| Commitments and Contingencies | 7. Commitments and Contingencies
Office Leases
The Company has a lease for its headquarters space in Waltham,
Massachusetts (the “Lease”) that is effective through
September 2022 with one ten-year extension option. The Lease
includes space the Company is currently occupying as well as space
that will be made available at various points in time during the
term.
The Company leases office space for a sales and support office in
Colorado under a lease agreement effective through April 2019
with three three-year extension options. The Company also leases
small amounts of general office space in Florida, New York,
California and the United Kingdom under lease agreements that
expire at various dates through 2018.
Lease incentives, payment escalations and rent holidays specified
in the lease agreements are accrued or deferred as appropriate such
that rent expense per square foot is recognized on a straight-line
basis over the terms of occupancy.
At September 30, 2015 and December 31, 2014, the Company
had both prepaid rent and accrued rent balances related to its
office leases. The prepaid rent balance was $46 as of
September 30, 2015, of which $15 was included in prepaid
expenses and other current assets and $31 was included in other
assets. The accrued rent balance was $4,263 as of
September 30, 2015, of which $773 was included in accrued
expenses and $3,490 was included in other long-term liabilities.
The prepaid rent balance was $51 at December 31, 2014, of
which $3 was included in prepaid expenses and other current assets
and $48 was included in other assets. The accrued rent balance was
$4,232 at December 31, 2014, of which $577 was included in
accrued expenses and $3,655 was included in other long-term
liabilities.
As of September 30, 2015, future minimum lease payments under
non-cancelable office leases are as follows:
Remainder of 2015 $ 2,349
2016 9,913
2017 9,798
2018 9,396
2019 8,284
Thereafter 21,891
61,631
Less: Sublease income 519
$ 61,112
Total rent expense under office leases was $2,418 and $2,534 for
the three months ended September 30, 2015 and 2014,
respectively, and $7,164 and $7,116 for the nine months ended
September 30, 2015 and 2014, respectively. Total rent expense
for the three and nine months ended September 30, 2014
includes a loss on sublease of $259. Total rent expense for the
three and nine months ended September 30, 2015 is net of
sublease income of $47 and $141, respectively.
Third-Party Hosting Agreements
The Company has agreements with various vendors to provide
specialized space and equipment and related services from which the
Company hosts its software applications. Payment escalations and
rent holidays specified in these agreements are accrued or deferred
as appropriate such that rent expense per square foot is recognized
on a straight-line basis over the terms of occupancy. As of
September 30, 2015 and December 31, 2014, the Company had
both prepaid rent and accrued rent balances related to these
agreements. As of September 30, 2015, the Company had prepaid
rent of $285, of which $232 was included in prepaid expenses and
other current assets and $53 was included in other assets. Of the
accrued rent balance of $149, $66 was included in accrued expenses
and $83 was included in other long-term liabilities. At
December 31, 2014, the Company had prepaid rent of $501, of
which $295 was included in prepaid expenses and other current
assets and $206 was included in other assets. The accrued rent
balance was $172 of which $38 was included in accrued expense and
other current liabilities and $134 was included in other long-term
liabilities.
The agreements include payment commitments that expire at various
dates through 2017. As of September 30, 2015, future minimum
payments under the agreements are as follows:
Remainder of 2015 $ 991
2016 4,049
2017 775
Total $ 5,815
Total rent expense under hosting agreements was $1,127 and $1,061
for the three months ended September 30, 2015 and 2014,
respectively, and $3,343 and $3,167 for the nine months ended
September 30, 2015 and 2014, respectively.
Vendor Commitments
As of September 30, 2015, the Company had issued both
cancellable and non-cancellable purchase orders to various vendors
and entered into contractual commitments with various vendors
totaling $30,861 related to marketing programs and other
non-marketing goods and services to be delivered principally over
the next twelve months.
Letters of Credit and Restricted Cash
As of September 30, 2015 and December 31, 2014, the
Company maintained a letter of credit totaling $1,300 for the
benefit of the landlord of the Lease. The landlord can draw against
the letter of credit in the event of default by the Company. The
Company was required to maintain a cash balance of at least $1,300
as of September 30, 2015 and December 31, 2014 to secure
the letter of credit. These amounts were classified as restricted
cash in the balance sheet at September 30, 2015 and
December 31, 2014.
Indemnification Obligations
The Company enters into standard indemnification agreements with
the Company’s channel partners and certain other third
parties in the ordinary course of business. Pursuant to these
agreements, the Company indemnifies and agrees to reimburse the
indemnified party for losses incurred by the indemnified party in
connection with certain intellectual property infringement and
other claims by any third party with respect to the Company’s
business and technology. Based on historical information and
information known as of September 30, 2015, the Company does
not expect it will incur any significant liabilities under these
indemnification agreements.
Legal Matters
In September 2012, RPost Holdings, Inc., RPost Communications
Limited and RMail Limited (collectively, “RPost”) filed
a complaint in the United States District Court for the Eastern
District of Texas that named the Company as a defendant in a
lawsuit. The complaint alleged that certain elements of the
Company’s email marketing technology infringe five patents
held by RPost. RPost seeks an award for damages in an unspecified
amount and injunctive relief. In February 2013, RPost amended its
complaint to name five of the Company’s marketing partners as
defendants. Under the Company’s contractual agreements with
these marketing partners, the Company is obligated to indemnify
them for claims related to patent infringement. The Company filed a
motion to sever and stay the claims against its partners and
multiple motions to dismiss the claims against the Company. In
January 2014, the case was stayed pending the resolution of certain
state court and bankruptcy court actions involving RPost, to which
the Company is not a party. The stay was extended by agreement of
the parties in December 2014. This litigation is in its very early
stages. As a result, neither the ultimate outcome of this
litigation nor an estimate of a probable loss or any reasonably
possible losses can be assessed at this time. Nevertheless, the
Company believes that it has meritorious defenses to any claim of
infringement and intends to defend itself vigorously.
On August 7, 2015, a purported class action lawsuit,
William McGee v. Constant Contact, Inc., et al, .
The Company is from time to time subject to various other legal
proceedings and claims, either asserted or unasserted, which arise
in the ordinary course of its business. While the outcome of these
other claims cannot be predicted with certainty, management does
not believe that the outcome of any of these other legal matters
will have a material adverse effect on the Company’s results
of operations or financial condition. |
