) Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date. In 2014, we adopted ASU 2013-11 whereby we reclassified uncertain tax positions of $534,000 from other non-current liabilities to deferred tax assets.

Stock-Based Compensation

(m) Stock-Based Compensation

The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award using the straight-line method.

Use of Estimates

(n) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company has used estimates related to several financial statement amounts, including revenues, allowance for doubtful accounts, allowance for advertiser credits, useful lives for property and equipment and intangible assets, the fair value of the Company’s common stock and stock option awards, the impairment of goodwill and intangible assets and the valuation allowance for deferred tax assets. Actual results could differ from those estimates.

Concentrations

(o) Concentrations

The Company maintains substantially all of its cash and cash equivalents with one financial institution and are all considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets. At various points during the year ended December 31, 2015, the Company held cash equivalents in a commercial paper sweep account with the same financial institution. These Level 2 assets were fully liquidated prior to December 31, 2015.

A significant majority of the Company’s revenue earned from advertisers is generated through arrangements with distribution partners. The Company may not be successful in renewing any of these agreements, or, if they are renewed, they may not be on terms as favorable as current arrangements. The Company may not be successful in entering into agreements with new distribution partners or advertisers on commercially acceptable terms. In addition, several of these distribution partners or advertisers may be considered potential competitors.

There were no distribution partners paid more than 10% of consolidated revenue for the year ended December 31, 2015. There was one distribution partner who was paid less than 17% of consolidated revenue for each of the years ended December 31, 2013 and 2014.

The advertisers representing more than 10% of consolidated revenue are as follows (in percentages):


	Years ended December 31,
	2013			2014			2015
Advertiser A		26	%		25	%		29	%
Advertiser B		13	%			*			*
Advertiser C		12	%		28	%			*
Advertiser D			*			*		19	%

Advertiser A is also a distribution partner.

The outstanding receivable balance for each advertiser representing more than 10% of consolidated accounts receivable is as follows (in percentages):


	At December 31,
	2014			2015
Advertiser A		41	%		14	%
Advertiser D		16	%		28	%
Advertiser E			*		19	%

*	Less than 10%.

In certain cases, the Company may engage directly with one or more advertising agencies who act on an advertiser’s behalf. In addition, an advertising agency may represent more than one advertiser. For the years ended December 31, 2013 and 2014 no advertising agency represented more than 10% of consolidated revenue and for the year ended December 31, 2015, one advertising agency represented 18% of consolidated revenue. As of December 31, 2013, no advertising agency represented more than 10% of consolidated accounts receivable. There was one advertising agency, which represented 13% and 22% of consolidated accounts receivable balance as of December 31, 2014 and December 31, 2015, respectively.

Net Income (Loss) Per Share

(p) Net Income (Loss) Per Share

The Company computes net income (loss) per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net income (loss) per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net income (loss) per share of Class A common stock does not assume the conversion of those shares.

In accordance with the two class method, the undistributed earnings (losses) for each year are allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the earnings for the year had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on our common stock in accordance with Delaware General Corporation Law, equivalent dividends shall be paid with respect to the shares of Class A common stock and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in the Company’s net assets in the event of liquidation, the Company has allocated undistributed earnings (losses) on a proportionate basis. Additionally, the Company has paid dividends equally to both classes of common stock and the unvested restricted shares since it initiated a quarterly cash dividend in November 2006.

Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s restricted stock awards are considered participating securities for purposes of calculating earnings per share. Under the two class method, dividends paid on unvested restricted stock are allocated to these participating securities and therefore impact the calculation of amounts allocated to common stock.

The following table calculates net income (loss) from continuing operations to net income (loss) applicable to common stockholders used to compute basic net income (loss) per share for the periods ended (in thousands, except per share amounts):


	Twelve months ended December 31,
	2013						2014						2015
	Class A			Class B			Class A			Class B			Class A			Class B
Basic net income (loss) per share:
Numerator:
Net loss from continuing operations	$	(535	)	$	(1,627	)	$	(3,352	)	$	(19,441	)	$	(81	)	$	(516	)
Dividends paid to participating securities		—			—			—			(127	)		—			(37	)

Net loss from continuing operations applicable to common stockholders	$	(535	)	$	(1,627	)	$	(3,352	)	$	(19,568	)	$	(81	)	$	(553	)
Discontinued operations, net of tax		985			2,994			540			3,163			3,472			23,846

Net income (loss) applicable to common stockholders	$	450		$	1,367		$	(2,812	)	$	(16,405	)	$	3,391		$	23,293

Denominator:
Weighted average number of shares outstanding used to calculate basic net income (loss) per share		8,816			26,798			5,853			34,157			5,233			35,935

Basic net income (loss) per share:
Net loss from continuing operations applicable to common stockholders	$	(0.06	)	$	(0.06	)	$	(0.57	)	$	(0.57	)	$	(0.01	)	$	(0.01	)
Discontinued operations, net of tax		0.11			0.11			0.09			0.09			0.66			0.66

Basic net income (loss) per share applicable to common stockholders	$	0.05		$	0.05		$	(0.48	)	$	(0.48	)	$	0.65		$	0.65

The following table calculates net income (loss) from continuing operations to net income (loss) applicable to common stockholders used to compute diluted net income (loss) per share for the periods ended (in thousands, except per share amounts):


	Twelve months ended December 31,
	2013						2014						2015
	Class A			Class B			Class A			Class B			Class A			Class B
Diluted net income (loss) per share:
Numerator:
Net loss from continuing operations	$	(535	)	$	(1,627	)	$	(3,352	)	$	(19,441	)	$	(81	)	$	(516	)
Dividends paid to participating securities		—			—			—			(127	)		—			(37	)
Reallocation of net loss for Class A shares as a result of conversion of Class A to Class B shares		—			(535	)		—			(3,352	)		—			(81	)

Net loss from continuing operations applicable to common stockholders	$	(535	)	$	(2,162	)	$	(3,352	)	$	(22,920	)	$	(81	)	$	(634	)
Discontinued operations, net of tax		985			2,994			540			3,163			3,472			23,846
Reallocation of discontinued operations for Class A shares as a result of conversion of Class A to Class B share		—			985			—			540			—			3,472

Diluted discontinued operations, net of tax	$	985		$	3,979		$	540		$	3,703		$	3,472		$	27,318

Net income (loss) applicable to common stockholders	$	450		$	1,817		$	(2,812	)	$	(19,217	)	$	3,391		$	26,684

Weighted average number of shares outstanding used to calculate basic net income (loss) per share		8,816			26,798			5,853			34,157			5,233			35,935
Conversion of Class A to Class B common shares outstanding		—			8,816			—			5,853			—			5,233

Weighted average number of shares outstanding used to calculate diluted net income (loss) per share		8,816			35,614			5,853			40,010			5,233			41,168

Diluted net income (loss) per share:
Net loss from continuing operations applicable to common stockholders	$	(0.06	)	$	(0.06	)	$	(0.57	)	$	(0.57	)	$	(0.01	)	$	(0.01	)
Discontinued operations, net of tax		0.11			0.11			0.09			0.09			0.66			0.66

Diluted net income (loss) per share applicable to common stockholders	$	0.05		$	0.05		$	(0.48	)	$	(0.48	)	$	0.65		$	0.65

The computation of diluted net income (loss) per share excludes the following because their effect would be anti-dilutive (in thousands):

•

For the years ended December 31, 2013, 2014 and 2015, outstanding options to acquire 4,565, 7,797, and 8,937 shares, respectively, of Class B common stock.

•

For the years ended December 31, 2013, 2014, and 2015, 174, 1,007, and 785 shares of unvested Class B restricted common shares, respectively.

•

For the year ended December 31, 2013, 2014 and 2015, 43, 1,134, and 1,437 restricted stock units, respectively.

Guarantees

(q) Guarantees

FASB ASC 460 provides accounting guidance surrounding liability recognition and disclosure requirements related to guarantees. In the ordinary course of business, the Company is not subject to potential obligations under guarantees that fall within the scope of FASB ASC 460 except for standard indemnification provisions that are contained within many of the Company’s advertiser and distribution partner agreements, and give rise only to the disclosure requirements prescribed by FASB ASC 460.

In certain agreements, the Company has agreed to indemnification provisions of varying scope and terms with advertisers, vendors and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company and intellectual property infringement claims made by third parties. As a result of these provisions, the Company may from time to time provide certain levels of financial support to contract parties to seek to minimize the impact of any associated litigation in which they may be involved. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities therefore have been recorded in the accompanying consolidated financial statements. However, the maximum potential amount of the future payments we could be required to make under these indemnification provisions could be material.

Recent Accounting Pronouncement Not Yet Effective

(r) Recent Accounting Pronouncement Not Yet Effective

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled when products or services are transferred to customers. In July 2015, the FASB voted to approve a one year delay of the effective date. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently in the process of evaluating the impact of adoption of ASU 2014-09 on its consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05), an ASU that provides guidance on a customer’s accounting for cloud computing costs. The ASU is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. The ASU may be adopted, either retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date. The Company does not expect adoption to have a material impact on its consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes (ASU 2015-17), an ASU amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the consolidated balance sheet. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The ASU may be adopted either prospectively or retrospectively. The Company does not expect adoption to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), an ASU requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The ASU must be adopted retrospectively. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.