Basis of Presentation and Principles of Consolidation (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Use of Estimates | ' |
Use of Estimates |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, income taxes, stock-based compensation, direct response advertising, the useful lives of property, equipment and internal use software cost. Actual results could differ from those estimates under different assumptions or conditions. |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents |
The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. Cash and cash equivalents are comprised of cash held primarily in money market accounts. |
Short-Term Investments | ' |
Short-term Investments |
Short-term investments consist of U.S. Treasury securities. The Company classifies its short-term investments as held-to maturity as the Company has the positive intent and ability to hold to maturity and they are carried at amortized cost. The Company evaluates the investments periodically for possible other-than-temporary impairment. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value, and its intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. |
Concentration of Credit Risk and Fair Value of Financial Instruments | ' |
Concentration of Credit Risk and Fair Value of Financial Instruments |
The Company measures and reports its investments in money market funds at fair value on a recurring basis, which approximates their carrying value due to the short period of time to maturity, and reports its short-term investments in U.S. Treasury securities at amortized cost at each reporting period. There have been no changes in the Company’s valuation techniques during the years ended December 31, 2012 and 2013. The Company began purchasing six-month and twelve–month U.S. Treasury securities in May 2013. The U.S. Treasury securities have maturity dates through December 2014. Both the money market funds and U.S. Treasury securities are classified as Level 1. |
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis: |
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| | As of December 31, 2012 | | | As of December 31, 2013 | |
| | Total | | | Quoted Prices | | | Significant | | | Significant | | | Total | | | Quoted Prices | | | Significant | | | Significant | |
Fair Value | in Active | Other | Other | Fair Value | in Active | Other | Other |
| Markets for | Observable | Unobservable | | Markets for | Observable | Unobservable |
| Identical | Inputs | Inputs | | Identical | Inputs | Inputs |
| Assets | (Level 2) (2) | (Level 3) (3) | | Assets | (Level 2) (2) | (Level 3) (3) |
| (Level 1) (1) | | | | (Level 1) (1) | | |
| | (In thousands) | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money Market Funds (4) | | $ | 179,433 | | | $ | 179,433 | | | $ | — | | | $ | — | | | $ | 113,599 | | | $ | 113,599 | | | $ | — | | | $ | — | |
US Treasury Securities | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 120,037 | | | $ | 120,037 | | | $ | — | | | $ | — | |
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-1 | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-2 | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-3 | Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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-4 | Included in the December 31, 2012 money market balance is $0.8 million of long-term restricted cash, which was held in a money market account pledged as collateral for letters of credit issued in connection with certain operating lease contracts. As of September 30, 2013, the Company’s bank removed the collateral requirements associated with letters of credit related to the Company’s operating facilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents primarily in highly-rated money market funds, in which deposits may exceed federal deposit insurance limits. The Company maintains cash equivalents primarily in highly rated taxable and tax-exempt money market funds located in the U.S. and in various overseas locations. |
The Company’s customers are concentrated in the United States of America. The Company performs ongoing credit evaluations of its customers and does not require collateral. The Company reviews the need for allowances for potential credit losses and such losses have been insignificant to date. |
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Significant customer information is as follows: |
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| | December 31, | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2012 | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Percentage of accounts receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
JPMorgan | | 15% | | 14% | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ING | | — | | 11% | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Year Ended | | | | | | | | | | | | | | | | | | | | | |
December 31, | | | | | | | | | | | | | | | | | | | | |
| | 2011 | | | 2012 | | | 2013 | | | | | | | | | | | | | | | | | | | | | |
Percentage of revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
JPMorgan | | | 16 | % | | | 13 | % | | | 12 | % | | | | | | | | | | | | | | | | | | | | |
Allowance for Doubtful Accounts | ' |
Allowance for Doubtful Accounts |
Trade accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. The Company reviews its trade receivables by aging category to identify significant customers with collection issues. For accounts not specifically identified, the Company provides reserves based on historical bad debt loss experience. |
Property and Equipment | ' |
Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets and allocated to the department of benefit in the accompanying Consolidated Statements of Income. Leasehold improvements and capital lease equipment are amortized over the shorter of the remaining lease term or the useful life of the asset. Software purchased for internal use is amortized over its useful life. Expenditures for maintenance and repairs are charged to expense as incurred. |
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| | Estimated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Useful Lives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
in Years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Computer equipment | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Computer software | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Furniture, fixtures, and equipment | | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Leasehold improvements | | life of the lease | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital lease equipment | | life of the lease | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Internal Use Software | ' |
Internal Use Software |
Certain direct development costs associated with internal use software are capitalized and include external direct consulting costs and payroll costs for employees devoting time to the software projects principally related to software coding, designing system interfaces and installation and testing of the software. Internal use software includes engineering costs associated with (1) enhancing the Company’s advisory service platform and (2) developing internal systems for tracking member data, including AUM, member cancellations and other related member statistics. The capitalized costs are amortized using the straight-line method over an estimated life of approximately two to four years, beginning when the asset is substantially ready for use. Costs related to preliminary project activities and post implementation activities are expensed as incurred. A portion of internal use software relates to cost of revenue, as well as the Company’s other functional departments. However the Company is not able to meaningfully allocate the costs among cost of revenue and operations. Accordingly, amortization is presented as a separate line item on the accompanying Consolidated Statements of Income. |
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During the years ended December 31, 2011, 2012 and 2013, the Company capitalized $5.5 million, $5.7 million and $4.6 million, respectively, of development costs, including interest and stock compensation expense, relating to technology to be used to enhance the Company’s internal use software and advisory service platform. For the years ended December 31, 2011, 2012 and 2013, the Company capitalized $0.3 million, $0.4 million and $0.3 million, respectively, of noncash stock-based compensation costs related to internal use software. |
Long-Lived Assets | ' |
Long-Lived Assets |
Long-lived assets, such as property, equipment and capitalized internal use software subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. |
Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the years ended December 31, 2011, 2012 and 2013, impairments to long-lived assets were immaterial. |
Deferred Sales Commissions | ' |
Deferred Sales Commissions |
Deferred sales commissions consist of incremental costs paid to the Company’s sales force associated with the execution of non-cancelable customer contracts. The deferred sales commission amounts are recoverable through future revenue streams under the non-cancelable customer contracts. The Company believes this is the preferable method of accounting as the commission charges are so closely related to the revenue from the non-cancelable customer contracts that they should be recorded as an asset and charged to expense over the life of the related non-cancelable customer contracts, which is typically three to five years. Amortization of deferred sales commissions is included in marketing and sales expense in the accompanying Consolidated Statements of Income. |
The Company capitalized sales commission of $2.6 million, $1.4 million and $1.2 million during the years ended December 31, 2011, 2012 and 2013, respectively, and amortized $1.4 million, $1.9 million and $1.9 million of deferred sales commissions during the years ended December 31, 2011, 2012 and 2013, respectively. |
Comprehensive Income | ' |
Comprehensive Income |
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income is the same as net income for all periods presented. |
Segment Information | ' |
Segment Information |
The Company operates in one reportable segment. The Company’s chief operating decision-maker, its chief executive officer, reviews its operating results on an aggregate basis and manages its operations as a single operating segment. In addition, all of the Company’s operations and assets are based in the United States. |
Revenue Recognition | ' |
Revenue Recognition |
The Company recognizes revenue when all of the following conditions are met: |
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| • | | There is persuasive evidence of an arrangement, as evidenced by a signed contract; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | Delivery has occurred or the service has been made available to the customer, which occurs upon completion of implementation and connectivity services and acceptance by the customer; | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | The collectability of the fees is reasonably assured; and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | The amount of fees to be paid by the customer is fixed or determinable. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company generates its revenue through three primary sources: professional management, platform and other revenue. |
Professional Management. The Company derives professional management revenue from member fees paid by plan participants who are enrolled in its Professional Management service for the management of their account assets. This discretionary investment management service includes a Retirement Plan analyzing investments, contribution rate and projected retirement income, and a Retirement Checkup designed to help plan participants to develop a strategy for closing the gap, if any, between the participant’s retirement goal and current retirement income forecast. The services are generally made available to plan participants in a 401(k) plan by written agreements between the Company and the plan provider, plan sponsor and the plan participant; and may be provided on a subadvisory basis. The arrangement generally provides for member fees based on the value of assets the Company manages for plan participants, and is generally payable quarterly in arrears. Revenue derived from Professional Management services is recognized as the services are performed. In order to encourage enrollment into the Professional Management service, the Company uses a variety of promotional techniques, some of which can potentially impact the amount of revenue recognized, the timing of revenue recognition or both. |
In certain instances, fees payable by plan participants are deferred for a specified period, and are waived if the plan participant cancels within the specified period. The Company recognizes revenue during certain of these fee deferral periods based on the estimate of the expected fee retention rate determined by historical experience of similar arrangements. |
Platform. The Company derives platform revenue from recurring, subscription-based fees for access to either its full suite of services, including Professional Management, Online Advice service and Retirement Evaluation, or to its legacy Online Advice service only, and to a lesser extent, from setup fees. Online Advice is a nondiscretionary Internet-based investment advisory service, which includes features such as: recommendations among the investment alternatives available in the employer sponsored retirement plan; a summary of the current value of the plan account; a forecast of how much the plan account investments might be worth at retirement; whether a change is recommended to the contribution rate, risk and diversification and/or unrestricted employer stock holdings; and a projection of how much the participant may spend at retirement. Plan participants may use the service as frequently as they choose to monitor progress toward their financial goals, receive forecasts and investment recommendations and access educational content at the Company’s website. The arrangements generally provide for the Company’s fees to be paid by the plan sponsor, plan provider or the retirement plan itself, depending on the plan structure. Platform revenue is generally paid annually or quarterly in advance and recognized ratably over the term of the subscription period beginning after the completion of customer setup and data connectivity. Setup fees are recognized ratably over seven years. |
Other. Other revenue includes reimbursement for a portion of marketing and member materials from certain subadvisory relationships, and reimbursement for providing personal statements to participants from a limited number of plan sponsors. Revenue is recognized as the related services are performed, in accordance with the specific terms of the contract with the customers. |
Deferred Revenue | ' |
Deferred Revenue |
Deferred revenue consists primarily of billings or payments received in advance of revenue recognition generated by the Company’s platform service and setup fees described above. For these services, the Company generally invoices its customers in annual or quarterly installments payable in advance. Accordingly, the deferred revenue balance does not represent the total contract value of annual or multiyear, noncancelable subscription contracts. |
Cost of Revenue | ' |
Cost of Revenue |
Cost of revenue includes fees paid to plan providers for connectivity to plan and plan participant data, printed materials fulfillment costs for certain subadvisory relationships for which the Company is reimbursed, printed member materials, and employee-related costs for technical operations, implementations, operations, advisor call center operations, portfolio management and customer support. The expenses included in cost of revenue are shared across the different revenue categories, and the Company is not able to meaningfully allocate such costs between separate categories of revenue. Consequently, all costs and expenses applicable to the Company’s revenue are included in the category cost of revenue in the Consolidated Statements of Income. Costs in this area are related primarily to payments to third parties, employee compensation and related expenses, and purchased materials. Amortization of internal use software, a portion of which relates to the Company’s cost of revenue, is not included in cost of revenue but is reflected as a separate line item in the Company’s Consolidated Statements of Income. |
Direct Response Advertising | ' |
Direct Response Advertising |
The Company’s advertising costs consist primarily of print materials associated with new customer solicitations. These costs relate primarily to either Active Enrollment campaigns, where marketing materials are sent to solicit enrollment in the Company’s Professional Management service, or Passive Enrollment campaigns, where the plan sponsor defaults all eligible members into the Professional Management service unless they decline. Advertising costs relating to Passive Enrollment campaigns and other general marketing materials sent to participants do not qualify as direct response advertising and are expensed to sales and marketing in the period the advertising activities first take place. Print fulfillment costs relating to subadvisory campaigns do not qualify as direct response advertising and are expensed to cost of revenue in the period in which the expenses were incurred. Advertising costs associated with direct advisory Active Enrollment campaigns qualify for capitalization as direct response advertising. The capitalized costs are amortized over the estimated three-year period of probable future benefits following the enrollment of a member into the Professional Management service based on the ratio of current period revenue for the direct response advertising cost pool as compared to the total estimated revenue expected for the direct response advertising cost pool over the remaining period of probable future benefits. The realizability of the amounts of direct response advertising reported as assets are evaluated at each balance sheet date by comparing the carrying amounts of such assets on a cost-pool-by-cost-pool basis to the probable remaining future net revenues expected to result directly from such advertising. |
The Company capitalizes of direct response advertising costs associated with direct advisory Active Enrollment campaigns as the Company has sufficient and verifiable historical patterns to demonstrate the probable future benefits of such campaigns. During the years ended December 31, 2011, 2012 and 2013, the Company capitalized $7.0 million, $6.6 million and $5.5 million, respectively, of direct response advertising costs. Advertising expense was $3.6 million, $5.9 million and $6.4 million for the years ended December 31, 2011, 2012 and 2013, respectively, of which direct response advertising amortization was $2.8 million, $5.2 million and $6.0 million, respectively. During the years ended December 31, 2011, 2012 and 2013, impairments to direct response advertising were immaterial. |
Deferred Income Taxes | ' |
Deferred Income Taxes |
Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax net operating loss carryforwards. These deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when such amounts are expected to reverse or be utilized. The realization of total deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized. See Note 6 for additional information. |
Stock-Based Compensation | ' |
Stock-based Compensation |
Employee stock-based compensation expense is based on the following: (1) the grant date fair value of stock option awards granted or modified after January 1, 2006, (2) the balance of deferred stock-based compensation related to stock awards granted prior to January 1, 2006, which was calculated using the intrinsic value method and (3) the fair value of the Company’s common stock as of the grant date for restricted stock units (RSUs) and performance stock units (PSUs). |
The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Company currently uses the simplified method in developing an estimate of expected term of stock options. The expected term represents the period that stock-based awards are expected to be outstanding, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of the Company’s stock-based awards. The computation of expected volatility is based on a combination of the historical and implied volatility of comparable companies from a representative peer group based on industry and market capitalization data, as well as the Company’s own historical volatility. Effective January 1, 2013, the Company included a dividend yield in its Black-Scholes option pricing model to reflect the anticipated dividends to be paid over the expected term of the awards. |
The Company expenses RSUs over the performance period based on the fair market value of the awards at the date of grant. |
The Company expenses PSUs based on the fair market value of the awards on the date of grant and number of shares ultimately expected to vest at the end of each performance period, ratably over the each of the performance periods. Each PSU award consists of two vesting cliffs, with sixty percent eligible to vest on December 31, 2015 and forty percent eligible to vest on December 31, 2017. Depending on performance against the target metrics, vesting will be between 0% and 140%. The actual number of shares of common stock issued will be determined on each vesting cliff date based on actual performance results against the target metrics. For PSUs, the Company re-assesses the probability of achieving the target metrics at the end of each reporting period and adjusts the recognition of expense accordingly. |
The Company’s stock-based compensation instruments are accounted for as equity awards as the settlement is in shares of the Company’s common stock. The Company amortizes stock-based compensation expense using a graded vesting method over the requisite service periods of the awards, which is generally the vesting period. Management estimates expected forfeitures and recognizes compensation costs only for those stock-based awards expected to vest. Amortization of stock-based compensation is presented in the same line item as the cash compensation to those employees in the accompanying Consolidated Statements of Income. |
The Company’s current practice is to issue new shares to settle stock option exercises and on vesting of RSUs and PSUs. |
Net Income Per Common Share | ' |
Net Income per Common Share |
Basic net income per common share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period less the weighted average number of unvested restricted common shares subject to the right of repurchase. Diluted net income per common share is computed by giving effect to all dilutive potential common shares, including options, RSUs, PSUs, and unvested restricted common stock subject to repurchase. |
Recent Accounting Pronouncements Adopted | ' |
Recent Accounting Pronouncements Adopted |
There are no recent accounting pronouncements that have had or will have a material effect on our operating results or financial position. |