sync-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________________

FORM 10-Q

_____________________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33843

________________________________________________________________________________________________

Synacor, Inc.

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________________


Delaware			16-1542712
(State or other jurisdiction of incorporation)			(I.R.S. Employer Identification No.)


40 La Riviere Drive, Suite 300			14202
Buffalo,			(Zip Code)
New York
(Address of principal executive offices)

________________________________________________________________________________________________

Registrant’s telephone number, including area code: (716) 853-1362

________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	SYNC	The Nasdaq Stock Market LLC
(voting)		(The Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 9, 2020, there were 39,644,363 shares of the registrant’s common stock outstanding.

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SYNACOR, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets - Unaudited as of September 30, 2020 and December 31, 2019	2
	Condensed Consolidated Statements of Operations - Unaudited for the Three and Nine Months Ended September 30, 2020 and 2019	3
	Condensed Consolidated Statements of Comprehensive Loss – Unaudited for the Three and Nine Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Stockholders’ Equity – Unaudited for the Three and Nine Months Ended September 30, 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity – Unaudited for the Three and Nine Months Ended September 30, 2019	6
	Condensed Consolidated Statements of Cash Flows—Unaudited for the Nine Months Ended September 30, 2020 and 2019	7
	Notes to the Condensed Consolidated Financial Statements – Unaudited as of September 30, 2020 and December 31, 2019, and for the Three and Nine Months Ended September 30, 2020 and 2019	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

	SIGNATURES	35

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SYNACOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(In thousands except for share and per share data)


	September 30, 2020		December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,280	$	10,966
Accounts receivable—net of allowance of $565 and $585	12,809		20,532
Prepaid expenses and other current assets	3,287		2,989
Total current assets	20,376		34,487
PROPERTY AND EQUIPMENT, net	12,192		14,948
OPERATING LEASE RIGHT-OF-USE ASSETS, net	3,458		4,765
GOODWILL	15,943		15,948
INTANGIBLE ASSETS, net	6,820		8,411
OTHER ASSETS	876		1,319
Total assets	$	59,665	$	79,878

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	8,597	$	12,583
Accrued expenses and other current liabilities	3,725		5,878
Current portion of deferred revenue	5,750		6,509
Current portion of long-term debt and finance leases	1,018		2,529
Current portion of operating lease liabilities	2,434		2,165
Total current liabilities	21,524		29,664
LONG-TERM PORTION OF DEBT AND FINANCE LEASES	1,309		729
LONG-TERM PORTION OF OPERATING LEASE LIABILITIES	1,629		2,846
DEFERRED REVENUE	1,696		2,366
DEFERRED INCOME TAXES	334		275
OTHER LONG-TERM LIABILITIES	248		334
Total liabilities	26,740		36,214
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock – par value $0.01 per share; authorized 10,000,000 shares; none issued	—		—
Common stock – par value $0.01 per share; authorized 100,000,000 shares; 40,508,235 shares issued and 39,574,075 shares outstanding at September 30, 2020 and 40,075,475 shares issued and 39,201,477 shares outstanding at December 31, 2019	405		401
Treasury stock – at cost, 934,160 shares at September 30, 2020 and 873,998 shares at December 31, 2019	(2,004)		(1,931)
Additional paid-in capital	147,572		146,460
Accumulated deficit	(112,416)		(100,747)
Accumulated other comprehensive loss	(632)		(519)
Total stockholders’ equity	32,925		43,664
Total liabilities and stockholders’ equity	$	59,665	$	79,878

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands except for share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
REVENUE	$	18,529	$	31,366	$	57,288	$	95,039
COSTS AND OPERATING EXPENSES:
Cost of revenue (exclusive of depreciation and amortization shown separately below)	10,403		15,634		30,168		49,292
Technology and development (exclusive of depreciation and amortization shown separately below)	3,085		5,545		9,136		14,668
Sales and marketing	3,410		5,473		11,581		17,014
General and administrative (exclusive of depreciation and amortization shown separately below)	3,238		5,648		10,978		14,068
Depreciation and amortization	1,991		2,605		6,430		7,607
Total costs and operating expenses	22,127		34,905		68,293		102,649
LOSS FROM OPERATIONS	(3,598)		(3,539)		(11,005)		(7,610)
OTHER (EXPENSE) INCOME, net	(124)		101		218		110
INTEREST EXPENSE	(37)		(80)		(146)		(199)
LOSS BEFORE INCOME TAXES	(3,759)		(3,518)		(10,933)		(7,699)
PROVISION FOR INCOME TAXES	203		207		736		757
NET LOSS	$	(3,962)	$	(3,725)	$	(11,669)	$	(8,456)
NET LOSS PER SHARE:
Basic	$	(0.10)	$	(0.10)	$	(0.30)	$	(0.22)
Diluted	$	(0.10)	$	(0.10)	$	(0.30)	$	(0.22)
WEIGHTED AVERAGE SHARES USED TO COMPUTE NET LOSS PER SHARE:
Basic	39,503,951		39,073,998		39,405,791		39,047,561
Diluted	39,503,951		39,073,998		39,405,791		39,047,561

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS – UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(3,962)	$	(3,725)	$	(11,669)	$	(8,456)
Other comprehensive loss:
Changes in foreign currency translation adjustment	57		(136)		(113)		(151)
Comprehensive loss	$	(3,905)	$	(3,861)	$	(11,782)	$	(8,607)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY – UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

(In thousands except for share data)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
BALANCE—July 1, 2020	40,353,854	$	404	904,535	$	(1,971)	$	147,233	$	(108,454)	$	(689)	$	36,523

Stock-based compensation cost	—	—		—	—		340		—		—		340
Vesting of restricted stock units, net of treasury stock	154,381	1		29,625	(33)		(1)		—		—		(33)
Net loss	—	—		—	—		—		(3,962)		—		(3,962)
Other comprehensive income	—	—		—	—		—		—		57		57
BALANCE—September 30, 2020	40,508,235	$	405	934,160	$	(2,004)	$	147,572	$	(112,416)	$	(632)	$	32,925


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
BALANCE—January 1, 2020	40,075,475	$	401	873,998	$	(1,931)	$	146,460	$	(100,747)	$	(519)	$	43,664

Stock-based compensation cost	—	—		—	—		1,116		—		—		1,116
Vesting of restricted stock units, net of treasury stock	432,760	4		60,162	(73)		(4)		—		—		(73)
Net loss	—	—		—	—		—		(11,669)		—		(11,669)
Other comprehensive loss	—	—		—	—		—		—		(113)		(113)
BALANCE—September 30, 2020	40,508,235	$	405	934,160	$	(2,004)	$	147,572	$	(112,416)	$	(632)	$	32,925

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY – UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(In thousands except for share data)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
BALANCE—July 1, 2019	39,917,519	$	399	856,373	$	(1,905)	$	145,464	$	(96,457)	$	(357)	$	47,144
Exercise of common stock options	—	—		—	—		—		—		—		—
Stock-based compensation cost	—	—		—	—		535		—		—		535
Vesting of restricted stock units, net of treasury stock	62,877	1		17,625	(26)		—		—		—		(25)
Net loss	—	—		—	—		—		(3,725)		—		(3,725)
Other comprehensive loss	—	—		—	—		—		—		(136)		(136)
BALANCE—September 30, 2019	39,980,396	$	400	873,998	$	(1,931)	$	145,999	$	(100,182)	$	(493)	$	43,793


	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
BALANCE—January 1, 2019	39,880,054	$	399	852,482	$	(1,899)	$	144,739	$	(91,726)	$	(342)	$	51,171
Exercise of common stock options	26,527	—		—	—		40		—		—		40
Stock-based compensation cost	—	—		—	—		1,220		—		—		1,220
Vesting of restricted stock units, net of treasury stock	73,815	1		21,516	(32)		—		—		—		(31)
Net loss	—	—		—	—		—		(8,456)		—		(8,456)
Other comprehensive loss	—	—		—	—		—		—		(151)		(151)
BALANCE—September 30, 2019	39,980,396	$	400	873,998	$	(1,931)	$	145,999	$	(100,182)	$	(493)	$	43,793

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNACOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands)


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,669)	$	(8,456)
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities:
Depreciation and amortization	8,081		8,513
Asset impairment	687		1,751
Stock-based compensation expense	1,093		1,184
Provision for deferred income taxes	59		59
Change in allowance for doubtful accounts	(20)		77
Changes in operating assets and liabilities:
Accounts receivable, net	7,743		5,369
Prepaid expenses and other assets	122		59
Operating lease right-of-use assets and liabilities, net	(109)		36
Accounts payable, accrued expenses and other liabilities	(5,561)		(3,132)
Deferred revenue	(1,429)		(251)
Net cash (used in) provided by operating activities	(1,003)		5,209
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(2,640)		(3,159)
Net cash used in investing activities	(2,640)		(3,159)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on long-term debt and finance leases	(2,863)		(2,531)
Proceeds from exercise of common stock options	—		40
Payment of debt issuance costs	—		(60)
Purchase of treasury stock and shares received to satisfy minimum tax withholdings	(73)		(32)
Net cash used in financing activities	(2,936)		(2,583)
Effect of exchange rate changes on cash and cash equivalents	(107)		(156)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(6,686)		(689)
Cash and cash equivalents, beginning of period	10,966		15,921
Cash and cash equivalents, end of period	$	4,280	$	15,232
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	145	$	198
Cash paid for income taxes	$	407	$	574
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Minimum long-term debt and finance lease payments in accounts payable	$	—	$	277
Accrued property and equipment expenditures	$	—	$	146

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SYNACOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019, AND

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

1. The Company and Summary of Significant Accounting Principles

Synacor, Inc., together with its consolidated subsidiaries (collectively, the “Company” or “Synacor”), is a digital technology company that provides email and collaboration software, cloud-based identity management platforms, managed web and mobile portals, and advertising solutions. The Company’s customers include communications providers, media companies, government entities and enterprises. Synacor is a trusted partner for enterprise software platforms and monetization solutions that Synacor delivers through public and private cloud software-as-a-service, software licensing, and professional services. Synacor enables clients to deepen their engagement with their consumers and users.

Basis of Presentation —

The interim unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the interim unaudited condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented. These interim unaudited condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year or for any subsequent period.

The accompanying condensed consolidated balance sheet as of December 31, 2019 was derived from the audited financial statements as of that date, but does not include all the information and footnotes required by U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Accounting Estimates —

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Actual results could differ materially from these estimates and judgments.

Many of our estimates require increased judgment due to the significant volatility, uncertainty and economic disruption of the recent global COVID-19 pandemic. We will continue to monitor the effects of the COVID-19 pandemic, and our estimates and judgments may change materially as new events occur or additional information becomes available to us.

Concentrations of Risk —

As of September 30, 2020 and December 31, 2019, the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable as follows:


	Accounts Receivable
	September 30, 2020	December 31, 2019
Portal & Advertising Customer A	*	13	%
* - Less than 10%

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For the three and nine months ended September 30, 2020 and 2019, the Company had concentrations equal to or exceeding 10% of the Company’s revenue as follows:


	Revenue
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020	2019
Google search	11	%	*		*	11	%

Portal & Advertising Customer A	*		13	%	*	13	%
* - Less than 10%

For the three and nine months ended September 30, 2020 and 2019, the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue:


	Cost of Revenue
	Three Months Ended September 30,			Nine Months Ended September 30,
	2020	2019		2020	2019
Portal & Advertising Customer B	*	18	%	*	26	%
* - Less than 10%

Recent Accounting Pronouncements —

Not Yet Adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2016-13 ("ASU 2016-13") Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)", which defers the effective date for public filers that are considered small reporting companies, as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The standard is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.

Recently Adopted

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs incurred for an internal-use software license. Adoption of this guidance is required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. The amendments will be applied prospectively to all implementation costs incurred after adoption. There was no impact to the Company's condensed consolidation financial statements for the three and nine months ended September 30, 2020 as a result of adopting this standard update on January 1, 2020.

The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on the Company’s financial statements and related disclosures.

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2. Revenue from Contracts with Customers

The Company generates all of its revenue from contracts with customers. Many of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software licenses are typically estimated using the residual approach. Standalone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis. The Company usually expects payment within 30 to 90 days from the invoice date (fulfillment of performance obligations or per contract terms). None of the Company’s contracts as of September 30, 2020 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced are recognized as deferred revenue.

Disaggregation of revenue

The following table provides information about disaggregated revenue for the three and nine months ended September 30, 2020 and 2019 by the timing of revenue recognition, and includes a reconciliation of the disaggregated revenue by reportable segment (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Software & Services
Products and services transferred over time	$	8,139	$	8,240	$	24,532	$	25,503
Products transferred at a point in time	1,977		2,851		7,561		7,334
Total Software & Services	10,116		11,091		32,093		32,837
Portal & Advertising
Products and services transferred over time	554		1,274		2,659		3,982
Products transferred at a point in time	7,859		19,001		22,536		58,220
Total Portal & Advertising	8,413		20,275		25,195		62,202
Total Revenue	$	18,529	$	31,366	$	57,288	$	95,039

Revenue disaggregated by geography, based on the billing address of our customer, consists of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
United States	$	13,077	$	25,717	$	41,044	$	78,965
International	5,452		5,649		16,244		16,074
Total revenue	$	18,529	$	31,366	$	57,288	$	95,039

Remaining Performance Obligations

Deferred revenue is recorded when cash payments are received or due in advance of revenue recognition from software licenses, professional services, and maintenance agreements. The timing of revenue recognition may differ from the timing of billings to customers.

The changes in deferred revenue, inclusive of both current and long-term, are as follows (in thousands):


Beginning balance - January 1, 2020	$	8,875
Recognition of deferred revenue	(7,646)
Deferral of revenue	6,133
Effect of foreign currency translation	84
Ending balance - September 30, 2020	$	7,446

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The majority of the deferred revenue balance above relates to the maintenance and support contracts for the Company's email software licenses. These are recognized straight-line over the life of the contract, with the majority of the balance being recognized within the next twelve months.

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

3. Leases

The Company enters into various non-cancellable operating lease agreements for certain of our offices, data centers, colocations and network equipment. The Company’s leases have original lease periods expiring between 2020 and 2025. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company’s variable lease payments are immaterial and its lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating lease costs are included in cost of revenue and general and administrative costs in the Company’s condensed consolidated statements of operations. Finance lease amortization costs are included in depreciation and amortization, and finance lease interest costs are included in interest expense in the Company’s condensed consolidated statements of operations.

The components of lease costs are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Finance lease cost
Amortization of right-of-use assets	$	628	$	958	$	2,609	$	1,586
Interest	32		211		100		400
Operating lease cost	705		1,129		2,030		2,219
Total lease cost	$	1,365	$	2,298	$	4,739	$	4,205

The lease term and discount rate are as follows:


	September 30, 2020		December 31, 2019
Weighted Average Remaining Lease Term
Operating leases	1.7	Years	2.0	Years
Finance leases	2.1	Years	1.2	Years

Weighted Average Discount Rate
Operating leases	6.0	%	6.0	%
Finance leases	3.7	%	5.0	%

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The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2020 (in thousands):


	Operating Leases		Finance Leases
The remainder of 2020	$	644	$	276
2021	2,180		1,070
2022	1,042		765
2023	441		328
2024	36		29
2025	—		3
Total undiscounted cash flows	4,343		2,471
Less imputed interest	(280)		(144)
Present value of lease liabilities	$	4,063	$	2,327

Supplemental cash flow information related to leases are as follows (in thousands):


	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,429	$	2,324
Operating cash flows from finance leases	$	100	$	400
Financing cash flows from finance leases	$	2,863	$	1,586

Lease liabilities arising from obtaining right-of-use-assets:
Operating leases	$	1,010	$	64
Finance leases	$	1,675	$	1,925

During the three and nine months ended September 30, 2020, the Company recorded $0.5 million in impairment charges related to operating lease ROU assets associated with certain leased office spaces being used in a manner different than originally planned, as part of cost cutting initiatives, these charges are included in general and administrative expense in the consolidated statement of operations. No such impairment charges occurred in the three and nine months ended September 30, 2019.

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4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2020 are as follows (in thousands):


	Software & Services		Portal & Advertising		Total
December 31, 2019	$	11,804	$	4,144	$	15,948
Effect of foreign currency translation	(5)		—		(5)
September 30, 2020	$	11,799	$	4,144	$	15,943

The Company tests goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company, as a result of the potential future financial impacts of the COVID-19 pandemic, particularly on its Portal & Advertising segment, assessed its goodwill for impairment as of March 31, 2020, for which all reporting units were found to have a fair value greater than their carrying value. As of September 30, 2020, the Company considered the current and future macroeconomic and market conditions, along with its current market capitalization, projected cash flows and forecasts, and projections relating to the impact of the COVID-19 pandemic on each of its reporting units. The Company determined that a triggering event had not occurred as of September 30, 2020 that would require an additional interim impairment test to be performed.

As such, no impairment charges were recorded for the three and nine months ended September 30, 2020. The Company has no accumulated impairment losses.

Intangible assets consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Customer and publisher relationships	$	14,780	$	14,780
Technology	2,330		2,330
Trademark	300		300
Intangible assets, gross	17,410		17,410
Less accumulated amortization	(10,590)		(8,999)
Intangible assets, net	$	6,820	$	8,411

Amortization of intangible assets totaled $0.5 million for the three months ended September 30, 2020 and 2019, and $1.6 million for the nine months ended September 30, 2020 and 2019. Based on acquired intangible assets recorded at September 30, 2020, amortization is expected to be $0.6 million for the remainder of 2020, $1.4 million in 2021, $1.3 million in 2022, $1.3 million in 2023, $1.3 million in 2024 and $0.9 million thereafter.

5. Property and Equipment - Net

Property and equipment, net consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Computer equipment	$	26,959	$	25,392
Computer software	33,236		31,037
Furniture and fixtures	913		1,315
Leasehold improvements	882		1,116
Work in process (primarily software development costs)	19		187
Other	172		136
Property and equipment, gross	62,181		59,183
Less accumulated depreciation	(49,989)		(44,235)
Property and equipment, net	$	12,192	$	14,948

Depreciation expense totaled $2.0 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively. Depreciation expense totaled $6.5 million and $6.5 million for the nine months ended September 30, 2020 and 2019, respectively.

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Property and equipment includes computer equipment and software held under finance leases of $12.5 million and $10.8 million as of September 30, 2020 and December 31, 2019, respectively. Accumulated depreciation of computer equipment and software held under finance leases amounted to $8.5 million as of September 30, 2020 and $6.2 million as of December 31, 2019.

For the three months ended September 30, 2020 and 2019, respectively, the Company capitalized a total of $0.3 million and $0.4 million of costs that occurred during the application development phase, related to the development of internal-use software. The Company capitalized a total of $0.3 million and $0.4 million of costs related to the development of software for sale or license for the three months ended September 30, 2020 and 2019, that occurred after technological feasibility had been achieved.

For the nine months ended September 30, 2020 and 2019, respectively, the Company capitalized a total of $1.0 million and $1.9 million of costs that occurred during the application development phase, related to the development of internal-use software. The Company capitalized a total of $1.1 million of costs related to the development of software for sale or license for both the nine month periods ended September 30, 2020 and 2019, respectively, that occurred after technological feasibility had been achieved.

Amortization of software capitalized for internal use was $0.6 million and $1.0 million for the three months ended September 30, 2020 and September 30, 2019 and $1.9 million and $3.5 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Amortization of software capitalized for internal use is included in depreciation and amortization in the condensed consolidated statements of operations.

Amortization of software for sale or license was $0.6 million and $0.4 million for the three months ended September 30, 2020 and September 30, 2019 and $1.6 million and $0.9 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Amortization of software for sale or license is included in cost of revenue in the condensed consolidated statements of operations.

Impairment charges related to property and equipment for the three and nine months ended September 30, 2020 and September 30, 2019 are included in general and administrative expense in the condensed consolidated statements of operations. The impairment charges during the three months ended September 30, 2020 were comprised of assets associated with certain leased office spaces being used in a manner different than originally planned, as well as software impairment. The Company utilizes the discounted cash flow method to determine the fair value of the assets. As a result of this analysis, the Company determined that the carrying values of the assets were not fully recoverable.

Impairment charges (in thousands) related to property and equipment for the three and nine months ended September 30, 2020 and September 30, 2019 are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Computer equipment	$	27	$	2	$	27	$	2
Computer software	—		1,331		—		1,557
Furniture and fixtures	57		102		57		102
Leasehold improvements	32		90		32		90
Work in process (primarily software development costs)	102		—		102		—
Total	$	218	$	1,525	$	218	$	1,751

The following table sets forth long-lived tangible assets by geographic area (in thousands):


	September 30, 2020		December 31, 2019
Long-lived tangible assets:
United States	$	12,009	$	14,629
International	183		319
Total long-lived tangible assets	$	12,192	$	14,948

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6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Accrued compensation	$	1,686	$	4,209
Accrued content fees and other costs of revenue	249		151
Accrued taxes	544		192
Accrued royalties and rebates	717		930
Other	529		396
Total	$	3,725	$	5,878

Included in accrued compensation are accrued severance costs. In 2019, the Company initiated a cost reduction program ("2019 plan") in order to further streamline the organization after the loss of a major portal customer. These actions resulted in workforce reductions of approximately 50 employees, office consolidations and consolidating operations. For the three and nine month period ended September 30, 2019, severance costs charged to sales and marketing was $0.2 million and $0.4 million was charged to technology and development expenses

On August 4, 2020, the Company initiated an additional cost reduction program ("2020 plan") as a result of an ongoing review of our business and operations. The restructuring actions resulted in a reduction in workforce of 25 employees. All severance costs related to these actions were recognized in the three month period ending September 30, 2020. Severance amounts for all plans are expected to be paid out by March 2021.

For the three and nine month period ended September 30, 2020, severance charged to sales and marketing expenses was $0.4 million and $0.6 million was charged to technology and development expenses.

The below table summarizes the activity in the accrued severance account (in thousands).


	2020
Balance at beginning of the year	$	56
Charged to expense	990
Cash payments related to 2019 plan	(56)
Cash payments related to 2020 plan	(667)
Balance at end of period	$	323

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7. Segment Information

The Company operates its business in two reportable segments: 1) Software & Services and 2) Portal & Advertising. Software & Services generates revenue by providing cloud-based identity management solutions and email/collaboration products. Portal & Advertising generates managed portal fees and advertising revenue from its traffic on its Managed Portals and other advertising solutions it provides for publishers.

The Company’s operations are organized and managed by type of products and services and segment information is reported accordingly. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The CODM reviews financial performance and allocates resources by reportable segment. There have been no operating segments aggregated to arrive at the Company’s reportable segments.

The accounting policies of each segment are the same as those described in the summary of significant accounting policies, refer to Note 1— Summary of Significant Accounting Policies, for further details. The Company evaluates the performance of its segments and allocates resources to them based on Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain non-cash items and other non-recurring income and expenses.

Revenue for all operating segments include only transactions with unaffiliated customers and there is no intersegment revenue.

The Company does not account for, and does not report to management, its assets or capital expenditures by segment other than goodwill and intangible assets used for impairment analysis purposes.

The tables below summarize the financial information for the Company’s reportable segments for the three and nine months ended September 30, 2020 and 2019 (in thousands). The “Corporate Unallocated Expenses” category, as it relates to Segment Adjusted EBITDA, primarily includes corporate overhead costs, such as rent, payroll and related benefit costs and professional services which are not directly attributable to any individual segment.


	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Revenue		Cost of revenue (1)		Segment Adjusted EBITDA		Revenue		Cost of revenue (1)		Segment Adjusted EBITDA
Software & Services	$	10,116	$	4,092	$	2,890	$	32,093	$	10,613	$	10,136
Portal & Advertising	8,413		6,311		588		25,195		19,555		(56)
Corporate Unallocated Expenses	—		—		(2,489)		—		—		(8,323)
Total Company	$	18,529	$	10,403	$	989	$	57,288	$	30,168	$	1,757


	Three Months Ended September 30, 2019							Nine Months Ended September 30, 2019
		Revenue		Cost of revenue (1)		Segment Adjusted EBITDA		Revenue		Cost of revenue (1)		Segment Adjusted EBITDA
Software & Services		$	11,091	$	2,864	$	3,378	$	32,837	$	9,602	$	8,966
Portal & Advertising		20,275		12,770		2,881		62,202		39,690		8,036
Corporate Unallocated Expenses		—		—		(3,519)		—		—		(10,943)
Total Company		$	31,366	$	15,634	$	2,740	$	95,039	$	49,292	$	6,059


Notes:
(1)			Exclusive of depreciation and amortization shown separately on the condensed consolidated statements of operations

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The following table reconciles total Segment Adjusted EBITDA to Net loss (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
		2020		2019		2020		2019
Total Segment Adjusted EBITDA		$	989	$	2,740	$	1,757	$	6,059
Less:
Provision for income taxes		(203)		(207)		(736)		(757)
Interest expense		(