| Summary of Significant Accounting Policies | 2. Summary
of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles
(“GAAP”) accepted in the United States of America and
include the accounts of the Company and its wholly owned
subsidiaries after elimination of all intercompany accounts and
transactions. All dollar amounts in the financial statements and in
the notes to the consolidated financial statements, except share
and per share amounts, are stated in thousands of U.S. dollars
unless otherwise indicated.
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 at the date of the
financial statements, the disclosure of contingencies at the date
of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Significant estimates and
assumptions reflected in these financial statements include, but
are not limited to, the estimated average customer relationship
period that is used for recognizing the deferred revenue of
up-front fees and for amortizing the related deferred costs of
in-vehicle devices, the valuation of accounts receivable reserves
and share-based awards, the assessment of amounts qualifying for
capitalization as internal-use software, the valuation of assets
and liabilities acquired in business combinations, the useful lives
of intangible assets and property and equipment, and the accounting
for income taxes, including uncertain tax positions and the
valuation of net deferred tax assets. Estimates are periodically
reviewed in light of changes in circumstances, facts and
experience. Actual results could differ materially from the
Company’s estimates.
Fair
Value Measurements
Certain
assets and liabilities are carried at fair value under GAAP. Fair
value is defined as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of
unobservable inputs. A fair value hierarchy based on three levels
of inputs, of which the first two are considered observable and the
last is considered unobservable, is used to measure fair
value:
•
Level 1—Quoted prices in active markets for identical
assets or liabilities. The Company did not have any financial
assets and liabilities as of December 31, 2015 designated as
Level 1.
•
Level 2—Observable inputs (other than Level 1 quoted
prices) such as quoted prices in active markets for similar assets
or liabilities, quoted prices in markets that are not active for
identical or similar assets or liabilities, or other inputs that
are observable or can be corroborated by observable market data.
The Company did not have any financial assets and liabilities as of
December 31, 2015 designated as Level 2.
•
Level 3—Unobservable inputs that are supported by little
or no market activity and that are significant to determining the
fair value of the assets or liabilities, including pricing models,
discounted cash flow methodologies and similar techniques. The
Company has a contingent consideration liability assumed as a
result of the Ornicar acquisition of $2,460 as of December 31,
2015 designated as Level 3. The Company’s contingent purchase
consideration is valued by probability weighting expected payment
scenarios and then applying a discount based on the present value
of the future cash flow streams. This liability is classified as
Level 3 because the probability weighting of future payment
scenarios is based on assumptions developed by management. The
Company determined a probability weighting that is weighted towards
Ornicar achieving certain unit sales and pricing targets at the
time of acquisition and the discount rate that is based on the
Company’s weighted average cost of capital which is then
adjusted for the time value of money. The probability weighting
will be adjusted as the actual results provide the Company with
more reliable information to weight the probability scenarios. In
the fourth quarter of 2015, the contingent consideration liability
increased by $0.3 million, as the estimated liability was revised
based on expected results compared to actual performance criteria.
The $0.3 million of contingent consideration expense is included in
our general and administrative expense for the year ended
December 31, 2015.
The carrying
values of accounts receivable, accounts payable and accrued
expenses and other liabilities (with the exception of the Level 3
fair value measurement noted above) approximate fair value due to
the short-term nature of these assets and liabilities. As of
December 31, 2015 and 2014, the Company had no other assets or
liabilities that would be classified under this fair value
hierarchy. The fair value of the Company’s long-term debt
related to the Credit Facility approximates its carrying value due
to its variable interest rate, which approximates a market interest
rate.
Restricted Cash
As of
December 31, 2015, $135 is classified as restricted cash in
the consolidated balance sheet. This restricted cash relates to a
deposit in accordance with one of our operating leases.
The Company
is a party to various credit card and merchant services agreements
under which it had pledged a continuing security interest in
related deposit accounts in order to secure payment and performance
of its obligations under the agreements. These restrictions may be
lifted by the Company at will by canceling the agreements or
reducing the lines of credit under these agreements. As of
December 31, 2013, $64 had been classified as restricted cash
in the consolidated balance sheet related to these arrangements. In
2014, the Company discontinued the use of certain company issued
credit cards, which eliminated the requirement of the $64
restricted cash balance.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts
receivable are carried at their original invoice amounts less an
allowance for doubtful collections based on estimated losses
resulting from the inability or unwillingness of customers to make
required payments. The allowance is estimated at each reporting
period based upon historical loss patterns, the number of days that
billings are past due and an evaluation of the potential risk of
loss associated with specific delinquent accounts. The Company also
considers any changes to the financial condition of its customers
and any other external market factors that could impact the
collectability of its receivables in the determination of its
allowance for doubtful accounts.
Concentration of Credit Risk and of Significant
Customers
Financial
instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and trade accounts
receivable. Although the Company maintains its cash balances with
accredited financial institutions, the Company had substantially
all cash balances at financial institutions without or in excess of
federally insured limits at December 31, 2015 and 2014. The
Company does not believe it is subject to unusual credit risk
beyond the normal credit risk associated with commercial banking
relationships.
No individual
customer accounted for more than 10% of total subscription revenue
for the years ended December 31, 2015, 2014, and 2013, and no
individual customer accounted for more than 10% of net accounts
receivable at December 31, 2015, 2014, and 2013.
Property and Equipment
Property and
equipment are stated at cost less accumulated depreciation or
amortization. Depreciation and amortization is recognized using the
straight-line method over the following estimated useful
lives:
In-vehicle
devices—installed 4–6 years
Computer
equipment 3 years
Internal-use
software 3 years
Furniture and
fixtures 4–6 years
Building 40 years
Leasehold
improvements Shorter of life of lease or
For
in-vehicle devices of which the Company retains ownership after
they are installed in a customer’s fleet, the cost of the
in-vehicle devices (including installation and shipping costs) is
capitalized as property and equipment. The Company depreciates
these costs over the minimum estimated useful life of the devices
or over the estimated average customer relationship period, which
are both currently six years, beginning upon completion of
installation. Related depreciation expense is recorded in cost of
subscription revenue. If a customer subscription agreement is
canceled or expires prior to the end of the expected useful life of
the in-vehicle device, the carrying value of the asset is
depreciated in full with expense immediately recorded as cost of
subscription revenue. Before installation in a customer’s
fleet, in-vehicle devices of which the Company retains ownership
are recorded within property and equipment (referred to as
In-vehicle devices—uninstalled), but are not depreciated.
Furthermore, due to the decommissioning of one of our primary
network wireless providers’ 2G network, during 2014 we began
capitalizing the cost of the replacement units in accordance with
the capitalization for in-vehicle device costs accounting policy
previously disclosed. Any remaining net book value of the replaced
2G units will be fully depreciated at the time of replacement with
the 3G units. We expect to have the customer migration completed by
the end of 2016.
At each
reporting period, the Company tests in-vehicle
devices—installed for realizability through a review of
customer accounts to identify (i) any significant changes in
the financial condition of its customers, (ii) any customers
who are past due on subscription payments owed and could become a
credit risk, and (iii) any customers whose contract will be
expiring without a follow-on renewal prior to the end of the
estimated useful life of the in-vehicle device. If an impairment of
the value of the in-vehicle device is identified, the carrying
value of the in-vehicle device is depreciated in full, with expense
immediately recorded as cost of subscription revenue.
Amortization
of leasehold improvements is computed on a straight-line basis over
the shorter of the lease term or the estimated useful lives of the
improvements. Assets held under capital leases are stated at the
lesser of the present value of future minimum lease payments or the
fair value of the leased asset at the inception of the lease.
Amortization of assets under capital leases is computed using the
straight-line method over the shorter of the estimate useful life
of the asset or the period of the related lease. The cost of
expenditures for maintenance and repairs of assets is charged to
expense as incurred. Upon retirement or sale, the cost and related
accumulated depreciation or amortization of assets disposed of are
removed from the accounts and any resulting gain or loss is
credited or charged to the consolidated statements of operations.
Land is stated at cost and is not depreciated.
Internal-Use Software
Research and
development costs are expensed as incurred, except for certain
costs which are capitalized in connection with the development of
its internal-use software and website. These capitalized costs are
primarily related to the application software that is hosted by the
Company and accessed by its customers through the Company’s
website. In addition, the Company capitalizes certain general and
administrative costs related to the customization and development
of our internal business systems.
Costs
incurred in the preliminary stages of development are expensed as
incurred. Once an application has reached the development stage,
internal and external costs, if direct and incremental, are
capitalized until the software is substantially complete and ready
for its intended use. Capitalization ceases upon completion of all
substantial testing performed to ensure the product is ready for
its intended use. The Company also capitalizes costs related to
specific upgrades and enhancements of internal-use software when it
is probable that the expenditures will result in additional
functionality. Maintenance and training costs are expensed as
incurred. Capitalized internal-use software costs are recorded as
part of property and equipment and are amortized on a straight-line
basis over an estimated useful life of three years.
Business Combinations
In an
acquisition of a business, the Company recognizes separately from
goodwill the fair value of assets acquired and the liabilities
assumed. Goodwill as of the acquisition date is measured as the
excess of consideration transferred over the net of the
acquisition-date fair values of the assets acquired and liabilities
assumed. Transaction costs related to business combinations are
expensed as incurred.
In addition,
uncertain tax positions assumed and valuation allowances related to
the net deferred tax assets acquired in connection with a business
combination are estimated as of the acquisition date and recorded
as part of the purchase. Thereafter, any changes to these uncertain
tax positions and valuation allowances are recorded as part of the
provision for income taxes in the consolidated statements of
operations.
Goodwill and Other Intangible Assets
The Company
records goodwill when the consideration paid in a business
acquisition exceeds the fair value of the net tangible assets
acquired, identifiable intangible assets acquired and liabilities
assumed. Goodwill is not amortized.
Definite-lived intangible assets subject to amortization
include customer relationships, trademarks, acquired developed
technology, and a patent for the Company’s vehicle tracking
system. Intangible assets acquired in a business combination are
recorded under the acquisition method of accounting at their
estimated fair values at the date of acquisition. Customer
relationships, trademarks and acquired developed technology are
amortized over their estimated useful lives, which range from three
to nine years, based on a straight-line method or based on the
pattern over which the Company expects to consume the economic
benefit of each asset, which in general reflects the expected cash
flows from each asset. The patent is amortized over its useful life
of 20 years on a straight-line basis, as the pattern of consumption
of the economic benefit of the asset cannot be reliably
determined.
Impairment of Goodwill and Long-Lived
Assets
Goodwill is
tested for impairment annually or more frequently if events or
circumstances occur that indicate an impairment may exist. Factors
the Company considers important that could trigger an impairment
review include significant underperformance relative to historical
or projected operating results, significant changes in the
Company’s use of the acquired assets in a business
combination or the strategy for its overall business, and
significant negative industry or economic trends. The Company
performs its annual assessment for impairment of goodwill on
October 31 and has determined it has a single reporting unit
for testing goodwill for impairment. For purposes of assessing
potential impairment, the Company first estimates the fair value of
the reporting unit (based on the fair value of the Company’s
outstanding ordinary shares) and compares that amount to the
carrying value of the reporting unit (as reflected by the total
carrying values of the Company’s shareholders’ equity.
If the Company determines that the carrying value of the reporting
unit exceeds its fair value, then the implied fair value of the
goodwill is determined in the same manner used to determine the
amount of goodwill in a business combination. If the carrying value
of goodwill exceeds the implied fair value of the goodwill, an
impairment charge is recognized in the amount equal to that excess.
We have assigned the entire balance of goodwill to our one
reporting unit. The fair value of the reporting unit was based on
our market capitalization as of each of December 31, 2015 and
2014, and it was substantially in excess of the carrying value of
the reporting unit at each date. No goodwill impairment charges
were recorded during the years ended December 31, 2015, 2014,
and 2013.
Long-lived
assets include property and equipment and definite-lived intangible
assets subject to amortization. The Company evaluates its
long-lived assets for recoverability whenever events or changes in
circumstances indicate that their carrying values may not be
recoverable. Factors that the Company considers in deciding when to
perform an impairment review include significant underperformance
of the business or product line in relation to expectations,
significant negative industry or economic trends, and significant
changes or planned changes in the use of the assets. To evaluate a
long-lived asset for recoverability, the Company compares forecasts
of undiscounted cash flows expected to result from the use and
eventual disposition of the long-lived asset to its carrying value.
If the carrying value exceeds the sum of the expected undiscounted
cash flows, an impairment loss on the long-lived asset to be held
and used is recognized based on the excess of the asset’s
carrying value over its fair value, determined based on discounted
cash flows. Long-lived assets to be disposed of are reported at the
lower of carrying value or fair value less cost to sell.
Subscription Revenue Recognition
The Company
provides access to its fleet management software through
subscription arrangements whereby the customer is charged a per
subscribed-vehicle fee for access for a specified term. The Company
provides access to its field service management software through
subscription arrangements whereby the customer is charged a per
field service worker fee for access for a specified term.
Subscription agreements contain multiple service elements and
deliverables, including installation of in-vehicle devices, access
to the Company’s on-demand software via its website, and
support services delivered over the term of the arrangement.
Agreements do not provide customers the right to take possession of
the software at any time. The Company has determined that the
elements of its subscription agreements do not have value to the
customer on a standalone basis. As a result, the multiple elements
within the subscription agreements do not qualify for treatment as
separate units of accounting. Accordingly, the Company accounts for
all fees received under its subscription agreements as a single
unit of accounting and, except for any up-front fees, recognizes
the total fee amount ratably on a daily basis over the term of the
subscription agreement. The Company only commences recognition of
revenue when there is persuasive evidence of an arrangement, the
fee is fixed or determinable, collectability is deemed reasonably
assured, and recurring services have commenced. The Company’s
contract terms generally are 36 months for fleet management
customers and 12 months for field service management customers for
their initial term with automatic renewals for one or three years
thereafter, unless the customer elects not to renew.
For the
limited number of fleet management customer arrangements in which
title to the in-vehicle devices transfers to the customer upon
delivery or installation of the in-vehicle device, the Company
receives an up-front fee from the customer. As the in-vehicle
devices do not have value to the customer on a standalone basis,
the delivery or installation of the in-vehicle devices does not
represent the culmination of a separate earning process associated
with the payment of the up-front fee. Accordingly, the Company
records the amount of the up-front fee as deferred revenue upon
invoicing and recognize that amount as revenue ratably on a daily
basis over the estimated average customer relationship period of
six years, which is longer than the typical initial subscription
agreement term of 36 months. If a customer permanently ceases
use of the Company’s subscription service at any point when a
balance of deferred revenue from this up-front payment exists, the
Company recognizes the remaining balance of the deferred revenue in
the period of notification. Changes in the typical customer
contractual term, customer behavior, competition or economic
conditions could affect the Company’s estimates of the
average customer relationship period. The Company reviews the
estimated average customer relationship period on a periodic basis
and account for changes prospectively. In the majority of its sales
transactions, the Company retains ownership of the in-vehicle
device, and consequently the Company does not sell the device to
the customer.
Deferred Revenue
Deferred
revenue represents amounts billed to customers or payments received
from customers for which revenue has not yet been recognized.
Deferred revenue primarily consists of prepayments made by
customers for future periods and, to a lesser extent, the unearned
portion of monthly billed subscription fees and up-front payments
from customers for in-vehicle devices whose ownership transfers to
them upon delivery or installation. The Company’s payment
terms are typically monthly in advance; however, the Company
continues to enable its customers to prepay all or part of their
contractual obligations quarterly, annually or for the full
contract term in exchange for a prepayment discount that is
reflected in the pricing of the contract. As a result, the deferred
revenue balance does not represent the total contract value of all
multi-year, non-cancelable subscription agreements. In the
consolidated balance sheets, deferred revenue that is expected to
be recognized within one year is recorded as current deferred
revenue while the remaining portion is recorded as non-current
deferred revenue.
Deferred Commissions
The Company
capitalizes commission costs that are incremental and directly
related to the acquisition of customer contracts. For the majority
of its customer contracts, the Company pays commissions in full
when it receives the initial customer contract for a new
subscription or a renewal subscription. For all other customer
contracts, the Company pays commissions in full when it receives
the initial customer payment for a new subscription or a renewal
subscription. Commission costs are capitalized upon payment and are
amortized as expense ratably over the term of the related
non-cancelable customer contract, in proportion to the recognition
of the subscription revenue. If a subscription agreement is
terminated, the unamortized portion of any deferred commission cost
is recognized as expense immediately.
Commission
costs capitalized during the years ended December 31, 2015 and
2014 totaled $12,275 and $11,995, respectively. Amortization of
deferred commissions totaled $10,194, $8,175 and $6,119 for the
years ended December 31, 2015, 2014, and 2013, respectively,
and is included in sales and marketing expense in the consolidated
statements of operations. Deferred commission costs, net of
amortization, are included in other current and long-term assets in
the consolidated balance sheets and totaled $17,518 and $15,496 as
of December 31, 2015 and 2014, respectively. Foreign exchange
differences also contribute to changes in the net amount of these
deferred commission costs.
Capitalized In-Vehicle Device Costs
For the
limited number of customer arrangements in which title to the
in-vehicle devices transfers to the customer upon delivery or
installation of the in-vehicle device (for which the Company
receives an up-front fee from the customer), the Company defers the
costs of the installed in-vehicle devices (including installation
and shipping costs) as they are directly related to the revenue
that the Company derives from the sale of the devices and that it
recognizes ratably over the estimated average customer relationship
period of six years. The Company capitalizes these in-vehicle
device costs and amortizes the deferred costs as expense ratably
over the estimated average customer relationship period, in
proportion to the recognition of the up-front fee
revenue.
Costs of
in-vehicle devices owned by customers that were capitalized during
the years ended December 31, 2015 and 2014 totaled $392 and
$149, respectively. Amortization of these capitalized costs totaled
$682, $1,123, and $960 for the years ended December 31, 2015,
2014, and 2013, respectively, and is included in cost of
subscription revenue in the consolidated statements of operations.
Capitalized costs related to these in-vehicle devices of which
title has transferred to customers, net of amortization, are
included in other current and long-term assets in the consolidated
balance sheet which totaled $2,398 as of December 31, 2014 As
of December 31, 2015, we no longer enter into customer
arrangements whereby title to the in-vehicle devices transfers to
the customer upon delivery or installation of the in-vehicle
device.
Income
Taxes
The Company
accounts for income taxes using the asset and liability method,
which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the financial statements or in the
Company’s tax returns. Deferred taxes are determined based on
the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Changes in
deferred tax assets and liabilities are recorded in the provision
for income taxes. The Company assesses the likelihood that its
deferred tax assets will be recovered from future taxable income
and, to the extent it believes, based upon the weight of available
evidence, that it is more likely than not that all or a portion of
deferred tax assets will not be realized, a valuation allowance is
established through a charge to income tax expense. Potential for
recovery of deferred tax assets is evaluated by estimating the
future taxable profits expected from each subsidiary and
considering prudent and feasible tax planning
strategies.
The Company
accounts for uncertainty in income taxes recognized in its
financial statements by applying a two-step process to determine
the amount of tax benefit to be recognized. First, the tax position
must be evaluated to determine the likelihood that it will be
sustained upon examination by the taxing authorities, based on the
technical merits of the position. If the tax position is deemed
more-likely-than-not to be sustained, the tax position is then
assessed to determine the amount of benefit to recognize in the
financial statements. The amount of the benefit that may be
recognized is the largest amount that has a greater than 50%
likelihood of being realized upon ultimate settlement. The
provision for income taxes includes the effects of any resulting
tax reserves, or unrecognized tax benefits, that are considered
appropriate as well as the related net interest and
penalties.
Foreign
Currency Translation
The
Company’s reporting currency is the U.S. dollar. The Company
has subsidiaries in the United States, Ireland, the United Kingdom,
Australia, Mexico, Italy, France, Poland and The Netherlands. The
functional currency for each of the Company’s subsidiaries is
the local currency. For those subsidiaries whose functional
currency is not the U.S. dollar, assets and liabilities are
translated into U.S. dollar equivalents at the exchange rate
in effect on the balance sheet date and revenues from customers and
expenses incurred are translated into U.S. dollars using the
average exchange rate over the period. Resulting currency
translation adjustments are recorded in accumulated other
comprehensive income (loss) in the consolidated balance sheet. For
the years ended December 31, 2015 and 2014, the Company
recorded currency translation losses of $6,703 and $2,782,
respectively, as foreign currency translation adjustments within
shareholders’ equity.
The Company
also incurs transaction gains and losses resulting from
intercompany transactions of a short-term nature as well as
transactions with customers or vendors denominated in currencies
other than the functional currency of the legal entity in which the
transaction is recorded. Assets and liabilities arising from such
transactions are translated into the legal entity’s
functional currency using the exchange rate in effect at the
balance sheet date. Any resulting transaction gains or losses are
recorded as foreign currency transaction gain (loss) in the
consolidated statements of operations. Net foreign currency
transaction gains of $3,538, $832, and a loss of $1,139 were
recorded for the years ended December 31, 2015, 2014 and 2013,
respectively.
The Company
has concluded that its reporting currency is the U.S. dollar
because the parent entity has received U.S. dollars upon the
issuance of all equity securities to investors, the parent’s
cash is held exclusively in U.S. dollar bank accounts, the
parent’s intercompany transactions (primarily receivables
from subsidiaries) are denominated in U.S. dollars, and a majority
of its parent-related expenses are billed by vendors and paid in
U.S. dollars.
Share-Based Compensation
The Company
recognizes expense for stock options, market-based restricted stock
awards and time-based restricted stock awards pursuant to ASC 718,
“Compensation—Stock Compensation” (“ASC
718”), which requires recognition of share-based compensation
expense in the statement of operations over the vesting period
based on the fair value of the award at the grant date. The fair
value of the awards is recognized as expense, net of estimated
forfeitures, over the requisite service period, which is generally
the vesting period of the respective award. The straight-line
method of expense recognition is applied to all awards with service
conditions, while the graded-vesting method of expense recognition
is applied to all awards with both service and performance
conditions. The Company classifies share-based compensation expense
in the consolidated statements of operations in the same manner in
which the award recipient’s payroll costs are
classified.
The Company
has share-based employee compensation plans which are described
more fully in Note 14 to these consolidated financial
statements.
Advertising Expense
Advertising
costs are expensed as incurred. Advertising expense was
$20,413, $18,864 and $11,097 for the years ended December 31,
2015, 2014 and 2013, respectively, and was included in sales and
marketing expense in the consolidated statements of
operations.
Comprehensive Income (Loss)
Comprehensive
income (loss) is comprised of net income (loss) and other
comprehensive income (loss), which includes certain changes in
shareholders’ equity that are excluded from net income
(loss). For the years ended December 31, 2015, 2014 and 2013,
the only item qualifying as other comprehensive income (loss) was
foreign currency translation. For purposes of comprehensive income
(loss) computations, the Company does not record income tax
provisions or benefits for foreign currency translation adjustments
as the Company intends to permanently reinvest undistributed
earnings of its foreign subsidiaries in the United States and the
United Kingdom. As of December 31, 2015, the
Company’s material foreign subsidiaries in the United States
and the United Kingdom had no undistributed earnings.
Net
Income (Loss) Per Share
Basic net
income (loss) per share attributable to ordinary shareholders is
computed by dividing the net income (loss) attributable to ordinary
shareholders by the weighted average number of ordinary shares
outstanding for the period. Diluted net income (loss) per share
attributable to ordinary shareholders is computed by dividing the
diluted net income (loss) attributable to ordinary shareholders by
the weighted average number of ordinary shares, including potential
dilutive ordinary shares assuming the dilutive effect of
outstanding stock options and unvested restricted ordinary shares,
as determined using the treasury stock method. For periods in which
the Company has reported net losses, diluted net loss per ordinary
share attributable to ordinary shareholders is the same as basic
net loss per ordinary share attributable to ordinary shareholders,
since dilutive ordinary shares are not assumed to have been issued
if their effect is antidilutive.
Segment
Data
The Company
identifies oper |
