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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 June 30, 2020

or

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: 001-36061

 

Benefitfocus, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

46-2346314

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

100 Benefitfocus Way

Charleston, South Carolina 29492

(Address of principal executive offices and zip code)

(843) 849-7476

(Registrant’s telephone number, including area code)

 

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, $0.001 Par Value

BNFT

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 August 4, 2020, there were approximately 32,260,650 shares of the registrant’s common stock outstanding.

 


 

Benefitfocus, Inc.

Form 10-Q

For the Quarterly Period Ended June 30, 2020

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

3

 

 

Unaudited Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

 

 

Unaudited Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019

4

 

 

Unaudited Consolidated Statements of Changes in Stockholders' Deficit for the Three and Six Months Ended June 30, 2020 and 2019  

5

 

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

6

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

19

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

31

 

 

ITEM 4. CONTROLS AND PROCEDURES

32

 

 

PART II. OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

33

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

34

 

 

ITEM 6. EXHIBITS

35

 

 

SIGNATURES

37

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Benefitfocus, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

As of

June 30,

2020

 

 

As of

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

183,496

 

 

$

130,976

 

Accounts receivable, net

 

 

29,872

 

 

 

33,754

 

Contract, prepaid and other current assets

 

 

17,851

 

 

 

21,523

 

Total current assets

 

 

231,219

 

 

 

186,253

 

Property and equipment, net

 

 

31,430

 

 

 

28,669

 

Financing lease right-of-use assets

 

 

73,372

 

 

 

78,520

 

Operating lease right-of-use assets

 

 

1,529

 

 

 

1,715

 

Intangible assets, net

 

 

11,530

 

 

 

12,667

 

Goodwill

 

 

12,857

 

 

 

12,857

 

Deferred contract costs and other non-current assets

 

 

10,263

 

 

 

11,002

 

Total assets

 

$

372,200

 

 

$

331,683

 

Liabilities and stockholders' deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,648

 

 

$

9,563

 

Accrued expenses

 

 

6,526

 

 

 

10,526

 

Accrued compensation and benefits

 

 

11,107

 

 

 

15,246

 

Deferred revenue, current portion

 

 

31,020

 

 

 

33,429

 

Lease liabilities and financing obligations, current portion

 

 

6,536

 

 

 

6,871

 

Total current liabilities

 

 

61,837

 

 

 

75,635

 

Deferred revenue, net of current portion

 

 

4,638

 

 

 

5,079

 

Convertible senior notes

 

 

193,843

 

 

 

187,949

 

Lease liabilities and financing obligations, net current portion

 

 

82,294

 

 

 

88,572

 

Other non-current liabilities

 

 

2,000

 

 

 

92

 

Total liabilities

 

 

344,612

 

 

 

357,327

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Redeemable preferred stock:

 

 

 

 

 

 

 

 

Series A preferred stock, par value $0.001, 5,000,000 shares

  authorized, 1,777,778 and 0 shares issued and outstanding

  at June 30, 2020 and December 31, 2019, respectively,

  liquidation preference $45 per share as of June 30, 2020

 

 

79,193

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock, par value $0.001, 50,000,000 shares authorized,

   32,175,444 and 32,788,980 shares issued and outstanding

   at June 30, 2020 and December 31, 2019, respectively

 

 

32

 

 

 

33

 

Additional paid-in capital

 

 

423,122

 

 

 

426,025

 

Accumulated deficit

 

 

(474,759

)

 

 

(451,702

)

Total stockholders' deficit

 

 

(51,605

)

 

 

(25,644

)

Total liabilities and stockholders' deficit

 

$

372,200

 

 

$

331,683

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

3


 

Benefitfocus, Inc.

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

 

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

62,174

 

 

$

68,579

 

 

$

128,328

 

 

$

136,878

 

Cost of revenue

 

 

30,397

 

 

 

32,802

 

 

 

64,309

 

 

 

65,654

 

Gross profit

 

 

31,777

 

 

 

35,777

 

 

 

64,019

 

 

 

71,224

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

11,828

 

 

 

19,318

 

 

 

27,458

 

 

 

38,937

 

Research and development

 

 

11,045

 

 

 

14,461

 

 

 

22,813

 

 

 

27,551

 

General and administrative

 

 

9,381

 

 

 

11,785

 

 

 

19,896

 

 

 

23,581

 

Restructuring costs

 

 

5,616

 

 

 

 

 

 

5,616

 

 

 

 

Total operating expenses

 

 

37,870

 

 

 

45,564

 

 

 

75,783

 

 

 

90,069

 

Loss from operations

 

 

(6,093

)

 

 

(9,787

)

 

 

(11,764

)

 

 

(18,845

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

97

 

 

 

762

 

 

 

523

 

 

 

1,422

 

Interest expense

 

 

(5,862

)

 

 

(5,837

)

 

 

(11,753

)

 

 

(11,651

)

Other income (expense)

 

 

2

 

 

 

(73

)

 

 

7

 

 

 

(64

)

Total other expense, net

 

 

(5,763

)

 

 

(5,148

)

 

 

(11,223

)

 

 

(10,293

)

Loss before income taxes

 

 

(11,856

)

 

 

(14,935

)

 

 

(22,987

)

 

 

(29,138

)

Income tax expense

 

 

6

 

 

 

3

 

 

 

11

 

 

 

9

 

Net loss

 

 

(11,862

)

 

 

(14,938

)

 

 

(22,998

)

 

 

(29,147

)

Preferred dividends

 

 

(462

)

 

 

 

 

 

(462

)

 

 

 

Net loss available to common stockholders

 

$

(12,324

)

 

$

(14,938

)

 

$

(23,460

)

 

$

(29,147

)

Comprehensive loss

 

$

(12,324

)

 

$

(14,938

)

 

$

(23,460

)

 

$

(29,147

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.38

)

 

$

(0.46

)

 

$

(0.73

)

 

$

(0.90

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

32,058,387

 

 

 

32,613,718

 

 

 

32,348,673

 

 

 

32,336,864

 

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

4


 

Benefitfocus, Inc.

Unaudited Consolidated Statements of Changes in Stockholders’ Deficit

(in thousands, except share and per share data)

 

  

 

Common Stock,

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

$0.001 Par Value

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2019

 

 

32,788,980

 

 

$

33

 

 

$

426,025

 

 

$

(451,702

)

 

$

(25,644

)

Cumulative effect adjustment from adoption of credit standard

 

 

 

 

 

 

 

 

 

 

 

(59

)

 

 

(59

)

Exercise of stock options

 

 

13,584

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

Issuance of common stock upon vesting of restricted stock units

 

 

43,315

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,677

 

 

 

 

 

 

3,677

 

Common stock repurchased

 

 

(1,070,665

)

 

 

(1

)

 

 

(9,382

)

 

 

 

 

 

(9,383

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,136

)

 

 

(11,136

)

Balance, March 31, 2020

 

 

31,775,214

 

 

$

32

 

 

$

420,393

 

 

$

(462,897

)

 

$

(42,472

)

Exercise of stock options

 

 

10,685

 

 

 

 

 

 

69

 

 

 

 

 

 

69

 

Issuance of common stock upon vesting of restricted stock units

 

 

416,848

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under Employee Stock Purchase Plan, or ESPP

 

 

8,205

 

 

 

 

 

 

83

 

 

 

 

 

 

83

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,323

 

 

 

 

 

 

3,323

 

Common stock repurchased

 

 

(35,508

)

 

 

 

 

 

(284

)

 

 

 

 

 

(284

)

Preferred dividends

 

 

 

 

 

 

 

 

(462

)

 

 

 

 

 

(462

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(11,862

)

 

 

(11,862

)

Balance, June 30, 2020

 

 

32,175,444

 

 

$

32

 

 

$

423,122

 

 

$

(474,759

)

 

$

(51,605

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock,

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

$0.001 Par Value

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2018

 

 

32,017,773

 

 

$

32

 

 

$

403,631

 

 

$

(413,873

)

 

$

(10,210

)

Cumulative effect adjustment from adoption of lease standard

 

 

 

 

 

 

 

 

 

 

 

7,687

 

 

 

7,687

 

Exercise of stock options

 

 

18,600

 

 

 

 

 

 

89

 

 

 

 

 

 

89

 

Issuance of common stock upon vesting of restricted stock units

 

 

34,255

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,253

 

 

 

 

 

 

6,253

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,209

)

 

 

(14,209

)

Balance, March 31, 2019

 

 

32,070,628

 

 

$

32

 

 

$

409,973

 

 

$

(420,395

)

 

$

(10,390

)

Exercise of stock options

 

 

6,200

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Issuance of common stock upon vesting of restricted stock units

 

 

565,878

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

6,203

 

 

 

 

 

 

6,203

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,938

)

 

 

(14,938

)

Balance, June 30, 2019

 

 

32,642,706

 

 

$

33

 

 

$

416,221

 

 

$

(435,333

)

 

$

(19,079

)

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

5


 

Benefitfocus, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(22,998

)

 

$

(29,147

)

Adjustments to reconcile net loss to net cash and cash

   equivalents used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,105

 

 

 

10,949

 

Stock-based compensation expense

 

 

7,000

 

 

 

10,086

 

Accretion of interest on convertible senior notes

 

 

5,894

 

 

 

5,541

 

Interest accrual on finance lease liabilities

 

 

44

 

 

 

 

Rent expense (less than) in excess of payments

 

 

(16

)

 

 

3

 

Provision for doubtful accounts

 

 

111

 

 

 

265

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

3,711

 

 

 

(10,671

)

Contract, prepaid and other current assets

 

 

3,672

 

 

 

(476

)

Deferred costs and other non-current assets

 

 

740

 

 

 

2,851

 

Accounts payable and accrued expenses

 

 

(7,318

)

 

 

(4,085

)

Accrued compensation and benefits

 

 

(4,139

)

 

 

273

 

Deferred revenue

 

 

(2,850

)

 

 

(6,004

)

Other non-current liabilities

 

 

1,910

 

 

 

(46

)

Net cash and cash equivalents used in operating activities

 

 

(2,134

)

 

 

(20,461

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Business combination, net of cash acquired

 

 

 

 

 

(20,914

)

Purchases of property and equipment

 

 

(7,075

)

 

 

(7,401

)

Net cash and cash equivalents used in investing activities

 

 

(7,075

)

 

 

(28,315

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Draws on revolving line of credit

 

 

10,000

 

 

 

 

Payments on revolving line of credit

 

 

(10,000

)

 

 

 

Payments of debt issuance costs

 

 

(154

)

 

 

(357

)

Proceeds from issuance of preferred stock, net of issuance costs

 

 

79,840

 

 

 

 

Payments of preferred dividends

 

 

(462

)

 

 

 

Repurchase of common stock

 

 

(9,667

)

 

 

 

Proceeds from exercises of stock options and ESPP

 

 

225

 

 

 

134

 

Payments on financing obligations

 

 

(416

)

 

 

(841

)

Payments of principal on finance lease liabilities

 

 

(7,637

)

 

 

(2,699

)

Net cash and cash equivalents provided by (used in) financing activities

 

 

61,729

 

 

 

(3,763

)

Net increase (decrease) in cash and cash equivalents

 

 

52,520

 

 

 

(52,539

)

Cash and cash equivalents, beginning of period

 

 

130,976

 

 

 

190,928

 

Cash and cash equivalents, end of period

 

$

183,496

 

 

$

138,389

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued expenses

 

$

37

 

 

$

437

 

 

 

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

 

 

6


 

BENEFITFOCUS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

1. Organization and Description of Business

Benefitfocus, Inc. (the “Company”) provides a leading cloud-based benefits management platform for consumers, employers, insurance carriers and brokers that is designed to simplify how organizations and individuals transact benefits. The financial statements of the Company include the financial position and operations of its wholly owned subsidiaries, Benefitfocus.com, Inc. and BenefitStore, Inc.

2. Summary of Significant Accounting Policies

Principles of Consolidation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company is not the primary beneficiary of, nor does it have a controlling financial interest in, any variable interest entity. Accordingly, the Company has not consolidated any variable interest entity.

Interim Unaudited Consolidated Financial Information

The accompanying unaudited consolidated financial statements and footnotes have been prepared in accordance with GAAP as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information, and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ deficit and cash flows. The results of operations for the three- and six-month periods ended June 30, 2020 are not necessarily indicative of the results for the full year or for any other future period. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related footnotes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Such estimates include allowances for doubtful accounts and returns, valuations of deferred income taxes, long-lived assets, capitalizable software development costs and the related amortization, incremental borrowing rate used in lease accounting, the determination of the useful lives of assets, and the impairment assessment of acquired intangibles and goodwill as well as the estimates disclosed in association with revenue recognition. Determination of these transactions and account balances are based on, among other things, the Company’s estimates and judgments. These estimates are based on the Company’s knowledge of current events and actions it may undertake in the future as well as on various other assumptions that it believes to be reasonable. Actual results could differ materially from these estimates.

Restructuring Costs

On April 28, 2020, the Company announced a restructuring plan to contain costs and further strengthen its liquidity profile in response to the impact of the COVID-19 pandemic. This plan resulted in a reduction in the Company’s U.S. workforce of approximately 17%. The Company recorded restructuring costs of $5,616 in the second quarter of 2020 from one-time severance charges, continuation of health benefits and outplacement services. Restructuring costs are presented separately in operating expenses in the unaudited consolidated statements of operations and comprehensive loss. The plan was implemented and completed in the second quarter of 2020.

Revenue and Deferred Revenue

The Company derives its revenue primarily from fees for subscription services and professional services sold to employers and insurance carriers as well as platform revenue derived from the value of products sold on our platform. Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Taxes collected from customers relating to services and remitted to governmental authorities are excluded from revenue.

The Company determines revenue recognition through the following steps:

 

Identification of each contract with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, performance obligations are satisfied.

7


 

Software Services Revenue

Software services revenue consists of subscription revenue and platform revenue.

Subscription Revenue

Subscription revenue primarily consists of monthly subscription fees paid to the Company by its employer and insurance carrier customers for access to, and usage of, cloud-based benefits software solutions for a specified contract term. Fees are generally charged based on the number of employees or subscribers with access to the solution.

Subscription services revenue is generally recognized on a ratable basis over the contract term beginning on the date the subscription services are made available to the customer. The Company’s subscription service contracts are generally three years.

Subscription revenue also includes fees paid for other services, such as event sponsorships and certain data services.

Platform Revenue

Platform revenue is generated from the value of policies or products enrolled in through the Company’s marketplace.  Platform revenue from carriers is generally recognized over the policy period of the enrolled products. In arrangements where the Company sells policies to employees of its customers as the broker, it earns broker commissions. Revenue from insurance broker commissions and supplier transactions is recognized at a point in time when the orders for the policies are received and transferred to the insurance carrier or supplier, and is reduced by estimates for risks from collectability, policy cancellation and termination.

Professional Services Revenue

Professional services revenue primarily consists of fees related to the implementation of software products purchased by customers.  Professional services typically include discovery, configuration and deployment, integration, testing, and training. Fees from consulting services and support services are also included in professional services revenue.

The Company determined that implementation services for certain of its insurance carrier customers significantly modify or customize the software solution and, as such, do not represent a distinct performance obligation. Accordingly, revenue from such implementation services with these insurance carrier customers are generally recognized over the contract term of the associated subscription services contract, including any extension periods representing a material right. In certain arrangements, the Company utilizes estimates of hours as a measure of progress to determine revenue.

Revenue from implementation services with employer customers is generally recognized as those services are performed.

Revenue from support and training fees is recognized over the service period.

Contracts with Multiple Performance Obligations

Certain of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the individual performance obligations are accounted for separately if they are distinct. The Company allocates the transaction price to the separate performance obligations based on their relative standalone selling prices. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the subscription services sold, customer size and complexity, and the number and types of users under the contracts.

Contract Costs

The Company capitalizes costs to obtain contracts that are considered incremental and recoverable, such as sales commissions.  Payments of sales commissions generally include multiple payments. The Company capitalizes only those payments made within an insignificant time from the contract inception, typically three months or less.  Subsequent payments are expensed as incurred. The capitalized costs are amortized to sales and marketing expense over the estimated period of benefit of the asset, which is generally four to five years. The Company expenses the costs to obtain a contract when the amortization period is less than one year. Deferred costs related to obtaining contracts are included in deferred contract costs and other non-current assets.

The Company capitalizes contract fulfillment costs directly associated with customer contracts that are not related to satisfying performance obligations. The costs are amortized to cost of revenue expense over the estimated period of benefit, which is generally five years. Deferred fulfillment costs are included in deferred contract costs and other non-current assets.

The following tables present information about deferred contract costs:

Balance of deferred contract costs

 

As of

June 30,

2020

 

 

As of

December 31,

2019

 

Costs to obtain contracts

 

$

5,749

 

 

$

6,676

 

Costs to fulfill contracts

 

$

3,400

 

 

$

3,112

 

 

8


 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Amortization of deferred contract costs

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Costs to obtain contracts included in sales and marketing expense

 

$

831

 

 

$

870

 

 

$