Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.3.1.900
Acquisitions
12 Months Ended
Dec. 31, 2015
Business Combinations [Abstract]  
Acquisitions
Acquisitions
We apply the guidance contained in ASC Topic 805, Business Combinations ("ASC 805") in determining whether an acquisition transaction constitutes a business combination. ASC 805 defines a business as consisting of inputs and processes applied to those inputs that have the ability to create outputs. The below acquisition transactions were determined to constitute business combinations and were accounted for under ASC 805.
Purchase consideration includes assets transferred, liabilities incurred, and/or equity interests issued by us, all of which are measured at their fair value as of the date of acquisition. Our business combination transactions may be structured to include an up-front cash payment and deferred and/or contingent cash payments to be made at specified dates subsequent to the date of acquisition. Deferred cash payments are included in the acquisition consideration based at their fair value as of the acquisition date. The fair value of these obligations is estimated based on the present value, as of the date of acquisition, of the anticipated future payments. The future payments are discounted using a rate that considers an estimate of the return expected by a market-participant and a measurement of the risk inherent in the cash flows, among other inputs. Deferred cash payments are generally subject to adjustments specified in the underlying purchase agreement related to the seller's indemnification obligations. Contingent cash payments are obligations to make future cash payments to the seller, the payment of which is contingent upon the acquired business achieving stipulated operational or financial targets in the post-acquisition period. Contingent cash payments are included in the purchase consideration at their fair value as of the acquisition date. The fair value of these payments is estimated by management using a probability weighted discount model based on the achievement of the specified targets. The fair value of these liabilities is re-evaluated on a quarterly basis, the change of which is reflected in the line "General and administrative" in the accompanying Consolidated Statements of Operations.
The total purchase consideration is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess consideration is classified as goodwill. Acquired intangibles are recorded at their estimated fair value based on the income approach using market-based estimates. Acquired intangibles generally include developed product technologies, which are amortized over their useful life on a straight-line basis, and customer relationships, which are amortized over their useful life proportionately to the expected discounted cash flows derived from the asset. When trade names acquired are not classified as indefinite-lived, they are amortized on a straight-line basis over their expected useful life.
Acquisition costs are expensed as incurred and are included in the line "General and administrative" in the accompanying Consolidated Statements of Operations. We include the results of operations from acquired businesses in our consolidated financial statements from the effective date of the acquisition.
2015 Acquisitions
Indatus
In June 2015, we acquired certain assets from ICIM Corporation, including the Answer Automation, Call Tracker, and Zip Digital products, marketed under the name Indatus. The Indatus offerings are software-as-a-service products that provide automated answering services, marketing spend analysis tools, and other features which enhance the ability of managers of multifamily properties to communicate with their residents. We are currently integrating the Indatus assets with our existing contact center and maintenance products, which will increase the features of these existing solutions.
We acquired the Indatus assets for a purchase price of $49.4 million, consisting of a cash payment of $43.8 million at closing; deferred cash payments of up to $5.0 million, payable over nineteen months after the acquisition date; and contingent cash payments of up to $2.0 million, in the aggregate, if certain revenue targets are met for the twelve month periods ended June 30, 2016 and 2017. The fair value of the deferred and contingent cash payments was $4.7 million and $0.9 million, respectively, as of the acquisition date. Direct acquisition costs were $0.3 million. This acquisition was financed using proceeds from our revolving credit facility.
The acquired developed product technologies and customer relationships have useful lives of three and ten years, respectively. The trade name acquired will be amortized over a useful life of one year, based on our anticipated use of the asset. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes. Goodwill arising from the acquisition consists largely of anticipated synergies resulting from the integration of Indatus with our pre-existing products and from leveraging our existing customer base and sales staff.
VRX
In June 2015, we acquired certain assets from RJ Vacations, LLC and Switch Development Corporation, including the VRX product ("VRX"). VRX is a software-as-a-service application which allows vacation rental management companies to manage the cleaning and turning of units, accounting, and document management. VRX augments our existing line of solutions offered to the vacation rental industry, and we are currently integrating it with our Kigo solution.
We acquired the VRX assets for a purchase price of $2.0 million, consisting of a cash payment of $1.5 million at closing and a contingent cash payment of up to $0.5 million. Payment of the contingent cash obligation is dependent upon the achievement of certain subscription or booking activity targets and is subject to adjustments specified in the acquisition agreement related to the sellers' indemnification obligations. The contingent cash obligation had a fair value of $0.5 million, as of the acquisition date, and is due fifteen months after the date of acquisition.
The purchase agreement also provides for the sellers to receive additional contingent cash payments of up to $3.0 million. Payment of the additional contingent consideration is dependent upon the achievement of certain revenue targets during the twelve month periods ended December 31, 2016, 2017, and 2018, and the sellers providing certain services during a specified period following the acquisition date. Due to this post-acquisition service requirement, the Company concluded that the additional contingent cash payments represent post-acquisition compensation; therefore, these amounts were excluded from the purchase consideration. This acquisition was financed using cash flows from operations. Direct acquisition costs were immaterial.
The acquired developed product technologies have an estimated useful life of three years. The estimated fair value of the customer relationships acquired was immaterial and these intangible assets were expensed as of the acquisition date. Goodwill arising from the acquisition consists largely of anticipated synergies resulting from the integration of VRX with Kigo. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes.
Purchase Price Allocation
The estimated fair values of assets acquired and liabilities assumed related to the above acquisitions are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. We believe that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we are waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change, and such changes could be significant. We expect to finalize the valuations and purchase price allocations as soon as practicable, but no later than one year from the acquisition dates.
We preliminarily allocated the purchase price of Indatus and VRX as follows:
 
 
Indatus
 
VRX
 
 
(in thousands)
Accounts receivable
 
$
646

 
$

Intangible assets:
 
 
 
 
Developed product technologies
 
13,400

 
794

Customer relationships
 
9,770

 
11

Trade names
 
83

 

Goodwill
 
25,575

 
1,186

Net other liabilities
 
(57
)
 

Total purchase price
 
$
49,417

 
$
1,991


At December 31, 2015, the carrying value of total deferred and contingent cash obligations related to acquisitions completed in 2015 was $5.1 million and $0.8 million, respectively. The deferred cash obligations are carried net of a discount of $0.2 million in the accompanying Consolidated Balance Sheets. During the year ended December 31, 2015, we recognized a net gain in the amount of $0.6 million due to changes in the fair value of the contingent cash obligations related to these acquisitions. There were no payments of deferred or contingent cash obligations made related to these acquisitions during the year ended December 31, 2015.
2014 Acquisitions
InstaManager
In January 2014, we acquired certain assets from Bookt LLC, including the InstaManager product (“InstaManager”). InstaManager was a software-as-a-service vacation rental booking engine used by professional managers of vacation rental properties which offered 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 during the twelve month periods ended March 31, 2015 and 2016. The initial fair value of the deferred and contingent cash payments were $0.8 million and $2.4 million, respectively. The first deferred cash payment was made in the first quarter of 2015. The performance targets for the first contingent cash payment were achieved and the related payment was made in the third quarter of 2015.
The acquired developed product technologies have a useful life of three years. Goodwill and identified intangible assets associated with this acquisition are 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. Direct costs related to this acquisition were less than $0.1 million and the acquisition was financed from cash flows from operations.
We assigned an indefinite useful life to the trade name acquired, as we did not anticipate ceasing use of the trade name in the marketplace. In March 2015, we completed the integration of InstaManager with another vacation rental software product and ceased use of the trade name in marketing activities 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 in Note 6.
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 enhanced 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; deferred cash payments 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 ended June 30, 2015 and 2016. The initial fair value of the deferred and contingent cash payments was $0.2 million and less than $0.1 million, respectively. The first deferred cash payment was made in the second quarter of 2015. The performance targets for the first contingent cash payment were not met and, therefore, no payment was made. Should VMM achieve the targets for the second contingent cash payment they are eligible to receive the full $2.0 million.
The acquired developed product technologies and customer relationships have useful lives of three and ten years, respectively. Goodwill and identified intangible assets 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. Direct acquisition costs were less than $0.1 million and this acquisition was financed from cash flows from operations.
Notivus
In May 2014, we acquired certain assets from Notivus Multi-Family LLC, including the Notivus product ("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. The first deferred cash payment was made in the third quarter of 2015.
The acquired developed product technologies have a useful life of three years. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consists largely of the economies of scale expected from integrating Notivus into our existing operating structure and from anticipated synergies with our existing products. Direct costs related to this acquisition were less than $0.1 million and this acquisition was financed from cash flows from operations.
Kigo
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 payment 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 credit facility and cash flows from operations. Direct acquisition costs were $0.5 million.
The acquired developed product technologies and customer relationships have useful lives of three and ten years, respectively. The trade name acquired has an indefinite useful life as we do not plan to cease using it in the marketplace. Goodwill and identified intangible assets 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.
Purchase Price Allocation
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 assets (liabilities)
 
55

 

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

 
$
1,229

 
$
4,395

 
$
36,246


At December 31, 2015 and 2014, aggregate deferred cash obligations related to acquisitions completed in 2014 totaled $6.2 million and $7.4 million, respectively. During the year ended December 31, 2015, the Company paid deferred cash obligations totaling $1.2 million related to acquisitions completed in 2014. No payments of deferred cash obligations were made in 2014 related to these acquisitions.
Aggregate contingent cash obligations related to acquisitions completed in 2014 had a carrying value of $2.3 million at December 31, 2014. The fair value of these obligations was estimated to be zero at December 31, 2015. During the years ended December 31, 2015 and 2014, we recognized a net gain of $1.8 million and $0.1 million related to changes in the fair value of the contingent cash obligations for these acquisitions. The Company paid contingent cash obligations totaling $0.5 million during 2015. No payments of contingent cash obligations were made in 2014 related to these acquisitions.
2013 Acquisitions
Seniors for Living
In February 2013, we acquired certain assets of Seniors for Living, Inc. (“SFL”). SFL was a leading performance-based marketing company that provided senior housing communities and home care companies with industry-leading referral and marketing services to help them achieve their occupancy goals. We integrated SFL with our existing senior living software solutions.
We acquired SFL for a purchase price of $2.7 million, which consisted of a cash payment of $2.3 million and two additional cash payments of $0.2 million each, due six and twelve months after the acquisition date. The acquisition-date fair value of the additional cash payments was determined to be $0.4 million. The deferred cash payments were remitted to the sellers in the fourth quarter of 2013 and the first quarter of 2014.
The acquired developed product technologies and customer relationships have useful lives of three and five years, respectively. 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 SFL into our existing operating structure and from anticipated synergies with our existing products. Direct costs related to this acquisition were less than $0.1 million and the acquisition was financed from cash flows provided by operations.
RentSentinel
In March 2013, we acquired certain assets from Yield Technologies, Inc., including the RentSentinel and RentSocial products (together, “RentSentinel”). The RentSentinel software-as-a-service platform was a fully featured apartment marketing management solution for the multifamily industry. RentSocial was an apartment search service that simplified and incorporated the social marketing platform into the process of finding an apartment. We integrated RentSentinel with our existing LeaseStar product family.
We acquired RentSentinel for a purchase price of $10.5 million, which consisted of a cash payment of $7.6 million; an issuance of 72,500 shares of our common stock; and two tranches of 36,250 shares of our common stock, which were issuable twelve and 24 months after the acquisition date. The initial fair value of the shares of common stock issued at acquisition and the contingent shares of common stock were $1.5 million and $1.4 million, respectively. The common stock shares included in the two tranches were issued in the second quarters of 2014 and 2015.
The acquired developed product technologies and customer relationships have useful lives of three and nine years, respectively. 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 RentSentinel into our existing operating structure and from anticipated synergies with our existing products. This acquisition was financed from cash flows provided by operations and our common stock. Direct acquisition costs were $0.1 million.
Windsor
In October 2013, we acquired substantially all of the operating assets of Windsor Compliance Services, Inc. (“Windsor Compliance”). Windsor Compliance was a firm specializing in compliance with tax credits and regulations for the affordable housing industry. We integrated Windsor Compliance with our other affordable HUD products.
We acquired Windsor Compliance for a purchase price of $2.7 million, which included a cash payment of $1.3 million at closing and additional deferred cash payments of $1.0 million and $0.5 million, due twelve and 24 months after the acquisition date, respectively. The initial fair value of the deferred cash payments was $1.4 million. The first deferred cash payment was made in the fourth quarter of 2014.
The purchase agreement also provided for the sellers to receive additional contingent compensation of up to $1.2 million in the form of RSU's issued under the Company's 2010 Equity Incentive Plan. This compensation was contingent upon Windsor achieving specified quarterly revenue targets over a period of the four quarters between June 30, 2014 and March 31, 2015. In November 2014, the purchase agreement was amended. Under this amendment, the additional contingent compensation would be paid in cash and the period for achieving the specified quarterly revenue targets was modified to the four quarters between December 31, 2014 and September 30, 2015. Windsor achieved the first two post-acquisition quarterly targets and the contingent compensation was paid in the second quarter of 2015. The last two post-acquisition targets were not met and the related contingent payments were forfeited.
Acquired customer relationships have a useful life of ten years. 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 Windsor Compliance into our existing operating structure and from anticipated synergies with our existing products. This acquisition was financed from cash flows provided by operations. Direct acquisition costs were $0.1 million.
MyBuilding
In October 2013, we acquired all of the issued and outstanding capital stock of MyBuilding Inc. ("MyBuilding"). MyBuilding provided software-as-a-service solutions that facilitated the creation of online communities connecting renters to multifamily property managers, local vendors, and other renters. We integrated MyBuilding with our Resident Portal software solutions.
We acquired MyBuilding for a purchase price of $6.9 million, consisting of a cash payment of $5.2 million at closing; a deferred cash payment of up to $1.5 million, payable over two years after the acquisition date; and additional cash payments totaling up to $1.1 million if certain revenue targets were met for the years ended December 31, 2014 and 2015. The initial fair value of the deferred and contingent cash payments was $1.4 million and $0.3 million, respectively. The first two deferred cash payments were made in the fourth quarters of 2014 and 2015. MyBuilding achieved the revenue targets for the first contingent cash payment, which was paid in the first quarter of 2015.
The acquired developed product technologies and customer relationships have useful lives of three and ten years, respectively. 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 MyBuilding into our existing operating structure and from anticipated synergies with our existing products. This acquisition was financed from cash flows provided by operations. Direct acquisition costs totaled $0.1 million.
Active Building
In October 2013, we acquired all of the membership interests of Active Building, LLC ("Active Building"). Active Building provided software-as-a-service solutions that facilitated the creation of online communities connecting renters to multifamily property managers, local vendors, and other renters. We integrated Active Building with our Resident Portal software solutions.
We acquired Active Building for a purchase price of $14.4 million, consisting of a cash payment of $11.3 million at closing; a deferred cash payment of up to $2.0 million, payable over three years after the acquisition date; and additional cash payments totaling up to $6.5 million if certain revenue targets were met for the years ended December 31, 2014 and 2015. The initial fair value of the deferred and contingent cash payments was $1.7 million and $1.4 million, respectively. The two deferred cash payments were made in the fourth quarters of 2014 and 2015. Active Building met the revenue targets for the first contingent cash payment, which was paid in the first quarter of 2015.
The acquired developed product technologies and customer relationships have useful lives of three and ten years, respectively. 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 deductible for tax purposes. Goodwill arising from the acquisition consists largely of the economies of scale expected from integrating Active Building into our existing operating structure and from anticipated synergies with our existing products. This acquisition was financed from cash flows provided by operations. Direct acquisition costs totaled $0.1 million.
Purchase Price Allocation
We allocated the purchase price for SFL, RentSentinel, Windsor Compliance, MyBuilding, and Active Building as follows:
 
 
SFL
 
RentSentinel
 
Windsor Compliance
 
MyBuilding
 
Active Building
 
 
(in thousands)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
Developed product technologies
 
$
1,406

 
$
4,238

 
$

 
$
1,450

 
$
3,850

Customer relationships
 
161

 
2,390

 
1,230

 
1,000

 
2,650

Trade names
 

 

 

 
328

 
597

Goodwill
 
1,035

 
3,633

 
1,302

 
5,043

 
7,198

Deferred revenue
 

 
(304
)
 
(107
)
 
(258
)
 

Net deferred taxes
 

 
226

 

 
(813
)
 

Net other assets
 
88

 
313

 
226

 
111

 
76

Total purchase price
 
$
2,690

 
$
10,496

 
$
2,651

 
$
6,861

 
$
14,371


At December 31, 2015 and 2014, aggregate deferred cash obligations related to acquisitions completed in 2013 totaled $1.0 million and $2.4 million, respectively. During the years ended December 31, 2015 and 2014, the Company paid deferred cash obligations totaling $1.4 million and $2.6 million, respectively, related to acquisitions completed in 2013. There were no payments of deferred cash obligations made during 2013 related to these acquisitions.
Aggregate contingent cash obligations related to acquisitions completed in 2013 totaled $1.8 million at December 31, 2014. The fair value of these obligations was estimated to be zero at December 31, 2015. During the years ended December 31, 2015 and 2014, the Company recognized a net gain of $1.1 million and $0.3 million, respectively, related to changes in the fair value of the contingent cash obligations for these acquisitions. No gain or loss was recognized related to the change in the fair value of these liabilities in 2013. The Company paid contingent cash obligations totaling $0.7 million during the year ended December 31, 2015. There were no payments of contingent cash consideration obligations made in 2014 and 2013 related to these acquisitions.
Acquisition Activity prior to 2013
We completed acquisitions in the years prior to 2013 for which deferred and contingent consideration obligations were included in the purchase consideration. There were no outstanding deferred and contingent cash obligations related to acquisitions completed prior to 2013 at December 31, 2015 or 2014. During the years ended December 31, 2014 and 2013, the Company paid deferred cash obligations related to these acquisitions totaling $1.5 million and $2.1 million, respectively. The Company paid contingent cash obligations related to these acquisitions totaling $0.2 million during both years ended December 31, 2014 and 2013. During the year ended December 31, 2013, the Company recognized a net loss of $0.5 million related to changes in the fair value of the contingent cash obligations for these acquisitions. There were no gains or losses recognized related to these acquisitions during 2014.
Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for 2015 and 2014 as if the aforementioned acquisitions had occurred at the beginning of each period presented. The pro forma financial information includes the business combination accounting effects resulting from these acquisitions, including $2.5 million and $6.5 million of amortization charges from acquired intangible assets as of December 31, 2015 and 2014, 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 occurred at the beginning of the periods presented, or of future results.
 
 
Year Ended December 31,
 
 
2015
Pro Forma
 
2014
Pro Forma
 
 
(in thousands, except per share amounts)
 
 
(unaudited)
Revenue:
 
 
 
 
On demand
 
$
456,082

 
$
403,373

On premise
 
2,970

 
3,094

Professional and other
 
14,588

 
10,835

Total revenue
 
473,640

 
417,302

Net loss
 
$
(10,035
)
 
$
(13,346
)
Net loss per share:
 
 
 
 
Basic
 
$
(0.13
)
 
$
(0.17
)
Diluted
 
$
(0.13
)
 
$
(0.17
)