Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v2.4.1.9
Acquisitions
3 Months Ended
Mar. 31, 2015
Business Combinations [Abstract]  
Acquisitions
Acquisitions
2014 Acquisitions
InstaManager
In January 2014, we acquired certain assets from Bookt LLC, including the InstaManager product (“InstaManager”). InstaManager is a software-as-a-service vacation rental booking engine used by professional managers of vacation rental properties which offers marketing websites, online pricing and availability, online booking, automated reservations, payment processing and insurance sales. The acquisition of InstaManager expanded our product offerings to include property management software for the vacation rental market.
We acquired InstaManager for a purchase price of $9.2 million, consisting of a cash payment of $6.0 million at closing, a deferred cash payment of up to $1.0 million payable over two years after the acquisition date and contingent cash payments totaling up to $7.0 million if certain revenue targets are met for the twelve month periods ending March 31, 2015 and March 31, 2016. The initial fair value of the deferred cash payment and the contingent cash payments was $0.8 million and $2.4 million, respectively. The fair value of the deferred cash payments was estimated based on the present value, as of the date of acquisition, of anticipated future payments. The fair value of the contingent cash payments was based on management’s estimate of the fair value of the cash payment using a probability weighted discount model on the achievement of the specified revenue targets and is evaluated quarterly. Direct acquisition costs were less than $0.1 million and expensed as incurred. This acquisition was financed from cash flows from operations.
Acquired intangibles were recorded at their estimated fair value based on assumptions made by us. The acquired developed product technologies have a useful life of three years and are amortized on a straight-line basis. Goodwill and identified intangibles associated with this acquisition were deductible for tax purposes. Goodwill arising from the acquisition consists largely of the economies of scale expected from integrating InstaManager into our existing operating structure. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of the acquisition.
We assigned an indefinite useful life to the trade name acquired, as we planned to use the trade name in the marketplace. In March 2015, we completed the integration of InstaManager with another vacation rental software business subsequently acquired and ceased use of the trade name at that time. As a result of this event, we assessed the InstaManager trade name for impairment. See further discussion of this analysis and conclusion at Note 5.
The contingent consideration revenue targets for the twelve month period ending March 31, 2015 were achieved, resulting in a contingent cash obligation of $0.5 million. We anticipate that this obligation will be paid in the second fiscal quarter of 2015. If the underlying revenue targets are met for the twelve months ending March 31, 2016, the related contingent consideration payment is expected to be paid in the second fiscal quarter of 2016. The aggregate fair value of the contingent cash payments was $2.8 million and $2.3 million at March 31, 2015 and December 31, 2014, respectively. During the three months ended March 31, 2015, we recognized a net loss of $0.4 million due to the changes in the estimated fair value of the contingent cash payments. No gain or loss was recognized during the three months ended March 31, 2014.
In February 2015, we made the first deferred cash payment of $0.5 million. The remaining deferred cash payment of $0.5 million, net of any offsetting amounts permitted under the agreement, is expected to be paid in March 2016. At March 31, 2015 and December 31, 2014, the total deferred cash obligation related to the acquisition of InstaManager, net of any adjustments permitted by the underlying agreement, was $0.5 million and $1.0 million, respectively. The deferred cash obligation was carried net of a discount of $0.1 million at March 31, 2015 and December 31, 2014 in the accompanying consolidated balance sheets.
Virtual Maintenance Manager
In March 2014, we acquired certain assets from Virtual Maintenance Manager LLC, including the Virtual Maintenance Manager product (“VMM”). VMM is a software-as-a-service application that facilitates the management of the end-to-end maintenance life cycle for single family and multifamily rental properties and provides property managers with enhanced visibility into their maintenance costs, manages resources and provides business control for property managers. We integrated VMM into our existing Propertyware products.
We acquired the VMM assets for a purchase price of $1.2 million, consisting of a cash payment of $1.0 million at closing, a deferred cash payment of up to $0.2 million payable over two years after the acquisition date and contingent cash payments of up to $2.0 million if certain revenue targets are met for the twelve months ending June 30, 2015 and June 30, 2016. The initial fair value of the deferred cash payment and the contingent cash payments was $0.2 million and less than $0.1 million, respectively. The fair value of the deferred cash payments was estimated based on the present value, as of the date of acquisition, of anticipated future payments. The fair value of the contingent cash payments was based on management’s estimate of the fair value of the cash payments using a probability weighted discount model on the achievement of the specified revenue targets and is evaluated quarterly. Direct acquisition costs were less than $0.1 million and expensed as incurred. This acquisition was financed from cash flows from operations.
Acquired intangibles were recorded at their estimated 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 five years, which are amortized proportionately to the expected discounted cash flows derived from the asset. Goodwill and identified intangibles associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consists largely of the economies of scale expected from integrating VMM into our existing operating structure and from anticipated synergies with our existing products. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of the acquisition.
The aggregate fair value of the contingent cash payments was zero and less than $0.1 million at March 31, 2015 and December 31, 2014, respectively. During the three months ended March 31, 2015, we recognized a net gain of less than $0.1 million due to changes in the estimated fair value of the contingent cash payments. No gain or loss was recognized during the three months ended March 31, 2014. At March 31, 2015 and December 31, 2014, the total deferred cash obligation related to the acquisition of VMM, net of any adjustments permitted by the underlying agreement, was $0.2 million. The deferred cash obligation was carried net of a discount of less than $0.1 million at March 31, 2015 and December 31, 2014 in the accompanying consolidated balance sheets.
Notivus
In May 2014, we acquired certain assets from Notivus Multi-Family LLC ("Notivus"). Notivus is a software-as-a-service application that provides an outsourced vendor credentialing solution to assist multifamily owners and managers in the credentialing and ongoing monitoring of their current and prospective vendors, suppliers and independent contractors. We subsequently integrated Notivus into our existing Compliance Depot products.
We acquired the Notivus assets for a purchase price of $4.4 million, consisting of a cash payment of $3.6 million at closing and a deferred cash payment of up to $0.8 million payable over two years after the acquisition date. The initial fair value of the deferred cash payment was approximately $0.8 million and was estimated based on the present value, as of the date of acquisition, of anticipated future payments. Direct acquisition costs were less than $0.1 million and expensed as incurred. This acquisition was financed from cash flows from operations.
Acquired intangible assets were recorded at their estimated 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. Goodwill and identified intangibles associated with this acquisition are deductible for tax purposes and consist largely of the economies of scale expected from integrating Notivus into our existing operating structure and from anticipated synergies with our existing products. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of the acquisition.
At March 31, 2015 and December 31, 2014, the total deferred cash obligation related to the acquisition of Notivus, net of any adjustments permitted by the underlying agreement, was $0.8 million. The deferred cash obligation was carried net of a discount of less than $0.1 million at March 31, 2015 and December 31, 2014 in the accompanying consolidated balance sheets.
Kigo, Inc.
In June 2014, we acquired all of the issued and outstanding stock of Kigo, Inc. ("Kigo"). Kigo is a software-as-a-service vacation rental booking system based in the United States with operations in Spain. Kigo offers services for vacation rental property managers that include vacation rental calendars, scheduling, reservations, accounting, channel management, website design, payment processing and other tasks to aid the management of leads, revenue, resources and lodging calendars. We integrated our existing vacation rental products with Kigo and launched an enhanced version of the software in March 2015.
We acquired Kigo for a purchase price of $36.2 million, consisting of a cash payment of $30.7 million and a deferred cash payment of up to $5.5 million, payable over two and a half years after the acquisition date. Interest is accrued on the deferred cash payments at a rate equal to the one-month London Interbank Offered Rate ("LIBOR") plus a premium of 1.00% and is payable on the date the underlying principal is due. This acquisition was financed from proceeds from our revolving line of credit and cash flows from operations. Direct acquisition costs were $0.5 million and were expensed as incurred.
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 are amortized proportionately to the expected discounted cash flows derived from the asset. The trade name acquired has an indefinite useful life as we do not plan to cease using the trade name in the marketplace. Goodwill and identified intangibles associated with this acquisition are not deductible for tax purposes. Goodwill arising from the acquisition consists largely of the economies of scale expected from integrating Kigo into our existing operating structure and from anticipated synergies with our existing products. We included the results of operations of this acquisition in our consolidated financial statements from the effective date of this acquisition.
At March 31, 2015 and December 31, 2014, the total deferred cash obligation related to the acquisition of Kigo, net of any adjustments permitted by the underlying agreement, was $5.4 million.
We allocated the purchase price for InstaManager, VMM, Notivus and Kigo as follows:
 
 
InstaManager
 
VMM
 
Notivus
 
Kigo
 
 
(in thousands)
Intangible assets:
 
 
 
 
 
 
 
 
Developed product technologies
 
$
4,490

 
$
671

 
$
1,840

 
$
2,570

Customer relationships
 

 
200

 

 
1,120

Trade names
 
527

 

 

 
602

Goodwill
 
4,135

 
358

 
2,852

 
32,996

Deferred revenue
 
(33
)
 

 
(156
)
 

Net deferred taxes
 

 

 

 
(495
)
Net other liabilities
 
55

 

 
(141
)
 
(547
)
Total purchase price
 
$
9,174

 
$
1,229

 
$
4,395

 
$
36,246


Acquisition Activity Prior to 2014
We completed acquisitions in the years prior to 2014 for which acquisition-related contingent consideration was included in the purchase price and recorded at fair value. The liability established for the acquisition-related contingent consideration will continue to be re-evaluated on a quarterly basis and measured at the estimated fair value based on the probabilities, as determined by management, of achieving the respective targets. This evaluation will be performed until all of the targets have been met or terms of the respective agreements expire. As of March 31, 2015 and December 31, 2014, the aggregate fair value of contingent consideration obligations related to acquisitions completed prior to 2014 was $1.0 million and $1.8 million, respectively. During the three months ended March 31, 2015 and 2014, we recognized a net gain (loss) of $0.1 million and $(0.2) million, respectively, related to the change in fair value of these acquisition-related contingent consideration obligations.
During the three months ended March 31, 2015 and 2014, we paid deferred and contingent cash obligations related to acquisitions completed in years prior to 2014 in the aggregate amount of $0.7 million and $0.9 million, respectively.
Pro Forma Results of Acquisitions
The following table presents pro forma results of operations for the three months ended March 31, 2014 as if the aforementioned acquisitions had occurred at the beginning of the period presented. All of the above acquisitions were held for the entirety of the three months ended March 31, 2015. The pro forma information includes the business combination accounting effects resulting from these acquisitions, including interest expense, tax benefit and additional amortization resulting from the valuation of amortizable intangible assets. 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 occurred at the beginning of the presented period, or of future periods. Pro forma results are presented in thousands, except per share amounts.
 
 
 
 
 
 
 
March 31, 2014
Pro Forma
Revenue:
 
 
 
 
 
 
 
On demand
 
 
 
 
 
 
$
97,793

On premise
 
 
 
 
 
 
865

Professional and other
 
 
 
 
 
 
2,690

Total revenue
 
 
 
 
 
 
101,348

Net loss
 
 
 
 
 
 
$
(1,186
)
Net loss per common share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
$
(0.02
)
Diluted
 
 
 
 
 
 
$
(0.02
)