| Summary of Significant Accounting Policies (Policies) | 3 Months Ended | 7 Months Ended |
| Oct. 31, 2022 | Aug. 03, 2022 |
| Accounting Policies [Line Items] | | |
| Basis of Presentation | Basis of Presentation As a result of the Business Combination, the Company evaluated if L&F, ZeroFox, or IDX is the predecessor for accounting purposes. The Company considered the application of Rule 405 of Regulation C, the interpretative guidance of the staff of the United States Securities and Exchange Commission (SEC), including factors for the registrant to consider in determining the predecessor, and analyzed the following: (1) the order in which the entities were acquired, (2) the size of the entities, (3) the fair value of the entities, (4) the historical and ongoing management structure, and (5) how management discusses the Company's business in this Form 10-Q. In considering the foregoing principles of predecessor determination in light of the Company's specific facts and circumstances, management determined that ZeroFox, Inc. is the predecessor for accounting purposes. The financial statement presentation includes the financial statements of ZeroFox, Inc. as “Predecessor” for periods prior to the Closing Date and the financial statements of the Company as “Successor” for the period after the Closing Date, including the consolidation of ZeroFox, Inc. and IDX. The predecessor financial statements for IDX are included separately within this report. Refer to Note 4 for further discussion on the Business Combination. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) as set forth by the Financial Accounting Standards Board (FASB) and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. References to US GAAP issued by the FASB in these notes to the consolidated financial statements are to the FASB Accounting Standards Codifications (ASC). | |
| Unaudited Interim Financial Information | Unaudited Interim Financial Information The interim condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the SEC and are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained herein comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and are adequate to make the information presented not misleading. The interim condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Comprehensive Loss, Condensed Consolidated Statement of Stockholders Equity (Deficit), and the Condensed Consolidated Statement of Cash Flows for the interim periods presented. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for ZeroFox, Inc. for the year ended January 31, 2022, and the financial statements and notes for L&F and IDX for the year ended December 31, 2021, incorporated by reference to this quarterly report. The Condensed Consolidated Statement of Comprehensive Loss for the Year to Date Predecessor Period and the Successor Period are not necessarily indicative of the results to be anticipated for the entire year ending January 31, 2023, or thereafter. All references to financial information as of and for the periods ended August, 3 2022, October 31, 2022, and October 31, 2021, in the notes to condensed consolidated financial statements are unaudited. | |
| Emerging Growth Company Status | Emerging Growth Company Status The Company is an “emerging growth company,” (EGC) as defined in the Jumpstart Our Business Startups Act, (the JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company FASB standards’ effective dates. The JOBS Act exempts EGCs from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company's financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used. | |
| Principles of Consolidation | Principles of Consolidation The accompanying condensed consolidated financial statements include all the accounts of the Company. All intercompany balances and transactions have been eliminated in consolidation. | |
| Use of Estimates | Use of Estimates The preparation of the accompanying condensed consolidated financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities within these condensed consolidated financial statements. Significant estimates and judgments include but are not limited to: (1) revenue recognition, (2) capitalization of internally developed software costs, (3) fair value of stock-based compensation, (4) valuation of assets acquired and liabilities assumed in business combinations, (5) useful lives of contract acquisition costs and intangible assets, (6) evaluation of goodwill and long lived assets for impairment, (7) valuation of warrants and the Sponsor Earnout Shares (see Note 8), and (8) valuation allowances associated with deferred tax assets. The Company bases its estimates and assumptions on historical experience, expectations, forecasts, and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from results of prior periods. | |
| Revenue Recognition | Revenue Recognition The Company derives its revenue from providing its customers with subscription access to the Company’s External Cybersecurity Platform (subscription revenue) and services (services revenue). Subscription Revenue The Company generates subscription revenue from its External Cybersecurity Platform. Subscription revenue from the External Cybersecurity Platform includes the sale of subscriptions to access the platform and related support and intelligence services. Subscription revenue is driven by the number of assets protected and the desired level of service. These arrangements do not provide the customer with the right to take possession of the Company’s software operating on its cloud platform at any time. These arrangements represent a combined, stand-ready performance obligation to provide access to the software together with related support and intelligence services. Customers are granted continuous access to the External Cybersecurity Platform over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. The Company’s subscription contracts generally have terms of one to three years , which are primarily billed in advance and are non-cancelable. Services Revenue The Company generates services revenue by executing engagements for data breach response and intelligence services. The Company generates breach response revenue primarily from various combinations of notification, project management, communication services, and ongoing identity protection services. Performance periods generally range from one to three years . The Company’s breach response contracts are structured as either fixed price or variable price. In fixed price contracts, the Company charges a fixed total price or fixed individual price for the total combination of services. For variable price breach services contracts, the Company charges the breach communications component, which includes notifications and call center, at a fixed total fee, and the Company charges the ongoing identity protection services as incurred using a fixed price per enrollment. The Company generally bills for fixed fees at the time the contract is executed. For larger contracts, the Company bills 50% and the remaining 50% within 30 days of contract execution. All fees are due upon receipt. For variable price breach contracts, the Company invoices for identity protection services on a monthly basis in arrears. The Company offers several types of cybersecurity services, including security advisory and training services. The Company often sells a suite of cybersecurity services along with subscriptions to its External Cybersecurity Platform. All of the Company’s advisory and training services are considered distinct performance obligations from the External Cybersecurity Platform subscriptions services within the context of the Company’s contracts. Revenue is recognized over time as the customers benefit from these services as they are performed or as control of the promised services is transferred to the customer. These contracts are most often fixed fee arrangements and less frequently arrangements that are billed at hourly rates. These contracts normally have terms of one year or less. Revenue from Reseller Arrangements The Company enters into arrangements with third parties that allow those parties to resell the Company’s services to end users. The partners negotiate pricing with the end customer and the Company does not have visibility into the price paid by the end customer. For these arrangements, the Company recognizes revenue at the amount charged to the reseller and does not reflect any mark-up to the end user. Government Contracts The Company evaluates arrangements with governmental entities containing fiscal funding or termination for convenience provisions, when such provisions are required by law, to determine the probability of possible cancellation. The Company considers multiple factors, including the history with the customer in similar transactions and budgeting and approval processes undertaken by the governmental entity. If the Company determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes revenues for such arrangements once all relevant criteria have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity for such arrangements. Revenue from Non-Cancelable Contracts As of October 31, 2022, the Company had approximately $ 71.2 million of revenue that is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) under non-cancelable contracts. Of this $ 71.2 million, the Company expects to recognize revenue of approximately $ 52.4 million in the twelve-month period November 2022 through October 2023 , approximately $ 14.0 million in the twelve-month period November 2023 through October 2024 , and approximately $ 4.8 million thereafter . Timing of Revenue Recognition The table below provides revenues earned by timing of revenue for the Successor Period, the Quarter to Date Predecessor Period, and the three months ended October 31, 2021 (in thousands).
Successor Predecessor
Revenue Recognition Timing August 4, 2022 August 1, 2022 Three Months Ended October 31, 2021
Over time $ 38,531 $ 478 $ 10,178
Point in time 4,458 16 1,739
Total $ 42,989 $ 494 $ 11,917 The table below provides revenues earned by timing of revenue for the Successor Period, the Year to Date Predecessor Period, and the nine months ended October 31, 2021 (in thousands).
Successor Predecessor
Revenue Recognition Timing August 4, 2022 February 1, 2022 Nine Months Ended October 31, 2021
Over time $ 38,531 $ 27,946 $ 31,733
Point in time 4,458 1,291 2,873
Total $ 42,989 $ 29,237 $ 34,606 | |
| Disaggregation of Revenue | Disaggregation of Revenue The table below provides revenues earned by line of service for the Successor Period, the Quarter to Date Predecessor Period, and the three months ended October 31, 2021 (in thousands).
Successor Predecessor
Revenue Line August 4, 2022 August 1, 2022 Three Months Ended October 31, 2021
Subscriptions revenue $ 15,174 $ 478 $ 10,178
Services revenue
Breach 26,888 — —
Other services 927 16 1,739
Total services revenue 27,815 16 1,739
Total $ 42,989 $ 494 $ 11,917 The table below provides revenues earned by line of service for the Successor Period, the Year to Date Predecessor Period, and the nine months ended October 31, 2021 (in thousands).
Successor Predecessor
Revenue Line August 4, 2022 February 1, 2022 Nine Months Ended October 31, 2021
Subscriptions revenue $ 15,174 $ 27,946 $ 31,733
Services revenue
Breach 26,888 — —
Other services 927 1,291 2,873
Total services revenue 27,815 1,291 2,873
Total $ 42,989 $ 29,237 $ 34,606 The table below provides revenues earned based on geographic locations of our customers for the Successor Period, the Quarter to Date Predecessor Period, and three months ended October 31, 2021 (in thousands).
Successor Predecessor
Country August 4, 2022 August 1, 2022 Three Months Ended October 31, 2021
United States $ 39,335 $ 369 $ 3,288
Other 3,654 125 8,629
Total $ 42,989 $ 494 $ 11,917 The table below provides revenues earned based on geographic locations of our customers for the Successor Period, the Year to Date Predecessor Period, and nine months ended October 31, 2021 (in thousands).
Successor Predecessor
Country August 4, 2022 February 1, 2022 Nine Months Ended October 31, 2021
United States $ 39,335 $ 21,916 $ 20,538
Other 3,654 7,321 14,068
Total $ 42,989 $ 29,237 $ 34,606 | |
| Business Combinations | Business Combinations The Company accounted for the Business Combination using the acquisition method pursuant to ASC 805, Business Combinations . The Company determined that ZeroFox, Inc. is a Variable Interest Entity (VIE) as its equity at risk is not sufficient to fund its expected future cash flow needs including funding future projected losses and servicing existing debt obligations. The Company holds a variable interest in ZeroFox, Inc. as it owns 100 % of the equity of ZeroFox, Inc. following completion of the Business Combination. The Company is considered the primary beneficiary of ZeroFox, Inc. as its ownership provides power to direct the activities that most significantly impact ZeroFox, Inc.'s performance and the Company has the obligation to absorb the losses and/or receive the benefits of ZeroFox, Inc., which potentially could be significant. Accordingly, the Company is both the legal and accounting acquirer of ZeroFox, Inc. The Company identified itself as both the legal and accounting acquirer of IDX. As the Company is identified as the accounting acquirer for both ZeroFox, Inc. and IDX, both mergers are considered "forward mergers". Under the "forward merger" approach of the acquisition method of accounting, the Company allocated the consideration transferred to effect the mergers to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The Company recognized the excess of consideration transferred over the fair values of assets acquired and liabilities assumed as goodwill. The Company expensed all transaction related costs of the Business Combination. | |
| Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired. The valuation of intangible assets and goodwill involves the use of the Company's estimates and assumptions and can have a significant impact on future operating results. The Company initially records its intangible assets at fair value. Intangible assets with finite lives are amortized over their estimated useful lives while goodwill is not amortized but is evaluated for impairment at least annually. Goodwill is evaluated for impairment beginning on November 1 of each year or when an assessment of qualitative factors indicates an impairment may have occurred. The quantitative assessment includes an analysis that compares the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit. The Company has a single reporting unit. Accordingly, the impairment assessment for goodwill is performed at the enterprise level. Goodwill is reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company initially assesses qualitative factors to determine if it is necessary to perform the goodwill impairment review. Goodwill is reviewed for impairment if, based on an assessment of the qualitative factors, it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or the Company decides to bypass the qualitative assessment. The Company uses a combination of methods to estimate the fair value of its reporting unit including the discounted cash flow, guideline public company, and merger and acquisitions methods. These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies and merger transactions in the Company's industry. Use of these factors requires the Company to make certain assumptions and estimates regarding industry economic factors and future profitability of its business. Additionally, the Company considers income tax effects from any tax-deductible goodwill (if applicable) on the carrying amount of the reporting unit when measuring the goodwill impairment loss. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions, and estimates used in assessing the fair value of the reporting unit would require the Company to record a non-cash impairment charge. The Company considered qualitative factors that would indicate if the fair value of the Company's single reporting unit had declined below its carrying value, including the decline in the price of the Company's Common Stock, market conditions, and macroeconomic factors. Based on this qualitative analysis, the Company concluded that an interim test of goodwill impairment was required. The Company performed a quantitative assessment of the fair value of the Company's single reporting unit and determined its fair value to be $ 675.0 million. As the carrying value of the reporting unit was $ 1,373.7 million as of October 31, 2022, which was above the estimated fair value of the reporting unit, the Company recorded a goodwill impairment charge $ 698.7 million during the Successor Period. | |
| Warrant Liabilities | Warrant Liabilities The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, Distinguishing Liabilities from Equity and FASB ASC 815, Derivatives and Hedging . The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in the ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own Common Stock. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. | |
| Sponsor Earnout Shares | Sponsor Earnout Shares The Company analyzed the terms of the Sponsor Earnout Shares (see Note 8) and determined they are within the scope of ASC 815. The Company determined that the Sponsor Earnout Shares do not meet the requirements to be recognized as an equity instrument as the Company could not conclude the Sponsor Earnout Shares are indexed to the Company's own equity. Therefore, the Company recognizes the Sponsor Earnout Shares as a liability recorded at fair value. The Sponsor Earnout Shares are not considered outstanding for accounting purposes since they are considered contingently issuable and are therefore, excluded from the calculation of Basic earnings per share. The Company analyzed the terms of the Sponsor Earnout Shares to determine if they meet the definition of "participating securities", which would require the two-class method of EPS. The holders of the Sponsor Earnout Shares are not entitled to nonforfeitable rights to dividends and as such, the Sponsor Earnout Shares do not meet the definition of "participating securities". | |
| Fair Value of Financial Instruments | Fair Value of Financial Instruments ASC 820-10, Fair Value Measurements and Disclosures: Overall , defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and expands required disclosures about fair value measurements. The fair value of an asset and liability is defined as an exit price and represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value, is as follows: Level 1 —Inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date. Level 2 —Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company’s assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the asset or liability being measured and its placement within the fair value hierarchy. The Company effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer. Certain assets and liabilities, including goodwill and intangible assets, are subject to measurement at fair value on a non-recurring basis if there are indicators of impairment or if they are deemed to be impaired as a result of an impairment review. As of October 31, 2022, and August 3, 2022, the Company had outstanding Public and Private Warrants. The Company measured its Public Warrants based on a Level 1 input, the public price for the Company's warrants traded on NASDAQ (ticker ZFOXW). The Company measured its Private Warrants based on a Level 2 input, the same price for the Company's Public Warrants traded on NASDAQ. The Company analyzed the terms and features of the Private Warrants and determined that they were economically similar to the Public Warrants. As of August 3, 2022, the Company had warrants outstanding that it had assumed from ZeroFox, Inc. as part of the Business Combination and converted into warrants to purchase Company Common Stock. The Company measured these assumed and converted warrants using a Level 2 input, the public price for the Company's Common Stock traded on NASDAQ (ticker ZFOX), adjusted for the strike price of each assumed and converted warrant. As of January 31, 2022, the Predecessor measured its outstanding warrants based on Level 3 inputs. The assumptions used to value all warrants are described in Note 7. The Company measured the liability for Sponsor Earnout Shares using Level 3 inputs. The methodology and assumptions used to measure the Sponsor Earnout Shares are described in Note 8. A summary of the changes in the fair value of warrants for the Successor Period, the Year to Date Predecessor Period, and the nine months ended October 31, 2021, respectively, is as follows (in thousands):
Successor
Public Private
Warrant liability - August 4, 2022 $ 4,226 $ 11,351
Exercise of warrants — ( 7,632 )
Gain due to change in fair value of warrants ( 3,105 ) ( 2,732 )
Warrant liability - October 31, 2022 $ 1,121 $ 987
Predecessor
Warrant liability - January 31, 2021 $ 2,806
Loss due to change in fair value of warrants 7,182
Warrant liability - October 31, 2021 $ 9,988
Warrant liability - January 31, 2022 $ 10,709
Issuance of warrants 519
Exercise of warrants ( 5,900 )
Loss due to change in fair value of warrants 2,059
Warrant liability - August 3, 2022 $ 7,387 The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity terms of these instruments. The carrying amount of the Convertible Notes (see Note 6) approximates fair value due to the short duration of time that has elapsed since the Convertible Notes have been issued. | |
| Transaction Fees | Transaction Fees All transaction fees and expenses associated with the Business Combination were expensed as incurred. Accordingly, the Company recorded approximately $ 1.2 million of professional and other transaction fees related to the Business Combination in general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Loss for the Successor Period. The Predecessor recorded $ 3.2 million and $ 1.6 million o f professional and other transaction fees related to the Business Combination in general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Loss for the Year to Date Predecessor Period and the nine months ended October 31, 2021, respectively. The Predecessor recorded a negligible amount of transaction fees related to the Business Combination in general and administrative expense for the Quarter to Date Predecessor Period. The Company paid a total of $ 8.5 million of banking and advisory fees on behalf of the Predecessor at the closing of the Business Combination. The expense related to these banking and advisor fees was not recognized in the Predecessor's financial results as the payment of the banking and advisory fees was contingent on the successful closing of the Business Combination. The Company included the banking and advisory fees as part of the consideration transferred to acquire the Predecessor (see Note 4). | |
| Net Loss Per Share Attributable to Common Stockholders | Net Loss Per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common stock. For the purposes of this calculation, outstanding stock options, unvested restricted stock, stock warrants, Sponsor Earnout Shares, and redeemable convertible preferred stock are considered potential dilutive common stock and are excluded from the computation of net loss per share as their effect is anti-dilutive. The following table sets forth computation of basic loss per share attributable to common stockholders (in thousands, except share and per share data):
Successor Predecessor Successor Predecessor
August 4, 2022 August 1, 2022 Three Months Ended October 31, 2021 August 4, 2022 February 1, 2022 Nine Months Ended October 31, 2021
Numerator:
Net loss $ ( 704,158 ) $ 54 $ ( 11,450 ) $ ( 704,158 ) $ ( 21,405 ) $ ( 28,752 )
Net loss per share attributable to common $ ( 704,158 ) $ 54 $ ( 11,450 ) $ ( 704,158 ) $ ( 21,405 ) $ ( 28,752 )
Denominator:
Weighted-average common stock outstanding 116,853,297 43,214,825 42,080,111 116,853,297 43,041,209 41,996,063
Net loss per share attributable to common stockholders $ ( 6.03 ) $ - $ ( 0.27 ) $ ( 6.03 ) $ ( 0.50 ) $ ( 0.68 ) The Company’s redeemable convertible preferred stock and restricted common stock contractually entitled the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reported a net loss, such losses were not allocated to such participating securities. In periods in which the Company reported a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders was the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to be outstanding if their effect is anti-dilutive. The following is a summary of the weighted average common stock equivalents, for the securities outstanding during the respective periods, that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive:
Successor Predecessor
August 4, 2022 February 1, 2022 Nine Months Ended October 31, 2021
Preferred stock, all series (on an as-converted basis) — 241,238,877 239,853,609
Common stock options outstanding 7,911,164 22,178,814 20,302,780
Warrants to purchase preferred stock, all series — 5,794,517 5,267,696
Public and private warrants to purchase common stock 16,228,329 — —
Sponsor earnout shares 1,293,750 — —
25,433,243 269,212,208 265,424,085 | |
| Predecessor Redeemable Convertible Preferred Stock | Predecessor Redeemable Convertible Preferred Stock The Series Preferred of the Predecessor was not mandatorily redeemable. The Series Preferred was contingently redeemable upon the occurrence of a deemed liquidation event and a majority vote of the holders of Series Preferred and Series Seed to redeem all outstanding shares of the Company’s redeemable convertible preferred stock. The contingent redemption upon the occurrence of a deemed liquidation was not within the Predecessor's control and therefore the Series Preferred was classified outside of permanent equity in mezzanine equity on the Predecessor’s Condensed Consolidated Balance Sheets. Liquidation Rights —In the event of any liquidation or dissolution of the Predecessor (Liquidation Event), the holders of Predecessor Common Stock were entitled to the remaining assets of the Predecessor legally available for distribution after the payment of the full liquidation preference for all series of outstanding redeemable convertible preferred stock. The Predecessor’s redeemable convertible preferred stock consists of (in thousands except share data):
Successor Predecessor
August 4, 2022 through February 1, 2022 through Nine Months Ended
Shares Issued and Amount Shares Issued and Amount Shares Issued and Amount
Convertible preferred stock—Series E, $ 0.00001 19,033,653 shares; 28,354,249 ) - $ - 15,767,013 $ 36,291 15,227,437 $ 33,248
Convertible preferred stock—Series D, $ 0.00001 14,833,942 shares; 21,222,496 ) - $ - 13,871,547 $ 21,067 13,871,547 $ 21,067
Convertible preferred stock—Series D-2, $ 0.00001 993,868 shares 1,216,439 ) - $ - 993,868 $ 1,451 993,868 $ 1,451
Convertible preferred stock—Series D-1, $ 0.00001 5,878,303 8,094,053 ) - $ - 5,878,303 $ 8,171 5,878,303 $ 8,171
Convertible preferred stock—Series C-1, $ 0.00001 16,208,756 shares 14,037,000 ) - $ - 11,882,605 $ 16,836 11,376,115 $ 13,979
Convertible preferred stock—Series C, $ 0.00001 21,124,700 shares 19,999,999 ) - $ - 21,124,699 $ 19,899 21,124,699 $ 19,899
Convertible preferred stock—Series B, $ 0.00001 26,914,949 shares 22,124,088 ) - $ - 26,914,949 $ 22,047 26,914,949 $ 22,047
Convertible preferred stock—Series A, $ 0.00001 16,122,188 shares 10,246,261 ) - $ - 15,997,285 $ 10,159 15,997,285 $ 10,159
Convertible preferred stock—Series seed, $ 0.00001 9,198,372 shares 2,285,795 ) - $ - 9,198,372 $ 2,208 9,198,372 $ 2,208
- $ - 121,628,641 $ 138,129 120,582,575 $ 132,229 | |
| Standards Issued and Adopted | Standards Issued and Adopted In October 2021, the FASB issued ASU No. 2021-08, Accounting Standards Update No. 2021-08—Business Combinations (Topic 805)— Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. As a result of the amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial statements. The standard is effective for the Company for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The Company elected to early adopt ASU No. 2021-08 for fiscal year 2023. The early adoption of ASU No. 2021-08 permitted the Company to recognized the contract assets acquired as part of the Business Combination at their carrying values rather than remeasuring them at fair value (see Note 4). In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. The Company adopted ASU No. 2019-12 for fiscal year 2023. There was no impact on its condensed consolidated financial statements for Successor Period. In August 2020, the FASB issued ASU No. 2020-06, Accounting Standards Update No. 2020-06 —Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) —Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. Additionally, ASU 2020-06 requires the application of the if-converted method for all convertible instruments in the diluted earnings per share calculation and the inclusion of the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. The amendments in this ASU are effective for all public entities for fiscal years beginning after December 15, 2021. For all other entities, including the Company, the amendments are effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2020-06 effective as of January 1, 2022. The adoption of ASU 2020-06 did not have an impact on the Company’s consolidated financial statements. | |
| Standards Issued, but Not Yet Effective | Standards Issued, but Not Yet Effective In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance is intended to improve financial reporting for leasing transactions. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. The Company is currently in the process of adoption, which will be complete for the financial statements for the year ending January 31, 2023. Upon adoption, the Company will be required to record right-of-use assets and lease liabilities on its Consolidated Balance Sheet for leases which were historically classified as operating leases. The Company expects the adoption to have a material increase on the assets and liabilities recorded on its Consolidated Balance Sheet. The Company does not expect a material impact to its Condensed Consolidated Statement of Comprehensive Loss or Consolidated Statement of Cash Flows following adoption. In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company for annual reporting periods beginning in fiscal year 2024. The Company does not believe the adoption will have a material impact on its condensed consolidated financial statements. | |
| ID Experts Holdings, Inc. and Subsidiary [Member] | | |
| Accounting Policies [Line Items] | | |
| Basis of Presentation | | Basis of Presentation The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (US GAAP) set forth by the Financial Accounting Standards Board (FASB). References to U.S. GAAP issued by the FASB in these notes to the consolidated financial statements are to the FASB Accounting Standards Codification (ASC). IDX presented financial statements from the beginning of the year to the acquisition date of August 3, 2022. |
| Emerging Growth Company Status | | Emerging Growth Company Status IDX is an emerging growth company (EGC), as defined in the Jumpstart Our Business Startups Act, (the JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. IDX may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, IDXs financial statements may not be comparable to companies that comply with the effective dates of public company FASB standards. IDX merged with L&F on August 3, 2022. Refer to Note 1 for more information regarding the Business Combination. The surviving company, ZeroFox Holdings, will remain an emerging growth company until the earliest of (i) the last day of the surviving company’s first fiscal year following the fifth anniversary of the completion of the L&F’s initial public offering, (ii) the last day of the fiscal year in which ZeroFox Holdings has total annual gross revenue of at least $ 1.235 billion, (iii) the last day of the fiscal year in which ZeroFox Holdings is deemed to be a large accelerated filer, which means the market value of ZeroFox Holding’s common stock that is held by non-affiliates exceeds $ 700.0 million as of the prior July 31 or (iv) the date on which ZeroFox Holdings has issued more than $ 1.0 billion in non-convertible debt securities during the prior three-year period. |
| Principles of Consolidation | | Principles of Consolidation The accompanying consolidated financial statements include all the accounts of IDX. All intercompany balances and transactions have been eliminated in consolidation. |
| Use of Estimates | | Use of Estimates The preparation of financial statements in conformity with US GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenues and expenses reported during the period. Such estimates include assumptions used in the allocation of revenue, long-lived assets, liabilities, depreciable lives of assets, stock-based compensation, and deferred income taxes. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. |
| Accounts Receivable | | Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the Consolidated Statements of Cash Flows. IDX maintains an allowance for doubtful accounts for estimated losses resulting from its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted for current market conditions, IDX's customers’ financial condition, any amounts of receivables in dispute, and the current receivables aging and historic payment patterns. IDX reviews its allowance for doubtful accounts at least quarterly. Accounts receivable are presented on the Consolidated Balance Sheets net of allowance for doubtful accounts. Receivables, net of allowance for doubtful accounts as of August 3, 2022, and December 31, 2021, consist of the following (in thousands):
August 3, 2022 December 31, 2021
Billed trade receivables $ 4,158 $ 2,942
Unbilled receivables 7,779 7,055
Total $ 11,937 $ 9,997 The allowance for doubtful accounts reflects IDX’s estimate of probable losses inherent in the accounts receivable balance. IDX determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. The following table summarizes activity for the allowance for doubtful accounts for the period January 1, 2022, to August 3, 2022, and nine months ended September 30, 2021 (in thousands):
January 1, 2022, to August 3, 2022 Nine Months Ended September 30, 2021
Beginning balance $ 179 $ 13
Additional charged to costs and expenses ( 117 ) 70
Deductions (1) 3 -
Ending balance $ 65 $ 83
(1) Represents write-offs and recoveries of prior year charges. The following table summarizes activity for the allowance for doubtful accounts for the period July 1, 2022, to August 3, 2022, and three months ended September 30, 2021 (in thousands):
July 1, 2022, to August 3, 2022 Three Months Ended September 30, 2021
Beginning Balance $ 52 $ 51
Additional charged to costs and expenses 13 32
Ending balance $ 65 $ 83 |
| Revenue Recognition | | Revenue Recognition In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that IDX expects to be entitled to receive in exchange for those products or services. To achieve the core principle of this standard, IDX applies the following five steps: a) Identify Contracts with Customers, b) Identify the Performance Obligations in the Contract, c) Determine the Transaction Price, d) Allocate the Transaction Price to Performance Obligations in the Contract, and e) Recognize Revenue When or As Performance Obligations are Satisfied. For arrangements with multiple performance obligations, IDX allocates total consideration to each performance obligation on a relative fair value basis based on management’s estimate of stand-alone selling price (SSP). The following table illustrates the timing of IDX’s revenue recognition:
January 1, 2022, to August 3, 2022 Nine Months Ended September 30, 2021
Breach - point in time 12.6 % 9.2 %
Breach - over time 83.4 % 87.7 %
Membership services - over time 4.0 % 3.1 %
The following table illustrates the timing of the IDX's revenue recognition:
July 1, 2022, to August 3, 2022 Three Months Ended September 30, 2021
Breach - point in time 9.4 % 11.3 %
Breach - over time 86.3 % 85.5 %
Membership services - over time 4.3 % 3.2 % Breach Services IDX’s breach services revenue consists of contracts with various combinations of notification, project management, communication services, and ongoing identity protection services. Performance periods generally range from one to three years . Payment terms are generally between thirty and sixty days. Contracts generally do not contain significant financing components. The pricing for IDX’s breach services contracts are structured as either fixed price or variable price. In fixed price contracts, a fixed total price or fixed per-impacted-individual price is charged for the total combination of services. For variable price breach services contracts, the breach communications component, which includes notifications and call center, is charged at a fixed total fee and ongoing identity protection services are charged as incurred using a fixed price per enrollment. Fixed fees are generally billed at the time the statement of work is executed and are due upon receipt. Large fixed fee contracts are typically billed 50% upfront and due upon receipt with the remaining 50% invoiced 30 days later with net 30 terms. For variable price contracts the charges for identity protection services are billed monthly for the prior month and are due net 30. Membership Services IDX provides membership services through its employer groups and strategic partners as well as directly to end-users through its website. Membership services consist of multiple, bundled identity and privacy product offerings and provide members with ongoing identity protection services. For membership services, revenue is recognized ratably over the service period. Performance periods are generally one year . Payments from employer groups and strategic partners are generally collected monthly. Payments from end-users are collected up front. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. No losses on uncompleted contracts were recognized for the period January 1, 2022, to August 3, 2022, and nine months ended September 30, 2021. No losses on uncompleted contracts were recognized for the period July 1, 2022, to August 3, 2022, and three months ended September 30, 2021. Significant Judgments Significant judgments and estimates are required under ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ASC 606 for IDX’s arrangements may be dependent on contract-specific terms and may vary in some instances. IDX’s contracts with customers often include promises to transfer multiple services including project management services, notification services, call center services, and identity protection services. Determining whether services are distinct performance obligations that should be accounted for separately requires significant judgment. IDX is required to estimate the total consideration expected to be received from contracts with customers, including any variable consideration. Once the estimated transaction price is established, amounts are allocated to performance obligations on a relative SSP basis. IDX’s breach business derives revenue from two main performance obligations: (i) notification and (ii) combined call center and identity protection services (see Note 7). At contract inception, IDX assesses the products and services promised in the contract to identify each performance obligation and evaluates whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both capable of being distinct and are distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Determining whether products and services are considered distinct performance obligations requires significant judgment. In determining whether products and services are considered distinct performance obligations, IDX assesses whether the customer can benefit from the products and services on their own or together with other readily available resources and whether our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract. Judgment is required to determine the SSP for each distinct performance obligation. IDX rarely sells its individual breach services on a standalone basis and accordingly, IDX is required to estimate the range of SSPs for each performance obligation. In instances where the SSP is not directly observable because IDX does not sell the service separately, IDX reviews information that includes historical discounting practices, market conditions, cost-plus analysis, and other observable inputs to determine an appropriate SSP. IDX typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers, size of breach, and other circumstances. In these instances, IDX may use other available information such as service inclusions or exclusions, customizations to notifications, or varying lengths of call center or identity protection services in determining the SSP. If a group of agreements are so closely related to each other that they are in effect part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. IDX exercises judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. IDX’s judgments about whether a group of contracts comprises a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of IDX’s operations for the periods presented. IDX has not experienced significant refunds to customers. IDX’s estimates related to revenue recognition may require significant judgment and the change in these estimates could have an effect on IDX’s results of operations during the periods involved. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the Consolidated Balance Sheets. IDX records a contract asset when revenue is recognized prior to invoicing and records a deferred revenue liability when revenue is expected to be recognized after invoicing. For IDX’s breach services agreements, customers are typically invoiced at the beginning of the arrangement for the entire contract. When the breach agreement includes variable components related to as-incurred identity protection services, customers are invoiced monthly for the duration of the enrollment or call center period. Unbilled accounts receivable, which consists of services billed one month in arrears, was $ 7.8 million and $ 7.1 million as of August 3, 2022, and December 31, 2021, respectively. These unbilled amounts are included in accounts receivable as IDX has the unconditional right to receive this consideration. Contract assets are presented as other receivables within the Consolidated Balance Sheets and primarily relate to IDX’s rights to consideration for work completed but not billed on service contracts. Contract assets are transferred to receivables when IDX invoices the customer. Contract liabilities are presented as deferred revenue and relate to payments received for services that are yet to be recognized in revenue. IDX recognized $ 5.1 million of revenue that was included in deferred revenue at the end of the preceding year during the period January 1, 2022, to August 3, 2022. IDX recognized $ 0.6 million of revenue that was included in deferred revenue at the end of the preceding year during the period July 1, 2022, to August 3, 2022. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. IDX expects to recognize as revenue approximately 56 % of its August 3, 2022 , deferred revenue balance in the remainder of 2022, 29 % in the period January 1, 2023 , to August 3, 2023, and the remainder thereafter. In instances where the timing of revenue recognition differs from that of invoicing, IDX has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing IDX's services and not to facilitate financing arrangements. Government Contracts IDX evaluates arrangements with governmental entities containing fiscal funding or termination for convenience provisions, when such provisions are required by law, to determine the probability of possible cancellation. IDX considers multiple factors including the history with the customer in similar transactions and the budgeting and approval processes undertaken by the governmental entity. If IDX determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes revenues for such arrangements once all relevant criteria have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity for such arrangements. |
| Net Loss Per Share Attributable to Common Stockholders | | Earnings (Loss) per Share Series A-1 and A-2 Preferred Stock are participating securities due to their rights to receive dividends. IDX calculates EPS under the two-class method. In the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities. The allocation between common stock and participating securities is based upon the rights to dividends for the two types of securities. For periods of net income and when the effects are not anti-dilutive, IDX calculates diluted earnings per share by dividing net income available to common shareholders by the weighted average number of common shares plus the weighted average number of common shares assuming the conversion of IDX’s convertible notes, as well as the impact of all potentially dilutive common shares. Potentially dilutive common shares consists primarily of common stock options using the treasury stock method. For periods of net loss, shares used in the diluted earnings (loss) per share calculation equals the amount of shares in the basic EPS calculation as including potentially dilutive shares would be anti-dilutive. |
| Standards Issued and Adopted | | w. Standards Issued and Adopted |
| Standards Issued, but Not Yet Effective | | x. Standards Issued but Not Yet Effective In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”) aimed at making leasing activities more transparent and comparable. The new standard requires substantially all leases be recognized by lessees on their consolidated balance sheet as a right-of-use asset and a corresponding lease liability, including leases currently classified as operating leases. ASU 2016-02 was initially effective for fiscal years beginning after December 15, 2019. In October 2019, the FASB decided to extend the implementation date for private companies to be effective for annual periods beginning after December 15, 2020. However in May 2020, the FASB decided to provide an additional one-year deferral of the mandatory effective date of the new lease standard for all private companies. As a result, IDX’s effective date for ASU 2016-02 was deferred to accounting periods beginning after December 15, 2021. IDX will adopt this guidance for the annual period ending December 31, 2022. IDX is currently evaluating the impact of ASU 2016-02. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) and subsequently issued additional guidance that modified ASU 2016-13. The standard requires an entity to change its accounting approach for measuring and recognizing credit losses on certain financial assets measured at amortized cost, including trade receivables, certain non-trade receivables, customer advances and certain off-balance sheet credit exposures, by replacing the existing “incurred loss” framework with an expected credit loss recognition model. The new standard results in earlier recognition of credit losses based on past events, current conditions, and reasonable and supportable forecasts. The FASB pushed back the effective date of CECL from January 2021 to January 2023 for smaller reporting companies as defined by Securities Exchange Commission and from January 2022 to January 2023 for nonpublic companies. The standard is effective for entities with fiscal years beginning after December 15, 2022, including interim periods within such fiscal years. IDX is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), the amendments will remove certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. IDX is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and related disclosures. In March 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Topics: 470-20, 815-40). The standards reduce the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. The standard also amends diluted EPS calculations for convertible instruments and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified in equity. The standard is effective for entities with fiscal years beginning after December 15, 2023, and early adoption is permitted. IDX is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. The amendments are effective for fiscal years beginning after December 15, 2023, and early adoption is permitted. IDX is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and related disclosures. |
| Cash and Cash Equivalents | | Cash and Cash Equivalents Cash and cash equivalents consist of business checking accounts. IDX considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. IDX generally places its cash and cash equivalents with major financial institutions deemed to be of high-credit-quality in order to limit its credit exposure. IDX maintains its cash accounts with financial institutions where, at times, deposits exceed federal insurance limits. Cash and cash equivalents are carried at cost, which due to their short-term nature, approximate fair value. |
| Income Taxes | | s. Income Taxes IDX provides for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax effect of differences between recorded assets and liabilities and their respective tax basis along with 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 reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the rate change becomes effective. IDX recognizes the effect of income tax positions only if those positions are more likely than not of being sustained in the event of a tax audit. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. IDX records interest related to unrecognized tax benefits in income tax expense. Deferred tax assets are reduced by a valuation allowance when in management’s opinion it is more likely than not that some portion or all the deferred tax assets will not be realized. IDX considers the future reversal of existing taxable temporary differences, taxable income in prior carryback years, projected future taxable income, and tax planning strategies in making this assessment. IDX’s valuation allowance is based on all available positive and negative evidence, including its recent financial operations, evaluation of positive and negative evidence with respect to certain specific deferred tax assets including evaluating sources of future taxable income to support the realization of the deferred tax assets. IDX's income tax returns are generally subject to examination by taxing authorities for a period of three years from the date they are filed. Tax authorities may have the ability to review and adjust net operating loss or tax credit carryforwards that were generated prior to these periods if utilized in an open tax year. As of August 3, 2022, IDX’s income tax returns for the years ended December 31, 2016 through 2021 are subject to examination by the Internal Revenue Service and applicable state and local taxing authorities. |
| Sales and Use Taxes | | t. Sales and Use Taxes IDX collects sales tax in various jurisdictions. IDX records the amount of sales tax as a payable to the related jurisdiction upon collection from customers. IDX files a sales tax return with the jurisdictions and remits the amounts indicated on the return on a periodic basis. |
| Segment Reporting | | u. Segment Reporting Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker, the chief executive officer, or decision-making group, in making decisions on how to allocate resources and assess performance. IDX views its operations and manages its business as one operating segment. All revenue has been generated and all assets are held in the United States. |
| Deferred Rent and Lease Incentives | | v. Deferred Rent and Lease Incentives Rent expense and lease incentives from IDX’s operating leases are recognized on a straight-line basis over the lease term. IDX’s operating lease includes rent escalation payment terms and a rent-free period. Deferred rent represents the difference between actual operating lease payments and straight-line rent expense over the term of the lease. |
| Concentration of Credit Risk | | r. Concentrations of Credit Risk Financial instruments that potentially subject IDX to concentrations of credit risk consist principally of cash balances and trade accounts receivable. IDX maintains cash balances at two financial institutions. The balances occasionally exceed federally insured limits. As of August 3, 2022, balances exceeded federally insured limits by $ 16.0 million. IDX has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk from cash. Concentrations of credit with respect to accounts receivables are generally limited due to the large number of customers in IDX's customer base which are dispersed across different industries. IDX generated 73 % and 79 % of its revenue from the US Government for the period January 1, 2022, to August 3, 2022, and nine months ended September 30, 2021, respectively. The US Government pays invoices in less than thirty days and is deemed to be a low credit risk. IDX generated 76 % and 77 % of its revenue from the US Government for the period July 1, 2022, to August 3, 2022, and three months ended September 30, 2021, respectively. On August 3, 2022, and December 31, 2021, accounts receivables from the U.S. Government made up 64 % and 69 % of IDX’s outstanding accounts receivables, respectively. |
| Fair Value Measurements | | Fair Value Measurement Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that IDX can access at the measurement date. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Refer to Note 17 for additional information on how IDX determines fair value for its assets and liabilities. |
| Property and Equipment | | Property and Equipment Property and equipment assets are stated at the cost of acquisition, less accumulated depreciation and amortization. Property and equipment assets under capital leases are stated at the present value of minimum lease payments and amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization of property, equipment, and leasehold improvements are computed using the straight-line method. The estimated useful lives for property and equipment categories are as follows:
Asset Classification Estimated Useful Life
Office and computer equipment 3 years
Software 5 years
Furniture and fixtures 7 years
Leasehold improvements Lesser of lease term or useful life IDX periodically reviews the carrying value of its long-lived assets, including property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. For long-lived assets to be held and used, impairments are recognized when the carrying amount of a long-lived asset group is not recoverable and exceeds fair value. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset group exceeds its fair value. No impairment losses were recognized for the period January 1, 2022, to August 3, 2022, and nine months ended September 30, 2021. IDX recognized no impairment losses for the period July 1, 2022, to August 3, 2022, and three months ended September 30, 2021. |
| Contract Costs | | Contract Costs IDX capitalizes costs to obtain a contract or fulfill a contract. These costs are recorded as capitalized contract costs on the Consolidated Balance Sheets. Costs to obtain a contract for a new customer are generally amortized on a straight-line basis over the estimated period of benefit. IDX determined the estimated period of benefit by taking into consideration the contractual term. IDX periodically reviews the carrying amount of the capitalized contract costs to determine whether events or changes in circumstances have occurred that could affect the period of benefit. Amortization expense associated with costs to fulfill a contract is recorded to cost of services on IDX’s Consolidated Statements of Income, and amortization expense associated with costs to obtain a contract (sales commissions) is recorded to sales and marketing expense. |
| Cost of Services | | Cost of Services Cost of services consists of fees to outsourced service providers for credit monitoring, call center operation, notification mailing, insurance, and other miscellaneous services and internal labor costs. Costs incurred for breach service contracts represent fulfillment costs. These costs are deferred within capitalized contract costs and recognized in relation to revenue recorded over the combined service and membership terms. The remainder of cost of services are expensed as incurred. Relevant depreciation and amortization are included in cost of services. |
| Research and Development | | Research and Development Research and development expenses primarily consist of personnel costs and contractor fees related to the bundling of other third-party software products that are offered as one combined package within IDX’s product offerings. Personnel costs include salaries, bonuses, stock-based compensation, employer-paid payroll taxes, and an allocation of our facilities, benefits, and internal IT costs. Research and development costs are expensed as incurred. |
| Long-term Debt | | Long-term Debt Convertible notes and amounts borrowed under credit agreements are recorded as long-term debt on the Consolidated Balance Sheets, at principal, net of debt discounts and issuance costs. The debt discounts and issuance costs are amortized to interest expense on the Consolidated Statements of Income using the straight-line method over the contractual term of the note if that method is not materially different from the effective interest rate method. Cash interest payments are due either quarterly or semi-annually in arrears and IDX accrues interest expense monthly based on the annual coupon rate. See Note 4 for further discussion regarding convertible notes and credit agreement. |
| Debt Issuance Costs | | Debt Issuance Costs Fees paid to lenders and service providers in connection with the origination of debt are capitalized as debt issuance costs and presented as a direct deduction from the carrying value of the associated debt liability. As of August 3, 2022, and December 31, 2021, the debt issuance costs presented on the Consolidated Balance Sheets as a reduction to debt were negligible for both periods presented. |
| Advertising | | Advertising Advertising costs are expensed as incurred. Advertising costs amounted to $ 0.8 million for the period January 1, 2022, to August 3, 2022, and $ 0.9 million for the nine months ended September 30, 2021. Advertising costs amounted to $ 0.1 million for the period from July 1, 2022, to August 3, 2022, and $ 0.3 million for the three months ended September 30, 2021. |
| Stock-Based Compensation | | Stock-Based Compensation IDX grants stock options to purchase common stock to employees with exercise prices equal to the fair market value of the underlying stock as determined by the Board of Directors and management. The Board of Directors, with the assistance of outside valuation experts, determines the fair value of the underlying stock by considering several factors including historical and projected financial results, the risks IDX faced at the time, the preferences of IDX’s debt holders and preferred stockholders, and the lack of liquidity of IDX’s common stock. The fair value of each stock option award is estimated using the Black-Scholes-Merton valuation model. Such value is recognized as expense over the requisite service period using the straight-line method, net of forfeitures as they occur. Excess tax benefits of awards that relate to stock option exercises are reflected as operating cash inflows. Stock-based compensation expense recognized in IDX’s consolidated financial statements for options were negligible for all periods presented. |
