Carbonite Inc
Annual Report 2015

Plain-text annual report

CARBONITE INC FORM 10-K (Annual Report) Filed 03/08/16 for the Period Ending 12/31/15 Address TWO AVENUE DE LAFAYETTE BOSTON, MA 02111 6175871140 CIK 0001340127 Telephone Symbol CARB SIC Code 7374 - Computer Processing and Data Preparation and Processing Services Industry Computer Services Sector Technology Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 001-35264 CARBONITE, INC.(Exact name of registrant as specified in its charter) Delaware 33-1111329(State or other jurisdiction ofincorporation) (I.R.S. EmployerIdentification No.) Two Avenue de LafayetteBoston, Massachusetts 02111(Address of principal executive offices) (Zip Code)(617) 587-1100(Registrant’s telephone number, including area code)Securities Registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Exchange on Which RegisteredCommon Stock, par value $0.01 per share The NASDAQ Stock Market LLCSecurities Registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 forsuch 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 x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuantto Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ¨ Accelerated filer xNon-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xAs of June 30, 2015, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was$242,932,539.As of February 29, 2016, there were 26,969,626 shares of the registrant’s common stock, par value $0.01 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. Table of ContentsCARBONITE, INC.Table of Contents PagePART I. 1 Forward Looking Statements1Item 1.Business1Item 1A.Risk Factors6Item 1B.Unresolved Staff Comments25Item 2.Properties25Item 3.Legal Proceedings25Item 4.Mine Safety Disclosures25PART II. 27Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities26Item 6.Selected Financial Data27Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations30Item 7A.Quantitative and Qualitative Disclosures about Market Risk42Item 8.Financial Statements and Supplementary Data44Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure71Item 9A.Controls and Procedures71Item 9B.Other Information72PART III 73Item 10.Directors, Executive Officers and Corporate Governance73Item 11.Executive Compensation73Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters73Item 13.Certain Relationships and Related Transactions and Director Independence73Item 14.Principal Accountant Fees and Services73PART IV 73Item 15.Exhibits and Financial Statement Schedules73SIGNATURES75Table of ContentsPART ISPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTSThis Annual Report on Form 10-K (this "Annual Report"), including the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” includes forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,”“anticipate,” “intend,” “expect,” “predict,” “potential,” and similar expressions, as well as the negatives thereof, as they relate to us, our business, our management,and our industry, are intended to identify forward-looking statements. In light of risks and uncertainties discussed in this Annual Report, the forward-lookingevents and circumstances discussed in this Annual Report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends affectingthe financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily beaccurate indications of the times at or by which such performance or results will be achieved. Forward-looking statements are based on information available at thetime those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties thatcould cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These risks include, but arenot limited to, those set forth under Item 1A of this Annual Report.Forward-looking statements speak only as of the date of this Annual Report. We may not actually achieve the plans, intentions, or expectations disclosed inour forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially fromthe plans, intentions, and expectations disclosed in the forward-looking statements we make. In addition, our forward-looking statements do not reflect thepotential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments that we may make.You should read this Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. Wedo not assume any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required bylaw. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or otherforward-looking statements.ITEM 1.BUSINESSOverviewCarbonite, Inc. (together with its subsidiaries, "Carbonite", the "Company", "our", "we", or "us") provides cloud and hybrid business continuity solutions. Oursolutions provide powerful features packaged in a cost-effective, simple and secure manner and are designed to address the specific needs of small and medium-sized businesses ("SMBs"), and individuals.Carbonite was incorporated on February 10, 2005 and is a Delaware corporation. Our principal executive offices are located at 2 Avenue de Lafayette, Boston,Massachusetts. We founded Carbonite on one simple idea: all computers need to be backed up, and in this always connected and highly mobile world, cloudbackup is the ideal approach. Our goal is to enable a world in which important data is always protected, available and useful. Today, our cloud and hybrid businesscontinuity solutions help keep businesses in business.We derive our revenue principally from subscription fees, with a consistently strong customer retention rate and a scalable infrastructure to support ourgrowth. We generated revenue of $136.6 million in 2015. We continue to invest in customer acquisition, and as a result our bookings have grown from $80.9million in 2011 to $144.1 million in 2015. For a reconciliation of bookings to revenue for the last five years, see “Selected Consolidated Financial and Other Data.”Industry TrendsTrends on several fronts are fueling growth opportunities for Carbonite.The first is the proliferation of data. International Data Corporation ("IDC") predicts the amount of data users create and copy will increase exponentially from4.4 zettabytes in 2013 to 44 zettabytes in 2020, and IT professionals will deal with around 230 gigabytes ("GB") of data per person 1 . We believe that this rapidgrowth in data will continue to drive demand for business continuity solutions.1Table of ContentsThe second driver is threats to data. The number of cyberattacks where malware holds user data “hostage” is expected to grow in 2016 as hackers target morecompanies and advanced software is able to compromise more types of data. Research indicates more than 4 million attacks in the second quarter of 2015,compared to fewer than 1.5 million in the third quarter of 2013. We expect this trend to drive adoption of business continuity solutions as consumers and smallbusinesses seek solutions to protect their data to avoid falling prey to criminals. 2 Finally, research indicates that business continuity and disaster recovery will continue to grow, demonstrating continued spend in our core markets. IDCestimates the worldwide data protection and recovery software market will reach $8.2 billion in 2019 3 and Gartner, Inc. ("Gartner"), an industry analyst firm,expects the disaster recovery as a service sector ("DRaaS") to grow at a robust 30% CAGR, outpacing the traditional disaster recovery market by 2018 4 .As data growth and data threats continue to drive the need for data protection and recovery solutions, we believe research indicates that Carbonite is well-positioned to take full advantage of future spending trends in cloud and hybrid business continuity.___________________________1 EMC Digital Universe Study, with data and analysis by IDC, April 2014.2 McAfee 2016 Threats Predictions, 20163 IDC Market Forecast: Worldwide Data Protection and Recovery Software Forecast, 2015-2019, September 20154 Gartner Magic Quadrant for Disaster Recovery as a Service, April 2015Our SolutionsWe believe that our customers purchase our cloud and hybrid business continuity solutions because they provide powerful features packaged in a cost-effective, simple and secure manner. We make it easy for customers to recover their files, and we provide anytime, anywhere access and high quality customersupport.We believe that our solutions provide the following benefits to all of our customers:Power : Full-featured cloud and hybrid solutions that rival complex and expensive enterprise solutions, designed to meet the needs of SMBs andindividuals. Simplicity : Consumer-like user interface that makes our solutions easy to use and maintain.Security : Proven, modern technology that provides peace of mind that our customers' data is safe. We encrypt all customer files before they are transmitted toour data centers, guarding against unauthorized access to stored files and ensuring a high level of data security. In addition, we employ state-of-the-art data centersecurity measures intended to prevent intrusions.Value : We provide comprehensive solutions at an affordable, predictable price, from a single vendor.Our Key Competitive Strengths We believe that our key competitive strengths include the following: Proprietary backup architecture . Our entire infrastructure is designed and optimized for business continuity, which is a low transaction speed, high volume,write mostly application. We believe that our average storage costs per subscriber are lower than those realized by typical general purpose data center storagesystems, providing us with lower cost of service and greater return on investment.Significant intellectual property portfolio. We have a significant intellectual property portfolio relating to our solutions, including 27 patents and 20 patentspending. CARBONITE is a registered trademark in the U.S. and in over 30 other countries, including countries in the European Union.Comprehensive customer support. We believe that our customer support is more comprehensive than that offered by our primary competitors in the cloudbackup market and aids in our customer retention. Telephone, live chat, and email customer support are included in our subscription fee.2Table of ContentsBrand awareness. We believe that we have among the highest brand awareness in the cloud backup market. We promote our brand through our multi-channelmarketing program, which includes a broad presence in radio, online display advertising, print advertising, paid and natural search, and an affiliate and resellernetwork.Our OfferingsWe intend to be a leading provider of business continuity solutions that keep businesses in business. Our suite of solutions include:Carbonite Personal: For individuals, we offer annual plans that include unlimited cloud backup for one computer at three different service levels includingPersonal Basic, Personal Plus and Personal Prime. All plans offer discounts for multi-year subscriptions.Carbonite Pro: Our small business solutions automatically back up files to the cloud and include an unlimited number of devices for an annual flat fee basedon the amount of storage needed. We offer annual plans at three different service levels:•Pro Basic - Automatic cloud backup for unlimited computers, external hard drives and NAS devices, includes 250GB of starter cloud storage.•Pro Prime -All the protection of Pro Basic plus support for windows file servers, remote deployment & management for PCs and 500GB of starter cloudstorage.•Pro Advanced Bundle - A complete disaster recovery solution with bare metal recovery for unlimited servers and automatic cloud backup for unlimitedcomputers.Carbonite Server Backup: Our hybrid server backup solution protects an unlimited number of physical and virtual servers, and offers advanced managementcapabilities including scheduling, retention, bandwidth and compression settings, and detailed monitoring and reporting via a personalized server dashboard. Weoffer annual plans at three different service levels:•Server Essentials - Protects an unlimited number of physical or virtual servers, both locally and in the cloud, with no per server or per applicationlicensing.•Server Advanced - A true backup and disaster recovery solution that gives businesses bare metal recovery and flexible, granular protection for theircritical server data.•Server Pro Bundle - A complete disaster recovery solution with bare metal recovery for unlimited servers and automatic cloud backup for unlimitedworkstations.MailStore: MailStore offers comprehensive market solutions in terms of performance, stability, functionality and simplicity to meet the specific emailarchiving needs of SMBs. Our three solutions include MailStore Server, MailStore Provider Edition and MailStore Home.The following table sets forth key features of our powerful yet simple solutions: Carbonite Personal Carbonite Pro Carbonite Server MailStorePricing From $60/year From $270/year From $900/year From $190Features Automatic cloud backup for 1PC or Mac with unlimitedcloud storageProtection of photos,documents, music and more Automatic cloud backup forunlimited computers, NAS, andexternal drivesRemote deployment andmanagement of custom backuppoliciesEasily access, restore andmanage files from the webportal and free apps Software-based hybrid backupand recovery for unlimitedserversBare metal restore allowscomplete recovery from systemimageGranular protection for SQL,Exchange, Hyper-V, SystemState and more Creates 1:1 copies of all emailsin a central archive to ensurelong-term security andavailability of dataSupports archiving ofMicrosoft Exchange, Office365, Gmail and other leadingsystemsWe use sophisticated encryption technology to ensure the privacy of our customers’ stored files. We encrypt files using a secure key before the files leave thecustomer’s computer and transmit the encrypted files over the internet to one of our secure data centers. Customers’ files remain encrypted on our servers to guardagainst unauthorized access. We employ outside security analysis firms, including anti-hacking specialists, to review and test our defenses and internal procedures.3Table of ContentsOur Proprietary Server SoftwareAt the core of our offerings is our proprietary server software designed specifically for cloud backup. The server software is comprised of two majorcomponents: the Carbonite Communications System ("CCS") and the Carbonite File System ("CFS"). CCS moves customer data between our software installed onour customers’ computers and CFS running on our storage servers. CCS also balances loads across our server network. CFS manages the write-mostly database ofstored files with the flexibility to operate on a wide variety of readily available third-party storage hardware.We invest heavily in the development of our technologies. In 2015, 2014 and 2013, we spent $28.1 million, $24.1 million and $20.9 million, respectively, onresearch and development. Our proprietary technologies are fundamental to our value proposition as they enable us to deliver the following benefits:Scalability. We add storage capacity at the rate of approximately one petabyte every month. CCS allows us to automatically balance processing and storagecapacity across our large and expanding server network. CFS allows us to easily add storage capacity across multiple physical locations by automaticallyintegrating new storage servers into our existing infrastructure.Reliability. We designed CCS and CFS to eliminate single points of failure. The modular design of these components uses well-defined protocols intended toensure that customer stored files are accurate and free from errors. CFS provides proprietary disk error detection for errors that can occur over years of storage. Oursoftware also incorporates checks and balances to verify data integrity.Cost effectiveness. Storage cost is the biggest component of our cost of revenue. CCS enables us to dynamically load balance among servers to allow higheroverall utilization. CFS enables us to reduce storage costs by utilizing almost every block of physical disk space to store customer files. We can choose the mostcost-effective hardware solutions for our data centers because CFS allows us to operate in a heterogeneous hardware environment.Marketing and SalesOur marketing and sales efforts are focused on three primary goals: building brand awareness, acquiring customers at a low cost, and retaining existingcustomers. Our advertising reinforces our brand by emphasizing ease of use, affordability, security and reliability. We use radio advertising, online displayadvertising, print advertising, paid search, direct marketing, and affiliate and reseller marketing. Our public relations efforts include engaging the traditional press,new media, industry influencers and social networks. Our distribution strategy is designed to sell large volumes of our solutions through our sales channelrelationships including resellers.Marketing. Our revenue is derived from two primary sources: consumers who sign up for Carbonite solutions on our website in response to our directmarketing campaigns, and small and midsized businesses who buy directly from our website, our inside sales team or from our network of reseller partners. Ourmarketing efforts are designed to attract prospective customers and enroll them as paying customers, either through immediate sale, free trials or communication ofthe benefits of our solutions and development of ongoing relationships.Channel distribution. In order to further penetrate the extensive and diverse population of small businesses, we have and will continue to invest in our saleschannel relationships. Our network of sales channel relationships includes distributors, resellers and retailers and is designed to sell large volumes of our relativelylow-priced solutions to SMB customers.Retention. Our customer retention efforts are focused on establishing and maintaining long-term relationships with our customers by delivering a compellingcustomer experience and superior value, communicating regularly with customers through email, on-site messaging, and other media, and creating positiveinteractions with our customer support team. We monitor developing trends in subscription durations, renewals, and customer satisfaction to maximize ourcustomer retention. We offer incentives to customers to purchase multi-year subscriptions, which we believe helps to increase our customer retention. As ofDecember 31, 2015, 2014 and 2013, 27%, 25%, and 28%, respectively, of our customers had multi-year subscriptions.Intellectual PropertyWe believe that the strength of our brand and the functionality of our software help differentiate us from our competitors. As such, our success depends uponour ability to protect our technologies and intellectual property, including our proprietary server software, which allows us to move and store vast amounts ofcustomer data. To protect our intellectual property, we rely on a combination of trademark, patent, copyright, and trade secret laws, as well as confidentialityprocedures and contractual4Table of Contentsrestrictions. CARBONITE is a registered trademark in the U.S. and in over 30 other countries, including countries in the European Union. Carbonite also hasadditional registrations and/or pending applications for additional marks in the U.S. and/or other countries, including but not limited to “Carbonite The BetterBackup Plan”, “Back it up. Get it back”, “Because Your Life is On Your Computer” Logo, "Carbonite" and the Green Dot Logo, Carbonite Lock Logo, Phanfare,Zmanda and the Z logo and Chinese character representations for Carbonite. In addition, we have 27 issued patents, expiring at various times between 2021 and2031, and 20 pending patent applications in the U.S. and internationally that cover both our technical infrastructure and our key usability and design concepts.CompetitionOur market is rapidly evolving due to technological advances that are driving changes in the way SMBs operate. Over the past few years, competition hasintensified, and we expect this to continue with market consolidation, the introduction of new technologies, and introduction of new market entrants. We competeagainst many companies across the data protection, disaster recovery and storage industries, ranging from those who provide a wide array of IT services, to thosewho provide only a specific business continuity product, to distributors and resellers. We expect many of our actual and potential competitors and solutions tochange, as we expand further into the SMB market and as the markets we compete in continue to evolve.We believe key factors to successfully compete in any of our markets include ease of installation and use, value, cloud storage, data security, reliability, andbrand reputation. We believe that Carbonite competes favorably with respect to each of the key factors by providing powerful, yet simple cloud and hybridbusiness continuity solutions. Our offerings are easy-to-use, affordable, secure, include a variety of storage capacity options, and enable anytime, anywhere accessto files.EmployeesAs of December 31, 2015, we had 611 full-time and 12 part-time employees. Of our full-time employees, 295 were in operations and support, 115 were insales and marketing, 106 were in research and development, and 95 were in general and administrative functions. None of our employees are covered by collectivebargaining agreements.Subsequent EventsOn January 13, 2016, Carbonite, Inc. and its wholly owned subsidiaries, Carbonite Cloud Backup (Canada) Inc., Carbonite GmbH, and Carbonite OperationsBV, completed the acquisition of the North American cloud-based business continuity and disaster recovery assets of EVault, Inc. (“EVault”) as contemplated bythat certain Asset Purchase Agreement, dated as of December 15, 2015, with EVault and Seagate Technology (US) Holdings, Inc. as sole shareholder of EVault(the "EVault Acquisition"). We acquired substantially all of the assets utilized in EVault's operations for cash consideration of $14 million. We expect to completethe acquisition of the European Union assets of EVault in the first quarter of 2016, subject to applicable laws, compliance requirements and customary closingconditions.We are in the process of gathering information to complete our preliminary valuation of certain assets and liabilities acquired as part of the transaction in orderto complete acquisition accounting.Available InformationWe file reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reportson Form 8-K, and other filings required by the SEC. We make available on our website (www.carbonite.com) our annual reports on Form 10-K, quarterly reportson Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with orfurnished to the SEC. These materials are available free of charge on or through our website via the Investor Relations page at www.carbonite.com. References toour website address in this report are intended to be inactive textual references only, and none of the information contained on our website is part of this AnnualReport or incorporated in this Annual Report by reference.The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Thepublic may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site(www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.5Table of ContentsITEM 1A.RISK FACTORSAn investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in thisAnnual Report before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, aswell as other risks not currently known to us or that we currently consider immaterial. The trading price of our common stock could decline due to any of theserisks, and, as a result, you may lose all or part of your investment.Risks Related to Our BusinessWe have experienced periods of losses and negative cash flow since our inception, and we may not be able to sustain profitability or positive cash flow in thefuture.We experienced net losses of $10.6 million for 2013, $9.4 million for 2014, and $21.6 million for 2015 and we have an accumulated deficit of approximately$160.9 million as of December 31, 2015. While we have experienced revenue growth over these same periods, we may not be able to achieve profitability in thefuture or on a consistent basis. We expect to continue making significant expenditures to develop and expand our business, including for advertising, customeracquisition, technology infrastructure, storage capacity, product development, and international expansion, in an effort to increase and service our customer base.We also expect that our results may fluctuate due to a variety of factors described elsewhere in this Annual Report, including the timing and amount of ouradvertising expenditures, which are seasonal, the timing and amount of expenditures related to the development of technologies and solutions, and to defendintellectual property infringement and other claims. We may also incur increased losses and negative cash flow in the future for a variety of reasons, and we mayencounter unforeseen expenses, difficulties, complications, delays, and other unknown events.The market for cloud solutions is competitive, and if we do not compete effectively, our operating results could be harmed.We compete with cloud backup providers and providers of traditional hardware-based backup systems. Many of our actual and potential competitors benefitfrom competitive advantages over us, such as greater name recognition, longer operating histories, more varied services, and larger marketing budgets, as well asgreater financial, technical, and other resources. In addition, many of our competitors have established marketing relationships and major distribution agreementswith computer manufacturers, internet service providers, and resellers, giving them access to larger customer bases. Some of our competitors may makeacquisitions or enter into strategic relationships to offer a more comprehensive service than we do. These combinations may make it more difficult for us tocompete effectively. We expect these trends to continue as competitors attempt to strengthen or maintain their market positions.Demand for our cloud and hybrid backup solutions is sensitive to price. Many factors, including our advertising, customer acquisition and technology costs,and our current and future competitors’ pricing and marketing strategies, can significantly affect our pricing strategies. Certain of our competitors offer, or may inthe future offer, lower-priced or free solutions or services that compete with our solutions. Similarly, certain competitors may use internet-based marketingstrategies that enable them to acquire customers at a lower cost than us. There can be no assurance that we will not be forced to engage in price-cutting initiatives,or to increase our advertising and other expenses to attract and retain customers in response to competitive pressures, either of which could have a material adverseeffect on our revenue and operating results.Over the long term, we intend to invest in research and development activities, and these investments may achieve delayed, or lower than expected, benefitswhich could harm our operating results.While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in research and development activities as we focuson organic growth through internal innovation. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits,and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the benefits anticipated from theseinvestments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. New productdevelopment and market introduction involves a significant commitment of time and resources and is subject to a number of risks and challenges including:•the difficulty in forecasting customer preferences or demand accurately;6Table of Contents•the inability to expand solution capacity to meet demand for new solutions;•the inability to successfully manage the transition from older solutions;•the impact of customers’ demand for new solutions on the solutions being replaced, thereby causing a decline in sales of existing solutions and anexcessive, obsolete supply of inventory;•delays in initial shipments of new solutions;•adapting to emerging and evolving industry standards and to technological developments by our competitors and customers;•entering into new or unproven markets with which we have limited experience•the response of competitors to the introductions of new solutions; and•the desire by customers to evaluate new solutions for extended periods of time.Our failure to introduce new or enhanced solutions on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage thetransitions to new solutions or new technologies could have a material adverse effect on our business, results of operations or financial condition.We may not be able to respond to rapid technological changes with new solutions, which could have a material adverse effect on our operating results.The cloud and hybrid business continuity market is characterized by rapid technological change and frequent new solution and service introductions. Ourability to attract new customers and increase revenue from existing customers will depend in large part on our ability to enhance and improve our existingsolutions, introduce new features and solutions, and sell into new markets. We are in the process of addressing the challenges of dynamic and accelerating markettrends, such as the decline in the PC market, the market shift towards tablets within mobility and architectural shifts in the provision of security and storagesolutions, all of which has made it more difficult for us to compete effectively and requires us to improve our solutions and service offerings. Customers mayrequire features and capabilities that our current solutions do not have. Our failure to develop solutions that satisfy customer preferences in a timely and cost-effective manner may harm our ability to renew our subscriptions with existing customers and to create or increase demand for our solutions, and may adverselyimpact our operating results. Additionally, the process of developing new technology is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emergingtechnological trends or if we fail to achieve the benefits expected from our investments, our business could be harmed. We believe that we must continue todedicate a significant amount of resources to our research and development efforts to maintain our competitive position and we must commit significant resourcesto developing new solutions before knowing whether our investments will result in solutions the market will accept. Our new solutions or solution enhancementscould fail to attain sufficient market acceptance for many reasons, including:•delays in releasing our new solutions or enhancements to the market;•failure to accurately predict market demand or customer demands;•inability to protect against new types of attacks or techniques used by hackers;•defects, errors or failures in their design or performance;•negative publicity about their performance or effectiveness;•introduction or anticipated introduction of competing solutions by our competitors;•poor business conditions for our customers, causing them to delay IT purchases;•the perceived value of our solutions or enhancements relative to their cost;7Table of Contents•easing of regulatory requirements around security or storage; and•reluctance of customers to purchase solutions incorporating open source software.The introduction of new services by competitors or the development of entirely new technologies to replace existing offerings could make our solutionsobsolete or adversely affect our business and operating results. In addition, any new markets or countries into which we attempt to sell our solutions may not bereceptive. We may experience difficulties with software development, design, or marketing that could delay or prevent our development, introduction, orimplementation of new solutions and enhancements. We have in the past experienced delays in the planned release dates of new features and upgrades, and havediscovered defects in new solutions after their introduction. There can be no assurance that new solutions or upgrades will be released according to schedule, orthat when released they will not contain defects. Either of these situations could result in adverse publicity, loss of revenue, delay in market acceptance, or claimsby customers brought against us, all of which could have a material adverse effect on our reputation, business, operating results, and financial condition. Moreover,upgrades and enhancements to our solutions may require substantial investment and we have no assurance that such investments will be successful.A decline in demand for our solutions or for cloud solutions in general could cause our revenue to decline.We derive, and expect to continue to derive, substantially all of our revenue from the sale of our cloud and hybrid backup solutions, a rapidly changingmarket. Changes in customer preferences for cloud solutions may have a disproportionately greater impact on us than if we offered multiple solutions and services.The market for cloud solutions is subject to rapidly changing customer demand and trends in preferences. Some of the potential factors that could affect interest inand demand for cloud solutions include:•awareness of our brand and the cloud and hybrid backup solutions category generally;•the appeal and reliability of our solutions;•the price, performance, features, and availability of solutions and services that compete with ours;•public concern regarding privacy and data security;•our ability to maintain high levels of customer satisfaction; and•the rate of growth in cloud solutions generally.In addition, substantially all of our revenue is currently derived from customers in the U.S. Consequently, a decrease of interest in and demand for cloudbackup solutions in the U.S. could have a disproportionately greater impact on us than if our geographic mix of revenue was less concentrated.If we are unable to attract new customers to our solutions on a cost-effective basis, our revenue and operating results would be adversely affected.We generate substantially all of our revenue from the sale of subscriptions to our solutions. In order to grow, we must continue to attract a large number ofcustomers on a cost-effective basis, many of whom have not previously used cloud backup solutions. We use and periodically adjust a diverse mix of advertisingand marketing programs to promote our solutions. Significant increases in the pricing of one or more of our advertising channels would increase our advertisingcosts or cause us to choose less expensive and perhaps less effective channels. As we add to or change the mix of our advertising and marketing strategies, we mayexpand into channels with significantly higher costs than our current programs, which could adversely affect our operating results. We may incur advertising andmarketing expenses significantly in advance of the time we anticipate recognizing any revenue generated by such expenses, and we may only at a later date, ornever, experience an increase in revenue or brand awareness as a result of such expenditures. Additionally, because we recognize revenue from customers over theterms of their subscriptions, a large portion of our revenue for each quarter reflects deferred revenue from subscriptions entered into during previous quarters, anddownturns or upturns in subscription sales or renewals may not be reflected in our operating results until later periods. We have made in the past, and may make inthe future, significant investments to test new advertising, and there can be no assurance that any such investments will lead to the cost-effective acquisition ofadditional customers. If we are unable to maintain effective advertising programs, our ability to attract new customers could be adversely affected, our advertisingand marketing expenses could increase substantially, and our operating results may suffer.8Table of ContentsA portion of our potential customers locate our website through search engines, such as Google, Bing, and Yahoo!. Our ability to maintain the number ofvisitors directed to our website is not entirely within our control. If search engine companies modify their search algorithms in a manner that reduces theprominence of our listing, or if our competitors’ search engine optimization efforts are more successful than ours, fewer potential customers may click through toour website. In addition, the cost of purchased listings has increased in the past and may increase in the future. A decrease in website traffic or an increase in searchcosts could adversely affect our customer acquisition efforts and our operating results.A significant portion of our customers first try our solutions through free trials. We seek to convert these free trial users to paying customers of our solutions.If our rate of conversion suffers for any reason, our revenue may decline and our business may suffer.If we are unable to retain our existing customers, our revenue and operating results would be adversely affected.If our efforts to satisfy our existing customers are not successful, we may not be able to retain them, and as a result, our revenue and ability to grow would beadversely affected. We may not be able to accurately predict future trends in customer renewals. Customers choose not to renew their subscriptions for manyreasons, including if customer service issues are not satisfactorily resolved, a desire to reduce discretionary spending, or a perception that they do not use theservice sufficiently, that the solution is a poor value, or that competitive services provide a better value or experience. If our customer retention rate decreases, wemay need to increase the rate at which we add new customers in order to maintain and grow our revenue, which may require us to incur significantly higheradvertising and marketing expenses than we currently anticipate, or our revenue may decline. A significant decrease in our customer retention rate would thereforehave an adverse effect on our business, financial condition, and operating results.Our relationships with our partners and distributors may be terminated or may not continue to be beneficial in generating new customers, which couldadversely affect our ability to increase our customer base.We maintain a network of active partners and distributors, which refer customers to us through links on their websites or outbound promotion to theircustomers. The number of customers that we are able to add through these relationships is dependent on the marketing efforts of our partners and distributors, overwhich we have little control. If we are unable to maintain our contractual relationships with existing partners and distributors, or establish new contractualrelationships with potential partners and distributors, we may experience delays and increased costs in adding customers, which could have a material adverseeffect on us.If we are unable to expand our base of small business customers, our business could be adversely affected.We have committed and continue to commit substantial resources to the expansion and increased marketing of our small business solutions. If we are unableto market and sell our solutions to small businesses with competitive pricing and in a cost-effective manner, our ability to grow our revenue and achieveprofitability will be harmed. We believe that it is more difficult and expensive to attract and retain small business customers than individuals, because smallbusinesses:•are difficult to reach without using more expensive, targeted sales campaigns;•may have different or much more complex needs than those of individual consumers, such as archiving, version control, enhanced security requirements,and other forms of encryption and authentication, which our solutions may not adequately address; and•frequently cease operations due to the sale or failure of their business.In addition, small businesses frequently have limited budgets and are more likely to be significantly affected by economic downturns than larger, moreestablished companies. As a result, they may choose to spend funds on items other than our solutions, particularly during difficult economic times. If we areunsuccessful in meeting the needs of potential small business customers, it could adversely affect our future growth and operating results.If we are unable to sustain market recognition of and loyalty to our brand, or if our reputation were to be harmed, we could lose customers or fail to increasethe number of our customers, which could harm our revenue, operating results, and financial condition.Given our small business and consumer market focus, maintaining and enhancing the Carbonite brand is critical to our success. We believe that the importanceof brand recognition and loyalty will increase in light of increasing competition in our9Table of Contentsmarkets. We plan to continue investing substantial resources to promote our brand, both domestically and internationally, but there is no guarantee that our branddevelopment strategies will enhance the recognition of our brand. Some of our existing and potential competitors have well-established brands with greaterrecognition than we have. If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract and retain customersmay be adversely affected. In addition, even if our brand recognition and loyalty increases, this may not result in increased use of our solutions or higher revenue.Our solutions, as well as those of our competitors, are regularly reviewed in computer and business publications. Negative reviews, or reviews in which ourcompetitors’ solutions and services are rated more highly than our solutions, could negatively affect our brand and reputation. From time-to-time, our customersexpress dissatisfaction with our solutions, including, among other things, dissatisfaction with our customer support, our billing policies, and the way our solutionsoperate. If we do not handle customer complaints effectively, our brand and reputation may suffer, we may lose our customers’ confidence, and they may choosenot to renew their subscriptions. In addition, many of our customers participate in online blogs about computers and internet services, including our solutions, andour success depends in part on our ability to generate positive customer feedback through such online channels where consumers seek and share information. Ifactions that we take or changes that we make to our solutions upset these customers, their blogging could negatively affect our brand and reputation. Complaints ornegative publicity about our solutions or billing practices could adversely impact our ability to attract and retain customers and our business, financial condition,and operating results.The termination of our relationship with any major credit card company would have a severe, negative impact on our ability to collect revenue from customers.Increases in credit card processing fees would increase our operating expenses and adversely affect our operating results.Substantially all of our customers purchase our solutions online with credit cards, and our business depends upon our ability to offer credit card paymentoptions. The termination of our ability to process payments on any major credit card would significantly impair our ability to operate our business and significantlyincrease our administrative costs related to customer payment processing. If we fail to maintain our compliance with the data protection and documentationstandards adopted by the major credit card issuers and applicable to us, these issuers could terminate their agreements with us, and we could lose our ability tooffer our customers a credit card payment option. If these issuers increase their credit card processing fees because we experience excessive chargebacks or refundsor for other reasons, it could adversely affect our business and operating results.Any significant disruption in service on our websites, in our computer systems, or caused by our third party storage and system providers could damage ourreputation and result in a loss of customers, which would harm our business, financial condition, and operating results.Our brand, reputation, and ability to attract, retain and serve our customers are dependent upon the reliable performance of our websites, networkinfrastructure and payment systems, and our customers’ ability to readily access their stored files. We have experienced interruptions in these systems in the past,including server failures that temporarily slowed down our websites’ performance and our customers’ ability to access their stored files, or made our websites andinfrastructure inaccessible, and we may experience interruptions in the future.In addition, while we operate and maintain elements of our websites and network infrastructure, some elements of this complex system are operated by thirdparties that we do not control and that would require significant time to replace. We expect this dependence on third parties to increase. In particular, we utilizeAmazon Web Services and Google Cloud Storage to provide us with some computing and storage capacity pursuant to agreements that continue until terminatedupon written notice by either party. All of these third-party systems are located in data center facilities operated by third parties. Our data center leases expire atvarious times in 2016 and 2018 with rights of extension. If we are unable to renew these agreements on commercially reasonable terms, we may be required totransfer that portion of our computing and storage capacity to new data center facilities, and we may incur significant costs and possible service interruption inconnection with doing so.Interruptions in our own systems, the third-party systems on which we rely, or the use of our data center facilities, whether due to system failures, computerviruses, physical or electronic break-ins, damage or interruption from human error, power losses, natural disasters or terrorist attacks, hardware failures, systemsfailures, telecommunications failures or other factors, could affect the security or availability of our websites and infrastructure, prevent us from being able tocontinuously back up our customers’ data or our customers from accessing their stored data, and may damage our customers’ stored files. Any financialdifficulties, such as bankruptcy, faced by our third-party data center operators or any of the service providers with whom we or they contract may have negativeeffects on our business, the nature and extent of which are difficult to predict. Moreover, if our third-party data center providers are unable to keep up with ourgrowing needs for capacity, this could have an10Table of Contentsadverse effect on our business. Interruptions in our services might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potentialliability, or harm our renewal rates.In addition, prolonged delays or unforeseen difficulties in connection with adding storage capacity or upgrading our network architecture when required maycause our service quality to suffer. Problems with the reliability or security of our systems could harm our reputation. Damage to our reputation and the cost ofremedying these problems could negatively affect our business, financial condition, and operating results.Our proprietary systems provide redundancy at the disk level, but do not keep separate, redundant copies of stored customer files. Instead, we rely on the factthat our customers, in effect, back up our system by maintaining the primary instance of their files. We do not intend to create redundant backup sites for oursolutions. As such, a total failure of our systems, or the failure of any of our systems, could result in the loss of or a temporary inability to back up our customers’data and result in our customers being unable to access their stored files. If one of our data centers fails at the same time that our customers’ computers fail, wewould be unable to provide stored copies of their data. If this were to occur, our reputation could be compromised and we could be subject to liability to thecustomers that were affected.Our success depends on our customers’ continued high-speed access to the internet and the continued reliability of the internet infrastructure.Our business depends on our customers’ high-speed access to the internet, as well as the continued maintenance and development of the internet infrastructure.The future delivery of our solutions will depend on third-party internet service providers to expand high-speed internet access, to maintain a reliable network withthe necessary speed, data capacity and security, and to develop complementary solutions and services, including high-speed modems, for providing reliable andtimely internet access and services. All of these factors are out of our control. To the extent that the internet continues to experience an increased number of users,frequency of use, or bandwidth requirements, the internet may become congested and be unable to support the demands placed on it, and its performance orreliability may decline. Any internet outages or delays could adversely affect our ability to provide services to our customers.If the security of our customers’ confidential information stored in our systems is breached or their stored files are otherwise subjected to unauthorized access,our reputation and business may be harmed, and we may be exposed to liability.Our customers rely on our solutions to store digital copies of their files, including financial records, business information, photos, and other personallymeaningful content. We also store credit card information and other personal information about our customers. An actual or perceived breach of our networksecurity and systems or other events that cause the loss or public disclosure of, or access by third parties to, our customers’ stored files could have serious negativeconsequences for our business, including possible fines, penalties and damages, reduced demand for our solutions, an unwillingness of customers to provide uswith their credit card or payment information, an unwillingness of our customers to use our solutions, harm to our reputation and brand, loss of our ability to acceptand process customer credit card orders, and time-consuming and expensive litigation. If this occurs, our business and operating results could be adverselyaffected. Third parties may be able to circumvent our security by deploying viruses, worms, and other malicious software programs that are designed to attack orattempt to infiltrate our systems and networks and we may not immediately discover these attacks or attempted infiltrations. Further, outside parties may attempt tofraudulently induce our employees, consultants, or affiliates to disclose sensitive information in order to gain access to our information or our customers’information. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized untillaunched against a target, and may originate from less regulated or remote areas around the world. As a result, we may be unable to proactively address thesetechniques or to implement adequate preventative or reactionary measures. In addition, employee or consultant error, malfeasance, or other errors in the storage,use, or transmission of personal information could result in a breach of customer or employee privacy. We maintain insurance coverage to mitigate the potentialfinancial impact of these risks; however, our insurance may not cover all such events or may be insufficient to compensate us for the potentially significant losses,including the potential damage to the future growth of our business, that may result from the breach of customer or employee privacy.Many states have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosuresregarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data securitymeasures. Any security breach, whether successful or not, would harm our reputation and could cause the loss of customers. Similarly, if a well-publicized breachof data security at any other cloud backup service provider or other major consumer website were to occur, there could be a general public loss of confidence in theuse of the internet for cloud backup services or commercial transactions generally. Any of these events could have material adverse effects on our business,financial condition, and operating results.11Table of ContentsOur solutions are complex and operate in a wide variety of environments, systems, applications and configurations, which could result in errors or solutionfailures.Because we offer very complex solutions, undetected errors, failures, or bugs may occur, especially when solutions are first introduced or when new versionsare released. Our solutions are often installed and used in large-scale computing environments with different operating systems, system management software, andequipment and networking configurations, which may cause errors or failures in our solutions or may expose undetected errors, failures, or bugs in our solutions.Our customers’ computing environments are often characterized by a wide variety of standard and non-standard configurations that make pre-release testing forprogramming or compatibility errors very difficult and time-consuming. In addition, despite testing by us and others, errors, failures, or bugs may not be found innew solutions or releases until after distribution. In the past, we have discovered software errors, failures, and bugs in certain of our solution offerings after theirintroduction and, in some cases, have experienced delayed or lost revenues as a result of these errors.Errors, failures, or bugs in solutions released by us could result in negative publicity, damage to our brand, returns, loss of or delay in market acceptance ofour solutions, loss of competitive position, or claims by customers or others. Many of our end-user customers use our solutions in applications that are critical totheir businesses and may have a greater sensitivity to defects in our solutions than to defects in other, less critical, software solutions. In addition, if an actual orperceived breach of information integrity or availability occurs in one of our end-user customer’s systems, regardless of whether the breach is attributable to oursolutions, the market perception of the effectiveness of our solutions could be harmed. Alleviating any of these problems could require significant expenditures ofour capital and other resources and could cause interruptions, delays, or cessation of our solution licensing, which could cause us to lose existing or potentialcustomers and could adversely affect our operating results.We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy,and our actual or perceived failure to comply with such obligations could harm our business.We receive, store, and process personal information and other customer data. Personal privacy has become a significant issue in the United States and in manyother countries where we offer our solutions. The regulatory framework for privacy issues worldwide is currently complex and evolving, and it is likely to remainuncertain for the foreseeable future. There are numerous federal, state, local, and foreign laws regarding privacy and the storing, sharing, use, processing,disclosure and protection of personal information and other customer data, the scope of which are changing, subject to differing interpretations, and may beinconsistent among countries or conflict with other rules. We generally seek to comply with industry standards and are subject to the terms of our privacy policiesand privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating toprivacy and data protection to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent fromone jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, ourprivacy-related obligations to customers or other third parties, our privacy-related legal obligations, or any compromise of security that results in the unauthorizedrelease or transfer of personally identifiable information or other customer data, may result in governmental enforcement actions, litigation, or public statementsagainst us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our reputation andbusiness. Our customers may also accidentally disclose their passwords or store them on a mobile device that is lost or stolen, creating the perception that oursystems are not secure against third-party access. Additionally, if third parties that we work with, such as vendors or developers, violate applicable laws or ourpolicies, such violations may also put our customers’ information at risk and could in turn have an adverse effect on our business. Any significant change toapplicable laws, regulations, or industry practices regarding the use or disclosure of our customers’ data, or regarding the manner in which the express or impliedconsent of customers for the use and disclosure of such data is obtained, could require us to modify our solutions and features, possibly in a material manner, andmay limit our ability to develop new services and features that make use of the data that our customers voluntarily share with us.Our solutions are used by customers in the health care industry and we must comply with numerous federal and state laws related to patient privacy inconnection with providing our solutions to these customers.Our solutions are used by customers in the health care industry and we must comply with numerous federal and state laws related to patient privacy inconnection with providing our solutions to these customers. In particular, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and theHealth Information Technology for Economic and Clinical Health Act, or HITECH, include privacy standards that protect individual privacy by limiting the usesand disclosures of individually identifiable health information and implementing data security standards. Because our solutions may backup individuallyidentifiable health information for our customers, our customers are mandated by HIPAA to enter into written12Table of Contentsagreements with us-known as business associate agreements-that require us to safeguard individually identifiable health information. Business associateagreements typically include:•a description of our permitted uses of individually identifiable health information;•a covenant not to disclose that information except as permitted under the agreement and to make our subcontractors, if any, subject to the samerestrictions;•assurances that appropriate administrative, physical, and technical safeguards are in place to prevent misuse of that information;•an obligation to report to our customers any use or disclosure of that information other than as provided for in the agreement;•a prohibition against our use or disclosure of that information if a similar use or disclosure by our customers would violate the HIPAA standards;•the ability of our customers to terminate their subscription to our solution if we breach a material term of the business associate agreement and are unableto cure the breach;•the requirement to return or destroy all individually identifiable health information at the end of the customer’s subscription; and•access by the Department of Health and Human Services to our internal practices, books, and records to validate that we are safeguarding individuallyidentifiable health information.We may not be able to adequately address the business risks created by HIPAA or HITECH implementation or comply with our obligations under our businessassociate agreements. Furthermore, we are unable to predict what changes to HIPAA, HITECH or other laws or regulations might be made in the future or howthose changes could affect our business or the costs of compliance. Failure by us to comply with any of the federal and state standards regarding patient privacymay subject us to penalties, including civil monetary penalties and, in some circumstances, criminal penalties, which could have an adverse effect on our business,financial condition, and operating results.Our operating results have fluctuated in the past and may continue to do so in the future. As a result, we may fail to meet or exceed the expectations ofsecurities analysts or investors, which could cause our stock price to decline.Our quarterly and annual operating results may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly or annualoperating results or guidance fall below the expectations of securities analysts or investors, the price of our common stock could decline substantially. Thefollowing factors, among others, could cause fluctuations in our quarterly or annual operating results or guidance:•our ability to attract new customers and retain existing customers;•our ability to accurately forecast revenue and appropriately plan our expenses;•our ability to introduce new solutions;•the actions of our competitors, including pricing changes or the introduction of new solutions;•our ability to effectively manage our growth;•the mix of annual and multi-year subscriptions at any given time;•seasonal variations or other cyclicality in the demand for our solutions, including the purchasing and budgeting cycles of our small business customers;•the timing and cost of advertising and marketing efforts;•the timing and cost of developing or acquiring technologies, services, or businesses;13Table of Contents•the timing, operating cost, and capital expenditures related to the operation, maintenance, and expansion of our business;•service outages or security breaches and any related impact on our reputation;•our ability to successfully manage any future acquisitions of businesses, solutions, or technologies;•the impact of worldwide economic, industry, and market conditions and those conditions specific to internet usage and online businesses;•costs associated with defending intellectual property infringement and other claims; and•changes in government regulation affecting our business.We believe that our quarterly and annual revenue and operating results may vary significantly in the future and that period-to-period comparisons of ouroperating results may not be meaningful. You should not rely on the results of one period as an indication of future performance.Seasonal variations in our business may also cause fluctuations in our financial results. For example, we generally spend more on advertising during the firstand third quarters of each year to capitalize on lower advertising rates in these periods and increased sales of devices that create or store data during post-holidayand back to school periods and our bookings tend to be higher in these periods. While we believe that these seasonal trends have affected and will continue toaffect our quarterly and annual results, our trajectory of rapid growth may have overshadowed these effects to date. We believe that our business may become moreseasonal in the future as our growth rate slows, and that such seasonal variations in advertising expenditures and customer purchasing patterns may result influctuations in our financial results.If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which couldharm our operating results, our ability to operate our business, and our investors views of us.Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on atimely basis is a costly and time-consuming effort that needs to be evaluated frequently. As part of our process of documenting and testing our internal control overfinancial reporting, we may identify areas for further attention and improvement. Implementing any appropriate changes to our internal controls may distract ourofficers and employees, entail substantial costs to modify our existing processes, and take significant time to complete. These changes may not, however, beeffective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financialstatements on a timely basis, could increase our operating costs and harm our business. In addition, investors perceptions that our internal controls are inadequateor that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively marketand sell our solutions to new and existing customers.We do not expect that disclosure controls or internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter howwell designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a controlsystem must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.Failure of our control systems to prevent error or fraud could materially and adversely impact us.If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating resultscould fall below expectations of securities analysts and investors, resulting in a decline in our stock price.The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported inthe consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe tobe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenuerecognition, stock-based compensation, valuation of inventory and accounting for income taxes. Our operating results may be adversely affected if our assumptionschange or if actual circumstances differ from those in14Table of Contentsour assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results ofoperations.Changes in financial accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactionscompleted before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and mayoccur in the future. Changes to existing rules or the questioning of current practices may adversely affect our business and financial results.Growth may place significant demands on our management and our infrastructure.We have experienced substantial growth in our business. This growth has placed and may continue to place significant demands on our management and ouroperational and financial infrastructure. As our operations grow in size, scope, and complexity, we will need to improve and upgrade our systems and infrastructureto attract, service, and retain an increasing number of customers. The expansion of our systems and infrastructure will require us to commit substantial financial,operational, and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. Any suchadditional capital investments will increase our cost base. Continued growth could also strain our ability to maintain reliable service levels for our customers,develop and improve our operational, financial, and management controls, enhance our reporting systems and procedures, and recruit, train, and retain highlyskilled personnel. If we fail to achieve the necessary level of efficiency in our organization as we grow, our business, financial condition, and operating resultscould be harmed.We may expand by continuing to acquire or invest in other companies, which may divert our management’s attention, result in additional dilution to ourstockholders, and consume resources that are necessary to sustain our business.We may in the future continue to acquire complementary solutions, services, technologies, or businesses. We may also enter into relationships with otherbusinesses to expand our portfolio of solutions or our ability to provide our solutions in foreign jurisdictions, which could involve preferred or exclusive licenses,additional channels of distribution, discount pricing, or investments in other companies. We do not have substantial experience with integrating and managingacquired businesses or assets. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions mayoften be subject to conditions or approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close.Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for thedevelopment of our business. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposedto unknown liabilities, including litigation against the companies that we may acquire. In connection with any such transaction, we may:•issue additional equity securities that would dilute our stockholders;•use cash that we may need in the future to operate our business;•incur debt on terms unfavorable to us, that we are unable to repay, or that may place burdensome restrictions on our operations;•incur large charges or substantial liabilities; or•become subject to adverse tax consequences or substantial depreciation, deferred compensation, or other acquisition-related accounting charges.Any of these risks could harm our business and operating results.Integration of an acquired company’s operations may present challenges.The integration of an acquired company requires, among other things, coordination of administrative, sales and marketing, accounting and finance functions,and expansion of information and management systems. Integration may prove to be difficult due to the necessity of coordinating geographically separateorganizations and integrating personnel with disparate business15Table of Contentsbackgrounds and accustomed to different corporate cultures. We may not be able to retain key employees of an acquired company. Additionally, the process ofintegrating a new solution or service may require a disproportionate amount of time and attention of our management and financial and other resources. Anydifficulties or problems encountered in the integration of a new solution or service could have a material adverse effect on our business.The integration of an acquired company may cost more than we anticipate, and it is possible that we will incur significant additional unforeseen costs inconnection with such integration, which may negatively impact our earnings.In addition, we may only be able to conduct limited due diligence on an acquired company’s operations. Following an acquisition, we may be subject toliabilities arising from an acquired company’s past or present operations, including liabilities related to data security, encryption and privacy of customer data, andthese liabilities may be greater than the warranty and indemnity limitations that we negotiate. Any liability that is greater than these warranty and indemnitylimitations could have a negative impact on our financial condition.Even if successfully integrated, there can be no assurance that our operating performance after an acquisition will be successful or will fulfill management’sobjectives.We may be unsuccessful in managing or expanding our operations, which could adversely affect our operating results.We have office locations throughout the United States and in various international locations, including Germany, the Netherlands and Switzerland. If we areunable to effectively manage a large and geographically dispersed group of employees or to anticipate our future growth and personnel needs, our business may beadversely affected. As we expand our business, we add complexity to our organization and must expand and adapt our operational infrastructure and effectivelycoordinate throughout our organization. As a result, we have incurred and expect to continue to incur additional expense related to our continued growth. Failure tomanage any future growth effectively could result in increased costs, negatively impact our customers’ satisfaction with our solutions, and harm our operatingresults.The loss of one or more of our key personnel, or our failure to attract, integrate, and retain other highly qualified personnel, could harm our business.We depend on the continued service and performance of our key personnel. We do not have long-term employment agreements with any of our officers or keyemployees. In addition, many of our key technologies and systems are custom-made for our business by our personnel. The loss of key personnel, including keymembers of our management team, as well as certain of our key marketing, sales, products development, or technology personnel, could disrupt our operations andhave an adverse effect on our ability to grow our business. In addition, several of our key personnel have only recently been employed by us, and we are still in theprocess of integrating these personnel into our operations. Our failure to successfully integrate these key employees into our business could adversely affect ourbusiness.To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these employees is intense, and we may not be successfulin attracting and retaining qualified personnel. We have from time to time in the past experienced, and we expect to continue to experience, difficulty in hiring andretaining highly skilled employees with appropriate qualifications. New hires require significant training and, in most cases, take significant time before theyachieve full productivity. Our recent hires and planned hires may not become as productive as we expect, and we may be unable to hire or retain sufficient numbersof qualified individuals. Many of the companies with which we compete for experienced personnel have greater resources than we have. In addition, in makingemployment decisions, particularly in the internet and high-technology industries, job candidates often consider the value of the equity that they are to receive inconnection with their employment. In addition, employees may be more likely to voluntarily exit the Company if the shares underlying their vested and unvestedoptions, as well as unvested restricted stock units, have significantly depreciated in value resulting in the options they are holding being significantly above themarket price of our common stock and the value of the restricted stock units decreasing. If we fail to attract new personnel, or fail to retain and motivate ourcurrent personnel, our business and growth prospects could be severely harmed.Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity, andteamwork fostered by our culture, and our business may be harmed.We believe that our corporate culture has been a key contributor to our success. If we do not continue to develop our corporate culture as we grow and evolve,including maintaining our culture of transparency with our employees, it could harm our ability to foster the innovation, creativity, and teamwork that we believethat we need to support our growth. As our organization grows and we are required to implement more complex organizational structures, we may find itincreasingly16Table of Contentsdifficult to maintain the beneficial aspects of our corporate culture, which could negatively impact our future success. In addition, the availability of a publicmarket for our securities could create disparities of wealth among our employees, which could adversely impact relations among employees and our corporateculture in general.Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect ouroperating results and financial condition.We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities will be subject to theallocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:•changes in the valuation of our deferred tax assets and liabilities;•expected timing and amount of the release of tax valuation allowances;•expiration of, or detrimental changes in, research and development tax credit laws;•tax effects of stock-based compensation;•costs related to intercompany restructurings;•changes in tax laws, regulations, accounting principles or interpretations thereof; or•future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries wherewe have higher statutory tax rates.In addition, we may be subject to audits of our income and sales taxes by the Internal Revenue Service and other foreign and state tax authorities. Outcomesfrom these audits could have an adverse effect on our operating results and financial condition.Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.As of December 31, 2015, we had federal, state, and foreign net operating loss carryforwards, or NOLs, of $110.1 million, $73.4 million, and $5.5 million,respectively, available to offset future taxable income, which expire in various years through 2033 if not utilized. A lack of future taxable income would adverselyaffect our ability to utilize these NOLs before they expire. Under the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code,substantial changes in our ownership may limit the amount of pre-change NOLs that can be utilized annually in the future to offset taxable income. Section 382 ofthe Internal Revenue Code, or Section 382, imposes limitations on a company’s ability to use NOLs if a company experiences a more-than-50-percent ownershipchange over a three-year testing period. Based upon our analysis as of December 31, 2015, there was no ownership change experienced during 2015. If changes inour ownership occur in the future, our ability to use NOLs may be further limited. For these reasons, we may not be able to utilize a material portion of the NOLs,even if we achieve profitability. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than ifwe were able to fully utilize our NOLs. This could adversely affect our operating results and the market price of our common stock.We face many risks associated with our plans to expand internationally, which could harm our business, financial condition, and operating results.We anticipate that our efforts to expand internationally will entail the marketing and advertising of our services and brand and the development of localizedwebsites. We do not have substantial experience in selling our solutions in international markets or in conforming to the local cultures, standards, or policiesnecessary to successfully compete in those markets, and we must invest significant resources in order to do so. We may not succeed in these efforts or achieve ourcustomer acquisition or other goals. For some international markets, customer preferences and buying behaviors may be different, and we may use business orpricing models that are different from our traditional subscription model to provide cloud backup and related services to customers. Our revenue from new foreignmarkets may not exceed the costs of establishing, marketing, and maintaining our international solutions, and therefore may not be profitable on a sustained basis,if at all.In addition, conducting international operations subjects us to new risks that we have not generally faced in the U.S. These risks include:17Table of Contents•localization of our solutions, including translation into foreign languages and adaptation for local practices and regulatory requirements;•lack of experience in other geographic markets;•strong local competitors;•cost and burden of complying with, lack of familiarity with, and unexpected changes in foreign legal and regulatory requirements, including consumerand data privacy laws;•difficulties in managing and staffing international operations;•fluctuations in currency exchange rates or restrictions on foreign currency;•potentially adverse tax consequences, including the complexities of transfer pricing, foreign value added or other tax systems, double taxation andrestrictions, and/or taxes on the repatriation of earnings;•dependence on third parties, including channel partners with whom we do not have extensive experience;•compliance with the Foreign Corrupt Practices Act, economic sanction laws and regulations, export controls, and other U.S. laws and regulationsregarding international business operations;•increased financial accounting and reporting burdens and complexities;•political, social, and economic instability abroad, terrorist attacks, and security concerns in general; and•reduced or varied protection for intellectual property rights in some countries.Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required toestablish operations and manage growth in other countries may not produce desired levels of revenue or profitability.Our software contains encryption technologies, certain types of which are subject to U.S. and foreign export control regulations and, in some foreign countries,restrictions on importation and/or use. Any failure on our part to comply with encryption or other applicable export control requirements could result in financialpenalties or other sanctions under the U.S. export regulations, including restrictions on future export activities, which could harm our business and operatingresults. Regulatory restrictions could impair our access to technologies that we seek for improving our solutions and may also limit or reduce the demand for oursolutions outside of the U.S.Risks Related to Intellectual PropertyAssertions by a third party that our solutions infringe its intellectual property, whether or not correct, could subject us to costly and time-consuming litigationor expensive licenses.There is frequent litigation in the software and technology industries based on allegations of infringement or other violations of intellectual property rights.Any such claims or litigation may be time-consuming and costly, divert management resources, require us to change our services, require us to credit or refundsubscription fees, or have other adverse effects on our business. Many companies are devoting significant resources to obtaining patents that could affect manyaspects of our business. Third parties may claim that our technologies or solutions infringe or otherwise violate their patents or other intellectual property rights. Aswe face increasing competition and become increasingly visible as a publicly-traded company, or if we become more successful, the possibility of new third-partyclaims may increase.If we are forced to defend ourselves against intellectual property infringement claims, whether they have merit or are determined in our favor, we may facecostly litigation, diversion of technical and management personnel, limitations on our ability to use our current websites and technologies, and an inability tomarket or provide our solutions. As a result of any such claim, we may have to develop or acquire non-infringing technologies, pay damages, enter into royalty orlicensing agreements, cease providing certain services, adjust our marketing and advertising activities, or take other actions to resolve the claims. These actions, ifrequired, may be costly or unavailable on terms acceptable to us, or at all.18Table of ContentsFurthermore, we have licensed proprietary technologies from third parties that we use in our technologies and business, and we cannot be certain that theowners’ rights in their technologies will not be challenged, invalidated, or circumvented. In addition to the general risks described above associated withintellectual property and other proprietary rights, we are subject to the additional risk that the seller of such technologies may not have appropriately created,maintained, or enforced their rights in such technology.Our success depends in large part on our ability to protect and enforce our intellectual property rights. If we are not able to adequately protect our intellectualproperty and proprietary technologies to prevent use or appropriation by our competitors, the value of our brand and other intangible assets may bediminished, and our business may be adversely affected.Our future success and competitive position depend in large part on our ability to protect our intellectual property and proprietary technologies. We rely on acombination of trademark, patent, copyright, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect ourproprietary rights, all of which provide only limited protection and may not now or in the future provide us with a competitive advantage. CARBONITE is aregistered trademark in the U.S. and in over 30 other countries, including countries in the European Union. Carbonite also has additional registrations and pendingapplications for additional marks in the U.S. and other countries. We cannot assure you that any future trademark registrations will be issued for pending or futureapplications or that any registered trademarks will be enforceable or provide adequate protection of our proprietary rights. We currently have 27 issued patents and20 pending patent applications in the U.S. and internationally. We cannot assure you that any patents will issue from any such patent applications, that patents thatissue from such applications will give us the protection that we seek, or that any such patents will not be challenged, invalidated, or circumvented. Any patents thatmay issue in the future from our pending or future patent applications may not provide sufficiently broad protection and may not be enforceable in actions againstalleged infringers. To counter infringement or unauthorized use, we may be required to file patent infringement claims, which can be expensive and time-consuming to litigate. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stopothers from using the technology at issue on the grounds that our patent(s) do not cover such technology. An adverse determination of any litigation or defenseproceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not beingissued.There can be no assurance that the steps that we take will be adequate to protect our technologies and intellectual property, that our trademark and patentapplications will lead to registered trademarks or issued patents, that others will not develop or patent similar or superior technologies, solutions, or services, orthat our trademarks, patents, and other intellectual property will not be challenged, invalidated, or circumvented by others. Furthermore, effective trademark,patent, copyright, and trade secret protection may not be available in every country in which our services are available or where we have employees or independentcontractors. In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in internet-relatedindustries are uncertain and still evolving. If our efforts to protect our technologies and intellectual property are inadequate, the value of our brand and otherintangible assets may be diminished and competitors may be able to mimic our solutions and methods of operations. Any of these events could have a materialadverse effect on our business, financial condition, and operating results.Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and proprietary information. Failure toprotect our proprietary information could make it easier for third parties to compete with our solutions and harm our business.We have devoted substantial resources to the development of our proprietary technologies and related processes. In order to protect our proprietarytechnologies and processes, we rely in part on trade secret laws and confidentiality agreements with our employees, licensees, independent contractors, and otheradvisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event ofunauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets, in which case we would not be able to asserttrade secret rights, or develop similar technologies and processes. Further, laws in certain jurisdictions may afford little or no trade secret protection, and anychanges in, or unexpected interpretations of, the intellectual property laws in any country in which we operate may compromise our ability to enforce ourintellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure orinability to obtain or maintain trade secret protection or otherwise protect our proprietary rights could adversely affect our business.Our use of “open source” software could negatively affect our ability to sell our solutions and subject us to possible litigation.A portion of the technologies licensed by us to our customers incorporates so-called “open source” software, and we may incorporate open source software inthe future. Such open source software is generally licensed by its authors or other third19Table of Contentsparties under open source licenses. These licenses may subject us to certain unfavorable conditions, including requirements that we offer our solutions thatincorporate the open source software for no cost, that we make publicly available source code for modifications or derivative works we create based upon,incorporating, or using the open source software, and/or that we license such modifications or derivative works under the terms of the particular open sourcelicense. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could berequired to disclose any of our source code that incorporates or is a modification of such licensed software. If an author or other third party that distributes opensource software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incursignificant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our solutions that contained theopen source software, and required to comply with the foregoing conditions. Any of the foregoing could disrupt the distribution and sale of our solutions and harmour business.We rely on third-party software, including server software and licenses from third parties to use patented intellectual property, that is required to develop andprovide our solutions.We rely on software licensed from third parties to develop and offer our solutions. In addition, we may need to obtain future licenses from third parties to useintellectual property associated with the development of our solutions, which might not be available to us on acceptable terms, or at all. Any loss of the right to useany software required for the development and maintenance of our solutions could result in delays in the provision of our solutions until equivalent technology iseither developed by us, or, if available from others, is identified, obtained, and integrated, which delay could harm our business. Any errors or defects in third-partysoftware could result in errors or a failure of our solutions, which could harm our business.If we are unable to protect our domain names, our reputation, brand, customer base, and revenue, as well as our business and operating results, could beadversely affected.We have registered domain names for websites, or URLs, that we use in our business, such as www.carbonite.com. If we are unable to maintain our rights inthese domain names, our competitors or other third parties could capitalize on our brand recognition by using these domain names for their own benefit. Inaddition, although we own the Carbonite domain name under various global top level domains such as .com and .net, as well as under various country-specificdomains, we might not be able to, or may choose not to, acquire or maintain other country-specific versions of the Carbonite domain name or other potentiallysimilar URLs. Domain names similar to ours have already been registered in the U.S. and elsewhere, and our competitors or other third parties could capitalize onour brand recognition by using domain names similar to ours. The regulation of domain names in the U.S. and elsewhere is generally conducted by internetregulatory bodies and is subject to change. If we lose the ability to use a domain name in a particular country, we may be forced to either incur significantadditional expenses to market our solutions within that country, including the development of a new brand and the creation of new promotional materials, or electnot to sell our solutions in that country. Either result could substantially harm our business and operating results. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire ormaintain the domain names that utilize the name Carbonite in all of the countries in which we currently conduct or intend to conduct business. Further, therelationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights varies among jurisdictions and is unclearin some jurisdictions. We may be unable to prevent third parties from acquiring and using domain names that infringe, are similar to, or otherwise decrease thevalue of, our brand or our trademarks. Protecting and enforcing our rights in our domain names and determining the rights of others may require litigation, whichcould result in substantial costs, divert management attention, and not be decided favorably to us.Material defects or errors in our software could harm our reputation, result in significant costs to us, and impair our ability to sell our solutions.The software applications underlying our solutions are inherently complex and may contain material defects or errors, particularly when first introduced orwhen new versions or enhancements are released. We have from time to time found defects or errors in our solutions, and new defects or errors in our existingsolutions may be detected in the future by us or our customers. The costs incurred in correcting such defects or errors may be substantial and could harm ouroperating results. In addition, we rely on hardware purchased or leased and software licensed from third parties to offer our solutions. Any defects in, orunavailability of, our or third-party software or hardware that cause interruptions to the availability of our solutions could, among other things:•cause a reduction in revenue or delay in market acceptance of our solutions;•require us to issue credits or refunds to our customers or expose us to claims for damages;20Table of Contents•cause us to lose existing customers and make it more difficult to attract new customers;•divert our development resources or require us to make extensive changes to our solutions or software, which would increase our expenses;•increase our technical support costs; and•harm our reputation and brand.Risks Related to Ownership of our Common StockOur stock price may be volatile due to fluctuations in our operating results and other factors, each of which could cause our stock price to decline and you maybe unable to sell your shares at or above the price at which you purchased your stock.Shares of our common stock were sold in our initial public offering in August 2011 at a price of $10.00 per share, and our common stock has subsequentlytraded as high as $21.10 and as low as $5.75. An active, liquid, and orderly market for our common stock may not be developed or sustained, which could depressthe trading price of our common stock. The market price for shares of our common stock could be subject to significant fluctuations in response to various factors,some of which are beyond our control. Some of the factors that may cause the market price for shares of our common stock to fluctuate include:•price and volume fluctuations in the overall stock market from time to time;•fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;•actual or anticipated fluctuations in our key operating metrics, financial condition, and operating results;•loss of existing customers or inability to attract new customers;•actual or anticipated changes in our growth rate;•announcements of technological innovations or new offerings by us or our competitors;•our announcement of actual results for a fiscal period that are lower than projected or expected or our announcement of revenue or earnings guidance thatis lower than expected;•changes in estimates of our financial results or recommendations by securities analysts;•failure of any of our solutions to achieve or maintain market acceptance;•changes in market valuations of similar companies;•success of competitive solutions or services;•changes in our capital structure, such as future issuances of securities or the incurrence of debt;•announcements by us or our competitors of significant solutions or services, contracts, acquisitions, or strategic alliances;•regulatory developments in the U.S. or foreign countries;•actual or threatened litigation involving us or our industry;•additions or departures of key personnel;•general perception of the future of the cloud backup market or our solutions;21Table of Contents•share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;•sales of our shares of common stock by our existing stockholders;•changes in general economic, industry, and market conditions; and•major changes in our Board of Directors or management or departures of key personnel.In addition, the stock market in general, and the market for internet-related companies in particular, has experienced extreme price and volume fluctuationsthat have often been unrelated or disproportionate to the operating performance of those companies. The trading price of our common stock might also decline inreaction to events that affect other companies in our industry even if these events do not directly affect us. Securities class action litigation has often been institutedagainst companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us,could result in very substantial costs, divert our management’s attention and resources, and harm our business, financial condition, and operating results. Inaddition, recent fluctuations in the financial and capital markets have resulted in volatility in securities prices.Our failure to raise additional capital or generate the cash flows necessary to expand our operations and invest in our business could reduce our ability tocompete successfully.Although we currently anticipate that our available funds will be sufficient to meet our cash needs for the next 12 months, we may require additional financingin the future. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and condition ofthe capital markets at the time we seek financing. If we need to raise additional funds, we may not be able to obtain debt or equity financing on favorable terms, ifat all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, and the per share value of ourcommon stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and forceus to maintain specified liquidity or other ratios. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:•develop or enhance our solutions;•continue to expand our development, sales, and marketing organizations;•acquire complementary technologies, solutions, or businesses;•expand our operations in the U.S. or internationally;•hire, train, and retain employees;•respond to competitive pressures or unanticipated working capital requirements; or•continue our operations.Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.If our existing stockholders sell, or indicate an intent to sell, a substantial number of shares of our common stock in the public market, the trading price of ourcommon stock could decline significantly. Two of our largest shareholders are venture capital funds, which are typically structured to have a finite life. As theseventure capital funds approach or pass the respective terms of their funds, their decision to sell or hold our common stock may be based not only on the underlyinginvestment merits of our securities but also on the requirements of their internal fund structure. Additionally, our directors, executive officers, and holders of morethan 5% of our common stock, and their respective affiliates beneficially own approximately 12.3 million shares of our common stock, which represents 43.5% ofour issued and outstanding shares of common stock as of December 31, 2015. If these shares are sold, or if it is perceived that they will be sold in the publicmarket, the trading price of our common stock could decline substantially.22Table of ContentsOur directors, executive officers, and principal stockholders have substantial control over us and could delay or prevent a change in corporate control.Our directors, executive officers, and holders of more than 5% of our common stock, together with their affiliates, beneficially hold a majority of ouroutstanding shares of common stock and have the ability to control the outcome of matters submitted to our stockholders for approval, including the election ofdirectors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, these stockholders, acting together, have the ability to control orinfluence the management and affairs of our company. This concentration of ownership could limit your ability to influence corporate matters and may have theeffect of delaying or preventing a change in control of our company.We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend onappreciation in the price of our common stock.We have never declared or paid any cash dividends on our common stock and do not intend to do so for the foreseeable future. We currently intend to investour future earnings, if any, to fund our growth and continuing operations. Therefore, you are not likely to receive any dividends on your shares of common stockfor the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. Our commonstock may not appreciate in value or even maintain the price at which our stockholders have purchased their shares.We cannot guarantee that we will repurchase our common stock pursuant to our stock repurchase program or that our stock repurchase program will enhancelong-term stockholder value. Stock repurchases could also increase the volatility of the price of our common stock and could diminish our cash reserves.In May 2015, our board of directors authorized a stock repurchase program. Under the program, we are authorized to repurchase shares of our common stockfor an aggregate purchase price not to exceed $20 million. Although our board of directors has authorized the stock repurchase program, the stock repurchaseprogram does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares and may be suspended or terminated at any time.Stock may be purchased from time to time, in the open market or through private transactions, subject to market condition, in compliance with applicable state andfederal securities laws. The timing and amount of repurchases, if any, will depend upon several factors, including market and business conditions, the trading priceof our common stock and the nature of other investment opportunities. In addition, repurchases of our common stock pursuant to our stock repurchase programcould affect the market price of our common stock or increase its volatility. For example, the existence of a stock repurchase program could cause our stock priceto be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our stock repurchaseprogram could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities andacquisitions. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may declinebelow the levels at which we determine to repurchase our stock. Although our stock repurchase program is intended to enhance long-term stockholder value, thereis no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.Anti-takeover provisions contained in our certificate of incorporation, bylaws as well as provisions of Delaware law, could impair a takeover attempt.Our certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in ourmanagement without the consent of our board of directors. These provisions include:•a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of ourboard of directors;•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;•the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death,or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;•the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares, includingpreferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;23Table of Contents•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;•the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, or theboard of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action;•limiting the liability of, and providing indemnification to, our directors and officers;•controlling the procedures for the conduct and scheduling of stockholder meetings;•providing the board of directors with the express power to postpone previously scheduled annual meetings of stockholders and to cancel previouslyscheduled special meetings of stockholders;•providing that directors may be removed prior to the expiration of their terms by stockholders only for cause; and•advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be actedupon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s ownslate of directors or otherwise attempting to obtain control of us.As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, whichprevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of theholders of substantially all of our outstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect ofdelaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and couldalso affect the price that some investors are willing to pay for our common stock.24Table of ContentsITEM 1B.UNRESOLVED STAFF COMMENTSNone.ITEM 2.PROPERTIESOur principal executive offices are located in Boston, Massachusetts, in a 52,588, square-foot facility, under a lease expiring on December 31, 2024. We alsohave our former corporate headquarters, which is a 39,775 square-foot facility in Boston, Massachusetts, under a lease and sublease expiring on December 31,2016, and a 22,592 square-foot customer support facility in Lewiston, Maine under a lease expiring on June 1, 2018. We also maintain small offices in Sunnyvale,California, Longmont, Colorado, Munich, Germany and Viersen, Germany.Our data centers are located in Massachusetts and Arizona. After the renewal of certain of our data center leases in February 2016, our data center leasesexpire between September 2016 and January 2019. Our Somerville, Massachusetts data center arrangement ended on January 31, 2015.ITEM 3.LEGAL PROCEEDINGS See Note 12 – Commitments and Contingencies – Litigation to our consolidated financial statements included in this Annual Report for informationconcerning litigation. From time to time, we have been and may become involved in legal proceedings arising in the ordinary course of our business. Although theresults of litigation and claims cannot be predicted with certainty, we are not presently involved in any legal proceeding in which the outcome, if determinedadversely to us, would be expected to have a material adverse effect on our business, operating results, or financial condition. Regardless of the outcome, litigationcan have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.ITEM 4.MINE SAFETY DISCLOSURESNot Applicable.25Table of ContentsITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket InformationOur common stock is traded on The NASDAQ Global Market under the symbol “CARB.” The following table shows the high and low sale prices per share ofour common stock as reported on The NASDAQ Global Market for the periods indicated: 2015 2014 High Low High LowFirst Quarter$15.43 $13.62 $13.80 $9.07Second Quarter$14.23 $9.90 $12.00 $8.26Third Quarter$12.09 $10.78 $12.66 $9.17Fourth Quarter$11.35 $8.40 $14.89 $9.55HoldersOn February 29, 2016, the closing price as reported on The NASDAQ Global Market, of our common stock was $7.57 per share. As of February 29, 2016, wehad approximately 42 holders of record of our common stock. This does not include the number of persons whose stock is held in nominee or “street” nameaccounts through brokers.DividendsWe have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Any future determination as to thedeclaration and payment of dividends, will be at the discretion of our board of directors and will depend on then existing conditions, including our financialcondition, operating results, contractual restrictions, capital requirements, business prospects, and other factors that our board of directors may deem relevant.Securities Authorized for Issuance under Equity Compensation PlansOur equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report.Recent Sales of Unregistered SecuritiesThere were no unregistered sales of our equity securities during the twelve months ended December 31, 2015.Issuer Purchases of Equity SecuritiesPeriodTotal Number ofShares Purchased (1) Average PricePaid per Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs (2) Maximum Number (orApproximate Dollar Value) ofShares that May Yet bePurchased Under the Plans orPrograms (2)October 1, 2015 - October 31, 2015216 $11.28 — $17,011,264November 1, 2015 - November 30, 2015227,610 $10.33 227,610 $14,659,841December 1, 2015 - December 31, 201532,500 $9.05 — $14,659,841Total260,326 227,610 (1) In October and December 2015 shares of Common Stock were withheld by the Company from the recipient when the vested restricted stock units were settledin order to satisfy withholding obligations of the Company as a result of the vesting of restricted stock units.(2) In May 2015, our Board of Directors authorized a $20.0 million share repurchase program, announced on May 14, 2015, expiring on May 15, 2018.26Table of ContentsPerformance GraphThe following performance graph compares the cumulative total return to holders of our common stock for the period from August 11, 2011, the date ourcommon stock commenced trading on The NASDAQ Global Market, through December 31, 2015, against the cumulative total return of The NASDAQ CompositeIndex and The NASDAQ-100 Technology Sector Index.The comparison assumes that $100.00 was invested in our common stock, The NASDAQ Composite Index and The NASDAQ-100 Technology Sector Index.The graph assumes the initial value of our common stock on August 11, 2011 was the closing sale price on that day of $12.35 per share and not the initial offeringprice to the public of $10.00 per share. The performance shown on the graph below is based on historical results and is not intended to suggest future performance.This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of theSecurities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities under that Section, and shall not be deemed to beincorporated by reference into any filing of Carbonite, Inc. under the Securities Act of 1933, as amended.PART II ITEM 6.SELECTED CONSOLIDATED FINANCIAL AND OTHER DATAYou should read the following selected consolidated financial and other data below in conjunction with “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and the consolidated financial statements, related notes, and other financial information included in this Annual Report. Theselected consolidated financial and other data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety bythe consolidated financial statements and related notes included elsewhere in this Annual Report.27Table of ContentsThe consolidated statements of operations data for the years ended December 31, 2015, 2014, and 2013 and the consolidated balance sheets data as ofDecember 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this Annual Report. The consolidatedstatements of operations data for the years ended December 31, 2012 and 2011 and the consolidated balance sheets data as of December 31, 2013, 2012 and 2011are derived from our audited consolidated financial statements not included in this Annual Report. Historical results are not necessarily indicative of the results tobe expected in the future. Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except share and per share data)Consolidated statements of operations data: Revenue$136,616 $122,620 $107,194 $84,043 $60,512Cost of revenue (1)38,784 38,567 34,881 29,060 23,202Gross profit97,832 84,053 72,313 54,983 37,310Operating expenses (1): Research and development28,085 24,132 20,919 19,925 16,511General and administrative37,265 17,862 14,275 9,928 6,631Sales and marketing53,671 49,882 47,349 42,719 37,722Restructuring charges469 762 322 1,345 —Total operating expenses119,490 92,638 82,865 73,917 60,864Loss from operations(21,658) (8,585) (10,552) (18,934) (23,554)Interest and other income (expense), net145 (398) 2 38 41Loss before income taxes(21,513) (8,983) (10,550) (18,896) (23,513)Provision for income taxes(102) (367) (55) (40) (23)Net loss(21,615) (9,350) (10,605) (18,936) (23,536)Accretion of redeemable convertible preferred stock— — — — (128)Net loss attributable to common stockholders$(21,615) $(9,350) $(10,605) $(18,936) $(23,664)Basic and diluted net loss per share attributable to commonstockholders$(0.80) $(0.35) $(0.41) $(0.74) $(1.84)Weighted-average number of common shares used in computingbasic and diluted net loss per share27,187,910 26,816,879 26,166,554 25,503,068 12,841,233(1) Stock-based compensation included in the consolidated statements of operations data above was as follows: Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands)Cost of revenue$730 $539 $508 $440 $207Research and development1,171 1,285 955 1,199 511General and administrative7,226 3,216 2,250 1,579 346Sales and marketing1,089 1,025 1,064 913 381 28Table of Contents As of December 31, 2015 2014 2013 2012 2011 (in thousands)Consolidated balance sheet data: Cash$63,936 $46,084 $50,392 $40,341 $59,842Working (deficit) capital(28,217) (23,767) (11,080) (11,685) 18,838Total assets125,990 131,754 109,161 100,925 99,606Deferred revenue, including current portion98,703 91,424 84,000 75,206 59,696Total liabilities124,917 117,216 96,340 86,994 72,004Total stockholders’ equity1,073 14,538 12,821 13,931 27,602 Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except percentage data)Key metrics: Bookings (1)$144,106 $128,183 $115,988 $98,488 $80,900Annual retention rate (2)84% 83% 84% 84% 82%Renewal rate (3)82% 80% 80% 82% 82%Free cash flow (4)$14,251 $15,072 $5,974 $(4,065) $(5,972)(1)We define bookings as revenue recognized during the period plus the change in total deferred revenue, excluding deferred revenue recorded in connectionwith acquisitions, net of foreign exchange during the same period(2)We define annual retention rate as the percentage of customers on the last day of the prior year who remain customers on the last day of the current year.(3)We define renewal rate for a period as the percentage of customers who renew annual or multi-year subscriptions that expire during the period presented.(4)We define free cash flow as net cash provided by (used in) operating activities, less capital expenditures, and adjusted for the cash portion of the lease exitcharge, payments related to corporate headquarter relocation, acquisition-related payments, tender offer-related expenses, and CEO transition payments.Bookings and free cash flow are financial data that are not calculated in accordance with generally accepted accounting principles in the U.S. ("GAAP"). Thetables below provide reconciliation of bookings and free cash flow to revenue and cash provided by operating activities, respectively, the most directly comparablefinancial measures calculated and presented in accordance with GAAP.Our management uses annual retention rate to determine the stability of our customer base and to evaluate the lifetime value of our customer relationships. Ascustomers’ annual and multi-year subscriptions come up for renewal throughout the calendar year based on the dates of their original subscriptions, measuringretention on a trailing twelve month basis at the end of each quarter provides our management with useful and timely information about the stability of ourcustomer base. Management uses renewal rate to monitor trends in customer renewal activity.Our management uses bookings as a proxy for cash receipts. Bookings represent the aggregate dollar value of customer subscriptions and softwarearrangements received by us during a period. We initially record a subscription fee as deferred revenue and then recognize it as revenue ratably, on a daily basis,over the life of the subscription period. Management uses free cash flow as a measure of our operating performance; for planning purposes, including thepreparation of our annual operating budget; to allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our businessstrategies; to provide consistency and comparability with past financial performance; to determine capital requirements; to facilitate a comparison of our resultswith those of other companies; and in communications with our board of directors concerning our financial performance. We also use free cash flow as a factorwhen determining management’s incentive compensation. Management believes that the use of free cash flow provides consistency and comparability with ourpast financial performance, facilitates period to period comparisons of operations, and also facilitates comparisons with other peer companies, many of which usesimilar non-GAAP financial measures to supplement their GAAP results.29Table of ContentsAlthough bookings and free cash flow are frequently used by investors and securities analysts in their evaluations of companies, bookings and free cash flowhave limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under GAAP.For example: •bookings do not reflect our receipt of payment from subscribers;•free cash flow does not reflect our future requirements for contractual commitments to vendors;•free cash flow does not reflect the non-cash component of employee compensation or depreciation and amortization of property and equipment; and•other companies in our industry may calculate bookings or free cash flow or similarly titled measures differently than we do, limiting their usefulness ascomparative measures.The following tables present reconciliations of our bookings and free cash flow to revenue and cash provided by operating activities, respectively, the mostdirectly comparable financial measures calculated and presented in accordance with GAAP. Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands)Revenue$136,616 $122,620 $107,194 $84,043 $60,512Add change in deferred revenue, net of foreign exchange (excludingacquisition)7,490 5,563 8,794 14,445 20,388Bookings$144,106 $128,183 $115,988 $98,488 $80,900 Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands)Cash provided by operating activities$13,174 $22,678 $14,625 $9,195 $7,572Subtract capital expenditures(9,730) (14,495) (9,801) (13,417) (13,544)Add payments related to corporate headquarter relocation1,309 3,872 — — —Add acquisition-related payments1,406 2,053 — — —Add hostile takeover-related payments1,791 100 — — —Add CEO transition payments29 634 — — —Add cash portion of lease exit charge887 230 1,150 157 —Add litigation-related payments5,385 — — — —Free cash flow$14,251 $15,072 $5,974 $(4,065) $(5,972)ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements andrelated notes appearing elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, andbeliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to thesedifferences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors.”OverviewWe are a provider of cloud and hybrid business continuity solutions. Our solutions provide powerful features packaged in a cost-effective, simple, and securemanner and are designed to address the specific needs of SMBs and individuals.We derive the majority of our revenue from subscription fees and the remainder of our revenue from software arrangements. For our subscription sales, wegenerally charge customers the full subscription amount at the beginning of each subscription period. Our tiered business offerings provide a fixed amount of cloudstorage for an unlimited number of connected devices and customers can purchase additional cloud storage at any time after the commencement of a subscription.For individuals, we offer three different annual cloud backup solutions, each including unlimited storage for one computer.30Table of ContentsWe invest in customer acquisition because the market for business continuity solutions is highly competitive. Our sales model is designed to sell largevolumes of our solutions to SMBs globally both directly and through our sales network, including distributors, value-added resellers, volume resellers, and majorretailers. Our inside sales force supplements our channel efforts by, for example, following up on leads generated by our marketing programs and actively workingto fulfill sales through our channel relationships. We support our go-to-market network with a marketing approach that leverages our established brand in order todrive market awareness and demand generation among the broad population of SMBs and individuals.As we grow our business, we continue to invest in additional storage and infrastructure. Our capital expenditures in 2015, 2014, and 2013 were $9.7 million,$14.5 million, and $9.8 million, respectively.Our operating costs continue to grow as customers store more data and as a result of our investment in customer acquisition and research and development.We expect to continue to devote substantial resources to global expansion, customer acquisition, improving our technologies, and expanding our businesscontinuity solutions. In addition, we expect to invest heavily in our operations to support anticipated growth and public company reporting and complianceobligations. We defer revenue over our customers’ subscription periods but expense marketing costs as incurred. As a result of these factors, we expect to continueto incur GAAP operating losses on an annual basis for the foreseeable future.Our Business ModelAs the majority of our business is driven by subscription services, we evaluate the profitability of a customer relationship over its lifecycle. We generally incurcustomer acquisition costs and capital equipment costs in advance of subscriptions while recognizing revenue ratably over the terms of the subscriptions. As aresult, a customer relationship may not be profitable or result in positive cash flow at the beginning of the subscription period, even though it may be profitable orresult in positive cash flow over the life of the customer relationship. While we offer monthly, annual and multi-year subscription plans, a significant majority ofour customers are currently on annual subscription plans. The annual or multi-year commitments of our customers enhance management’s visibility into revenue,and charging customers at the beginning of the subscription period provides working capital.Key Business MetricsOur management regularly reviews a number of financial and operating metrics, including the following key metrics, to evaluate our business: •Bookings. We calculate bookings as revenue recognized during a particular period plus the change in total deferred revenue, excluding deferred revenuerecorded in connection with acquisitions, net of foreign exchange during the same period. Our management uses this measure as a proxy for cash receipts.Bookings represent the aggregate dollar value of customer subscriptions and software arrangements received by us during a period. We initially record asubscription fee as deferred revenue and then recognize it ratably, on a daily basis, over the life of the subscription period.•Annual retention rate. We calculate annual retention rate as the percentage of customers on the last day of the prior year who remain customers on the lastday of the current year. Our management uses these measures to determine the stability of our customer base and to evaluate the lifetime value of ourcustomer relationships.•Renewal rate. We define renewal rate for a period as the percentage of customers who renew annual or multi-year subscriptions that expire during theperiod presented. Our management uses this measure to monitor trends in customer renewal activity.•Free cash flow. We calculate free cash flow by subtracting the cash paid for the purchase of property and equipment and adding the payments related tocorporate headquarter relocation, acquisition-related payments, hostile takeover-related payments, CEO transition payments, litigation-related paymentsand the cash portion of the lease exit charge from net cash provided by operating activities. Our management uses free cash flow to assess our businessperformance and evaluate the amount of cash generated by our business.Subscription renewals may vary during the year based on the date of our customers’ original subscriptions. As we recognize subscription revenue ratably overthe subscription period, this generally has not resulted in a material seasonal impact on our revenue but may result in material monthly and quarterly variances inone or more of the key business metrics described above.31Table of ContentsPerformance HighlightsThe following table presents our performance highlights for the periods presented: Years Ended December 31, 2015 2014 2013Key metrics:(in thousands, except percentage data)Bookings$144,106 $128,183 $115,988Annual retention rate84% 83% 84%Renewal rate82% 80% 80%Free cash flow$14,251 $15,072 $5,974The following table presents our bookings by line of business for the periods presented: Years Ended December 31, 2015 versus 2014 2014 versus 2013 2015 2014 2013 % % (in thousands) Consumer$89,635 $87,958 $84,266 2% 4%SMB54,471 40,225 31,722 35% 27%Total bookings$144,106 $128,183 $115,988 12% 11%Our total bookings increased over the periods presented, primarily due to increased sales of higher priced SMB solutions and a full year of bookings from ourMailStore solutions in 2015. We continue to focus on growing our relationships with active reseller partners, with bookings for our small business solutionsrepresenting 38% of total bookings for the year ended December 31, 2015, up from 31% in the year ended December 31, 2014 and 27% in the year endedDecember 31, 2013. Our bookings growth rate for the year ended December 31, 2015 was impacted by a decline in the year over year growth rate in consumerbookings. We expect this trend to continue.Free cash flow for the year ended December 31, 2015 decreased by $0.8 million compared to the year ended December 31, 2014, primarily due to an increasein receivables driven by increased sales through reseller partners. Free cash flow for the year ended December 31, 2015 increased by $8.3 million compared to theyear ended December 31, 2013, primarily driven by the growth in bookings and increased efficiencies in our business model.Key Components of our Consolidated Statements of OperationsRevenueWe derive our revenue principally from subscription fees related to our service solutions as well as the sale of software and post-contract customer support.For subscription fees, we typically charge a customer’s credit card the full price of the subscription at the commencement of the subscription period and at eachrenewal date, unless the customer decides not to renew the subscription. We initially record a customer subscription fee as deferred revenue and then recognize itas revenue ratably, on a daily basis, over the life of the subscription period.Cost of revenueCost of revenue consists primarily of costs associated with our data center operations and customer support centers, including wages and benefits forpersonnel, depreciation of equipment, amortization of developed technology, rent, utilities and broadband, equipment maintenance, software license fees, andallocated overhead. The expenses related to hosting our services and supporting our customers are related to the number of customers and the complexity of ourservices and hosting infrastructure. On a cost-per-GB stored basis, our costs have decreased due to decreases in storage prices and greater efficiency in our datacenter operations. We have also experienced a downward trend in the cost of storage equipment and broadband service, which we expect will continue in thefuture. We expect these expenses to increase in absolute dollars, but decrease as a percentage of revenue due to improved efficiencies in supporting customers.32Table of ContentsGross profit and gross marginOur gross margins have expanded due to the introduction of higher priced solutions targeting both SMBs and individuals, a downward trend in the cost ofstorage equipment and services, and efficiencies of our customer support personnel in supporting our customers. We expect these trends to continue.Operating expensesResearch and development. Research and development expenses consist primarily of wages and benefits for development personnel, third-party outsourcingcosts, hosting fees, consulting fees, rent, and depreciation. Our research and development efforts are focused on the enhancement and ease of use of our solutions.These efforts result in updated versions and new suites of our consumer and SMB solutions, while not changing the underlying technology. The majority of ourresearch and development employees are located at our corporate headquarters in the U.S. We expect that research and development expenses will increase inabsolute dollars on an annual basis as we continue to enhance and expand our services.General and administrative . General and administrative expenses consist primarily of wages and benefits for management, finance, accounting, humanresources, legal and other administrative personnel, legal and accounting fees, insurance, and other corporate expenses. We expect that general and administrativeexpenses will increase in absolute dollars on an annual basis as we continue to add personnel and enhance our internal information systems in connection with theanticipated growth of our business and incur costs related to operating as a public company.Sales and marketing . Sales and marketing expenses consist primarily of wages and benefits for sales and marketing personnel, advertising costs, creativeexpenses for advertising programs, credit card fees, commissions paid to third-party partners and affiliates, and the cost of providing free trials. We expect that wewill continue to commit significant resources to our sales and marketing efforts to grow our business and awareness of our brand and solutions. We expect thatsales and marketing expenses will continue to increase in absolute dollars on an annual basis, but decrease as a percentage of revenue over the long term, as weexpect to grow our revenue at a faster rate.Restructuring charges . Restructuring charges consist of lease exit charges related to our corporate headquarter relocation and costs associated with our datacenter optimization program. See Note 13—Restructuring to our consolidated financial statements included in this Annual Report for additional information.Critical Accounting PoliciesOur financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to makeestimates, assumptions, and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base ourestimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances, but all such estimates andassumptions are inherently uncertain and unpredictable. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from thoseestimates and assumptions, and it is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and supportalternative estimates and assumptions that would result in material changes to our operating results and financial condition.See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included in this Annual Report for additional informationabout these critical accounting policies, as well as a description of our other significant accounting policies.Revenue recognitionWe derive revenue from Software-as-a-Service ("SaaS") offerings, software license agreements and post-contract customer support ("PCS"). Generally, werecognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable and (iv) collectability isprobable. Our revenue recognition policies for these revenue streams are discussed below.Software-as-a-Service ArrangementsWe derive the majority of our revenue from cloud and hybrid business continuity solutions subscription services. These services are standalone independentservice solutions, which are generally contracted for a one- to three-year term. Subscription arrangements include access to use our services via the internet. Werecognize revenue in accordance with Accounting Standards Codification (“ASC”) 605-10, Overall Revenue Recognition ("ASC 605-10"). Subscription revenue isrecognized ratably on a daily basis upon activation of service over the subscription period, when persuasive evidence of an33Table of Contentsarrangement with a customer exists, the subscription period has been activated, the price is fixed or determinable, and collection is reasonably assured. Deferredrevenues from SaaS arrangements represent payments received from customers for subscription services prior to recognizing the revenue related to thosepayments.Software and Software-related ArrangementsWe derive the remainder of our revenue from software arrangements, which often contain multiple revenue elements, such as software licenses and PCS. Formultiple element software arrangements which qualify for separate element treatment, revenue is recognized for each element when each of the four basic criteriais met, which, excluding PCS, is typically upon delivery. Revenue for PCS agreements is recognized ratably over the term of the agreement, which is generally oneyear. Revenue is allocated to each element, excluding the software license, based on vendor-specific objective evidence ("VSOE"). VSOE is limited to the pricecharged when the element is sold separately or, for an element not yet being sold separately, the price established by management having the relevant authority.We do not have VSOE for our software licenses since they are seldom sold separately. Accordingly, revenue is allocated to the software license using the residualvalue method. Under the residual value method, revenue equal to VSOE of each undelivered element is initially deferred and any remaining arrangement fee isthen allocated to the software license.Business CombinationsIn accordance with ASC 805, Business Combinations ("ASC 805"), we recognize the tangible and intangible assets acquired and liabilities assumed based ontheir estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangibleassets.The fair value of identifiable intangible assets is based on detailed valuations that reflect management’s best estimates of inputs and assumptions that a marketparticipant would use. Our identifiable intangible assets acquired consist of developed technology, customer relationships, tradenames, and non-competeagreements. Developed technology consists of products that have reached technological feasibility and tradenames represent acquired company and product names.Customer relationships represent the underlying relationships and agreements with customers of the acquired company’s installed base. Non-compete agreementsrepresent the protection against the loss of business and resultant cash flows from direct competition.Goodwill and acquired intangible assetsWe record goodwill when consideration paid in a business acquisition exceeds the fair value of the net assets acquired. Our estimates of fair value are basedupon assumptions believed to be reasonable at that time, but that are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, andunanticipated events or circumstances may occur, that may affect the accuracy or validity of such assumptions, estimates or actual results.Goodwill is not amortized, but rather is tested for impairment annually or more frequently at the reporting unit level if facts and circumstances warrant areview. We have determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessingpotential impairment, we estimate the fair value of the reporting unit (based on our market capitalization) and compare this amount to the carrying value of thereporting unit (as reflected by our total stockholders’ equity). If we determine that the carrying value of the reporting unit exceeds its fair value, an impairmentcharge would be required. Our annual goodwill impairment test is performed at November 30 th of each year. To date, we have not identified any impairment togoodwill.Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition. We amortize acquired intangibleassets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis. We review our intangible assets with definite lives for impairment when events or changes in circumstances indicate that the carrying amount of any ofthese assets may not be recoverable. We have not identified any impairment of our long-lived assets as of December 31, 2015, 2014, and 2013.Income taxesWe provide for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting andtax bases of assets and liabilities and are measured using the enacted tax rates in effect when the differences are expected to reverse. Deferred tax assets arereduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization. We account for uncertain tax positions recognized in ourconsolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return.34Table of ContentsDue to a history of losses, we have provided a full valuation allowance, in the U.S. and in foreign tax jurisdictions in which we operate that are in a full taxasset position, against our deferred tax assets. This is more fully described in Note 11—Income Taxes to our consolidated financial statements, included in theAnnual Report. The ability to utilize these losses, any future losses, and any other tax credits or attributes may be restricted or eliminated by changes in ourownership, changes in legislation, and other rules affecting the ability to offset future taxable income with losses from prior periods. Future determinations on theneed for a valuation allowance on our net deferred tax assets will be made on an annual basis.Stock-based compensationAccounting guidance requires employee stock-based payments to be accounted for under the fair value method. Under this method, we are required to recordcompensation cost based on the estimated fair value for stock-based awards granted over the requisite service periods for the individual awards, which generallyequals the vesting periods. We use the straight-line amortization method for recognizing stock-based compensation expenses.Determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective estimates andassumptions, including the estimated fair value of our common stock. Following our initial public offering, we used the quoted market price of our common stockto establish the fair value of the common stock underlying our stock options. Because there was no public market for our common stock prior to our initial publicoffering, our board of directors determined the fair value of our common stock with input from management, based on reports of an unrelated third-party valuationspecialist.We estimate the fair value of stock options on the date of grant using the Black-Scholes option-pricing model, and the fair value of stock options with market-based vesting conditions on the date of grant using the lattice model with a Monte Carlo simulation. These models further require the use of highly subjectiveestimates and assumptions, including expected stock price volatility, expected term of an award, risk-free interest rate, and expected dividend yield. As a publiccompany with limited trading history, we consider both the volatility of our stock price and that of our publicly traded peer companies. The expected lifeassumption is based on the simplified method for estimating expected term as we do not have sufficient stock option exercise experience to support a reasonableestimate of the expected term. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with termsapproximately equal to the expected life of the stock option. We use an expected dividend rate of zero as we currently have no history or expectation of payingcash dividends on our capital stock.Results of OperationsThe following table sets forth, for the periods presented, data from our consolidated statements of operations as a percentage of revenue that each line itemrepresents. The period-to-period comparison of financial results is not necessarily indicative of future results. The information contained in the tables below shouldbe read in conjunction with financial statements and related notes included elsewhere in this Annual Report.35Table of Contents Years Ended December 31, 2015 2014 2013 (% of revenue)Consolidated statements of operations data: Revenue100.0 % 100.0 % 100.0 %Cost of revenue28.4 31.5 32.5Gross profit71.6 68.5 67.5Operating expenses: Research and development20.6 19.7 19.5General and administrative27.3 14.5 13.3Sales and marketing39.3 40.7 44.2Restructuring charges0.3 0.6 0.3Total operating expenses87.5 75.5 77.3Loss from operations(15.9) (7.0) (9.8)Interest and other income (expense), net0.2 (0.3) —Loss before income taxes(15.7) (7.3) (9.8)Provision for income taxes0.1 0.3 0.1Net loss(15.8)% (7.6)% (9.9)%Comparison of Years Ended December 31, 2015, 2014, and 2013Revenue Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) Revenue$136,616 $122,620 $107,194 $13,99611.4% $15,42614.4%Revenue increased by $14.0 million, or 11%, for 2015 compared to 2014, primarily due to increased sales of higher priced SMB solutions and revenue fromour MailStore solutions. Revenues increased by $15.4 million, or 14%, for 2014 compared to 2013, primarily due to increased sales of higher priced SMBsolutions. Revenue from our SMB solutions was approximately $39.5 million in 2015 compared to $31.0 million in 2014 and $21.4 million in 2013.Cost of revenue, gross profit, and gross margin Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) Cost of revenue$38,784 $38,567 $34,881 $2170.6 % $3,68610.6%Percent of revenue28.4% 31.5% 32.5% Components of cost of revenue: Personnel-related costs$13,853 $12,614 $10,361 $1,2399.8 % $2,25321.7%Hosting and depreciation costs19,553 21,609 20,555 (2,056)(9.5)% 1,0545.1%Software, amortization and other5,378 4,344 3,965 1,03423.8 % 3799.6%Total cost of revenue$38,784 $38,567 $34,881 $2170.6 % $3,68610.6%Gross profit$97,832 $84,053 $72,313 $13,77916.4 % $11,74016.2%Gross margin71.6% 68.5% 67.5% Our gross margin improvement for 2015 and 2014 was driven by an increasing percentage of our revenues derived from higher margin SMB solutions andefficiencies realized in our data centers. Cost of revenue increased by $0.2 million in 2015,36Table of Contentsprimarily driven by an increase of $1.2 million in personnel-related costs associated with supporting our customers, and an increase of $0.9 million in developedtechnology amortization associated with the acquisitions of MailStore and Rebit. These increases were offset by a decrease in hosting and depreciation costs of$2.1 million primarily due to a decrease in rent and utilities related to the consolidation of one of our data centers.Cost of revenue increased by $3.7 million in 2014, primarily driven by an increase in personnel-related costs of $2.3 million associated with additionalcustomer support and operations headcount, and an increase in hosting and depreciation costs of $1.1 million associated with rent and utilities costs in our datacenters.Operating expensesResearch and development Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) Research and development$28,085 $24,132 $20,919 $3,95316.4% $3,21315.4 %Percent of revenue20.6% 19.7% 19.5% Components of research and development: Personnel-related costs$21,179 $18,556 $16,275 $2,62314.1% $2,28114.0 %Third-party outsourcing costs3,498 3,064 1,885 43414.2% 1,17962.5 %Hosting, independent contractors and other3,408 2,512 2,759 89635.7% (247)(9.0)%Total research and development$28,085 $24,132 $20,919 $3,95316.4% $3,21315.4 %Research and development expenses increased by $4.0 million in 2015, primarily related to an increase of $2.6 million in personnel-related costs, an increaseof $0.4 million in third-party outsourcing costs, and an increase of $0.9 million of hosting, independent contractors and other expenses associated with enhancingthe functionality and ease of use of our solutions.Research and development expenses increased by $3.2 million in 2014, primarily related to an increase of $2.3 million in personnel-related costs associatedwith additional research and development headcount and an increase of $1.2 million in third-party outsourcing costs associated with enhancing the functionalityand ease of use of our solutions.General and administrative Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) General and administrative$37,265 $17,862 $14,275 $19,403108.6 % $3,58725.1 %Percent of revenue27.3% 14.5% 13.3% Components of general and administrative: Personnel-related costs$17,687 $10,350 $7,413 $7,33770.9 % $2,93739.6 %Professional fees16,451 4,278 4,365 12,173284.5 % (87)(2.0)%Consulting, taxes and other3,127 3,234 2,497 (107)(3.3)% 73729.5 %Total general and administrative$37,265 $17,862 $14,275 $19,403108.6 % $3,58725.1 %General and administrative expenses increased by $19.4 million in 2015, primarily related to an increase of $12.2 million in professional fees associated withan increase in litigation-related expenses of $6.4 million, an increase in acquisition-related expenses of $4.8 million primarily resulting from the EVaultAcquisition, and an increase hostile takeover-related expenses of $1.2 million. The remaining increase in general and administrative expenses related to an increasein $7.3 million in personnel-related costs associated with additional headcount to support our overall growth. Included in the increase in personnel-related costs is a$4.0 million increase in stock-based compensation expense.37Table of ContentsGeneral and administrative expenses increased by $3.6 million in 2014, primarily related to an increase of $2.9 million in personnel-related costs associatedwith additional headcount. The remaining increase in expenses relates to an increase in legal fees and consulting expenses associated with our internationalexpansion efforts.Sales and marketing Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) Sales and marketing$53,671 $49,882 $47,349 $3,7897.6 % $2,5335.3 %Percent of revenue39.3% 40.7% 44.2% Components of sales and marketing: Personnel-related costs$19,498 $13,907 $8,961 $5,59140.2 % $4,94655.2 %Advertising costs15,040 17,952 25,197 (2,912)(16.2)% (7,245)(28.8)%Costs of credit card transactions and offeringfree trials7,383 6,245 5,538 1,13818.2 % 70712.8 %Agency fees, consulting and other11,750 11,778 7,653 (28)(0.2)% 4,12553.9 %Total sales and marketing$53,671 $49,882 $47,349 $3,7897.6 % $2,5335.3 %Sales and marketing expenses increased by $3.8 million in 2015. This increase was primarily attributable to an increase in personnel-related costs of $5.6million associated with increased headcount on our sales team, an increase of $1.1 million for offering free trials and presale support, partially offset by decreasedadvertising costs of $2.9 million associated with a reduction in our traditional radio and television advertising spend.Sales and marketing expenses increased by $2.5 million in 2014, primarily attributable to an increase in personnel-related costs of $4.9 million associated withincreased headcount on our sales team, an increase of agency fees, consulting and other of $4.1 million related to increased investments in our indirect channelorganization, all partially offset by decreased advertising costs of $7.2 million associated with a reduction in our traditional radio and television advertising spend.Restructuring Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) Restructuring$469 $762 $322 $(293)(38.5)% $440136.6%We recorded restructuring charges of $0.5 million during 2015, primarily related to the completion of our data center optimization program as well as achange in estimate of our lease exit charge for our former Boston, Massachusetts corporate headquarters. We recorded restructuring charges of $0.8 million during2014 consisting of a $0.4 million lease exit charge related to our corporate headquarter relocation and $0.4 million in costs related to our data center optimizationprogram. Refer to Note 13—Restructuring to our consolidated financial statements included in this Annual Report for additional information.Income Taxes Years Ended December 31, 2015 versus 2014 2014 versus 20132015 2014 2013 Amount%Amount% (in thousands, except percentage data) Provision for income taxes$102 $367 $55 $(265)(72.2)% $312567.3%We recorded income tax expense of $0.1 million, $0.4 million and $0.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. For theyear ended December 31, 2015, our tax provision was primarily driven by Federal Alternative Minimum Tax ("AMT") and state income taxes, partially offset by arelease of a reserve for an uncertain tax position due to the close of an audit for one of our German subsidiaries. For the year ended December 31, 2014, theCompany’s tax provision was primarily driven by federal AMT and state income taxes. 38Table of ContentsLiquidity and Capital ResourcesAs of December 31, 2015, we had cash and cash equivalents and marketable securities of $64.9 million, which primarily consisted of cash, money marketfunds, U.S. agency and treasury securities and certificates of deposit. We have available borrowings under our revolving credit facility of up to $25 million, whichwe can draw down on through May 6, 2018.Source of fundsWe believe, based on our current operating plan, that our existing cash and cash equivalents, marketable securities, cash provided by operations, andborrowings available under our revolving credit facility will be sufficient to meet our anticipated cash needs for at least the next 12 months.From time to time, we may explore additional financing sources to develop or enhance our solutions, fund expansion, respond to competitive pressures,acquire or to invest in complementary solutions, businesses or technologies, or to lower our cost of capital, which could include equity, equity-linked, and debtfinancing. There can be no assurance that any additional financing will be available to us on acceptable terms, if at all. If we raise additional funds through theissuance of equity or convertible debt or other equity-linked securities, our existing stockholders could suffer significant dilution, and any new equity securities weissue could have rights, preferences and privileges superior to those of holders of our common stock.Our revolving credit facility allows us to borrow up to $25 million, including a $5.0 million sub-limit for letters of credit, through May 6, 2018. Our revolvingcredit facility may be increased by up to an additional $25.0 million if the existing or additional lenders are willing to make such increased commitments andsubject to other terms and conditions. Our revolving credit facility shall be available to us at an interest rate of the Wall Street Journal prime rate plus 75 basispoints or LIBOR plus 175 basis points, at our option, and is secured by substantially all of our assets and contains customary affirmative and negative covenants,including financial covenants specifying a minimum quick ratio and minimum consolidated free cash flow, in each case subject to customary and other exceptionsfor a credit facility of this size and type. To date, we were in compliance with these covenants and there was one letter of credit for $0.8 million outstanding underthe credit facility related to the security deposit for our corporate headquarters. To date, the availability under the credit facility was $24.2 million.Uses of fundsWe have increased our operating and capital expenditures in connection with the growth in our operations and the increase in our personnel, and we anticipatethat we will continue to increase such expenditures in the future. Our future capital requirements may vary materially from those now planned and will depend onmany factors, including: •potential future acquisition opportunities;•the levels of advertising and promotion required to acquire and retain customers;•expansion of our data center infrastructure necessary to support our growth;•growth of our operations in the U.S. and worldwide;•our development and introduction of new solutions; and•the expansion of our sales, customer support, research and development, and marketing organizations. Future capital expenditures will focus on acquiring additional data storage and hosting capacity and general corporate infrastructure. We are not currentlyparty to any purchase contracts related to future capital expenditures, other than short-term purchase orders.Cash flowsThe following table provides a summary and description of our net cash inflows (outflow) for 2015, 2014, and 2013. Years Ended December 31, 2015 2014 2013 (in thousands)Net cash provided by operating activities$13,174 $22,678 $14,625Net cash provided by (used in) investing activities8,323 (31,126) (9,297)Net cash (used in) provided by financing activities(3,394) 4,239 4,72839Table of ContentsOperating activitiesOur cash flows from operating activities are significantly influenced by the amount of our net loss, growth in subscription sales and customer growth, changesin working capital accounts and the timing of prepayments and payments to vendors.In 2015, cash provided by operating activities was $13.2 million, which was primarily driven by a $7.5 million increase in deferred revenue associated with anincrease in sales. Net cash inflows from operating activities included other changes in working capital of $3.1 million, due to the timing of payments and customerreceipts, increase in other assets and long-term liabilities of $0.7 million and non-cash charges of $23.5 million, including $13.6 million of depreciation andamortization, $10.2 million of stock-based compensation, offset by $0.2 million related to a gain on disposal of equipment and $0.1 million in other non-cashitems. These cash inflows were partially offset by our net loss of $21.6 million.In 2014, cash provided by operating activities was $22.7 million, which was primarily driven by a $5.6 million increase in deferred revenue associated with anincrease in subscription sales. Net cash inflows from operating activities included other changes in working capital of $2.9 million, due to the timing of paymentsand customer receipts, increase in other assets and long-term liabilities of $4.5 million and non-cash charges of $19.1 million, including $12.5 million ofdepreciation and amortization, $6.1 million of stock-based compensation, and $0.5 million in other non-cash items. These cash inflows were partially offset by ournet loss of $9.4 million.In 2013, cash provided by operating activities was $14.6 million, which was primarily driven by an $8.8 million increase in deferred revenue associated withthe increase in subscription sales and customer growth. Net cash inflows from operating activities included non-cash charges of $17.4 million, including $12.6million of depreciation and amortization, and $4.8 million of stock-based compensation. These cash inflows were partially offset by our net loss of $10.6 millionand a $0.6 million increase in prepaid expenses and other current assets.Investing activitiesIn 2015, cash provided by investing activities was $8.3 million, which was primarily driven by net proceeds from maturities of marketable securities andderivatives of $18.4 million, a decrease in restricted cash of $0.7 million, and proceeds from the sales of property and equipment of $0.3 million, offset by the useof cash for capital expenditures of $9.7 million and $1.3 million for 2015 acquisitions.In 2014, cash used in investing activities was $31.1 million, consisting primarily of capital expenditures of $14.5 million related to server equipment and otherdata center infrastructure as well as payments associated with new corporate headquarter buildouts, an increase in restricted cash of $0.8 million for a securitydeposit, and the use of $15.8 million, net of cash acquired, in connection with the acquisition of MailStore.In 2013, cash used in investing activities was $9.3 million, consisting primarily of capital expenditures of $9.8 million, for server equipment and other datacenter infrastructure, partially offset by the release of $0.5 million of restricted cash as a result of the settlement of a dispute.Financing activitiesCash used in financing activities in 2015 was $3.4 million, consisting primarily of $5.7 million of cash used to repurchase common stock, offset by $2.3million from the proceeds from the exercise of stock options.Cash provided by financing activities in 2014 was $4.2 million from the proceeds from the exercise of stock options.Cash provided by financing activities in 2013 was $4.7 million from the proceeds from the exercise of stock options.Off-balance sheet arrangementsAs of December 31, 2015, we did not have any off-balance sheet arrangements.40Table of ContentsContractual obligationsThe following table summarizes our contractual obligations at December 31, 2015 (in thousands): Payment Due by Period (1) (2)Total LessThan 1Year 1-3 Years 3-5 Years More Than 5Years (in thousands)Office lease obligations$19,392 $2,324 $4,417 $6,342 $6,309Hosting facility lease obligations3,175 2,083 1,092 — —Hosted software solution obligations1,304 666 638 — —Consulting obligations1,387 1,387 — — —Other purchase commitments1,199 988 205 6 —Total$26,457 $7,448 $6,352 $6,348 $6,309 (1) See Note 11—Income Taxes to the consolidated financial statements included in this Annual Report for information related to our uncertain taxpositions. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amountsand timing of cash settlement with the taxing authorities.(2) This table includes amounts for agreements executed as of December 31, 2015. This table excludes $2.4 million of payments associated with thePhoenix, Arizona data center lease that was extended in February 2016 and expires in January 2019. The commitments under our office lease obligations shown above consist primarily of lease payments for our Boston, Massachusetts corporate headquartersand our Lewiston, Maine customer support facility. In May 2014, we entered into a lease agreement for our new corporate headquarters in Boston, Massachusetts.The initial term of the lease expires on December 31, 2024, and we have an option to extend the original term of the lease for one successive five-year period.Upon execution of the lease agreement, we were required to post a security deposit of $0.8 million, which we maintain as a letter of credit. Our landlord can drawagainst this letter of credit in the event of default by us. The facility was made available to us to begin our build-out on June 1, 2014, and as such, we beganrecording rent expense at that time. In accordance with the lease, we received a tenant improvement allowance. The rent expense is recorded net of the allowanceover the term of the lease. The leasehold improvements associated with the initial build-out are being amortized over the initial term of the lease. Any additionalleasehold improvements made during the course of occupancy will be amortized over the shorter of the useful life or remaining life of the lease.Our Lewiston, Maine support facility lease expires in June 2018. We may terminate this lease at any time upon six months’ notice.We also lease a small amount of general office space in Sunnyvale, California, Munich, Germany, Viersen, Germany and Longmont, Colorado under leaseagreements that expire in March 2020, July 2020, August 2016 and August 2017, respectively.The commitment under our hosting facility obligations shown above consists of Wakefield, Massachusetts, Chandler, Arizona, and Phoenix, Arizona datacenters, as well as a Somerville, Massachusetts data center which ended on January 31, 2015.Other purchase commitments shown above consist of contractual commitments to various vendors primarily for advertising, marketing, and broadbandservices.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contacts withCustomers (“ASU 2014-9”), updated guidance and disclosure requirements for recognizing revenue. The new revenue recognition standard provides a five-stepanalysis of transactions to determine when and how revenue is recognized. The revenue standard is based on the principle that revenue should be recognized todepict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. The guidance will be effective for us on January 1, 2018, with early adoption41Table of Contentspermitted, but not earlier than January 1, 2017. The guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulativeeffect recognized as of the date of initial adoption. We are currently assessing the potential impact of the adoption of ASU 2014-9 on our consolidated financialstatements.In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern: Disclosure of Uncertainties about an Entity’sAbility to Continue as a Going Concern (“ASU 2014-15”). The standard requires that we evaluate, at each interim and annual reporting period, whether there areconditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued,and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, andearly adoption is permitted. We do not expect to early adopt ASU 2014-15, which will be effective for its fiscal year ending December 31, 2016. We do not believethe standard will have a material impact on its consolidated financial statements.In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Fees Paid in a CloudComputing Arrangement (“ASU 2015-05”). The standard clarifies the circumstances under which a cloud computing customer would account for the arrangementas a license of internal-use software under ASC 350-40. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods,beginning after December 15, 2015, and early adoption is permitted. We do not expect to early adopt ASU 2015-05, which will be effective for its fiscal yearending December 31, 2016. We do not believe the standard will have a material impact on its consolidated financial statements.In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments("ASU 2015-16") . The standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in thereporting period in which the adjustment amounts are determined. The standard update is effective for fiscal years beginning after December 15, 2015 and interimperiods within those fiscal years. The standard update is to be applied prospectively to adjustments of provisional amounts that occur after the effective date withearlier application permitted for financial statements that have not been issued. We have elected, as permitted by the standard, to early adopt ASU 2015-16 on aprospective basis as of October 1, 2015. The adoption of ASU 2015-16 did not have a material impact on our consolidated financial statements.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17 is part of the FASB’s simplification initiative aimed at reducing complexity in accounting standards. This new standard requires that all deferred tax assets andliabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for annual reporting periodsbeginning after December 15, 2016. Early adoption is permitted on either a retrospective or prospective basis. We elected early adoption on a prospective basis andprior periods have not been restated. The adoption of ASU 2015-17 did not have a material impact on our consolidated financial statements. Refer to Note 11 -Income Taxes to our consolidated financial statement included in this Annual Report for additional information regarding deferred tax assets and liabilities.In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize the assets and liabilities on theirbalance sheet for the rights and obligations created by most leases and continue to recognize expenses on their income statements over the lease term. It will alsorequire disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance iseffective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption is permitted. We arecurrently evaluating the effect of the standard on our consolidated financial statements.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate fluctuation risks and foreign currencyexchange risk.Interest Rate Fluctuation RiskWe are exposed to market risk related to changes in interest rates. Our cash equivalents and short-term investments consisted of money market funds,certificates of deposit and U.S. government agency bonds. At December 31, 2015, we had cash equivalents and short-term investments of $1.0 million. Thecarrying amount of our cash equivalents and short-term investments reasonably approximates fair value, due to the short maturities of these instruments. Theprimary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Our cash equivalents andmarketable securities are relatively insensitive to interest rate changes. Due to the short-term nature of our investment portfolio, we do not believe an immediate10% increase or decrease in interest rates would have a material effect on42Table of Contentsthe fair market value of our portfolio. In the event we borrow under our revolving credit facility, which bears interest at the Wall Street Journal prime rate plus 75basis points or LIBOR plus 175 basis points, at our option, we would be exposed to interest rate fluctuation risk.Foreign Currency Exchange Risk A portion of our revenues and operating expenses are incurred outside the United States and are denominated in foreign currencies, primarily the Euro. Thesetransactions are subject to foreign currency exchange rate fluctuations when translated into U.S. dollars. Assets and liabilities of our foreign entities are translatedinto U.S. dollars at exchange rates in effect at the balance sheet date, and income and expense items are translated at average rates for the applicable period.Therefore, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. A hypothetical10% increase or decrease in foreign currency exchange rates against the U.S. dollar from the quoted foreign currency exchange rates at December 31, 2015 wouldnot have a material impact on our financial results.Periodically, we enter into short-term foreign currency forward contracts to offset foreign exchange gains and losses generated by the re-measurement ofcertain intercompany assets and liabilities denominated in non-functional currencies. These contracts are not designated as cash flow or fair value hedges andgenerally are for periods of less than one year. Changes in the fair value of these derivatives, as well as re-measurement gains and losses on the underlyingintercompany assets and liabilities, are recognized in our statements of operations within "interest and other income (expense), net". We had outstanding contractswith a total notional value of $36.7 million as of December 31, 2015. A hypothetical 10% increase of decrease of foreign exchange rates relative to the U.S. dollarwith all other variables held constant would not have a material impact on our financial results, as any increase or decrease in the fair value of our currencyexchange rate sensitive derivative instruments would be substantially offset by a corresponding decrease or increase in the fair value of the underlyingintercompany assets and liabilities.While we have implemented strategies to mitigate certain risks associated with fluctuations in foreign currency exchange rates, we cannot ensure that we willnot recognize gains or losses from international transactions, as this risk is part of transacting business in an international environment. Our policy does not allowspeculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financialinstruments for trading purposes and are not party to any leveraged derivatives. Not every exposure is or can be hedged and, where hedges are put in place basedon expected foreign exchange exposure, they are based on forecasts for which actual results may differ from the original estimate. Failure to successfully hedge oranticipate currency risks properly could affect our consolidated operating results.As we increase our operations in international markets, our exposure to potentially volatile movements in foreign currency exchange rates increases. Theeconomic impact to us of foreign currency exchange rate movements is linked to variability in real growth, inflation, interest rates, governmental actions and otherfactors. These changes, if significant, could cause us to adjust our foreign currency risk strategies.43Table of ContentsITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATACarbonite, Inc.Index to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm45Consolidated Balance Sheets46Consolidated Statements of Operations47Consolidated Statements of Comprehensive Loss48Consolidated Statements of Stockholders' Equity 49Consolidated Statements of Cash Flows50Notes to Consolidated Financial Statements5144Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders ofCarbonite, Inc.We have audited the accompanying consolidated balance sheets of Carbonite, Inc. as of December 31, 2015 and 2014, and the related consolidated statements ofoperations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statementsare the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carbonite, Inc. atDecember 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Carbonite, Inc.’s internal control overfinancial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (2013 framework), and our report dated March 8, 2016 expressed an unqualified opinion thereon./s/ Ernst & Young LLPBoston, MassachusettsMarch 8, 201645Table of ContentsCarbonite, Inc.Consolidated Balance Sheets December 31, 2015 2014 (In thousands, except shareand per share data)ASSETS Current assets: Cash and cash equivalents$63,936 $46,084Marketable securities1,000 15,031Trade accounts receivable, less allowances for doubtful accounts of $139 and $1563,736 2,412Prepaid expenses and other current assets3,188 5,224Restricted cash135 828Total current assets71,995 69,579Property and equipment, net22,083 25,944Other assets167 2,181Acquired intangible assets, net8,640 10,322Goodwill23,105 23,728Total assets$125,990 $131,754LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable$8,384 $7,346Accrued expenses11,559 10,506Current portion of deferred revenue80,269 75,494Total current liabilities100,212 93,346Deferred revenue, net of current portion18,434 15,930Other long-term liabilities6,271 7,940Total liabilities124,917 117,216Commitments and contingencies ( Note 12 ) Stockholders’ equity: Preferred stock, $0.01 par value; 6,000,000 shares authorized; no shares issued— —Common stock, $0.01 par value; 45,000,000 shares authorized at December 31, 2015 and 2014; 27,756,799shares issued and 27,216,779 shares outstanding at December 31, 2015; 27,207,723 shares issued and 27,205,714shares outstanding at December 31, 2014278 272Additional paid-in capital165,391 152,920Accumulated deficit(160,943) (139,328)Treasury stock, at cost (540,020 and 2,009 shares as of December 31, 2015 and 2014, respectively)(5,693) (22)Accumulated other comprehensive income2,040 696Total stockholders’ equity1,073 14,538Total liabilities and stockholders’ equity$125,990 $131,754The accompanying notes are an integral part of these consolidated financial statements.46Table of ContentsCarbonite, Inc.Consolidated Statements of Operations Years Ended December 31, 2015 2014 2013 (In thousands, except share and per share data)Revenue$136,616 $122,620 $107,194Cost of revenue38,784 38,567 34,881Gross profit97,832 84,053 72,313Operating expenses: Research and development28,085 24,132 20,919General and administrative37,265 17,862 14,275Sales and marketing53,671 49,882 47,349Restructuring charges469 762 322Total operating expenses119,490 92,638 82,865Loss from operations(21,658) (8,585) (10,552)Interest and other income (expense), net145 (398) 2Loss before income taxes(21,513) (8,983) (10,550)Provision for income taxes102 367 55Net loss(21,615) (9,350) (10,605)Basic and diluted net loss per share attributable to common stockholders$(0.80) $(0.35) $(0.41)Weighted-average number of common shares used in computing basic and diluted net loss pershare27,187,910 26,816,879 26,166,554The accompanying notes are an integral part of these consolidated financial statements.47Table of ContentsCarbonite, Inc.Consolidated Statements of Comprehensive Loss Years Ended December 31, 2015 2014 2013 (In thousands)Net loss$(21,615) $(9,350) $(10,605)Other comprehensive income: Net unrealized gain (loss) on marketable securities7 (1) (5)Foreign currency translation adjustments1,337 698 (5)Total other comprehensive income (loss)1,344 697 (10)Total comprehensive loss$(20,271) $(8,653) $(10,615)The accompanying notes are an integral part of these consolidated financial statements.48Table of ContentsCarbonite, Inc.Consolidated Statements of Stockholders’ Equity Common Stock AdditionalPaid-inCapital AccumulatedDeficit TreasuryStock AccumulatedOtherComprehensiveIncome TotalStockholders’Equity Number ofShares Amount in thousands, except share data Balance at December 31, 201225,806,123 $258 $133,059 $(119,373) $(22) $9 $13,931Issuance of common stock in connection with stockoption exercises724,327 7 4,721 4,728Issuance of common stock in connection with exerciseof warrant9,525 —Stock-based compensation expense 4,777 4,777Other comprehensive loss (10) (10)Net loss (10,605) (10,605)Balance at December 31, 201326,539,975 $265 $142,557 $(129,978) $(22) $(1) $12,821Issuance of common stock in connection with stockoption exercises667,748 7 4,232 4,239Stock-based compensation expense 6,065 6,065Tax benefits relating to share-based payments 66 66Other comprehensive income 697 697Net loss (9,350) (9,350)Balance at December 31, 201427,207,723 $272 $152,920 $(139,328) $(22) $696 $14,538Stock options exercised and vesting of restricted stockunits549,076 6 2,232 2,238Stock-based compensation expense 10,216 10,216Tax benefits relating to share-based payments 23 23Acquisition of treasury stock (5,671) (5,671)Other comprehensive income 1,344 1,344Net loss (21,615) (21,615)Balance at December 31, 201527,756,799 $278 $165,391 $(160,943) $(5,693) $2,040 $1,073The accompanying notes are an integral part of these consolidated financial statements.49Table of ContentsCarbonite, Inc.Consolidated Statements of Cash Flows Years Ended December 31, 2015 2014 2013 (In thousands)Operating activities Net loss$(21,615) $(9,350) $(10,605)Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization13,634 12,469 12,590(Gain) loss on disposal of equipment(192) — 63Accretion of discount on marketable securities(9) (34) (13)Stock-based compensation expense10,216 6,065 4,777(Reduction of) provision for reserves on accounts receivable(20) 63 (24)Other non-cash items, net(100) 506 —Changes in assets and liabilities, net of acquisitions: Accounts receivable(1,386) 17 (303)Prepaid expenses and other current assets1,019 (830) (586)Other assets2,029 (1) (947)Accounts payable2,864 1,952 (1,395)Accrued expenses595 1,715 2,373Other long-term liabilities(1,372) 4,496 (99)Deferred revenue7,511 5,610 8,794Net cash provided by operating activities13,174 22,678 14,625Investing activities Purchases of property and equipment(9,730) (14,495) (9,801)Proceeds from sale of property and equipment286 — —Proceeds from maturities of marketable securities and derivatives19,149 16,499 10,254Purchases of marketable securities and derivatives(750) (16,499) (10,250)Decrease (increase) in restricted cash693 (828) 500Payment for acquisitions, net of cash acquired(1,325) (15,803) —Net cash provided by (used in) investing activities8,323 (31,126) (9,297)Financing activities Proceeds from exercise of stock options2,254 4,239 4,728Excess tax benefit from equity awards23 — —Repurchase of common stock(5,671) — —Net cash (used in) provided by financing activities(3,394) 4,239 4,728Effect of currency exchange rate changes on cash(251) (99) (5)Net increase (decrease) in cash and cash equivalents17,852 (4,308) 10,051Cash and cash equivalents, beginning of period46,084 50,392 40,341Cash and cash equivalents, end of period$63,936 $46,084 $50,392Supplemental disclosure of cash flow information Cash paid for income taxes$1,760 $— $—Non cash investing and financing activities Acquisition of property and equipment included in accounts payable and accrued expenses$(1,805) $853 $1,755The accompanying notes are an integral part of these consolidated financial statements.50Table of ContentsNotes to Consolidated Financial Statements1. Nature of BusinessCarbonite, Inc. (the “Company”) was incorporated in the State of Delaware on February 10, 2005 and is a provider of cloud and hybrid business continuitysolutions. The Company’s solutions provide powerful features packaged in a cost-effective, simple and secure manner and are designed to address the specificneeds of small and medium-sized businesses and individuals.The Company views its operations and manages its business in one operating segment.2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States(“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions between the Company and itssubsidiaries have been eliminated in consolidation.Use of EstimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts ofrevenues and expenses during the reporting period. Although the Company regularly assesses these estimates, actual results could differ materially from theseestimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and variousother assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or otherassumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.Translation of Foreign CurrenciesThe functional currency of the Company’s foreign subsidiaries is generally the local currency in which they operate. The Company translates foreignsubsidiaries' assets and liabilities at the exchange rates in effect at period-end and revenues and expenses at the average exchange rates in effect during the period.Gains and losses from foreign currency translation are recorded as a component of other comprehensive loss.Foreign currency transaction gains and losses are included in "interest and other income (expense), net" in the consolidated statements of operations, net oflosses and gains from any related derivative financial instruments. Transaction losses were $3.5 million and $1.2 million during the years ended December 31,2015 and 2014 , respectively. The Company recorded an immaterial amount of transaction losses during the year ended December 31, 2013 .Concentration of Credit RiskFinancial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities, derivatives, andaccounts receivable. The Company maintains its cash and cash equivalents, marketable securities, and derivatives with high-quality financial institutions and,consequently, the Company believes that such funds are subject to minimal credit risk. Cash equivalents and marketable securities consist of investment grade debtsecurities or money market funds investing in such securities.The Company sells its services primarily to small and medium-sized businesses and individuals. Payment for the majority of the Company’s sales occurs viacredit card. The Company regularly reviews its accounts receivable related to customers billed on traditional credit terms and provides an allowance for expectedcredit losses. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in theCompany’s accounts receivable. At both December 31, 2015 and December 31, 2014 , no customer represented 10% or more of the Company’s accountsreceivable balance and no customer represented 10% or more of the Company’s revenue for all periods presented.51Table of ContentsRevenue RecognitionThe Company derives revenue from Software-as-a-Service ("SaaS") offerings, software license agreements and post-contract customer support ("PCS").Generally, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinableand (iv) collectability is probable. Our revenue recognition policies for these revenue streams are discussed below.Software-as-a-Service ArrangementsThe Company derives the majority of its revenue from cloud and hybrid business continuity solutions subscription services. These services are standaloneindependent service solutions, which are generally contracted for a one - to three -year term. Subscription arrangements include access to use the Company’sservices via the internet. The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605-10, Overall Revenue Recognition("ASC 605-10") . Subscription revenue is recognized ratably on a daily basis upon activation of service over the subscription period, when persuasive evidence ofan arrangement with a customer exists, the subscription period has been activated, the price is fixed or determinable, and collection is reasonably assured. Deferredrevenues from SaaS arrangements represent payments received from customers for subscription services prior to recognizing the revenue related to thosepayments.Software and Software-related ArrangementsThe Company derives the remainder of its revenue from software arrangements, which often contain multiple revenue elements, such as software licenses andPCS. For multiple element software arrangements which qualify for separate element treatment, revenue is recognized for each element when each of the fourbasic criteria is met, which, excluding PCS, is typically upon delivery. Revenue for PCS agreements is recognized ratably over the term of the agreement, which isgenerally one year. Revenue is allocated to each element, excluding the software license, based on vendor-specific objective evidence ("VSOE"). VSOE is limitedto the price charged when the element is sold separately or, for an element not yet being sold separately, the price established by management having the relevantauthority. The Company does not have VSOE for its software licenses since they are seldom sold separately. Accordingly, revenue is allocated to the softwarelicense using the residual value method. Under the residual value method, revenue equal to VSOE of each undelivered element is initially deferred and anyremaining arrangement fee is then allocated to the software license.Cash Equivalents and Marketable SecuritiesThe Company considers all highly liquid investments purchased with an original purchase maturity of three months or less to be the equivalent of cash for thepurposes of balance sheet and statement of cash flows presentation.Marketable securities consist of time deposits and U.S. treasury securities with initial maturities of more than 90 days . Short-term investments in marketablesecurities are classified as available-for-sale and are recorded at fair value with unrealized gains and losses (excluding other-than-temporary impairments) reportedas a separate component of accumulated other comprehensive loss. Realized gains and losses and declines in value judged to be other-than-temporary are includedin income based on the specific identification method. Fair value is determined based on quoted market prices. At December 31, 2015 and 2014 , the Company'smarketable securities have remaining maturities of one year or less and have a total cost basis of $1.0 million and $15.0 million , respectively.The Company reviews its investments for other-than-temporary impairment whenever evidence indicates that an investment’s carrying amount is notrecoverable within a reasonable period of time. There were no other-than-temporary impairments during the years ended December 31, 2015 , 2014 , and 2013 .Property and EquipmentProperty and equipment are stated at cost. Expenditures for repairs and maintenance are charged to expense as incurred. Upon retirement or sale, the cost ofthe assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in the consolidatedstatement of operations. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets, which are asfollows:52Table of ContentsAsset ClassificationEstimated Useful LifeComputer equipment2 - 4 yearsAppliance3 yearsSoftware3 yearsInternal use software2 - 4 yearsFurniture and fixtures5 yearsLeasehold improvementsShorter of useful life or remaining life of leaseImpairment of Long-Lived AssetsThe Company reviews property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carryingamount of an asset may not be recoverable. If the recoverability of these assets is considered to be impaired, the impairment to be recognized equals the amount bywhich the carrying value of the assets exceeds their estimated fair value. The Company has not identified any impairment of its long-lived assets as ofDecember 31, 2015 , 2014 , and 2013 .Business CombinationsIn accordance with ASC 805, Business Combinations ("ASC 805"), the Company recognizes tangible and intangible assets acquired and liabilities assumedbased on their estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect tointangible assets.The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, which reflectmanagement’s best estimates of inputs and assumptions that a market participant would use. The Company’s identifiable intangible assets consist of developedtechnology, customer relationships, tradenames, and non-compete agreements. Developed technology consists of products that have reached technologicalfeasibility, and tradenames represent both acquired company and product names. Customer relationships represent the underlying relationships and agreementswith customers of the acquired company’s installed base. Non-compete agreements represent the protection against the loss of business and resultant cash flowsfrom direct competition.Goodwill and Acquired Intangible AssetsThe Company records goodwill when consideration paid in a business acquisition exceeds the value of the net assets acquired. The Company’s estimates offair value are based upon assumptions believed to be reasonable at that time but that are inherently uncertain and unpredictable. Assumptions may be incomplete orinaccurate, and unanticipated events or circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results.Goodwill is not amortized, but rather is tested for impairment annually or more frequently at the reporting unit level if facts and circumstances warrant areview. The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes ofassessing potential impairment, the Company estimates the fair value of the reporting unit (based on the Company’s market capitalization) and compares thisamount to the carrying value of the reporting unit (as reflected by the Company’s total stockholders’ equity). If the Company determines that the carrying value ofthe reporting unit exceeds its fair value, an impairment charge would be required. The Company’s annual goodwill impairment test is performed at November 30thof each year. To date, the Company has not identified any impairment to goodwill.Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition. The Company amortizes acquiredintangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, ona straight-line basis. The Company reviews its intangible assets with definite lives for impairment when events or changes in circumstances indicate that the relatedcarrying amount may not be recoverable. To date, the Company has not identified any impairment of our long-lived assets.Internal-use Software and Website DevelopmentThe Company accounts for its software and website development costs in accordance with the guidance in ASC 350-40, Internal Use Software and ASC 350-50, Website Development Costs . The costs incurred in the preliminary stages of53Table of Contentsdevelopment are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalizeduntil the application is substantially complete and ready for its intended use, at which point the costs are amortized over the estimated useful life of the software.As of December 31, 2015 , the Company has capitalized $1.8 million of costs associated with internal-use software and capitalized $1.0 million such costs as ofDecember 31, 2014 . For the years ended December 31, 2015 and December 31, 2014 , the Company recorded $0.3 million and $0.1 million of amortizationexpense related to capitalized internal-use software, respectively. There was no amortization expense of capitalized amounts recorded for the year ended December31, 2013 .Advertising ExpensesThe Company expenses advertising costs as incurred. During the years ended December 31, 2015 , 2014 , and 2013 , the Company incurred approximately$15.0 million , $18.0 million , and $25.2 million of advertising expense, respectively, which is included in sales and marketing expense in the accompanyingstatements of operations.Accounts ReceivableAccounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probablecredit losses in the Company’s existing accounts receivable. The Company specifically analyzes historical bad debts, the aging of the accounts receivable,creditworthiness, and current economic trends, to evaluate the allowance for doubtful accounts. Past due balances are reviewed individually for collectability.Account balances are charged off against the allowance after all means of collection have been exhausted, and the potential for recovery is considered remote. TheCompany also maintains an allowance for sales returns and credits to customers for which the Company has the ability to estimate based upon historicalexperience. The allowance is recorded as a reduction in revenue.Income TaxesThe Company provides for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financialreporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect when the differences are expected to reverse. Deferred taxassets are reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not threshold forfinancial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.Segment InformationOperating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available andregularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operationsand manages its business in one operating segment. The Company does not disclose geographic information for revenue and long-lived assets, excluding deferredtax assets, goodwill and intangible assets. Revenue and long-lived assets, excluding deferred tax assets, goodwill and intangible assets, located outside the UnitedStates do not exceed 10% of total revenue and total assets.Stock-Based CompensationThe Company recognizes stock-based compensation as an expense in the financial statements using the estimated grant-date fair value over the individualaward's requisite service period, which equals the vesting periods in all cases but for certain market-based awards. The Company uses the straight-line amortizationmethod for recognizing stock-based compensation expense. The Company estimates the fair value of stock options on the date of grant using the Black-Scholesoption-pricing model and the fair value of stock options with market-based vesting conditions on the date of grant using a lattice model with a Monte Carlosimulation. These models require the use of highly subjective estimates and assumptions, including expected stock price volatility, expected term of an award, risk-free interest rate, and expected dividend yield. The grant date fair value of restricted stock units granted is based on the fair value of the underlying common stockon the date of grant.54Table of ContentsCosts Associated with Exit ActivitiesThe Company accounts for employee termination benefits that represent a one-time benefit in accordance with ASC 420, Exit or Disposal Cost Obligations("ASC 420"). Other costs associated with exit activities include contract termination costs, including costs related to leased facilities to be abandoned or subleased,expensed in accordance with ASC 420.Recently Issued Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contacts withCustomers (“ASU 2014-9”), updated guidance and disclosure requirements for recognizing revenue. The new revenue recognition standard provides a five-stepanalysis of transactions to determine when and how revenue is recognized. The revenue standard is based on the principle that revenue should be recognized todepict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. The guidance will be effective for the Company on January 1, 2018, with early adoption permitted, but not earlier than January 1, 2017.The guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initialadoption. The Company is currently assessing the potential impact of the adoption of ASU 2014-9 on its consolidated financial statements.In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Abilityto Continue as a Going Concern (“ASU 2014-15”). The standard requires that the Company evaluate, at each interim and annual reporting period, whether thereare conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date the financial statements are issued,and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter, andearly adoption is permitted. The Company does not expect to early adopt ASU 2014-15, which will be effective for its fiscal year ending December 31, 2016. TheCompany does not believe the standard will have a material impact on its consolidated financial statements.In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Fees Paid in a CloudComputing Arrangement (“ASU 2015-05”). The standard clarifies the circumstances under which a cloud computing customer would account for the arrangementas a license of internal-use software under ASC 350-40. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods,beginning after December 15, 2015, and early adoption is permitted. The Company does not expect to early adopt ASU 2015-05, which will be effective for itsfiscal year ending December 31, 2016. The Company does not believe the standard will have a material impact on its consolidated financial statements.In September 2015, the FASB issued 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments ("ASU2015-16") . The standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reportingperiod in which the adjustment amounts are determined. The standard update is effective for fiscal years beginning after December 15, 2015 and interim periodswithin those fiscal years. The standard update is to be applied prospectively to adjustments of provisional amounts that occur after the effective date with earlierapplication permitted for financial statements that have not been issued. The Company has elected, as permitted by the standard, to early adopt ASU 2015-16 on aprospective basis as of October 1, 2015. The adoption of ASU 2015-16 did not have a material impact on our consolidated financial statements.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17 is part of the FASB’s simplification initiative aimed at reducing complexity in accounting standards. This new standard requires that all deferred tax assets andliabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for annual reporting periodsbeginning after December 15, 2016. Early adoption is permitted on either a retrospective or prospective basis. We elected early adoption on a prospective basis andprior periods have not been restated. The adoption of ASU 2015-17 did not have a material impact on our consolidated financial statements. Refer to Note 11 -Income Taxes for additional information regarding deferred tax assets and liabilities.In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize the assets and liabilities on theirbalance sheet for the rights and obligations created by most leases and continue to recognize expenses on their income statements over the lease term. It will alsorequire disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance iseffective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption is permitted. TheCompany is currently evaluating the effect of the standard on its consolidated financial statements.55Table of Contents3. Net Loss per ShareThe Company calculates basic and diluted net loss per share of common stock by dividing the net loss by the weighted average number of unrestrictedcommon shares outstanding for the period. The following potentially dilutive common stock equivalents have been excluded from the computation of dilutedweighted-average shares outstanding as of December 31, 2015 , 2014 , and 2013 as they would be anti-dilutive due to the Company’s net losses (in thousands): Years Ended December 31, 2015 2014 2013Options to purchase common stock (1)3,226 3,330 3,322Restricted stock units (2)1,101 850 —Total4,327 4,180 3,322(1) Includes 250,000 options with market-based vesting conditions granted to the Company's chief executive officer in December 2014.(2) Includes 100,000 equity awards with market-based vesting conditions granted to the Company's chief financial officer in June 2015.4. Fair Value of Financial InstrumentsDerivative InstrumentsNon-designated Foreign Currency ContractsThe Company uses foreign currency forward contracts as part of our strategy to manage exposure related to Euro denominated intercompany monetary assetsand liabilities. The Company has not designated these forward contracts as hedging instruments pursuant to ASC 815, Derivatives and Hedging . Accordingly, theCompany recorded the fair value of these contracts at the end of each reporting period in the consolidated balance sheets, with changes in the fair value recorded inearnings as "interest and other income (expense), net" in the consolidated statements of operations. Cash flows from the settlement of these non-designated foreigncurrency contracts are reported in cash flows from investing activities. These currency forward contracts are entered into for periods consistent with currencytransaction exposures, generally less than one year . At December 31, 2015 , we had outstanding contracts with a total notional value of $36.7 million .The following table provides a quantitative summary of the fair value of derivative instruments not designated as hedging instruments as of December 31,2015 (in thousands): Fair ValueDescriptionBalance Sheet Classification December 31, 2015 December 31, 2014Derivative Assets: (in thousands)Non-Designated Hedging Instruments Foreign currency contractsPrepaid expenses and other current assets $— $558Total Derivative Assets $— $558 Derivative Liabilities: Non-Designated Hedging Instruments Foreign currency contractsAccrued expenses $400 $—Total Derivative Liabilities $400 $—The following tables summarize the gains related derivative instruments not designated as hedging instruments for the year ended December 31, 2015 , 2014and 2013 (in thousands): Years Ended December 31, Location in Statement of Operations 2015 2014 2013Foreign currency contractsInterest and other income (expense), net $3,404 $807 $—56Table of ContentsOther Fair Value MeasurementsThe Company applies the guidance in ASC 820, Fair Value Measurements and Disclosures , ("ASC 820"), which provides that fair value is based on the pricethat would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order toincrease consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputsused to measure fair value into three broad levels, which are described below:Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives thehighest priority to Level 1 inputs.Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about howmarket participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputsto the extent possible in its assessment of fair value.The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy are summarized as follows(in thousands): December 31, 2015 December 31, 2014 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalAssets: Cash equivalents—money market funds$19,703 $— $— $19,703 $15,643 $— $— $15,643Marketable securities—U.S. treasury securitiesand time deposits— 1,000 — 1,000 — 15,031 — 15,031Foreign currency exchange contracts— — — — — 558 — 558Total$19,703 $1,000 $— $20,703 $15,643 $15,589 $— $31,232Liabilities: Foreign currency exchange contracts— 400 — 400 — — — —Total$— $400 $— $400 $— $— $— $—The Company’s investments in money market funds are classified as Level 1 within the fair value hierarchy because they are valued using quoted marketprices. Our marketable securities and foreign currency exchange contracts are classified as Level 2 within the fair value hierarchy as they are valued usingprofessional pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets. No assets or liabilities areclassified as Level 3 within the fair value hierarchy.5. AcquisitionsOur consolidated financial statements include the operating results for each acquired entity from its respective date of acquisition. The Company does notpresent pro forma financial information for these acquisitions given their results are not material to our consolidated financial statements.2015 AcquisitionsSMS BackupOn October 23, 2015, the Company acquired all intellectual property rights in connection with the SMS Backup & Restore and Call Log Backup & Restoreapplications ("SMS Backup") for total consideration of approximately $0.3 million . The results of operations for the acquisition have been included in theCompany's operations since the date of acquisition and were not material for the periods presented.The acquisition has been accounted for as a business combination and, in accordance with ASC 805, the Company has recorded the assets acquired andliabilities assumed at their respective fair values as of the acquisition date. As a result of the acquisition, the Company recorded identifiable intangible assetsrelated to customer relationships of $0.3 million . As of the57Table of Contentsacquisition date, the customer relationships had weighted-average useful lives of 6.0 years. These identifiable intangible assets are amortized over their estimateduseful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.Rebit, Inc.On August 11, 2015, the Company acquired certain assets of Rebit, Inc. ("Rebit") for total consideration of approximately $1.3 million , which included aninitial cash payment of $1.0 million and an estimated fair value of $0.3 million for additional consideration which is expected to be paid one year from the dateof acquisition. The Company employs six of Rebit’s former employees at its current location in Longmont, Colorado.The results of operations for the acquisition have been included in the Company's operations since the date of acquisition and were not material for the periodspresented.The acquisition of Rebit has been accounted for as a business combination and, in accordance with ASC 805, the Company has recorded the assets acquiredand liabilities assumed at their respective fair values as of the acquisition date. As a result of the acquisition of Rebit, the Company recorded goodwill in theamount of $0.6 million and identifiable intangible assets of $0.7 million . As of the acquisition date, developed technology and customer relationships hadweighted-average useful lives of 6.0 years and 4.0 years, respectively. These identifiable intangible assets are amortized over their estimated useful lives basedon the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.2014 AcquisitionMailStore Software GmbHOn December 19, 2014, the Company completed the acquisition of all of the outstanding capital stock of MailStore Software GmbH (MailStore), for $15.8million , net of cash acquired. The Company believes that this transaction advances Company's plan for global expansion and enhances the Company's portfolio ofcontinuity solutions for SMBs, adding email archiving and indexing solutions. The Company has maintained the employees of MailStore.The results of operations for the acquisition have been included in the Company's operations since the date of acquisition and were not material for the periodspresented.The acquisition of MailStore has been accounted for as a business combination and, in accordance with ASC 805, the Company has recorded the assetsacquired and liabilities assumed at their respective fair values as of the acquisition date as follows (in thousands):Cash acquired$2,005Accounts receivable633Prepaid and other1,050Deferred tax asset588Intangible assets7,443Goodwill12,502Total assets acquired24,221Less deferred revenue1,861Less other liabilities assumed2,200Less deferred tax liability2,352Net assets acquired$17,808Goodwill of $12.5 million was recognized for the excess purchase price over the fair value of the net assets acquired. The goodwill recorded in connectionwith this transaction is primarily related to synergies expected to be achieved, the ability to leverage existing sales and marketing capacity and customer base withrespect to the acquired product, as well as revenue and cash flow projections associated with future technologies. Goodwill from the acquisition of MailStore isincluded within the Company’s one reporting unit and is included in the annual review for impairment. Goodwill is not deductible for tax purposes as thisacquisition was a stock purchase.58Table of ContentsIdentifiable definite-lived intangible assets of $7.4 million will be amortized on a straight-line basis over their estimated useful lives. Developed technologyconsists of products that have reached technological feasibility and tradenames represent acquired company and product names. The Company used the incomeapproach to derive the fair value of the developed technology asset. The tradename intangible was valued using a relief from royalty method, which considers boththe market approach and the income approach. Customer relationships represent the underlying relationships with certain customers to provide ongoingmaintenance services for products sold. To value the customer relationships, the Company utilized the income approach, specifically a discounted cash-flowmethod known as the multi-period excess earnings method. The following table presents the estimated fair values and useful lives of the identifiable intangibleassets acquired: Amount Weighted Average UsefulLife Risk-Adjusted Discount Ratesused in Valuation (in thousands) (in years) Developed technology$5,458 6 15.5%Customer relationships1,613 8 15.5%Tradenames372 6 15.5%Total identifiable intangible assets$7,443 6. Goodwill and Acquired Intangible AssetsAs of December 31, 2015 and 2014, the carrying amount of goodwill is $23.1 million and $23.7 million , respectively. The following is a rollforward of ourgoodwill balance (in thousands): December 31, 20152014Balance at beginning of fiscal period$23,728$11,536Goodwill acquired60612,502Effect of foreign exchange rates(1,229)(310)Balance at end of fiscal period$23,105$23,728Goodwill is not amortized. The Company reviews goodwill for impairment at least annually in the fourth quarter, or on an interim basis if an event orcircumstance occurs indicating the potential for impairment. The Company completed the annual impairment review as of November 30, 2015 by estimating thefair value of the reporting unit (based on the Company’s market capitalization) and comparing this amount to the carrying value of the reporting unit (as reflectedby the Company’s total stockholders’ equity). The Company determined that goodwill was not impaired. To date, the Company has had no impairments ofgoodwill.Purchased intangible assets consist of the following (in thousands): December 31, 2015 December 31, 2014 Weighted-AverageEstimatedUseful Life(in years) GrossCarryingValue AccumulatedAmortization NetCarryingValue GrossCarryingValue AccumulatedAmortization NetCarryingValueDeveloped technology6.4 $8,167 $2,463 $5,704 $8,303 $1,200 $7,103Customer relationships6.8 3,627 1,216 2,411 3,153 695 2,458Tradenames7.1 726 213 513 763 108 655Non-compete agreements3.8 380 368 12 380 274 106Total $12,900 $4,260 $8,640 $12,599 $2,277 $10,322The Company recorded amortization expense of $2.0 million , $0.9 million and $0.9 million for the years ended December 31, 2015 , 2014 and 2013 ,respectively. Amortization relating to developed technology is recorded within cost of revenue, amortization of customer relationships is recorded within sales andmarketing expenses, and amortization of59Table of Contentstradenames and non-compete agreements is recorded within general and administrative expenses on the Company's consolidated statements of operations.Future estimated amortization expense of acquired intangibles is as follows (in thousands):2016$1,87120171,69420181,64320191,58520201,410Thereafter437Total$8,6407. Property and EquipmentProperty and equipment consists of the following (in thousands): December 31, 2015 2014Computer equipment$53,094 $60,169Software2,243 2,204Furniture and fixtures1,834 1,862Leasehold improvements8,879 8,608Internal-use software1,789 988Appliances279 65Total property and equipment68,118 73,896Less accumulated depreciation and amortization(46,035) (47,952)Property and equipment, net$22,083 $25,944Depreciation expense was $11.6 million , $11.6 million , and $11.7 million for the years ended December 31, 2015 , 2014 , and 2013 , respectively.8. Accrued ExpensesAccrued expenses consist of the following (in thousands): December 31, 2015 2014Accrued marketing$1,727 $1,827Accrued compensation3,130 2,288Accrued restructuring400 325Accrued tax liabilities435 2,394Accrued consulting and professional fees3,263 1,579Accrued facilities819 242Accrued other expenses1,785 1,851Total accrued expenses$11,559 $10,5069. Stockholders' EquityShare Repurchase ProgramOn May 11, 2015, the Company's Board of Directors authorized a $20.0 million share repurchase program, effective from May 15, 2015 through May 15,2018. Share repurchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise, in accordance with applicable securitieslaws and regulations. The timing and amount of any share repurchases are determined by the Company's management based on an evaluation of market conditions,the trading price of the stock, and other factors.60Table of ContentsFor the year ended December 31, 2015 , the Company repurchased 502,310 shares of its common stock at an average price of $10.63 per share for a total costof approximately $5.3 million . At December 31, 2015 , approximately $14.7 million remained available under the Company's share repurchase program.10. Stock-based AwardsThe Company’s 2005 Stock Incentive Plan (the 2005 Plan) provided for granting of incentive stock options, non-qualified options, restricted stock, or otherawards to the Company’s employees, officers, directors, and outside consultants up to an aggregate of 3,601,551 shares of the Company’s common stock. Inconjunction with the effectiveness of the 2011 Equity Award Plan (the 2011 Plan), the Company’s Board of Directors voted that no further stock options or otherequity-based awards would be granted under the 2005 Plan.The 2011 Plan provides for the issuance of stock options, restricted stock, restricted stock units, and other stock-based awards to the employees, officers,directors, and consultants of the Company or its subsidiaries. In connection with the approval of the 2011 plan, the Company reserved 1,662,000 shares of commonstock for issuance thereunder. On January 1 st of each year, beginning on January 1, 2012, the number of shares reserved under the 2011 Plan increased or willincrease by the lesser of 1,500,000 shares, 4.0% of the outstanding shares of common stock and common stock equivalents, or another amount determined by theCompany’s Board of Directors. As of December 31, 2015 , 471,316 shares of common stock were available for future grant under the 2011 Plan.Stock-based awards granted to employees generally vest over a three - or four -year period, and, in the case of stock options, expire ten years from the date ofgrant. Certain awards provide for accelerated vesting if there is a change of control, as defined in the 2005 or 2011 Plan, as applicable. The Company has generallygranted stock options at exercise prices not less than the fair market value of its common stock on the date of grant.Stock OptionsThe Company generally estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. This model requires theuse of highly subjective estimates and assumptions, including expected stock price volatility, expected term of an award, risk-free interest rate, and expecteddividend yield. The weighted-average exercise price, weighted-average grant-date fair value, and the assumptions used to estimate the fair value of the stockoptions granted using the Black-Scholes option pricing model for the years ended December 31, 2015 , 2014 , and 2013 were as follows: Years Ended December 31, 2015 2014 2013Weighted-average exercise price$12.97 $10.45 $10.95Weighted-average grant-date fair value$6.33 $5.33 $5.58Black-Scholes Assumptions Risk-free interest rate1.54% to 1.85% 1.88% to 2.10% 0.95% to 1.71%Expected dividend yield— — —Expected volatility48% to 51% 51% to 53% 54%Expected term (in years)5.5 to 6.1 5.8 to 6.1 5.8 to 6.1Risk-Free Interest RateThe Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining maturities similarto the expected term of the options.Expected Dividend YieldThe Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to bezero in the option valuation model.Expected VolatilityThe Company estimates the expected volatility of its common stock at the date of grant based on the historical volatility of comparable public companies overthe option’s expected term as well as its own stock price volatility since the Company’s IPO. 61Table of ContentsExpected TermThe Company has limited public historical information to develop reasonable expectations about future exercise patterns and post-vesting employmenttermination behavior for its stock option grants. As a result, for stock option grants made during the years ended December 31, 2015 , 2014 , and 2013 the expectedterm was estimated using the “simplified method.” The simplified method is based on the average of the vesting tranches and the contractual life of each grant.ForfeituresThe Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from thoseestimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards thatare expected to vest.The following table summarizes stock option activity under stock incentive plans for the twelve months ended December 31, 2015 : Number ofShares Weighted-AverageExercisePrice perShare Weighted-AverageRemainingContractualLife(in years) AggregateIntrinsicValue(in thousands) (2)Outstanding at December 31, 20143,080,439 $10.63 7.74 $11,456Granted660,500 12.97 Exercised(264,784) 8.57 Cancelled(500,482) 12.25 Outstanding at December 31, 20152,975,673 $11.06 6.71 $724Exercisable as of December 31, 20151,823,644 $10.78 5.70 $631Vested and expected to vest as of December 31, 2015 (1)2,746,788 $10.99 6.55 $714 (1)Represents the number of vested stock options as of December 31, 2015 , plus the number of unvested stock options expected to vest as of December 31, 2015, based on the unvested stock options outstanding at December 31, 2015 , adjusted for estimated forfeitures.(2)The aggregate intrinsic value is calculated as the positive difference between the exercise price of the underlying stock options and the fair market value of theCompany’s common stock on December 31, 2014 and December 31, 2015 .The total intrinsic value of options exercised during the years ended December 31, 2015 , 2014 , and 2013 was approximately $1.0 million , $3.2 million , and$4.4 million , respectively.As of December 31, 2015 , 2014 , and 2013 , there was approximately $4.5 million , $6.2 million , and $8.3 million , respectively, of unrecognized stock-basedcompensation cost, net of estimated forfeitures, related to unvested stock options that is expected to be recognized over a weighted-average period of 2.18 , 2.45 ,and 2.68 years, respectively. The total unrecognized stock-based compensation cost will be adjusted for future changes in estimated forfeitures.Restricted Stock UnitsThe Company recognizes non-cash compensation expense over the vesting term of restricted stock units. The fair value is measured based upon the number ofunits and the closing price of the Company’s common stock underlying such units on the dates of grant. Upon vesting and settlement, each restricted stock unitentitles the holder to receive one share of common stock.62Table of ContentsThe following table summarizes all restricted stock unit activity for the year ended December 31, 2015 : Number of Shares Weighted Average GrantDate Fair ValueUnvested as of December 31, 2014849,619 $12.73Restricted stock units granted649,646 13.45Restricted stock units vested(244,792) 13.02Restricted stock units cancelled(253,109) 12.47Unvested restricted stock units as of December 31, 20151,001,364 $13.19As of December 31, 2015 , 2014 , and 2013 , there was approximately $8.6 million , $7.4 million , and $0.0 million respectively, of unrecognized stock-basedcompensation cost, net of estimated forfeitures, related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 2.91 ,3.67 , and 0.00 years, respectively.Equity Awards with Market-Based Vesting ConditionsIn connection with the hiring of a new president and chief executive officer in the fourth quarter of 2014, the Company granted 250,000 options with market-based vesting conditions at an exercise price equal to the fair market value per share of the common stock on the date of grant, $ 14.44 . The vesting of theseoptions is based on achieving target market prices of the common stock for a requisite Trading Period as described herein. There are four targets to be achieved, $15.00 , $ 17.50 , $ 20.00 , and $ 22.50 , with 62,500 , or 25% , of the total options vesting at each target. The options shall vest on the first day after the completionof a period of twenty consecutive days in which the common stock has reached a target price, based upon the closing price (the "Trading Period").The Company estimates the fair value and derived service period of stock options with market-based vesting conditions on the date of grant using a latticemodel with a Monte Carlo simulation. The model requires the use of subjective estimates and assumptions, including grant price, expected volatility, risk-freeinterest rate and dividend yield. The exercise price, grant-date fair value, and assumptions used to estimate the fair value of the equity awards with market-basedvesting conditions were as follows: As of December 3, 2014Exercise price14.44Grant-date fair value7.41Assumptions Expected Volatility51%Risk-free interest rate2.29%Expected dividend yield—%In June 2015, the Company granted its chief financial officer 100,000 restricted stock units with market-based vesting conditions. The 100,000 restricted stockunits begin to accrue in 25% increments on each one-year anniversary of the date of grant, but do not become vested units until the market-based conditions aremet and subject further to time-based vesting conditions and continued employment. The market-based vesting conditions are based on achieving target marketprices of the common stock for a requisite Trading Period. There are two targets to be achieved, $14.00 and $18.00 per share, with 50,000 , or 50% , of the totalaward vesting at each target. The then accrued restricted stock units shall vest on the first day after achievement of the market-based vesting condition for theTrading Period, and any vesting thereafter will be contingent only on time-based vesting and continued employment with the Company.63Table of ContentsThe grant-date fair value and assumptions used to estimate the derived service period of the equity awards with market-based vesting conditions were asfollows: As of June 3, 2015Grant-date fair value$11.32Assumptions Expected Volatility49%Risk-free interest rate2.38%Expected dividend yield—%As of December 31, 2015 , 2014, and 2013, there was approximately $0.7 million , $1.4 million , and $0.0 million respectively, of unrecognized stock-basedcompensation cost, net of forfeitures, related to unvested awards with market-based vesting conditions that are expected to be recognized over a weighted-averageperiod of 2.34 , 0.87 , and 0.00 years. None of the market-based performance targets were achieved for the Company's outstanding equity awards as ofDecember 31, 2015 , and as such no vesting events have occurred.Stock-based Compensation ExpenseStock-based compensation is reflected in the consolidated statements of operations as follows for the years ended December 31, 2015 , 2014 , and 2013 (inthousands): Years Ended December 31, 2015 2014 2013Cost of revenues$730 $539 $508Research and development1,171 1,285 955General and administrative7,226 3,216 2,250Sales and marketing1,089 1,025 1,064Total$10,216 $6,065 $4,77711. Income TaxesThe domestic and foreign components of income (loss) before provision for income taxes were as follows (in thousands): Years Ended December 31, 2015 2014 2013Domestic$(10,120) $2,953 $(10,703)Foreign(11,393) (11,936) 153Total loss before provision for income taxes$(21,513) $(8,983) $(10,550) 64Table of ContentsThe components of the provision for income taxes are as follows (in thousands): Years Ended December 31, 2015 2014 2013Current tax provision Federal$131 $211 $—State113 239 14Foreign(118) 5 1 126 455 15Deferred tax provision Federal$— $(89) $40State4 1 —Foreign(28) — — (24) (88) 40Total provision for income taxes$102 $367 $55A reconciliation of our income tax provision to the statutory federal tax rate is as follows: Years Ended December 31, 2015 2014 2013Expected income tax benefit using U.S. federal statutory rate34.0 % 34.0 % 34.0 %Change in the valuation allowance(38.7) 79.6 (28.6)Nondeductible stock-based compensation(4.5) (8.0) (5.1)State taxes, net of federal benefit1.4 (2.1) 3.0Foreign rate differential(11.8) (30.7) —Corporate restructuring23.0 (55.3) —Income tax credits4.3 5.1 3.1Provision for tax reserves(3.5) (17.6) —State net operating loss expiration— (8.1) (13.0)Non-deductible compensation(3.0) — —Other(1.7) (1.0) 6.1Effective income tax rate(0.5)% (4.1)% (0.5)%The Company recorded income tax expense of $0.1 million , $0.4 million and $0.1 million for the years ended December 31, 2015 , 2014 , and 2013 ,respectively. For the year ended December 31, 2015 , the Company’s tax provision was primarily driven by federal AMT and state income taxes, partially offset bya release of a reserve for an uncertain tax position due to the close of an audit for one of its German subsidiaries. For the year ended December 31, 2014 , theCompany’s tax provision was primarily driven by federal AMT and state income taxes. Our effective tax rate for the year ended December 31, 2015 is lower thanthe U.S. federal statutory rate primarily due to changes in the valuation allowance against deferred tax assets, a foreign rate differential associated with certainforeign jurisdictions which are subject to significantly lower tax rates than the U.S. federal statutory rate and nondeductible stock based compensation, offset bycorporate restructuring activities. Our effective tax rate for the year ended December 31, 2014 is lower than the U.S. federal statutory rate primarily due tocorporate restructuring activities undertaken to support and grow our business internationally, a foreign rate differential associated with certain foreign jurisdictionswhich are subject to significantly lower tax rates than the U.S. federal statutory rate and nondeductible stock based compensation expense, offset by changes in thevaluation allowance against deferred tax assets. 65Table of ContentsThe components of the Company’s deferred tax assets and liabilities are as follows (in thousands): 2015 2014Deferred tax assets: Net operating loss carryforwards$36,822 $34,908Research and development tax credit carryforwards4,924 4,120Deferred revenue7,005 6,538Stock compensation4,176 2,540Other6,106 114Total deferred tax assets59,033 48,220Valuation allowance for deferred tax assets(54,982) (46,532)Total deferred tax assets, net of valuation allowance4,051 1,688Deferred tax liabilities: Amortization(2,439) (3,289)Other(3,146) (164)Total deferred tax liabilities(5,585) (3,453)Net deferred tax liabilities$(1,534) $(1,765)As of December 31, 2015 , the Company had U.S. federal, state and foreign net operating loss carryforwards of $110.1 million , $73.4 million , and $5.5million , respectively. Included in the federal and state net operating loss carryforward is $9.5 million and $8.9 million that relates to excess tax deductions fromstock-based payments, the tax benefit of which will be recorded as an increase in additional paid-in capital when the deductions reduce current taxes payable. Thefederal net operating loss carryforwards will expire at various dates beginning in 2027 through 2033 . State net operating loss carryforwards will expire at variousdates beginning in 2020 through 2033 . At December 31, 2015 , the Company had federal and state research and development tax credit carryforwards available toreduce future income taxes payable of $3.8 million and $3.0 million respectively. These credits will expire at various dates beginning in the year 2025 through2035 . As of December 31, 2015 the Company also had federal AMT credits of approximately $0.3 million , which can be carried forward indefinitely.Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. As required by the provisions of ASC740, management has determined that it is not more-likely-than-not that the tax benefits related to the federal, state and foreign deferred tax assets will be realizedfor financial reporting purposes. Accordingly, the deferred tax assets have been fully reserved at December 31, 2015 and 2014 . The valuation allowanceincreased/(decreased) approximately $8.5 million and $(8.8) million during the years ended December 31, 2015 and 2014 , respectively, due primarily to changesin the net operating loss carryforwards and increases in deferred tax assets related to stock based compensation and transaction costs.Future changes in Company ownership may limit the amount of net operating loss carryforwards and research and development credit carryforwards that canbe utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change, as defined by Section 382 of the Internal RevenueCode of 1986, as amended, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than50 percentage points over a three -year period. Based upon the Company’s analysis as of December 31, 2015 , there was no ownership change experienced during2015 .66Table of ContentsUnrecognized Tax BenefitsA reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 2015 2014Unrecognized tax benefits, beginning of year$(2,615) $—Additions based on tax positions related to the current year(1,323) (698)Acquisition— (677)Additions for tax positions of prior years(35) (1,240)Reductions for tax positions of prior years142 —Settlements600 —Reductions due to lapse of applicable statute of limitations— —Unrecognized tax benefits, end of year$(3,231) $(2,615)The Company accounts for uncertain tax positions under the recognition and measurement criteria of ASC 740-10. For those tax positions for which it is morelikely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlementwith a taxing authority that has full knowledge of all relevant information. If we do not believe that it is not more likely than not that a tax benefit will be sustained,no tax benefit is recognized. As of December 31, 2015 , the Company had a total amount of unrecognized tax benefits of $3.2 million , of which $0.2 millionrepresents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The differencebetween the total amount of unrecognized tax benefits and the amount that would impact the effective tax rate consists of items that, if recognized, would result ina corresponding increase in the valuation allowance.The Company recognizes interest and penalties related to uncertain tax positions as a component in income tax expense. As of December 31, 2015 , theCompany had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements ofoperations. The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities is open for tax years ending December 31,2012 , 2013 , 2014 and 2015 , although carryforward attributes that were generated prior to tax year 2012 may still be adjusted upon examination by the IRS orstate tax authorities if they either have been or will be used in a future period. The statute of limitations for assessments by foreign taxing authorities is generallynot open for years prior to 2011, although carryforward attributes that were generated prior to tax year 2011 may still be adjusted upon examinations.The Company is subject to U.S. federal income tax and various state and local taxes in both domestic and foreign jurisdictions. In the normal course ofbusiness, the Company is subject to examination by taxing authorities within these jurisdictions. The IRS completed its audit of the Company's U.S. federal incometax return for the tax year ended December 31, 2011 during 2014. The closing of the audit did not result in any proposed adjustments or assessments of tax relatingto the 2011 tax year. Additionally, during 2015 the Company completed a German tax audit for Mailstore for the tax years ended December 31, 2011, 2012, 2013and 2014 with immaterial adjustments.The Company does not reasonably expect that the unrecognized tax benefit will change significantly within the next twelve months.As of December 31, 2015, a deferred tax liability has not been established for approximately $0.3 million of cumulative undistributed earnings of non-U.S.subsidiaries, which are expected to be reinvested indefinitely in operations outside the U.S. Determination of the unrecognized deferred tax liability on unremittedearnings is not practical due to uncertainty regarding the remittance structure, the mix of earnings and earnings for profit pools in the year of remittance, andoverall complexity of the calculation.12. Commitments and ContingenciesOperating LeasesThe Company leases various facilities under leases that expire at varying dates through 2024. Certain of these leases contain renewal options and require theCompany to pay operating costs, including property taxes, insurance, and maintenance.67Table of ContentsThe Company has lease agreements to rent office space in Boston, Massachusetts (corporate headquarters); Lewiston, Maine; Sunnyvale, California;Longmont, Colorado; Munich, Germany; and Viersen, Germany. The Company has lease agreements to rent data center space in Wakefield, Massachusetts;Phoenix, Arizona; and Chandler, Arizona. The Company also maintained a hosting service agreement with a third-party data center vendor in Somerville,Massachusetts, which ended on January 31, 2015. The terms of several of these leases include escalating rent and free rent periods. Accordingly, the Companyrecorded a deferred rent liability related to the free rent and escalating rent payments, such that rent is being recognized on a straight-line basis over the terms ofthe leases. At December 31, 2015 and 2014 , $4.9 million and $4.8 million is included in accrued expenses and other long-term liabilities related to the deferredrent, respectively.In May 2014, the Company entered into a lease agreement for its new corporate headquarters in Boston, Massachusetts. The initial term of the lease expires onDecember 31, 2024 , and the Company has the option to extend the original term of the lease for one successive five -year period. Upon execution of the leaseagreement, the Company was required to post a security deposit of $0.8 million , which the Company maintains as a letter of credit. The Company’s landlord candraw against this letter of credit in the event of default by the Company. The facility was made available to the Company to begin its build-out on June 1, 2014,and as such, the Company began recording rent expense at that time. In accordance with the lease, the Company received a tenant improvement allowance. Therent expense is recorded net of the allowance over the term of the lease. The leasehold improvements associated with the initial build-out are being amortized overthe initial term of the lease. Any additional leasehold improvements made during the course of occupancy will be amortized over the shorter of the useful life orremaining life of the lease.Future non-cancellable minimum lease payments under all operating leases as of December 31, 2015 , are as follows (in thousands):Years Ended December 31,OfficeLeases DataCenterLeases Total2016$2,324 $2,083 $4,40720172,167 817 2,98420182,249 275 2,52420192,184 — 2,18420202,054 — 2,054Thereafter8,414 — 8,414Total$19,392 $3,175 $22,567 (1) This table includes amounts for agreements executed as of December 31, 2015. This table excludes $2.4 million of paymentsassociated with the Phoenix, Arizona data center lease that was extended in February 2016 and expires in January 2019.At December 31, 2015 , the Company subleased certain office space to third parties, which sublease income will offset lease payments included in the tableabove. Total sublease income under contractual terms is $1.1 million , with both the sublease and the underlying lease expiring in December 2016 .Other Non-cancellable CommitmentsAs of December 31, 2015 , the Company had non-cancellable commitments to vendors primarily consisting of advertising, marketing and broadband servicescontracts, as follows (in thousands):Years Ended December 31,Commitments2016$3,0412017692201811620193520206Total$3,89068Table of ContentsLitigationOn August 30, 2010, Oasis Research sued the Company and 17 other defendants in the United States Court for the Eastern District of Texas (the “Court”)alleging infringement of certain of Oasis Research’s patents. A trial was held in March 2013 and a jury verdict was returned against Oasis Research finding that allof the asserted patents were invalid. On January 8, 2015, the Court granted Oasis Research’s motion for Judgment as a Matter of Law under Rule 50(b) andAlternative Request for a New Trial under Rule 59(a). In October 2015, the parties participated in a mediation and subsequently entered into a confidentialagreement to dismiss all matters in the pending cases with prejudice.Although results of litigation and claims cannot be predicted with certainty, the Company is not presently involved in any legal proceeding in which theoutcome, if determined adversely to the Company, would be expected to have a material adverse effect on our business, operating results, or financial condition.Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources,and other factors.13. RestructuringIn 2015, the Company recorded restructuring charges of $0.5 million , primarily related to completion of our data center optimization program that wasinitiated in the fourth quarter of 2014, as well as recording a change in estimate of our lease exit charge for our former Boston, Massachusetts corporateheadquarters.In 2014, the Company exited office space and relocated its corporate headquarters. The relocation was made to facilitate growth of the Company and therelated increase in headcount. In association with the exit of the former office space, the Company recorded a charge of $0.4 million at the cease-use date inaccordance with ASC 420, Exit or Disposal Cost Obligations . Also during the fourth quarter, the Company recorded costs to optimize the operating efficiencies ofits data centers which included the exit of a facility and relocation of its equipment to an existing data center. As a result of these data center optimization efforts,there were restructuring expenses totaling $0.4 million for the period ending December 31, 2014. These expenses have been recorded through the restructuring linewithin the Company's consolidated statements of operations.As of December 31, 2015 and 2014 , the Company had $0.4 million and $0.5 million accrued related to restructuring activities, respectively.14. Retirement PlanThe Company has a 401(k) defined contribution savings plan for its employees who meet certain employment status and age requirements. The plan allowsparticipants to defer a portion of their annual compensation on a pre-tax basis. Effective January 1, 2012, the Company elected to make a matching contribution ofup to 4% of each employee’s wages. For the periods ending December 31, 2015, 2014 and 2013, the total expense for the Company’s matching contributions to theplan was $1.1 million , $0.9 million , and $0.7 million , respectively.15. Revolving Credit FacilityOn May 6, 2015, the Company and certain of our subsidiaries entered into a credit agreement with Silicon Valley Bank (the "Credit Facility"), which providesrevolving credit financing of up to $25.0 million , including a $5.0 million sub-limit for letters of credit. The Credit Facility may be increased by up to anadditional $25.0 million if the existing or additional lenders are willing to make such increased commitments and subject to other terms and conditions. TheCredit Facility shall be available to the Company on a revolving basis during the period commencing on May 6, 2015 through May 6, 2018 at an interest rate of theWall Street Journal prime rate plus 75 basis points or LIBOR plus 175 basis points, at the option of the Company.The Credit Facility is secured by substantially all of the Company’s assets and contains customary affirmative and negative covenants, including financialcovenants specifying a minimum quick ratio and minimum consolidated free cash flow, in each case subject to customary and other exceptions for a credit facilityof this size and type, each as further described in the Credit Facility. On May 22, 2015, the Company entered into an amendment to the Credit Facility, with SiliconValley Bank (the "Amendment"), which amends the Company’s existing Credit Facility. The Amendment eliminates from the events which constitute a change ofcontrol and, consequently, an event of default, the replacement, under specified circumstances, of a majority of the Company’s board of directors. The Amendmentalso allows the Company to repurchase its capital stock pursuant to a board of directors approved stock repurchase plan, so long as the total of such repurchasesdoes not exceed $20 million during the term of the Credit Facility and the Company remains in pro forma compliance with the financial and other69Table of Contentscovenants. On October 30, 2015, the Company entered into a second amendment to the Credit Facility with Silicon Valley Bank, which includes technicalcorrections relating to certain definitions and calculations of financial covenants.As of December 31, 2015, the Company was in compliance with these covenants and there was one letter of credit for $0.8 million outstanding under theCredit Facility related to the security deposit on the lease for the Company's corporate headquarters. As of December 31, 2015, availability under the CreditFacility was $24.2 million .16. Subsequent EventsOn January 13, 2016, the Company completed the EVault Acquisition. Carbonite acquired substantially all of the assets utilized in EVault's operations for cashconsideration of $14.0 million . Carbonite expects to complete the acquisition of the European Union assets of EVault in the first quarter of 2016, subject toapplicable laws, compliance requirements and customary closing conditions.The Company is in the process of gathering information to complete its preliminary valuation of certain assets and liabilities acquired as part of the transactionin order to complete acquisition accounting.17. Quarterly Information (Unaudited)Quarterly results of operations are as follows (in thousands, except per share amounts): For the three months ended: Dec. 31, 2015 Sept. 30, 2015 June 30, 2015 March 31, 2015 Dec. 31, 2014 Sept. 30, 2014 June 30, 2014 March 31, 2014Statements ofOperations Data: Revenue$35,065 $34,553 $33,972 $33,026 $31,914 $31,274 $30,295 $29,137Gross profit$25,869 $24,779 $24,172 $23,012 $21,913 $21,689 $20,574 $19,877Loss from operations$(5,488) $(5,701) $(4,476) $(5,993) $(4,615) $(481) $(2,547) $(942)Net loss$(4,599) $(5,966) $(4,820) $(6,230) $(5,133) $(699) $(2,536) $(982)Basic and diluted net loss pershare$(0.17) $(0.22) $(0.18) $(0.23) $(0.19) $(0.03) $(0.09) $(0.04)70Table of ContentsITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.CONTROLS AND PROCEDURESDisclosure Controls and ProceduresOur management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls andprocedures as of December 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, meanscontrols and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls andprocedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it filesor submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financialofficers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2015, our chiefexecutive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.Management’s Annual Report on Internal Control Over Financing ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting isdefined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of our principal executive and principalfinancial officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: •pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and thatour receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have amaterial effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. Management based its assessment on criteriaestablished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)("COSO").Based on management’s assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2015. Thecertifications of our chief executive officer and chief financial officer attached as Exhibits 31.1 and 31.2 to this Annual Report include, in paragraph 4 of suchcertifications, information concerning our disclosure controls and procedures and internal controls over financial reporting.Ernst & Young LLP, an independent registered public accounting firm, has issued a report on our internal control over financial reporting, which is includedbelow.71Table of ContentsChanges in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) ofthe Exchange Act that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Shareholders ofCarbonite, Inc.We have audited Carbonite, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Carbonite, Inc.’smanagement is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control overfinancial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express anopinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.In our opinion, Carbonite, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSOcriteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets ofCarbonite, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flowsfor each of the three years in the period ended December 31, 2015 of Carbonite, Inc. and our report dated March 8, 2016 expressed an unqualified opinion thereon./s/ Ernst & Young LLPBoston, MassachusettsMarch 8, 2016 ITEM 9B.OTHER INFORMATIONNone.72Table of ContentsPART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEExcept as set forth below with respect to the Company’s Code of Business Conduct and Ethics, the information required by this item will be set forth in thesections entitled “Board of Directors, Corporate Governance & Related Matters”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “ExecutiveOfficers” and “Criteria for Director Nominations” of our definitive proxy statement to be filed with the SEC in connection with our 2016 annual meeting ofstockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2015, and isincorporated in this Annual Report by reference.We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officerand principal financial officer. The Code of Business Conduct and Ethics is posted on our website at http://investor.carbonite.com/governance.cfm.We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of BusinessConduct and Ethics by posting such information on our website, at the address and location specified above and, to the extent required by the listing standards ofThe NASDAQ Global Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item will be set forth in the sections entitled “Compensation Discussion and Analysis”, “Compensation Committee Interlocksand Insider Participation” and “Report of the Compensation Committee of the Board of Directors on Executive Compensation” of our Proxy Statement and isincorporated in this Annual Report by reference.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this item will be set forth in the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and“Equity Compensation Plan Information” of our Proxy Statement and is incorporated in this Annual Report by reference.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information, if any, required by this item will be set forth in the sections entitled “Certain Relationships And Related Transactions” and “Board ofDirectors, Corporate Governance & Related Matters - Independence of our Board of Directors” of our Proxy Statement and is incorporated in this Annual Reportby reference.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item will be set forth in the section entitled “Audit-Related Matters” of our Proxy Statement and is incorporated in thisAnnual Report by reference.PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)(1) Financial StatementsSee Index to Consolidated Financial Statements on page 44 of this Annual Report, which is incorporated into this Item by reference.(a)(3) Exhibits73Table of ContentsSee Exhibit Index to this Annual Report, which is incorporated into this Item by reference. Each management contract or compensatory plan or arrangementrequired to be filed has been identified.(b) ExhibitsSee Exhibit Index to this Annual Report, which is incorporated into this Item by reference.(c) Financial Statement SchedulesNo schedules are submitted because they are not applicable, not required or because the information is included in the Consolidated Financial Statements orNotes to Consolidated Financial Statements.74Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. CARBONITE, INC. Dated: March 8, 2016By: /s/ Mohamad Ali Mohamad Ali Chief Executive Officer75Table of ContentsPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in thecapacities and on the dates indicated.Signature Title Date/s/ Mohamad Ali Chief Executive Officer and Director(Principal Executive Officer) March 8, 2016Mohamad Ali /s/ Anthony Folger Chief Financial Officer(Principal Financial Officer) March 8, 2016Anthony Folger /s/ Cassandra Hudson Chief Accounting Officer (Principal Accounting Officer) March 8, 2016Cassandra Hudson /s/ Stephen Munford* Chairman of the Board March 8, 2016Stephen Munford /s/ Jeffry Flowers* Director March 8, 2016Jeffry Flowers /s/ Charles Kane* Director March 8, 2016Charles Kane /s/ Todd Krasnow* Director March 8, 2016Todd Krasnow /s/ Peter Gyenes* Director March 8, 2016Peter Gyenes /s/ Scott Daniels* Director March 8, 2016Scott Daniels /s/ David Friend* Director March 8, 2016David Friend March 8, 2016*By: /s/ Mohamad Ali*Mohamad Ali Attorney-in-Fact76Table of ContentsEXHIBIT INDEX Exhibit No.Description2.1(1)Share Purchase Agreement relating to all shares in MailStore Software GmbH, dated as of December 12, 2014.2.2 (33)Asset Purchase Agreement by and among Carbonite, Inc., Carbonite Cloud Backup (Canada) Inc., Carbonite GmbH, Carbonite OperationsBV, EVault, Inc. and Seagate Technologies (US) Holdings, Inc., dated as of December 15, 2015.3.1(2)Amended and Restated Certificate of Incorporation of Carbonite, Inc.3.2(3)Amended and Restated By-Laws of Carbonite, Inc.4.1(4)Form of Common Stock Certificate.4.3(6)Form of Indenture.10.1(3)#Amended and Restated 2005 Stock Incentive Plan and Form of Incentive Stock Option Agreement, Nonqualified Stock Option Agreement,and Stock Restriction Agreement under the Amended and Restated 2005 Stock Incentive Plan.10.2(3)#2011 Equity Award Plan and Form of Incentive Stock Option Agreement, Nonqualified Stock Option Agreement, and Stock RestrictionAgreement under the 2011 Equity Award Plan.10.3(5)#Form of Indemnification Agreement by and between Carbonite, Inc. and each of its directors and executive officers.10.4(5)#Severance Agreement with David Friend, dated as of May 3, 2011.10.5(35)Amended and Restated Office Lease by Trustees of Church Realty Trust to Carbonite, Inc., dated as of October 17, 2011.10.6(7)Commercial Lease with Lewiston Properties, LLC, dated as of May 13, 2011.10.7(8)Turn Key Datacenter Lease with GIP Wakefield, LLC, dated as of June 3, 2011.10.8(9)Turn Key Datacenter Lease with Digital Phoenix Van Buren, LLC, dated as of November 29, 2011.10.9(10)First Amendment to the Datacenter Lease with GIP Wakefield, LLC, dated as of September 15, 2011.10.10(11)Second Amendment to the Datacenter Lease with GIP Wakefield, LLC, dated as of March 31, 2012.10.11(12)Third Amendment to the Datacenter Lease with GIP Wakefield LLC, dated as of June 11, 2012.10.12(13)#Offer Letter with Anthony Folger, dated as of November 21, 2012.10.13(14)†Fourth Amendment to the Datacenter Lease with GIP Wakefield, LLC, dated as of February 14, 2013.10.14(15)†Turnkey Datacenter Lease with Digital 2121 South Price, LLC, dated as of December 31, 2013.10.15(16)†Fifth Amendment to the Datacenter Lease with GIP Wakefield, LLC, dated as of February 6, 2014.10.16(17)#Form of Restricted Stock Unit Agreement under the 2011 Equity Award Plan.10.17(18)Indenture of Lease by and between Abbey Lafayette Operating LLC and Carbonite, Inc. dated as of May 5, 2014.10.18(19)#Form of Stock Restriction Agreement under the 2011 Equity Award Plan.10.19(20)#Amended and Restated Offer Letter with Danielle Sheer, dated as of August 1, 2014.10.20(21)#Promotion Letter Agreement with Cassandra Hudson, dated as of October 28, 2014.10.21(22)†Sixth Amendment to the Datacenter Lease with GIP Wakefield, LLC, dated as of September 30, 2014.10.22(23)#Employment Agreement with David Friend, dated as of January 8, 2015.10.23(24)#Executive Employment Agreement with Mohamad Ali, dated as of December 3, 2014, as amended January 8, 2015.10.26(25)Credit Agreement by and among Carbonite, Inc., the lenders party thereto and Silicon Valley Bank, dated as of May 6, 2015.10.27(26)#Offer Letter with David Raissipour, dated as of May 12, 2015.10.28(27)First Amendment to Credit Agreement by and among Carbonite, Inc., the lenders party thereto and Silicon Valley Bank, dated as of May22, 2015.10.29(28)Seventh Amendment to the Datacenter Lease with GIP Wakefield, LLC, dated as of September 30, 2015.10.30(29)Second Amendment to Credit Agreement by and among Carbonite, Inc., the lenders party thereto and Silicon Valley Bank, dated as ofOctober 30, 2015.10.31(30)#Offer Letter with Christopher Doggett, dated as of November 27, 2015.77Table of Contents Exhibit No.Description10.32(31)#Offer Letter with Paul Mellinger, dated as of December 15, 2015.10.33(32)#Offer Letter with Norman Guadagno, dated as of January 6, 2016.10.34(34)#Executive Severance Plan, dated as of February 2, 2016.10.35Performance-Based Restricted Stock Unit Award Agreement under the 2011 Equity Award Plan.10.36First Amendment to Turnkey Datacenter Lease with Digital Phoenix Van Buren, LLC, dated as of February 3, 2016.21.1List of subsidiaries.23.1Consent of Ernst & Young LLP, independent registered public accounting firm.24.1Power of Attorney.31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INSXBRL Instance Document.101.SCHXBRL Taxonomy Extension Schema Document.101.CALXBRL Taxonomy Extension Calculation Linkbase Document.101.DEFXBRL Taxonomy Extension Definition Linkbase Document.101.LABXBRL Taxonomy Extension Label Linkbase Document.101.PREXBRL Taxonomy Extension Presentation Linkbase Document.(1)Filed as the same numbered exhibit to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December15, 2014, and incorporated herein by reference.(2)Filed as the same numbered exhibit to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission onNovember 10, 2011, and incorporated herein by reference.(3)Filed as the same numbered exhibit to Amendment No. 2 to Registrant’s Registration Statement on Form S-1 filed with the Securities and ExchangeCommission on July 13, 2011, and incorporated herein by reference.(4)Filed as the same numbered exhibit to Amendment No. 3 to Registrant’s Registration Statement on Form S-1 filed with the Securities and ExchangeCommission on July 25, 2011, and incorporated herein by reference.(5)Filed as the same numbered exhibit to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission onMay 12, 2011, and incorporated herein by reference.(6)Filed as Exhibit 4.5 to Registrant's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on November 19, 2013,and incorporated herein by reference.(7)Filed as Exhibit 10.13 to Amendment No. 1 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commissionon June 15, 2011, and incorporated herein by reference.(8)Filed as Exhibit 10.14 to Amendment No. 1 to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commissionon June 15, 2011, and incorporated herein by reference.(9)Filed as Exhibit 10.17 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2012, andincorporated herein by reference.(10)Filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 3, 2012, andincorporated herein by reference.(11)Filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 3, 2012, andincorporated herein by reference.(12)Filed as Exhibit 10.24 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2013, andincorporated herein by reference.(13)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 2, 2013, andincorporated herein by reference.(14)Filed as Exhibit 10.19 to Registrant's Annual Report on Form 10-K with the Securities and Exchange Commission on March 5, 2014, andincorporated herein by reference.(15)Filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K with the Securities and Exchange Commission on March 5, 2014, andincorporated herein by reference.(16)Filed as Exhibit 10.25 to Registrant's Annual Report on Form 10-K with the Securities and Exchange Commission on March 5, 2014, andincorporated herein by reference.78Table of Contents(17)Filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K with the Securities and Exchange Commission on March 5, 2014, andincorporated herein by reference.(18)Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q with the Securities and Exchange Commission on May 6, 2014, andincorporated herein by reference.(19)Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2014, andincorporated herein by reference.(20)Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q with the Securities and Exchange Commission on August 5, 2014, andincorporated herein by reference.(21)Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2014, andincorporated herein by reference.(22)Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 6, 2014, andincorporated herein by reference.(23)Filed as Exhibit 99.1 to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, andincorporated herein by reference.(24)Filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 4, 2014(Executive Employment Agreement) and Exhibit 99.2 to Registrant's Current Report on Form 8-K filed with the Securities and ExchangeCommission on January 9, 2015 (Amendment to Executive Employment Agreement), and each incorporated herein by reference.(25)Filed as Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2015, andincorporated herein by reference.(26)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2015, andincorporated herein by reference.(27)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2015, andincorporated herein by reference.(28)Filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2015, andincorporated herein by reference.(29)Filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2015, andincorporated herein by reference.(30)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 1, 2015, andincorporated herein by reference.(31)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2015, andincorporated herein by reference.(32)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2016, andincorporated herein by reference.(33)Filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 13, 2016, andincorporated herein by reference.(34)Filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 4, 2016, andincorporated herein by reference.(35)Filed as Exhibit 10.5 to Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2015, andincorporated herein by reference.#Indicates a management contract or compensatory plan.†Portions of this exhibit have been omitted pending a determination by the Securities and Exchange Commission as to whether these portions should begranted confidential treatment.79Exhibit 10.35CARBONITE, INC.PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT1. Performance-Based Restricted Stock Unit Award Agreement under Carbonite, Inc. 2011 Equity Award Plan:Name of Recipient :No. of Performance-Based Restricted Stock Units :Grant Date :Pursuant to Carbonite, Inc.’s 2011 Equity Award Plan (the “Plan”), Carbonite, Inc. (together with all successors thereto, the “Company”), hereby grants thenumber of Performance-Based Restricted Stock Units specified above (the “Award”) to the Recipient named above, subject to the terms of the Plan and this Awardagreement (the “Agreement”). The Award represents a promise to pay to the Recipient one share of Common Stock, par value $0.01 per share (the “CommonStock”) of the Company for each Performance-Based Restricted Stock Unit, subject to the restrictions and conditions set forth herein and in the Plan. Capitalizedterms used but not otherwise defined herein shall have the meaning ascribed to such terms in the Plan. To the extent that any term of this Agreement conflicts or isotherwise inconsistent with any term of the Plan, as amended from time to time, the terms of the Plan shall take precedence and supersede any such conflicting orinconsistent term contained herein, unless this Agreement specifically provides otherwise.2. Vesting and Provisions for Termination .(a) Performance and Service Vesting . This Award contains both performance and service vesting conditions. This Award will meet theperformance vesting condition if, within three years from the Date of Grant, the closing price per share of the Common Stock as reported on NASDAQ is at least$15.00 (the “Price”) for 20 consecutive trading days. Upon achieving the applicable performance vesting condition (“Performance Achievement”), the Award willbe subject to service vesting, with vesting of such Performance-Based Restricted Stock Units to occur in four equal 3-month installments over the one-year periodfrom the date of Performance Achievement, subject to the Recipient’s continued service to the Company through the applicable vesting date. Notwithstanding anything herein to the contrary, following Performance Achievement, in the event that (x) this Award is assumed or continuedby the Company or its successor entity in the sole discretion of the parties to a Change of Control pursuant to Section 15 of the Plan and within 12 monthsfollowing such Change of Control, the Company or its successor entity, as the case may be, terminates the employment of the Recipient without Cause or theRecipient terminates his or her employment for Good Reason, then the restrictions and conditions shall lapse with respect to all then unvested Performance-BasedRestricted Stock Units, or (y) in the event that, after the Company has entered into a definitive agreement with respect to a Change of Control but prior to or uponthe effective date of such Change of Control, the Company terminates the employment of the Recipient without Cause upon the written request of the acquirer insuch Change of Control, then, as of the date upon which the Recipient’s employment with the Company terminates, the restrictions and conditions shall lapse withrespect to any then unvested Performance-Based Restricted Stock Units. If this Award is not assumed or continued by the Company or its successor entity in anyChange of Control pursuant to Section 15 of the Plan, then immediately prior to such Change of Control, the restrictions and conditions shall lapse with respect toall of the then unvested Performance-Based Restricted Stock Units. For purposes of clarity, Performance Achievement will occur in connection with a Change ofControl if the consideration per share of Common Stock in such Change of Control transaction is at least equal to the Price and may also occur following a Changeof Control if the price per share of the Common Stock (or adjusted equivalent thereof following the Change of Control) is at least equal to the Price.For purposes of this Agreement, the term “Cause” shall mean dismissal by the Company of the Recipient as a result of (i) the commission of anyact by the Recipient constituting financial dishonesty against the Company (which act would be chargeable as a crime under applicable law); (ii) the Recipient’sengaging in any other act of fraud, intentional misrepresentation, moral turpitude, illegality or harassment; (iii) unauthorized use or disclosure by a Recipient ofany proprietary information or trade secrets of the Company or any other party to whom the Recipient owes an obligation of nondisclosure as a result of his or herrelationship with the Company; (iv) the repeated failure by the Recipient to follow the directives of the chief executive officer of the Company or the Board; or (v)any material misconduct, violation of the Company’s policies, or willful and deliberate non-performance of duty by the Recipient in connection with the businessaffairs of the Company.For purposes of this Agreement, the term “Good Reason” shall mean that the Recipient has complied with the Good Reason Process (as definedbelow) following the occurrence of any of the following events: (i) a material diminution in the Recipient’s responsibilities, authority or duties; (ii) a materialdiminution in the Recipient’s base salary, except for across-the-board salary reductions similarly affecting similarly situated employees of the Company; (iii) arelocation of more than 50 miles of the office at which the Recipient provides services to the Company, or (iv) any failure by the Company to obtain the writtenassumption of this Plan by any successor to the Company. Notwithstanding the terms of any employment or similar agreement with the Company to which theRecipient is a party that contains a different definition of “good reason” (or other similar term), this definition shall be applicable to the Recipient for purposes ofthis Agreement and not such other definition. “Good Reason Process” means that (A) the Recipient reasonably determines in good faith that a Good Reasoncondition has occurred; (B) the Recipient notifies the Committee in writing of the first occurrence of the Good Reason condition within 60 days of the firstoccurrence of such condition; (C) the Recipient cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the“Cure Period”), to remedy the condition; (D) notwithstanding such efforts, the Good Reason condition continues to exist; and (E) the Recipient terminates his orher employment within 60 days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall bedeemed not to have occurred.(b) Continuous Employment Required . Except as otherwise provided in this Agreement, no Performance-Based Restricted Stock Units shallvest unless on the applicable vesting date specified in Section 2(a) the Recipient is, and has been at all times since the Grant Date, an employee of the Company orits Subsidiaries. If the Recipient ceases to be an employee for any reason, then any Performance-Based Restricted Stock Units that have not vested, and that do notbecome vested pursuant to Section 2(a) hereof as a result of such termination, shall be forfeited immediately upon such cessation of employment without anypayment to the Recipient.(c) Settlement of Performance-Based Restricted Stock Units . As soon as practicable following vesting (but in no event later than 60 daysfollowing the applicable vesting date) the Recipient shall receive one share Common Stock, for each Performance-Based Restricted Stock Unit that vestshereunder. The Company shall reflect the Recipient’s ownership of such shares of Common Stock on its stock records as of the date on which the shares ofCommon Stock are delivered to the Recipient. 3. Non-transferability of Performance-Based Restricted Stock Units; No Equity Securities . Unvested Performance-Based Restricted Stock Unitsgranted under the Agreement may not be transferred, assigned, pledged, or hypothecated in any manner (whether by operation of law or otherwise). Upon anyattempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Performance-Based Restricted Stock Units, or upon the levy of any attachment orsimilar process upon the Performance Based-Restricted Stock Units, the Performance-Based Restricted Stock Units and the associated rights contemplated by thisAgreement shall, at the election of the Company, become null, void, and of no further force or effect. Unless and until such time as the Common Stock is issued insettlement of vested units, Recipient shall have no ownership rights in respect of the Common Stock reserved for issuance upon settlement of the Performance-Based Restricted Stock Units and shall have no right to dividends or to vote such shares.4. No Special Employment Rights . Nothing contained in the Plan or this Agreement shall be construed or deemed by any Person under anycircumstances to bind the Company or any of its Subsidiaries to continue the employment of the Recipient for any period, including the period within which thePerformance-Based Restricted Stock Units may become vested units, or affect in any manner the right of the Company or any Subsidiary to terminate theemployment the Recipient at any time.5. Adjustments . The terms of this award, including the number of Performance-Based Restricted Stock Units subject to this Agreement, shall besubject to adjustment in accordance with Section 15 of the Plan. Adjustments pursuant to Section 15 of the Plan will be made by the Committee, whosedetermination as to what adjustments, if any, shall be made and the extent thereof will be final and binding.6. Withholding Taxes . The Recipient acknowledges and agrees that the Recipient (and not the Company) is solely responsible for any and all taxesthat may be assessed by any taxing authority in the United States or any other jurisdiction, arising in any way out of this Agreement, the Performance-BasedRestricted Stock Units, any vested units, or Common Stock issued or issuable upon settlement of the vested units and the Company is not liable for any suchassessments. Prior to the settlement of the Recipient’s vested units, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfyall withholding obligations of the Company in connection with such settlement. In this regard, these arrangements may include, to the extent permissible underapplicable law and elected by the Recipient, (a) the Company withholding shares of Common Stock that otherwise would be issued to the Recipient when theRecipient’s vested units are settled, provided that the Company only withholds the number of shares of Common Stock necessary to satisfy the minimum statutorywithholding amount, and provided, further, that the Fair Market Value of these shares of Common Stock, determined as of the effective date when taxes otherwisewould have been withheld in cash, will be applied as a credit against the withholding taxes, (b) having the Company withhold allapplicable withholding taxes legally payable by the Recipient from the proceeds of the sale of shares of Common Stock, through a voluntary sale elected by theRecipient, provided that the Recipient timely adopts, or has previously timely adopted, the Rule 10b5-1 Sales Plan in substantially the form attached hereto asAppendix A, (c) having the Company withhold all applicable withholding taxes legally payable by the Recipient from the Recipient’s wages or other cashcompensation paid to the Recipient by the Company (on the Recipient’s behalf pursuant to this authorization and subject to Section 409A of the Internal RevenueCode of 1986, as amended (the “Code”)), (d) the Recipient electing to deliver to the Company at the time that the Company is obligated to withhold taxes inconnection with such receipt or settlement, as the case may be, such amount as the Company requires to meet its withholding obligations under applicable tax lawsand regulations, or (e) any other arrangement approved by the Committee. The Fair Market Value of any fractional shares of Common Stock resulting from thewithholding or sale, as applicable, of shares of Common Stock pursuant to this Section 6 will be paid to the Recipient in cash.7. Section 409A of the Code . This Award is intended to be exempt from Section 409A of the Code as short-term deferrals, and shall be interpreted andconstrued accordingly.8. Miscellaneous .(a) Except as provided herein or in the Plan, the Company may amend the provisions of this Agreement at any time; provided that anamendment that would adversely affect the Recipient’s rights under this Agreement shall be subject to the written consent of the Recipient. Notwithstanding theforegoing, the Committee may, without the consent of the Recipient or other interested party, adjust or cancel the Agreement pursuant to Section 15 of the Plan,or modify the Agreement to the extent the Committee deems necessary to comply with any applicable law, the listing requirements of any principal securitiesexchange or market on which Common Stock is then traded, or to preserve favorable accounting or tax treatment of any award under the Plan for the Company.(b) All notices under this Agreement shall be mailed, delivered by hand, or delivered by electronic means to the parties pursuant to the contactinformation for the applicable party set forth in the records of E*Trade Corporate Financial Services, Inc. (“E*TRADE”) or any successor third-party equity planadministrator designated by the Company from time to time (the “Administrative Service”), or at such other address as may be designated in writing by either ofthe parties to the other party.(c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (without regard to principles ofconflicts of laws).(d) The Recipient hereby accepts, by signature or electronic means delivered to the Administrative Service, this Agreement and agrees to theterms and conditions of this Agreement and the Plan. The Recipient hereby acknowledges receipt of a copy of the Plan.Date of Grant: CARBONITE, INC. By: Name: Title: APPENDIX ARULE 10b5-1 SALES PLAN1. General . I hereby enter into this Rule 10b5-1 Plan (the “Plan”) in accordance with the terms set forth below with respect to all sales of shares of theCompany’s Common Stock for my account in order to satisfy the Company’s withholding obligations with respect to the settlement of restricted stock unitsgranted by the Company to me pursuant to the terms of any performance-based restricted stock unit agreements (each, an “Award”). Capitalized terms used but nototherwise defined herein shall have the meaning ascribed to such terms in the Award.2. Election to Participate; Appointment of Broker as Agent . This Plan shall become effective 30 days after the date on which I execute this Plan.During the period when the Plan is effective, I (i) acknowledge and agree that I appoint E*TRADE as my agent and attorney-in-fact to effect the salescontemplated under this Plan, and (ii) agree to pay E*TRADE its commissions and any transaction fees relating to such sales from the proceeds of the sales.3. Election to Cease Participating . This Plan will terminate on the earliest to occur of (i) 10 days after the date on which I have both properly elected toterminate this Plan in writing to the Company and E*TRADE and notified SECFilings@carbonite.com of such termination, and (ii) 10 days after the date on whichmy employment with the Company terminates for any reason. If I elect to terminate this Plan, I may not enter into a similar plan until six months after the date ofsuch termination.4. Representations of Recipient . I represent and warrant to the Company that (i) on the date on which I execute this Plan, I am not aware of anymaterial nonpublic information with respect to the Company or any of its securities (including the Common Stock), (ii) I am not subject to any legal, regulatory, orcontractual restriction or undertaking that would prevent E*TRADE from conducting sales throughout the term of this Plan, (iii) I am entering into this Plan ingood faith and not as part of a plan or scheme to evade the prohibitions of Section 10(b) or Rules 10b-5 or 10b5-1 under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), (iv) the Common Stock subject to this Plan is not subject to any liens, security interests or other impediments to transfer (exceptfor limitations imposed by Rules 144 and 145 under the Exchange Act, or Rule 701 under the Securities Act of 1933, as amended, if I am subject to these rules),nor is there any litigation, arbitration or other proceeding pending, or to my knowledge threatened, that would prevent or interfere with the sale of Common Stockunder this Plan, (v) I have not entered into or altered, nor will I enter into or alter, any corresponding or hedging transaction while this Plan is effective, and (vi) Ido not have authority, influence or control over any sales of Common Stock effected by E*TRADE pursuant to this Plan, and will not attempt to exercise anyauthority, influence or control over such sales.5. Authorized Sales . By executing this Plan, I hereby authorize and direct E*TRADE and the Company as follows:(a) The Company shall promptly notify E*TRADE of the amount of my tax withholding obligation related to the settlement of vested units oneach applicable vest date of each applicable Award. If the Company does not timely notify E*TRADE of the amount of such tax withholding obligation andE*TRADE is unable to calculate such amount, E*TRADE shall promptly request such information from the Company.(b) On each vesting date of each applicable Award, I am required to pay to the Company taxes required by law to be withheld hereunder tosatisfy a withholding obligation. With no further action by me, I hereby instruct E*TRADE to sell, during the three-consecutive-trading-day period immediatelyfollowing each applicable vest date of each applicable Award, a number of whole shares of Common Stock necessary to produce sales proceeds that satisfy, afterdeduction of any applicable commissions and transaction fees, my tax withholding obligation, based on the minimum statutory withholding rates for federal andstate tax purposes, including payroll taxes, that are applicable to such supplemental income relating to the vested units settled on each applicable vest date (in suchamount as the Company shall communicate to E*TRADE and me) and to promptly issue a check for such amount to the Company. Thereafter, after giving effectto my withholding and other obligations described herein, any fractional shares of Common Stock resulting from such a sale shall promptly be issued to me incash, by E*TRADE into my E*TRADE account.6. Section 16 Officers . If I am subject to Section 16 of the Exchange Act with respect to the Company’s securities, I shall effect the sales contemplatedby this Plan in accordance with Rule 144 under the Exchange Act, and E*TRADE hereby agrees to prepare and timely file all required Form 144s.I hereby execute this Plan in good faith on the date I accept this Plan by signature or electronic means delivered to E*TRADE, and intend that this Plan complywith the requirements of Rule 10b5-1(c)1 under the Exchange Act. This Plan is intended to comply with the requirements of Rule 10b5-1(c)(1) and shall beinterpreted and administered accordingly.Exhibit 10.36FIRST AMENDMENTTOTURN KEY DATACENTER LEASE THIS FIRST AMENDMENT TO TURN KEY DATACENTER LEASE (this “ Amendment ”) is made and entered into as of the latest date of execution asshown on the signature page hereof (the “ 1A Effective Date ”), by and between DIGITAL PHOENIX VAN BUREN, LLC , a Delaware limited liabilitycompany (“Landlord”), and CARBONITE, INC. , a Delaware corporation (“ Tenant ”).LANDLORD: Digital Phoenix Van Buren, LLC, a Delaware limited liability company TENANT: Carbonite, Inc., a Delaware corporation EXISTING PREMISES: Premises:Approximately 1,280 square feet of area on the first floor of the Building(Suite C130B), caged as shown on Exhibit “A” attached to the OriginalTKD Lease. The Premises are used for datacenter purposes and wereleased pursuant to the Original TKD Lease. OS Tenant Space:Approximately 288 rentable square feet in Suite C115 as depicted on thediagram of the OS Tenant Space contained on Exhibit A, attached to theOffice Space Rider. The OS Tenant Space is used for office purposes andwas leased pursuant to the Office Space Rider. LEASE DATA: Date ofDatacenter Lease:November 29, 2011 Date of OfficeSpace Rider:November 29, 2011 CommencementDate of Lease:February 1, 2012 TerminationDate:January 31, 2016 First ExtensionOption TerminationDate:January 31, 2019Exhibit 10.36W I T N E S S E T H:WHEREAS , Landlord and Tenant have heretofore entered into that certain Turn Key Datacenter Lease having an effective date of November 29, 2011(the “ Original TKD Lease ”) covering approximately 1,280 square feet of caged area (the “ Premises ”) in the Datacenter in that certain building located at 120East Van Buren, Phoenix, Arizona (the “ Building ”). The TKD Lease and the Office Space Rider shall be referred to herein, collectively, as the “ Lease ”;WHEREAS , each capitalized term or phrase used in this Amendment shall have the same meaning as the meaning ascribed to such term or phrase in theLease unless expressly otherwise defined in this Amendment; andWHEREAS , Landlord and Tenant desire to further modify the terms of the Lease in accordance with the terms and conditions herein provided.NOW, THEREFORE , for and in consideration of the covenants set forth herein and other good and valuable consideration paid by each party hereto tothe other, the receipt and sufficiency of which are hereby mutually acknowledged, Landlord and Tenant hereby agree as follows:1. First Extension Term . Currently, the Term of the Lease is scheduled to expire January 31, 2016. Effective as of the 1A Effective Date, Tenanthereby elects to exercise the first (1st) of Tenant’s two (2) Extension Options to extend the Term of the Lease by an additional thirty-six (36) months (as furtherdefined in the Lease, the “First Extension Term”). Accordingly, effective as of, and from and after, the 1A Effective Date, (a) the Term of the Lease is herebydeemed extended by an additional thirty-six (36) months, so as to expire on January 31, 2019, and (b) Tenant shall be deemed to have one (1) remaining ExtensionOption to extend the Term of the Lease by an additional thirty-six (36) months (as further defined in the Lease, the “Second Extension Term”), subject to the termsand conditions of the Lease. 2. First Extension Term Base Rent . Pursuant to Item 8 of the Basic Lease Information of the Original TKD Lease and of Item 6 of the Basic RiderInformation of the Office Space Rider, Tenant hereby agrees to pay Base Rent with respect to the Premises and OS Base Rent with respect to the OS Tenant Spaceduring the First Extension Term as follows:PeriodMonthly Base Rent -PremisesMonthly OS Base Rent -OS Tenant SpaceFebruary 1, 2016 - January 31, 2017$65,176.34$720.00February 1, 2017 - January 31, 2018$67,131.63$720.00February 1, 2018 - January 31, 2019$69,145.58$720.003. Estoppel . Tenant hereby (a) confirms and ratifies the Lease, as amended hereby, (b) acknowledges that, to the best of Tenant’s actual knowledge,Landlord is not in default under the Lease as of the date this Amendment is executed by Tenant, and (c) confirms that, to the best of Tenant’s actual knowledge, asof the date this Amendment is executed by Tenant, Landlord has no outstanding obligations with respect to the Tenant Space and/or under the Lease that would,with the passage of time, the giving of notice, or both, result in Landlord being in default under the Lease.4. Commissions . Landlord and Tenant each represents to the other that it has dealt with no broker, agent or other person in connection with thisAmendment, other than Paul Adams on behalf of Tenant, and that no other broker, agent or other person brought about this Amendment. Landlord and Tenant shallindemnify and hold the other harmless from and against any and all claims, losses, costs or expenses (including reasonable attorneys’ fees and expenses) by anybroker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to thetransaction contemplated by this Amendment. The provisions of this paragraph shall survive the expiration of the Term of the Lease or any renewal or extensionthereof. Exhibit 10.365. Confidentiality. Each party agrees that (a) the terms and provisions of this Amendment are confidential and constitute proprietary information of theparties; and (b) as such, the terms and provisions of this Amendment are, and shall be, subject to the terms of Section 17.19 of the Original TKD Lease.6. Miscellaneous . A. In the event that the terms of the Lease conflict or are inconsistent with those of this Amendment, the terms of this Amendment shall govern. In thatconnection, the Lease is hereby amended as and where necessary to give effect to the express terms of this Amendment.B. Except as amended by this Amendment, the terms of the Lease are hereby ratified by Landlord and Tenant, and shall remain in full forceand effect.C. This Amendment shall become effective only upon execution and deliveryby both Landlord and Tenant.D. This Amendment may be executed simultaneously in two or more counterparts each of which shall be deemed an original, but all of whichshall constitute one and the same Amendment. Landlord and Tenant agree that the delivery of an executed copy of this Amendment by facsimile or e-mail shall belegal and binding and shall have the same full force and effect as if an original executed copy of this Amendment had been delivered.[SIGNATURE PAGE TO FOLLOW] Exhibit 10.36IN WITNESS WHEREOF , Landlord and Tenant have caused this Amendment to be executed on the respective dates set forth below, to be effective asof the 1A Effective Date. LANDLORD : DIGITAL PHOENIX VAN BUREN, LLC, a Delaware limited liability company By:Digital Realty Trust, L.P., its member By:Digital Realty Trust, Inc., its general partner By: /s/ George Rogers Name: George Rogers Title: Vice President Portfolio Management, West Region Date: February 3, 2016 TENANT : CARBONITE, INC., a Delaware corporation By: /s/ Anthony Folger Name: Anthony Folger Title: Chief Financial Officer Date: January 26, 2016Exhibit 21.1Subsidiaries of Carbonite, Inc. Subsidiary JurisdictionCarbonite Securities Corporation United States (Massachusetts)Carbonite China Holdings, LLC United States (Delaware)Carbonite India Holdings, LLC United States (Delaware)Carbonite (China) Co., Ltd. ChinaZmanda Technologies India Pvt. Ltd. IndiaCarbonite Cloud Backup (Canada) Inc. CanadaCabonite GmbH SwitzerlandCarbonite Germany GmbH GermanyMailStore Software GmbH GermanyCarbonite Holdings B.V. NetherlandsCarbonite International Holdings, B.V. NetherlandsCarbonite Operations B.V. NetherlandsCarbonite Securities Corporation and Carbonite Holdings B.V. are wholly owned subsidiaries of Carbonite, Inc. Carbonite International Holdings, B.V. is a whollyowned subsidiary of Carbonite Holdings B.V. Carbonite China Holdings, LLC, Carbonite India Holdings, LLC, Carbonite Cloud Backup (Canada) Inc., CarboniteGmbH, Carbonite Germany GmbH and Carbonite Operations B.V. are wholly owned subsidiaries of Carbonite International Holdings, B.V. Carbonite (China) Co.,Ltd. is a wholly owned subsidiary of Carbonite China Holdings, LLC. Zmanda Technologies India Pvt. Ltd. is a wholly owned subsidiary of Carbonite IndiaHoldings, LLC. MailStore Software GmbH is a wholly owned subsidiary of Carbonite Germany GmbH.Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements:•Registration Statement (Form S-3 No. 333-192400) of Carbonite, Inc.,•Registration Statement (Form S-8 No. 333-176373) pertaining to the Amended and Restated 2005 Stock Incentive Plan and the 2011 Equity Award Planof Carbonite, Inc., and•Registration Statements (Form S-8 Nos. 333-179988, 333-187089, 333-194332 and 333-202645) pertaining to the 2011 Equity Award Plan of Carbonite,Inc.,of our reports dated March 8, 2016, with respect to the consolidated financial statements of Carbonite, Inc., and the effectiveness of internal control over financialreporting of Carbonite, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2015. /s/ Ernst & Young LLPBoston, MassachusettsMarch 8, 2016Exhibit 24.1POWER OF ATTORNEYThe undersigned directors of Carbonite, Inc., a Delaware corporation (the “Company”), do hereby nominate, constitute and appoint Mohamad Ali, AnthonyFolger and Cassandra Hudson, and each of them individually, the true and lawful attorney or attorneys of the undersigned, with power to act with or without theother and with full power of substitution and resubstitution, to execute in the name and on behalf of the undersigned as directors and officers of the Company, theAnnual Report of the Company on Form 10-K for the fiscal year ended December 31, 2015 and any and all amendments thereto; and each of the undersignedhereby ratifies and approves all that said attorneys or any of them shall do or cause to be done by virtue hereof.IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney in one or more counterparts on the date set opposite his or her name.Signature Title Date /s/ Stephen Munford Chairman of the Board of Directors March 8, 2016Stephen Munford /s/ Jeffry Flowers Director March 8, 2016Jeffry Flowers /s/ Charles Kane Director March 8, 2016Charles Kane /s/ Todd Krasnow Director March 8, 2016Todd Krasnow /s/ David Friend Director March 8, 2016David Friend /s/ Peter Gyenes Director March 8, 2016Peter Gyenes /s/ Scott Daniels Director March 8, 2016Scott Daniels 1Exhibit 31.1CERTIFICATIONSI, Mohamad Ali , certify that: 1I have reviewed this Annual Report on Form 10-K of Carbonite, Inc.; 2Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: March 8, 2016 /s/ Mohamad Ali Mohamad AliChief Executive OfficerExhibit 31.2CERTIFICATIONSI, Anthony Folger , certify that: 1I have reviewed this Annual Report on Form 10-K of Carbonite, Inc.; 2Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: March 8, 2016 /s/ Anthony Folger Anthony FolgerChief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Carbonite, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2015 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Mohamad Ali, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company./s/ Mohamad AliMohamad AliPresident and Chief Executive OfficerMarch 8, 2016A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request.Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Carbonite, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2015 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Anthony Folger, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Anthony FolgerAnthony FolgerChief Financial OfficerMarch 8, 2016A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request.

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