The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements. The Company believes that a significant accounting policy is one that is both important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effect of matters that are inherently uncertain.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Due to the adoption of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which is discussed further in this Note 2, the consolidated balance sheets and the consolidated statements of operations, comprehensive income, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years ended December 31, 2019 and 2018 are not comparative to prior years.

Due to the adoption of ASC Topic 842, Leases (“ASC 842”), which is discussed further in this Note 2, the consolidated balance sheet for the year ended December 31, 2019 is not comparative to prior years.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than those disclosed in Note 16 of these consolidated financial statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Significant estimates relied upon in preparing these consolidated financial statements include revenue recognition and sales allowances, variable consideration, the valuation of goodwill and intangible assets, the expensing and capitalization of product, technology, and development costs for website development and internal‑use software, and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.

The Company derives its revenue from two primary sources: (1) marketplace subscription revenue, which consists primarily of Listings, and Dealer Display subscriptions, and (2) advertising and other revenue, which consists primarily of display advertising revenue from auto manufacturers and other auto‑related brand advertisers as well as partnerships with financing services companies.

The Company offers multiple types of marketplace Listings packages to its dealers through its platform: Restricted Listings (formerly referred to as Basic Listings), which is free; and various levels of Listings packages, which each require a paid subscription under a monthly, quarterly, semiannual, or annual subscription basis. Contractual subscriptions for customers generally auto-renew on a monthly basis and are cancellable by dealers with 30 days’ advance notice at the end of the committed term. The Company also offers all dealers on the its platform access to a Dealer Dashboard, which includes a performance summary, Dealer Insights tool, and user review management platform. Dealers subscribing to a paid Listings package also have access to the Pricing Tool and Market Analysis tool. The Pricing Tool and Market Analysis tool are available only to paying dealers. Subscription pricing is determined based on a dealer’s inventory size, region, and the Company’s assessment of the connections and Return on Investment (“ROI”) the platform will provide them.

In addition to listing inventory in the Company’s marketplace and providing access to the Dealer Dashboard, the Company offers dealers subscribing to one of its Enhanced, Featured, or Featured Priority Listings packages other subscription advertising and customer acquisition products, including Dealer Display, pursuant to which dealers can buy display advertising that appears in the Company’s marketplace, and on other sites on the internet, and for which such advertisements can be targeted by the user’s geography, search history, CarGurus website activity (including showing users relevant vehicles from a dealer’s inventory that they have not yet discovered on the Company’s marketplace), and a number of other targeting factors, allowing dealers to increase their visibility with in-market consumers and drive qualified traffic for dealers.

Payment is typically due on first day of each calendar month and is recorded as accounts receivable or short-term deferred revenue when payment is received in advance of services being delivered to the customers.

Advertising and other revenue consists primarily of non-dealer display advertising revenue from auto manufacturers and other auto-related brand advertisers sold on a cost per thousand impressions (“CPM”) basis. An impression is an advertisement loaded on a web page. In addition to advertising sold on a CPM basis, the Company also has advertising sold on a cost per click basis. Auto manufacturers and other brand advertisers can execute advertising campaigns that are targeted across a wide variety of parameters, including demographic groups, behavioral characteristics, specific auto brands, categories such as Certified Pre-Owned, and segments such as hybrid vehicles. The Company does not provide minimum impression guarantees or other types of minimum guarantees in its contracts with customers. Pricing is primarily based on advertisement size and position on the Company’s websites and mobile applications, and fees are billed monthly in arrears. Unbilled accounts receivables relate to services rendered in the current period, but generally not invoiced until the subsequent period.

The Company sells advertising directly to auto manufacturers and other auto related brand advertisers, as well as indirectly through revenue sharing arrangements with advertising exchange partners. Company-sold advertising is not subject to revenue sharing arrangements. Company-sold advertising revenue is recognized based on the gross amount charged to the advertiser. Partner-sold advertising revenue is recognized based on the net amount of revenue received from the content partners.

Revenue from advertising sold directly by the Company is recorded on a gross basis because the Company is the principal in the arrangement, controls the ad placement and timing of the campaign, and establishes the selling price. The Company enters into contractual arrangements directly with advertisers and is directly responsible for the fulfillment of the contractual terms including any remedy for issues with such fulfillment.

Advertising revenue subject to revenue sharing agreements between the Company and advertising exchange partners is recognized based on the net amount of revenue received from the partner. The advertising partner is responsible for fulfillment, including the acceptability of the services delivered. In partner-sold advertising arrangements, the advertising partner has a direct contractual relationship with the advertiser. There is no contractual relationship between the Company and the advertiser for partner-sold transactions. When an advertising exchange partner sells advertisements, the partner is responsible for fulfilling the advertisements, and accordingly, the Company has determined the advertising partner is the principal in the arrangement. Additionally, for auction-based partner agreements, the Company has latitude in establishing the floor price, but the final price established by the exchange server is at market rates.

Customers are billed monthly in arrears and payment terms are generally thirty to sixty days from the date invoiced.

Advertising and other revenue also includes revenue from partnerships with certain financing services companies pursuant to which the Company enables eligible consumers on the Company’s United States website to pre-qualify for financing on cars from dealerships that offer financing through such companies. The Company’s revenues from these financing partnerships are based on a funded-loan basis.

The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the collection of fees is reasonably assured; and (4) the amount of fees to be paid by the customer is fixed or determinable.

The Company recognizes marketplace subscription revenue on a monthly basis as revenue is earned and advertising and other revenue as impressions are delivered. Revenue is presented net of any taxes collected from customers.

The Company assesses arrangements with multiple deliverables under ASU No. 2009‑13, Revenue Recognition (Topic 605), Multiple‑Deliverable Revenue Arrangements — a Consensus of the FASB Emerging Issues Task Force. Pursuant to ASU 2009‑13, in order to treat deliverables in a multiple‑element arrangement as separate units of accounting, the deliverables must have stand‑alone value upon delivery. If the deliverables have stand‑alone value upon delivery, the Company accounts for each deliverable separately. The Company has concluded that each element in the arrangement has stand‑alone value as the individual services can be sold separately. In addition, there is no right of refund once a service has been delivered. Therefore, the Company has concluded that each element of the arrangement is a separate unit of accounting. While these arrangements are considered multiple element‑arrangements, the recognition of the units of accounting follow a consistent ratable recognition given the pattern over which services are provided.

The Company establishes sales allowances at the time of revenue recognition based on its history of adjustments and credits provided to its customers. Sales allowances relate primarily to credits issued for service interruption. In assessing the adequacy of the sales allowance, the Company evaluates its history of adjustments and credits made through the date of the issuance of the financial statements. Estimated sales adjustments and credits and ultimate losses may vary from actual results which could be material to the financial statements; however, to date, actual sales allowances have been materially consistent with the Company’s estimates. Sales allowances are recorded as a reduction to revenue in the consolidated statements of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which modifies how all entities recognize revenue, and consolidates revenue recognition guidance into one ASC Topic (ASC Topic 606, Revenue from Contracts with Customers) (“ASC 606”). Since the Company ceased to be an emerging growth company as of December 31, 2018, the Company adopted the standard during the fourth quarter of 2018 and applied the modified retrospective method of adoption with a cumulative catch-up adjustment to the opening balance of retained earnings at January 1, 2018. Under this method, the Company applied the revised guidance for the year of adoption and applied ASC Topic 605, Revenue Recognition (“ASC 605”), in the prior years. As a result, the Company applied ASC 606 only to contracts that were not yet completed as of January 1, 2018. The Company recognized a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still required performance by the Company at January 1, 2018. For contracts that were modified before the effective date, the Company exercised the use of the practical expedient and reflected the aggregate effect of all modifications when identifying performance obligations, determining the transaction price and allocating transaction price, which did not have a material effect on the adjustment to retained earnings.

ASC 606 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict 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 for those goods or services. To achieve this core principle, the Company applies the following five steps:

The following table summarizes revenue from contracts with customers by revenue source for the years ended December 31, 2019, 2018 and 2017.

The Company provides disaggregation of revenue based on the marketplace subscription versus advertising and other revenue classification in the table above and based on geographic region (see Note 13) as it believes these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

For dealer listings, the Company provides a single similar service each day for a period of time. Each time increment (i.e. day), rather than the underlying activities, is distinct and substantially the same and therefore the performance obligation of the Company is to provide a series of daily activities over the contract term. Similar to the dealer listings, the dealer display advertising is considered a promise to provide a single similar service each day. Each time increment is distinct and substantially the same and therefore the performance obligation of the Company is to provide a series of daily activities over the contract term.

Total consideration for marketplace subscription revenue is stated within the contracts. There are no contractual cash refund rights, but credits may be issued to a customer at the sole discretion of the Company. At an individual contract level, there is also no variable consideration, such as sales allowance, that needs to be included in the transaction price. However, at a portfolio level, the Company recognizes that there are times when there is a customer satisfaction issue or other circumstance that will lead to a credit. Due to the known possibility of future credits, a monthly sales allowance review is performed to defer revenue at a portfolio level for such future adjustments in the period of incurrence. The Company establishes sales allowances at the time of revenue recognition based on its history of adjustments and credits provided to its customers. In assessing the adequacy of the sales allowance, the Company evaluates its history of adjustments and credits made through the date of the issuance of the financial statements. Estimated sales adjustments, credits and losses may vary from actual results which could lead to material adjustments to the financial statements. To date, actual sales allowances have been materially consistent with the Company’s estimates. Sales allowances are recorded as a reduction to revenue in the consolidated statements of operations.

Performance obligations are satisfied over time as the customer simultaneously receives and consumes the benefit of the service. Revenue is recognized ratably over the subscription period beginning on the date the Company starts providing services to the customer under the contract. Revenue is presented net of any taxes collected from customers.

For advertising revenue, the performance obligation is to publish the agreed upon campaign on the Company’s websites and load the related impressions.

Advertising contracts state the transaction price within the agreement with payment being based on the number of clicks or impressions delivered on the Company’s websites. Total consideration is based on output and deemed variable consideration constrained by an agreed upon delivery schedule. Additionally, there are generally no contractual cash refund rights. Certain contracts do contain the right for credits in situations in which impressions are not displayed in compliance with contractual specifications. At an individual contract level, the Company may give a credit for a customer satisfaction issue or other circumstance. Due to the known possibility of future credits, a monthly review is performed to defer revenue at an individual contract level for such future adjustments in the period of incurrence.

As consideration is driven by the number of impressions delivered on the CarGurus websites, the consideration for each period is allocated to the period in which the service was rendered.

Performance obligations for company-sold advertising revenue and partner-sold advertising revenue are satisfied over time as impressions are delivered. Revenue is recognized based on the total number of impressions delivered within the specified period. Revenue from advertising sold directly by the Company is recognized based on the gross amount charged to the advertiser and advertising revenue sold by partners is recognized based on the net amount of revenue received from the content partners. Revenue is presented net of any taxes collected from customers.

Other revenue includes revenue from contracts for which the performance obligation is a series of distinct services with the same level of effort daily. For these contracts, the Company estimates the value of the variable consideration in determining the transaction price and allocates it to the performance obligation. Revenue is estimated and recognized on a ratable basis over the contractual term. The Company reassesses the estimate of variable consideration at each reporting period.

The Company periodically enters into arrangements that include Listings and Dealer Display within marketplace subscription revenue. These contracts include multiple promises that the Company evaluates to determine if the promises are separate performance obligations. Performance obligations are identified based on services to be transferred to a customer that are distinct within the context of the contractual terms. Once the performance obligations have been identified, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. If required, the transaction price is allocated to each performance obligation in the contract based on a relative standalone selling price (“SSP”) method as the performance obligation is being satisfied. For the Company’s arrangements that include Listings and Dealer Display, the performance obligations were satisfied over a consistent period of time and therefore the allocations did not impact the revenue recognized.

Commissions paid to sales representatives and payroll taxes are considered costs to obtain a contract. Under ASC 606, the costs to obtain a contract require capitalization and amortization of those costs over the period of benefit. Although the guidance specifies the accounting for an individual contract with a customer, as a practical expedient, the Company has opted to apply the guidance to a portfolio of contracts with similar characteristics. The Company has opted to apply another practical expedient to immediately expense the incremental cost of obtaining a contract when the underlying related asset would have been amortized over one year or less. As such, the Company applied this practical expedient to advertising contracts as the term is one year or less and these contracts do not renew automatically. The practical expedient is not applicable to marketplace subscription contracts as the period of benefit including renewals is anticipated to be greater than one year as commissions paid on contract renewals are not commensurate with the commissions paid on the initial contract. The assets are periodically assessed for impairment.

For marketplace subscription customers, the commissions paid on contracts with new customers, in addition to any commission amount related to incremental sales, are capitalized and amortized over the estimated benefit period of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as the Company's own historical data. Commissions paid that are not directly related to obtaining a new contract are expensed as incurred.

Additionally, the Company allocates employer payroll tax expense to the commission expense in proportion to the overall payroll taxes paid during the respective period. As such, capitalized payroll taxes are amortized in the same manner as the underlying capitalized commissions.

The assets recognized for costs to obtain a contract were $3,207, $12,505 and $20,058 as of January 1, 2018, December 31, 2018 and December 31, 2019, respectively. Amortization expense recognized during the years ended December 31, 2019 and 2018 related to costs to obtain a contract was $8,416 and $3,689, respectively.

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made on the consolidated balance sheet as of January 1, 2018.

	As Reported			Adjustments						As Adjusted
	December 31, 2017			Marketplace Subscription Revenue			Costs to Obtain a Contract			January 1, 2018
Assets
Current assets:
Cash and cash equivalents	$	87,709								$	87,709
Investments		50,000									50,000
Accounts receivable, net		12,577			813						13,390
Prepaid expenses and prepaid income taxes		5,313									5,313
Deferred contract costs		—						1,424			1,424
Other current assets		1,605									1,605
Restricted cash		—									—
Total current assets		157,204			813			1,424			159,441
Property and equipment, net		16,563									16,563
Restricted cash		1,843									1,843
Deferred tax assets		825			(190	)		(635	)		—
Deferred contract costs, net of current portion		—						1,783			1,783
Other long–term assets		159									159
Total assets	$	176,594		$	623		$	2,572		$	179,789
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	23,908								$	23,908
Accrued expenses, accrued income taxes and other current liabilities		13,588									13,588
Deferred revenue		4,305									4,305
Deferred tax liabilities		—						153			153
Deferred rent		1,165									1,165
Total current liabilities		42,966			—			153			43,119
Deferred rent, net of current portion		5,648									5,648
Other non–current liabilities		955									955
Total liabilities		49,569			—			153			49,722
Commitments and contingencies
Stockholders’ equity:
Preferred stock		—									—
Class A common stock		78									78
Class B common stock		28									28
Additional paid–in capital		185,190									185,190
Accumulated deficit		(58,499	)		623			2,419			(55,457	)
Accumulated other comprehensive income		228									228
Total stockholders’ equity		127,025			623			2,419			130,067
Total liabilities and stockholders’ equity	$	176,594		$	623		$	2,572		$	179,789

Under ASC 606, the Company’s accounting for contracts containing discounts resulted in accelerated revenue recognition. The cumulative impact of this change to the Company’s accounts receivable on January 1, 2018 was $813.

As described above, under the new guidance, the capitalized commission expense is amortized over the estimated customer relationship period. The net impact of this change resulted in a $3,207 reduction to accumulated deficit for contracts that still require performance by the Company at the date of adoption.

The adoption of ASC 606 primarily resulted in an acceleration of revenue and the reduction of expense, which in turn generated additional deferred tax liabilities that ultimately reduced the Company’s net deferred tax asset position. The cumulative impact resulted in a reduction to deferred tax assets of $978 which put the Company in a net deferred tax liability position on January 1, 2018.

The following tables compare the reported consolidated balance sheet, statement of operations and cash flows, as of and for the year ended December 31, 2018, to the pro-forma amounts had the previous guidance been in effect.

	As of December 31, 2018
Balance Sheet	As Reported		Marketplace Subscription Revenue			Costs to Obtain a Contract			Pro forma as if the previous accounting guidance was in effect
Assets
Current assets:
Cash and cash equivalents	$	34,887							$	34,887
Investments		122,800								122,800
Accounts receivable, net		13,614		939						12,675
Prepaid income taxes and prepaid income taxes		10,144								10,144
Deferred contract costs		5,253					5,253			—
Other current assets		7,410								7,410
Restricted cash		750								750
Total current assets		194,858		939			5,253			188,666
Property and equipment, net		24,269								24,269
Restricted cash		1,921								1,921
Deferred tax assets		38,886		(227	)		(3,187	)		42,300
Deferred contract costs, net of current portion		7,252					7,252			—
Other long–term assets		1,104								1,104
Total assets	$	268,290	$	712		$	9,318		$	258,260
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	34,345							$	34,345
Accrued expenses, accrued income taxes and other current liabilities		18,654								18,654
Deferred revenue		8,811								8,811
Deferred rent		1,693								1,693
Total current liabilities		63,503		—			—			63,503
Deferred rent, net of current portion		9,395								9,395
Other non–current liabilities		1,281								1,281
Total liabilities		74,179		—			—			74,179
Commitments and contingencies
Stockholders’ equity:
Preferred stock		—								—
Class A common stock		90								90
Class B common stock		21								21
Additional paid–in capital		184,216								184,216
Retained earnings (accumulated deficit)		9,713		712			9,318			(317	)
Accumulated other comprehensive income		71								71
Total stockholders’ equity		194,111		712			9,318			184,081
Total liabilities and stockholders’ equity	$	268,290	$	712		$	9,318		$	258,260

Total reported assets were $10,030 greater than the pro-forma balance sheet, which assumes the previous guidance remained in effect as of December 31, 2018. This was largely due to the impact of $12,505 related to costs to obtain a contract.

There were no changes to liabilities as of December 31, 2018 as a result of the adoption of ASC 606.

The following summarizes the significant changes on the Company’s consolidated statement of operations for the year ended December 31, 2018 as a result of the adoption of ASC 606 on January 1, 2018 compared to the pro-forma amounts had the Company continued to recognize revenue under ASC 605.

	Year Ended December 31, 2018
Statement of Operations	As Reported			Marketplace Subscription Revenue		Costs to Obtain a Contract			Pro forma as if the previous accounting guidance was in effect
Revenue	$	454,086		$	126				$	453,960
Cost of revenue		24,811								24,811
Gross profit		429,275			126		—			429,149
Operating expenses:
Sales and marketing		315,939					(9,298	)		325,237
Product, technology, and development		47,866								47,866
General and administrative		39,475								39,475
Depreciation and amortization		2,804								2,804
Total operating expenses		406,084			—		(9,298	)		415,382
Income from operations		23,191			126		9,298			13,767
Other income, net:
Interest income		2,283								2,283
Other income (expense)		10								10
Total other income, net		2,293			—		—			2,293
Income before income taxes		25,484			126		9,298			16,060
Provision for (Benefit from) income taxes		(39,686	)		37		2,399			(42,122	)
Net income	$	65,170		$	89	$	6,899		$	58,182
Basic	$	0.60		$	—	$	0.07		$	0.53
Diluted	$	0.57		$	—	$	0.06		$	0.51

The adoption of ASC 606 resulted in an increase to revenue of $126 during the year ended December 31, 2018 due to accelerated revenue recognition for contracts containing discounts. The adoption of ASC 606 also resulted in a $9,298 reduction in sales and marketing expense during the year ended December 31, 2018 as a result of capitalizing a portion of commission expense, which was previously expensed under the previous guidance. During the year ended December 31, 2018, the cumulative impact of these changes was a $9,424 increase in income from operations which resulted in a $2,436 reduction to the benefit from income taxes. Additionally, the adoption of ASC 606 resulted in the Company’s basic and diluted EPS for the year ended December 31, 2018 increasing $0.07 and $0.06, respectively.

The following summarizes the significant changes on the Company’s consolidated statement of cash flows for the year ended December 31, 2018 as a result of the adoption of ASC 606 on January 1, 2018 compared to the pro-forma amounts had the Company continued to recognize revenue under ASC 605.

	Year Ended December 31, 2018
Statement of Cash Flows	As Reported			Marketplace Subscription Revenue			Costs to Obtain a Contract			Pro forma as if the previous accounting guidance was in effect
Operating Activities
Net income	$	65,170		$	89		$	6,899		$	58,182
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,029									5,029
Currency (gain) loss on foreign denominated transactions		(190	)								(190	)
Deferred taxes		(39,040	)		37			2,399			(41,476	)
Provision for doubtful accounts		1,680									1,680
Stock–based compensation expense		20,794									20,794
Amortization of deferred contract costs		3,689						3,689			—
Changes in operating assets and liabilities:
Accounts receivable, net		(1,911	)		(126	)					(1,785	)
Prepaid expenses, prepaid income taxes, and other assets		(11,753	)								(11,753	)
Deferred contracts costs		(12,987	)					(12,987	)		—
Accounts payable		9,345									9,345
Accrued expenses, accrued income taxes and other current liabilities		2,695									2,695
Deferred revenue		4,508									4,508
Deferred rent		4,289									4,289
Other non–current liabilities		405									405
Net cash provided by operating activities	$	51,723		$	—		$	—		$	51,723

The adoption of ASC 606 had no impact on the Company’s cash flows from operations. The aforementioned impacts resulted in offsetting shifts in cash flows between net income and various working capital balances.

The following tables summarize the opening and closing balances of receivables and contract assets from contracts with customers as of January 1, 2018, December 31, 2018 and December 31, 2019.

Revenue recognized during the year ended December 31, 2019 and 2018 from amounts included in deferred revenue at the beginning of the period was approximately $8,811 and $4,305, respectively.

Topic 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2019.

For contracts with an original expected duration greater than one year, the aggregate amount of the transaction price allocated to the performance obligations that were unsatisfied as of December 31, 2019 is approximately $35.0 million, which the Company expects to recognize over the next twelve months.

For contracts with an original expected duration of one year or less, the Company has applied the practical expedient available under Topic 606 to not disclose the amount of transaction price allocated to unsatisfied performance obligations as of December 31, 2019. For performance obligations not satisfied as of December 31, 2019, and to which this expedient applies, the nature of the performance obligations, the variable consideration and any consideration from contracts with customers not included in the transaction price is consistent with performance obligations satisfied as of December 31, 2019. The remaining duration is less than one year.

From time to time, the Company may enter into contracts that include variable consideration, for which the Company estimates the value of the variable consideration in determining the transaction price and allocates it to the appropriate performance obligation(s). The Company reassesses any estimates of variable consideration at each reporting period.

Deferred revenue primarily consists of payments received in advance of revenue recognition from the Company’s marketplace revenue and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers monthly. Accordingly, the deferred revenue balances do not represent the total contract value of annual or multiyear subscription agreements. Deferred revenue that is expected to be recognized during the succeeding 12‑month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent in the consolidated balance sheets. All deferred revenue was recorded as current for all periods presented.

Cost of revenue primarily consists of costs related to supporting and hosting the Company’s product offerings. These costs include salaries, benefits, incentive compensation and stock‑based compensation for the Company’s customer support team, and third‑party service provider costs such as data center and networking expenses, allocated overhead costs, depreciation and amortization expense associated with the Company’s property and equipment, and amortization of capitalized website development costs.

The Company has no significant off‑balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, investments, and trade accounts receivable.

The Company maintains its cash, cash equivalents, and investments principally with accredited financial institutions of high credit standing. Although the Company deposits its cash and investments with multiple financial institutions, its deposits, at times, may exceed governmental insured limits.

Credit risk with respect to accounts receivable is dispersed due to the large number of customers. The Company routinely assesses the creditworthiness of its customers. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.

For the years ended December 31, 2019, 2018 and 2017, no individual customer accounted for more than 10% of total revenue.

As of December 31, 2019, one customer accounted for 18% of net accounts receivable. As of December 31, 2018, two customers accounted for 21% and 14% of net accounts receivable, respectively. No other individual customer accounted for more than 10% of net accounts receivable at December 31, 2019 or 2018.

Included in net accounts receivable at December 31, 2019 and 2018, is $8,880 and $5,814 of unbilled accounts receivables related to advertising customers billed within a quarter subsequent to services rendered.

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Investments not classified as cash equivalents with maturities less than one year from the balance sheet date are classified as short‑term investments, while investments with maturities in excess of one year from the balance sheet date are classified as long‑term investments. Management determines the appropriate classification of investments at the time of purchase, and re‑evaluates such determination at each balance sheet date.

Cash and cash equivalents primarily consist of cash on deposit with banks, and amounts held in interest‑bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.

The Company’s investment policy, which was approved by the Audit Committee of the Company’s board of directors (the “Board”), permits investments in fixed income securities, including U.S. government and agency securities, non‑U.S. government securities, money market instruments, commercial paper, certificates of deposit, corporate bonds, and asset‑backed securities.

As of December 31, 2019 and 2018, investments consisted of U.S. certificates of deposit (“CDs”) with remaining maturities of less than twelve months. The Company classifies CDs with readily determinable market values as held‑to‑maturity, because it is the Company’s intention to hold such investments until they mature. As such, investments were recorded at amortized cost at December 31, 2019 and 2018. The Company adjusts the cost of investments for amortization of premiums and accretion of discounts to maturity, if any. For the years ended December 31, 2019, 2018 and 2017, the Company did not have any premiums or discounts.

Realized gains and losses from sales of the Company’s investments are included in other income (expense), net. There were no realized gains or losses on investments for the years ended December 31, 2019, 2018 or 2017.

The Company reviews investments for other‑than‑temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. Other‑than‑temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the investment, or if it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and duration of the impairment, and changes in value subsequent to the end of the period. As of December 31, 2019 and 2018, the Company determined that no other‑than‑temporary impairments were required to be recognized in the consolidated statements of operations.

At December 31, 2019 and 2018, restricted cash was $10,803 and $2,671, respectively, and primarily related to cash held at a financial institution in an interest‑bearing cash account as collateral for four letters of credit in 2019 and three letters of credit in 2018 related to the contractual provisions for the Company’s building leases.

Accounts receivable are recorded based on the amount due from the customer and do not generally bear interest. The Company offsets gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable and is based upon historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with specific accounts. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off‑balance sheet credit exposure related to its customers. Provisions for allowances for doubtful accounts are recorded in general and administrative expense.

Unbilled accounts receivables are recorded for services rendered in the current period, but generally not invoiced until the subsequent period.

The Company considers current economic trends when evaluating the adequacy of the allowance for doubtful accounts. If circumstances relating to specific customers change, or unanticipated changes occur in the general business environment, particularly as it affects auto dealers, the Company’s estimates of the recoverability of receivables could be further adjusted.

Below is a summary of the changes in the Company’s allowance for doubtful accounts for the years ended December 31, 2019, 2018, and 2017:

Property and equipment are stated at cost less accumulated depreciation and amortization using the straight‑line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. The estimated useful lives of the Company’s property and equipment are as follows:

Expenditures for repairs and maintenance are charged to expense as incurred, whereas major betterments are capitalized as additions to property and equipment.

The Company evaluates the recoverability of long‑lived assets, such as property and equipment and intangible assets, for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. During this review, the Company re‑evaluates the significant assumptions used in determining the original cost and estimated lives of long‑lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, changes in the use of the asset, cash flows, and other indicators of value. Management then determines whether the remaining useful life continues to be appropriate, or whether there has been an impairment of long‑lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the assets’ recovery. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

For the years ended December 31, 2019, 2018, and 2017, the Company did not identify any impairment of its long‑lived assets.

The Company measures all consideration transferred in a business combination at its acquisition-date fair value. Consideration transferred is determined by the acquisition-date fair value of assets transferred, liabilities assumed, including contingent consideration obligations, as applicable. The Company measures goodwill as the excess of the consideration transferred over the net of the acquisition-date amounts of assets acquired less liabilities assumed.

The Company makes significant assumptions and estimates in determining the fair value of the acquired assets and liabilities as of the acquisition date, especially the valuation of intangible assets and certain tax positions. The Company records estimates as of the acquisition date and reassess the estimates at each reporting period up to one year after the acquisition date. Changes in estimates made prior to finalization of purchase accounting are recorded to goodwill.

Intangible assets are recorded at their estimated fair value at the date of acquisition. The Company amortizes intangible assets over their estimated useful lives on a straight-line basis. Amortization is recorded over the relevant estimated useful lives ranging from three to eleven years.

The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.

Goodwill is recorded when consideration paid in a purchase acquisition exceeds the fair value of the net assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn affecting automotive marketplaces, increased competition, a significant reduction in our stock price for a sustained period or a reduction of our market capitalization relative to net book value.

The Company has determined that it had two reporting units, United States and International, as of and for the year ended December 31, 2019. The Company evaluates impairment annually on October 1 by comparing the estimated fair value of each reporting unit to its carrying value. The Company estimates fair value using a discounted cash flow model based on our most recent forecast at the time of its annual impairment test.

The Company capitalizes certain costs associated with the development of its websites and internal‑use software products after the preliminary project stage is complete and until the software is ready for its intended use. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance, and general and administrative or overhead costs are expensed as incurred. Capitalization begins when the preliminary project stage is complete, management authorizes and commits to the funding of the software project with the required authority, it is probable the project will be completed, the software will be used to perform the functions intended and certain functional and quality standards have been met. Qualified costs incurred during the operating stage of our software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to, internal‑use software are expensed as incurred.

Capitalized website and software development costs are amortized on a straight‑line basis over their estimated useful life of three years beginning with the time when it is ready for intended use. Capitalized internal-use software costs are amortized on a straight‑line basis over their estimated useful life of the term of the hosting arrangement, taking into consideration several other factors such as, but not limited to, options to extend the hosting arrangement or options to terminate the hosting arrangement, beginning with the time when it is ready for intended use. Amounts amortized are presented through operating expense, rather than depreciation or amortization. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

During the years ended December 31, 2019 and 2018, the Company capitalized $4,176 and $2,012 of website development costs, respectively. The Company recorded amortization expense associated with its capitalized website development costs of $1,643, $1,508 and $812 for the years ended December 31, 2019, 2018, and 2017, respectively.

During the year ended December 31, 2019, the Company capitalized $2,615 and $616 of internal-use software in other non-current assets and in prepaid expenses and prepaid income taxes, respectively. The Company recorded amortization expense associated with its internal-use software of $132 for the year ended December 31, 2019.

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is the local currency of each subsidiary. All assets and liabilities in the balance sheets of entities whose functional currency is a currency other than the U.S. dollar are translated into U.S. dollar equivalents at exchange rates as follows: (1) asset and liability accounts at period‑end rates; (2) income statement accounts at weighted‑average exchange rates for the period; and (3) stockholders’ equity accounts at historical exchange rates. The resulting translation adjustments are excluded from net income and reflected as a separate component of stockholders’ equity (deficit). Foreign currency transaction gains and losses are included in net income for the period. The Company may periodically have certain intercompany foreign currency transactions that are deemed to be of a long‑term investment nature; exchange adjustments related to those transactions are made directly to a separate component of stockholders’ equity (deficit).

The Company accounts for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more‑likely‑than‑not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interest and penalties, if applicable, related to uncertain tax positions would be recognized as a component of income tax expense. The Company has no recorded liabilities for uncertain tax positions as of December 31, 2019 and 2018.

The Tax Cuts and Jobs Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. An entity can make an accounting policy election, per the FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, either to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a period cost in the year the tax is incurred.

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, investments, accounts receivable, accounts payable, and accrued expenses, approximated their fair values at December 31, 2019 and 2018 due to the short‑term nature of these instruments.

The Company has evaluated the estimated fair value of financial instruments using available market information. The use of different market assumptions, estimation methodologies, or both, could have a significant effect on the estimated fair value amounts. See Note 4 for further discussion.

For stock‑based awards issued under the Company’s stock‑based compensation plans, which are more fully described in Note 10, the fair value of each award is determined on the date of grant. The Company recognizes compensation expense for service-based awards on a straight-line basis over the requisite service period for each separate vesting portion of the award, with the amount of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of the award that is vested at that date.

Certain awards granted by the Company prior to the IPO were subject to service‑based vesting conditions and a performance‑based vesting condition achieved upon a liquidity event, defined as either a change of control or an initial public offering. The Securities and Exchange Commission’s declaration of effectiveness of the Company’s registration statement on Form S-1 on October 11, 2017 satisfied the liquidity event performance condition. Upon the achievement of the liquidity

event, the Company recorded previously unrecognized cumulative stock-based compensation expense of $2.5 million related to these awards. Although the performance-based vesting condition was satisfied, under the terms of the awards, the settlement of such vested RSUs and the issuance of common stock with respect to such vested RSUs occurred on April 10, 2018, one hundred eighty-one days after the satisfaction of the performance condition.

Given the absence of an active market for the Company’s common stock prior to the IPO, the Board was required to estimate the fair value of the Company’s common stock at the time of each grant of a stock‑based award. The Company believes that the members of its Board at all relevant times had sufficient business, finance or venture capital experience to make such estimates. The Company and the Board utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately‑Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. Each valuation methodology includes estimates and assumptions that required judgment. These estimates and assumptions include a number of objective and subjective factors used to determine the value of the Company’s common stock at each grant date, including the following factors: (1) prices paid for the Company’s convertible preferred stock, which the Company had sold to outside investors in arm’s‑length transactions, and the rights, preferences, and privileges of the Company’s convertible preferred stock and common stock; (2) valuations performed by an independent valuation specialist; (3) the Company’s stage of development and revenue growth; (4) the fact that the grants of stock‑based awards involved illiquid securities in a private company; and (5) the likelihood of achieving a liquidity event for the common stock underlying the stock‑based awards, such as an IPO or sale of the Company, given prevailing market conditions.

The Company believes this methodology was reasonable based upon the Company’s internal peer company analyses, and further supported by arm’s‑length transactions involving the Company’s convertible preferred stock. As the Company’s common stock was not actively traded, the determination of fair value involved assumptions, judgments, and estimates. If different assumptions had been made, stock‑based compensation expense, consolidated net income, and consolidated net income per share could have been significantly different.

For RSUs issued under the Company’s stock‑based compensation plans prior to the IPO, the fair value of each grant was calculated based on the estimated fair value of the Company’s common stock on the date of grant. The Company estimated the fair value of most stock option awards on the date of grant using the Black‑Scholes option‑pricing model.

For RSUs granted subsequent to the IPO, the fair value is determined based on the closing price of the Company’s Class A common stock as reported on the Nasdaq Global Select Market on the date of grant.

The Company issues shares for stock option exercises and RSUs out of its shares available for issuance. No options were granted during the years ended December 31, 2019, 2018, and 2017.

The Company accounts for forfeitures when they occur. The tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation are recorded to tax expense. Excess tax benefits recognized on stock‑based compensation expense are classified as an operating activity in the consolidated statements of cash flows.

During 2019, 2018 and 2017, the Company recorded tax benefits of $11,115, $40,765 and $681, respectively, related to differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation.

See Note 10 for a summary of the stock option and RSU activity for the year ended December 31, 2019.

Advertising costs are expensed as incurred. Advertising expense, which is included within sales and marketing expense in the consolidated statements of operations, was $287,107, $238,640, and $173,186 for the years ended December 31, 2019, 2018, and 2017, respectively.

Comprehensive income is defined as the change in stockholders’ equity (deficit) of a business enterprise during a period from transactions and other events and circumstances from non‑owner sources. Comprehensive income consists of net income and other comprehensive (loss) income, which includes certain changes in equity that are excluded from net income. Specifically, cumulative foreign currency translation adjustments are included in accumulated other comprehensive (loss) income. As of December 31, 2019 and 2018 accumulated other comprehensive (loss) income is presented separately on the consolidated balance sheets and consists entirely of cumulative foreign currency translation adjustments.

The Company has certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of such reasonably possible losses.

In February 2016, the FASB issued ASC 842, which requires a lessee to recognize most leases on the consolidated balance sheet but recognize expenses on the consolidated income statement in a manner similar to current practice. The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying assets for the lease term. The Company adopted ASC 842 as of January 1, 2019, using the additional transition method offered through ASU No. 2018-11. This approach provides a method for recording existing leases at the adoption date and recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company’s operating lease obligations consist of various leases for office space in: Boston, Massachusetts; Cambridge, Massachusetts; Detroit, Michigan; Los Angeles, California; Dublin, Ireland; and London, United Kingdom. The Detroit, Los Angeles and London leases are immaterial to the Company. The Company also has an operating lease obligation for data center space in Needham, Massachusetts.

On December 19, 2019, the Company entered into an operating lease for the lease of 273,595 square feet of office space in Boston, Massachusetts at 1001 Boylston Street. The lease provides for leasehold improvement incentives and provides for annual rent increases through the term of the lease. The “Commencement Date” of the lease term is the earlier to occur of (i) the date that is twelve months following the Delivery Date (as defined in the lease) and (ii) the date that the Company first occupies the premises for the normal conduct of business for the Permitted Use (as defined in the lease). The initial term will commence on the Commencement Date and expire on the date that is one hundred and eighty full calendar months after the Commencement Date (plus the partial month, if any, immediately following the Commencement Date). The lease provides for the option to terminate early under certain circumstances including if there is a material delay in construction (subject to the terms and conditions of the lease), and contains two Company options to extend the lease term (including for a portion of the office space thereunder) for an additional period of five years.

On August 30, 2019, the Company amended its operating lease agreement in Cambridge, Massachusetts at 55 Cambridge Parkway, which was originally entered into on March 11, 2016 and subsequently amended on July 30, 2016, for the lease of 51,923 square feet of office space. The 2019 amendment granted the Company an additional 36,689 square feet of office space and extended the non-cancellable lease term through 2025 for the office space currently occupied. The Company accounted for the additional 36,689 square feet of office space as a new lease as it provides an additional right-of-use asset that is not included in the original lease and the additional lease payments were determined to be commensurate with the standalone price of the additional space. The non-cancellable lease term of the additional space ends in 2025, with a portion ending in 2023. The term extension of the existing 51,923 square feet of office space was recorded as a lease modification within the consolidated balance sheet as of December 31, 2019. The lease, as amended, provides for (i) an option to extend the lease term with respect to a portion of the office space for an additional period of five years, (ii) leasehold improvement incentives and (iii) annual rent increases through the term of the lease.

On May 1, 2019, the Company entered into an operating lease in Needham, Massachusetts for the lease of data center space with a non-cancellable term through 2022 with automatic renewal for one year thereafter if not terminated. The lease provides for annual rent increases through the term of the lease.

On June 19, 2018, the Company entered into an operating lease in Cambridge, Massachusetts at 121 First Street for the lease of 48,393 square feet of office space with a non-cancellable lease term through 2033 with an option to extend the lease term for two additional periods of five years each. The lease provided for leasehold improvement incentives and provides for annual rent increases through the term of the lease. The Company subleases the fifth floor and records the sublease income in other income (expense), net within the consolidated income statement. The sublease income is immaterial as of December 31, 2019.

On September 26, 2017, the Company assumed an operating lease, which was entered into by the original lessee on August 12, 2013, for the lease of 13,345 square feet of office space in Dublin, Ireland at Styne House, Upper Hatch Street with a non-cancellable term through 2023. The lease provided for a rent increase at the end of year five of the original lease term.

On October 8, 2014, the Company entered into an operating lease in Cambridge, Massachusetts at 2 Canal Park for the lease of 48,059 square feet of office space with a non-cancellable lease term through 2022 with an option to extend the lease term for one additional period of five years. The lease provided for leasehold improvement incentives and provides for annual rent increases through the term of the lease.

The Company’s financing lease obligations consist of a lease for office equipment and are immaterial.

The leases in Boston Massachusetts and Cambridge, Massachusetts have associated letters of credit, which are recorded as restricted cash within the consolidated balance sheet. At December 31, 2019 and 2018, restricted cash was $10,803 and $2,671, respectively, and primarily related to cash held at a financial institution in an interest-bearing cash account as collateral for the letters of credit related to the contractual provisions for the Company’s building leases. At December 31, 2019 and 2018, portions of restricted cash were classified as a short-term asset and long-term asset. Additionally, the 121 First Street lease agreement has an associated security deposit, which is recorded in other non-current assets, net within the consolidated balance sheet.

Prior to the adoption of ASC 842, the Company categorized leases at their inception as either operating or capital leases. On certain lease arrangements, the Company may have received rent holidays or other incentives. The Company recognized lease costs on a straight‑line basis once it achieved control of the space, without regard to deferred payment terms, such as rent holidays, that deferred the commencement date of required payments or escalating payment amounts. The Company recorded the difference between required lease payments and rent expense as deferred rent. Additionally, incentives received were treated as a reduction of costs over the term of the agreement, as they were considered an inseparable part of the lease agreement.

As of December 31, 2018, the Company had deferred rent and rent incentives of $11,088, of which $1,693 and $9,395, respectively, are classified as a short‑term liability and a long‑term liability in the corresponding consolidated balance sheet. Rent expense related to the operating leases for the years ended December 31, 2018 and 2017 was $7,711 and $5,994, respectively.

Upon adoption of ASC 842, the Company elected the transition relief package, permitted within the standard, pursuant to which the Company did not reassess the classification of existing leases, whether any expired or existing contracts contain a lease, and whether existing leases have any initial direct costs. The Company also elected the practical expedient of not separating lease components from non-lease components for all leases. There was no cumulative-effective adjustment to the opening balance of retained earnings. The Company reviews all material contracts for embedded leases to determine if they have a right-of-use asset.

The Company recognizes rent expense on a straight-line basis over the lease period. The depreciable life of assets and leasehold improvement are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Variable lease payments that depend on an index or a rate are included in the lease payments and are measured using the prevailing index or rate at the measurement date. Variable lease payments not based on an index or a rate are excluded from lease payments and are expensed as incurred.

The Company also made an accounting policy election to not recognize a lease liability or right-of-use asset on its consolidated balance sheet for leases with an initial term of twelve months or less, and instead to recognize lease payments on the consolidated income statement on a straight-line basis over the lease term and variable lease payments that do not depend on an index or rate as expense in the period in which the achievement of the specified target that triggers the variable lease payments becomes probable.

Adoption of the new standard resulted in the recording of net lease assets and lease liabilities of $52,334 and $63,280, respectively, as of January 1, 2019. The standard did not materially impact the consolidated statement of cash flows and had no impact on the consolidated income statement.

During the years ended December 31, 2019 and 2018, the Company recognized $10,260 and $7,711, respectively, of lease costs for leases that have commenced. The Company allocates lease costs across all departments based on headcount in the respective location.

For leases commenced, as of December 31, 2019, the weighted average remaining lease term was 8.8 years and the weighted average discount rate was 5.2%. As most of the Company’s leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. The Company has no historical debt transactions and a collateralized rate is estimated based on a group of peer companies. The Company used the incremental borrowing rate on January 1, 2019 for leases that commenced prior to that date.

The chart above does not include options to extend lease terms that are not reasonably certain of being exercised or leases signed but not yet commenced as of December 31, 2019. Total estimated future minimum lease payments for leases signed but not yet commenced as of December 31, 2019, which includes 1001 Boylston Street and portions of 55 Cambridge Parkway, are estimated to be $317,837 and have expected commencement dates ranging from February 2020 to January 2022.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718) (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. The amendments in this update state that an entity should apply the requirements of Topic 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of

a contract accounted for under Topic 606. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company has assessed the impact of this guidance on its consolidated financial statements and does not deem it to be material. The Company adopted the guidance on January 1, 2019 prospectively.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard requires companies to amortize the capitalized implementation costs over the term of the hosting arrangement. Amounts amortized would be presented through operating expense, rather than depreciation or amortization. Accounting for the service component of a hosting arrangement remains unchanged. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company adopted this standard effective January 1, 2019 and applied the guidance using a prospective transition method for each period presented.

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies and adopted by the Company on or prior to the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact that adopting this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance simplifies the accounting for goodwill impairment by eliminating Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. The Company does not expect the impact of adopting this guidance to be material to its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 and its subsequent related updates establish a new forward-looking “expected loss model” that requires entities to estimate current expected credit losses on accounts receivable and financial instruments by using all practical and relevant information. The new standard and its subsequent related updates are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact that adopting this guidance will have on its consolidated financial statements, but does not expect it to be material.