Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

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Acquisitions
6 Months Ended
Jun. 30, 2011
Acquisitions [Abstract]  
Acquisitions
3. Acquisitions
2011 Acquisition
In May 2011, we acquired substantially all of the assets of Compliance Depot, LLC (“Compliance Depot”) for approximately $22.5 million which included a cash payment of $19.2 million at closing and three deferred payments of $1.1 million payable six, twelve and eighteen months after the acquisition date. The acquisition of Compliance Depot expands our ability to provide vendor risk management and compliance software solutions for the rental housing industry. Acquired intangibles were recorded at fair value based on assumptions made by us. The acquired developed product technologies have a useful life of three years amortized on a straight-line basis. Acquired customer relationships have a useful life of nine years which will be amortized proportionately to the expected discounted cash flows derived from the asset. The tradenames acquired have an indefinite useful life as we do not plan to cease using the tradenames in the marketplace. All direct acquisition costs were less than $0.1 million and expensed as incurred. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of the acquisition. Goodwill associated with this acquisition is deductible for tax purposes.
We allocated the purchase price for Compliance Depot as follows:
         
Intangible assets:   (in thousands)  
Developed product technologies
  $ 382  
Customer relationships
    9,030  
Tradenames
    2,230  
Goodwill
    13,371  
Deferred revenue
    (2,380 )
Net other liabilities
    (110 )
 
     
Total purchase price, net of cash acquired
  $ 22,523  
 
     
2010 Acquisitions
In November 2010, we acquired certain of the assets of Level One, LLC and L1 Technology, LLC (collectively “Level One”), subsidiaries of IAS Holdings, LLC, for approximately $61.9 million, which included a cash payment of $53.9 million at closing and a deferred payment of up to approximately $8.0 million, payable in cash or the issuance of our common stock eighteen months after the acquisition date. The acquisition of Level One further expanded our ability to provide on demand leasing center services. To facilitate the acquisition, we borrowed $30.0 million on our delayed draw term loans and utilized $24.0 million of the net proceeds from our initial public offering. Acquired intangibles were recorded at fair value based on assumptions made by us. The acquired developed product technologies have a useful life of three years amortized on a straight-line basis. Acquired customer relationships have a useful life of nine years which will be amortized proportionately to the expected discounted cash flows derived from the asset. The tradenames acquired have an indefinite useful life as we do not plan to cease using the tradenames in the marketplace. All direct acquisition costs were approximately $0.4 million and expensed as incurred. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of the acquisition. Goodwill associated with this acquisition is deductible for tax purposes.
In July 2010, we purchased 100% of the outstanding stock of eReal Estate Integration, Inc. (“eREI”) for approximately $8.6 million, net of cash acquired, which included a cash payment of $3.8 million and an estimated cash payment payable upon the achievement of certain revenue targets (acquisition-related contingent consideration) and the issuance of 499,999 restricted common shares, which vest as certain revenue targets are achieved as defined in the purchase agreement. At the acquisition date, we recorded a liability for the estimated fair value of the acquisition-related contingent consideration of $0.8 million. In addition, we recorded the fair value of the restricted common shares of $3.3 million. These fair values were based on managements’ estimate of the fair value of the cash and the restricted common shares using a probability weighted discounted cash flow model on the achievement of certain revenue targets. The cash payment and the related restricted common shares have a maximum value of $1.8 million and $4.4 million, respectively. This acquisition was financed from proceeds from our revolving line of credit and cash flows from operations. The acquisition of eREI improved our lead management and lead syndication capabilities. Acquired intangibles were recorded at fair value based on assumptions made by us. The acquired developed product technologies have a useful life of three years amortized on a straight-line basis. Acquired customer relationships have a useful life of ten years which will be amortized proportionately to the expected discounted cash flows derived from the asset. The tradenames acquired have an indefinite useful life as we do not plan to cease using the tradenames in the marketplace. All direct acquisition costs were approximately $0.1 million and expensed as incurred. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of the acquisition. Goodwill associated with this transaction is not deductible for tax purposes. The liability established for the acquisition-related contingent consideration will continue to be re-evaluated and recorded at an estimated fair value based on the probabilities, as determined by management, of achieving the related targets. This evaluation will be performed until all of the targets have been met or terms of the agreement expire. As of June 30, 2011, our liability for the estimated cash payment was $1.0 million. During the second quarter 2011, we recognized costs of $0.1 million due to changes in the estimated fair value of the cash acquisition-related contingent consideration.
In February 2010, we acquired the assets of Domin-8 Enterprise Solutions, Inc. (“Domin-8”). The acquisition of these assets improved our ability to serve our multi-family clients with mixed portfolios that include smaller, centrally-managed apartment communities. The aggregate purchase price at closing was $12.9 million, net of cash acquired, which was paid upon acquisition of the assets. We acquired deferred revenue as a contractual obligation, which was recorded at its assessed fair value of $4.5 million. The fair value of the deferred revenue was determined based on estimated costs to support acquired contracts plus a reasonable margin. The acquired intangibles were recorded at fair value based on assumptions made by us. The customer relationships have useful lives of approximately six years and are amortized in proportion to the estimated cash flows derived from the relationship. Acquired developed product technologies have a useful life of three years and are amortized straight-line over the estimated useful life. We have determined that the tradename has an indefinite life, as we anticipate keeping the tradename for the foreseeable future given its recognition in the marketplace. Approximately $0.9 million of transaction costs related to this acquisition were expensed as incurred. We included the operating results of this acquisition in our consolidated results of operations from the effective date of the acquisition. This acquisition was financed from the proceeds from the amended credit agreement and cash flow from operations. This acquisition made immediately available product offerings that complemented our existing products. We accounted for the acquisition by allocating the total consideration to the fair value of assets received and liabilities assumed. Goodwill associated with this acquisition is deductible for tax purposes.
We allocated the purchase price for Level One, eREI and Domin-8 as follows:
                         
    Level One     eREI     Domin-8  
    (in thousands)  
Intangible assets:
                       
Developed product technologies
  $ 692     $ 5,279     $ 3,678  
Customer relationships
    18,300       498       6,418  
Tradenames
    3,740       844       1,278  
Goodwill
    36,897       4,664       4,896  
Deferred revenue
    (352 )           (4,502 )
Net other assets
    2,573       (2,662 )     1,155  
 
                 
Total purchase price, net of cash acquired
  $ 61,850     $ 8,623     $ 12,923  
 
                 
Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for the three and six months ended June 30, 2011 and June 30, 2010 as if the Domin-8, eREI, Level One and Compliance Depot acquisitions had occurred at the beginning of the periods presented. The pro forma financial information includes business combination effects resulting from these acquisitions including approximately $0.1 million, $1.7 million, $0.6 million and $3.8 million of amortization charges from acquired intangible assets and approximately $(0.1) million, $0.3 million, $0.3 million and $1.0 million of an income tax (expense) benefit for the related tax effects as though the aforementioned companies were combined as of the beginning of the three months ended June 30, 2011 and 2010 and the six months ended June 30, 2011 and 2010, respectively. We prepared the pro forma financial information for the combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the acquisitions had taken place at the beginning of the periods presented, or of future results.
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
    Pro Forma     Pro Forma     Pro Forma     Pro Forma  
    (in thousands)  
Revenue:
                               
On demand
  $ 57,639     $ 46,057     $ 112,017     $ 90,299  
On premise
    1,538       2,424       3,273       5,042  
Professional and other
    2,968       2,296       5,934       4,627  
 
                       
Total revenue
    62,145       50,777       121,224       99,968  
 
                       
Net income (loss)
  $ 88     $ (455 )   $ (545 )   $ (1,447 )
 
                               
Net income (loss) attributable to common stockholders:
                               
Basic and diluted
    88       (1,629 )     (545 )     (3,771 )
 
Net (loss) income per share attributable to common stockholders:
                               
Basic
  $ 0.00     $ (0.06 )   $ (0.01 )   $ (0.15 )
Diluted
  $ 0.00     $ (0.06 )   $ (0.01 )   $ (0.15 )