Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.10.0.1
Acquisitions
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Current Acquisition Activity
LeaseLabs
In September 2018, we acquired substantially all of the assets of LeaseLabs, Inc. (“LeaseLabs”), a full-stack marketing solutions provider to the multifamily housing industry. LeaseLabs provides online, social media and website marketing services to property management companies. Aggregate purchase consideration was $112.7 million, including contingent consideration of up to $10.0 million based on the collection of acquisition date accounts receivable balances during the six-month period after the acquisition date. The fair value of the contingent consideration was $7.0 million on the date of acquisition. We issued 86,745 shares of our common stock at closing, which had a fair value of $5.3 million on the date of acquisition. We will issue shares of our common stock with a fair value of $5.0 million on the first anniversary date of the acquisition. A liability of $4.8 million has been recorded for the obligation to issue these shares. The acquisition was financed using cash on hand.
The acquired identified intangible assets consisted of client relationships, developed technology and trade names and were assigned estimated useful lives of ten, seven and ten years, respectively. Preliminary goodwill recognized of $84.1 million is primarily comprised of anticipated synergies from the expansion of our marketing platform with LeaseLabs’ marketing solutions and the combination of our marketing content, websites and lead management with LeaseLabs’ marketing solutions. Goodwill and acquired intangible assets are deductible for tax purposes. Accounts receivable acquired have a gross value of $3.1 million, of which $0.5 million is estimated to be uncollectible. Acquisition costs associated with this transaction totaled $0.3 million and were expensed as incurred.
BluTrend
In July 2018, we acquired substantially all of the assets of Blu Trend, LLC (“BluTrend”), a provider of utility management services for the multifamily housing industry. The acquired assets will be integrated with our existing resident utility management platform. Purchase consideration was $8.5 million of cash, deferred cash obligations of up to $1.0 million, and deferred stock obligations of up to $1.0 million. The $2.0 million of deferred obligations are subject to indemnification claims as well as continued employment of certain BluTrend employees and will be released on the first and second anniversary dates of the closing date. The deferred obligations will be recognized as compensation expense over the two-year period after the acquisition date. The acquisition was financed using cash on hand.
The acquired identifiable intangible assets consisted of client relationships, developed technology and trade names and were assigned estimated useful lives of ten, five and two years, respectively. Preliminary goodwill recognized of $3.9 million is primarily comprised of anticipated synergies from integrating the BluTrend business into our utility management platform. Goodwill and the acquired identified intangible assets are deductible for tax purposes. Acquisition costs associated with this transaction totaled $0.1 million and were expensed as incurred.
ClickPay
In April 2018, we acquired substantially all of the outstanding membership units of NovelPay, LLC (“NovelPay”), other than those owned by ClickPay Services, Inc. On the same day, we acquired all of the outstanding stock of ClickPay Services, Inc. (collectively with NovelPay, “ClickPay”). ClickPay provides an electronic payment platform servicing resident units across multiple segments of real estate, which offers integrated payment services to increase operational efficiencies for property owners and managers. The acquisition of ClickPay broadens our presence in the real estate industry, and solidifies the integration of our leasing platform with third-party property management systems.
We acquired ClickPay for purchase consideration of $221.0 million. The purchase consideration consisted of $138.8 million of cash, net of cash acquired of $7.5 million, the issuance of 870,168 shares of our common stock valued at $48.0 million, a deferred obligation of up to $10.2 million, which had a fair value of $9.8 million on the date of acquisition, and a liability of $24.7 million related to put and call option agreements, which had a fair value of $24.4 million on the date of acquisition. Approximately 187,480 shares of common stock issued at closing are subject to a holdback. Subject to any indemnification claims made, the 187,480 shares of common stock issued at closing and the deferred obligation will be released on the first and second anniversary dates of the closing date, respectively. The acquisition of ClickPay was financed using funds available under our Credit Facility, as defined in Note 7, and cash on hand.
Pursuant to the acquisition agreement, certain holders initially retained units representing approximately 12% of the membership units of NovelPay, subject to put rights that could be exercised by the holders on or after September 1, 2018, and call rights that could be exercised by us on or after October 1, 2018. The exercise price of the put and call rights was the same as the per unit price of the membership units purchased at the closing. We evaluated the put and call options and determined the put and call options were embedded within the noncontrolling interests, and the economic substance represented a financing arrangement of the noncontrolling interests because of the substantially fixed exercise price and stated exercise dates. In June 2018, we and one of the remaining NovelPay noncontrolling interest holders agreed to waive the put and call exercise date, and we completed the purchase of such holder’s membership units for 395,206 shares of common stock valued at $21.8 million. In September 2018, the remaining NovelPay noncontrolling interest holders exercised their put rights, and we completed the purchase of the noncontrolling interest holders’ membership units for $2.9 million in cash. As of September 30, 2018, all outstanding membership units of NovelPay have been acquired. No earnings were attributed to the noncontrolling interests in the accompanying Condensed Consolidated Statements of Operations.
The acquired identified intangible assets consisted of developed technology, client relationships, and trade names. These intangible assets were assigned estimated useful lives of seventen, and ten years, respectively. Preliminary goodwill recognized of $172.6 million is primarily comprised of anticipated synergies from leveraging ClickPay’s electronic payment platform, which is compatible with multiple third-party property management systems. Goodwill of $105.0 million arising from the acquisition of NovelPay is deductible for tax purposes; goodwill arising from the acquisition of ClickPay Services, Inc. is not. Accounts receivable acquired had a gross contractual value of $2.8 million at acquisition, of which $0.5 million was estimated to be uncollectible. Acquisition costs associated with this transaction totaled $1.6 million and were expensed as incurred.
Purchase Consideration and Purchase Price Allocations
The estimated fair values of assets acquired and liabilities assumed are provisional and are based primarily on the information available as of the acquisition date. We believe this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we are awaiting additional information necessary to finalize those values. Therefore, the provisional measurements of fair value are subject to change, and such changes could be significant. We expect to finalize the valuation of these assets and liabilities as soon as practicable, but no later than one year from the acquisition date. The components of the purchase consideration and the preliminary allocation of each purchase price, including the effects of measurement period adjustments recorded as of September 30, 2018, are as follows:
 
 
 
 
 
ClickPay
 
BluTrend
 
LeaseLabs
 
 
 
 
 
(in thousands)
Fair value of total purchase consideration:
 
 
 
 
 
 
 
 
 
Cash, net of cash acquired
 
 
 
 
$
138,787

 
$
8,500

 
$
84,500

Common stock issued at closing
 
 
 
 
48,034

 

 
5,300

Deferred obligations, net
 
 
 
 
9,821

 

 
15,888

Noncontrolling interest financing
 
 
 
 
24,369

 

 

Contingent consideration
 
 
 
 

 

 
7,000

Total purchase consideration
 
 
 
 
$
221,011

 
$
8,500

 
$
112,688

 
 
 
 
 
 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
 
 
 
 
 
Restricted cash
 
 
 
 
$
1,313

 
$

 
$

Accounts receivable
 
 
 
 
2,288

 
226

 
2,625

Property, equipment, and software
 
 
 
 
89

 

 
865

Intangible assets:
 
 
 
 
 
 
 
 
 
Developed product technologies
 
 
 
 
29,100

 
730

 
8,300

Client relationships
 
 
 
 
20,700

 
3,510

 
17,800

Trade names
 
 
 
 
2,900

 
30

 
1,100

Goodwill
 
 
 
 
172,618

 
3,887

 
84,127

Other assets
 
 
 
 
443

 
122

 
363

Accounts payable and accrued liabilities
 
 
 
 
(2,697
)
 
(5
)
 
(167
)
Client deposits held in restricted accounts
 
 
 
 
(1,313
)
 

 

Deferred revenue
 
 
 
 

 

 
(2,325
)
Deferred tax liability, net
 
 
 
 
(4,430
)
 

 

Total fair value of net assets acquired

 

 
$
221,011

 
$
8,500

 
$
112,688


2017 Acquisitions
Lease Rent Options
In February 2017, we entered into an agreement with The Rainmaker Ventures, LLC (“Rainmaker”) to acquire substantially all of the assets and liabilities that comprised Rainmaker’s multifamily revenue optimization business (“LRO”). The transaction closed in December 2017 for purchase consideration of $299.9 million.
PEX Software
In October 2017, we acquired all of the issued and outstanding shares of PEX Software Limited (“PEX”) based in the United Kingdom, for purchase consideration of $6.0 million.
On-Site
In September 2017, we acquired certain assets of On-Site Manager, Inc., including its majority ownership interest in its subsidiary, DepositIQ & RentersIQ Insurance Agency, LLC (“DIQ”). We also acquired the remaining minority interest in DIQ (collectively, “On-Site”). We acquired On-Site for aggregate purchase consideration of $251.1 million.
American Utility Management
In June 2017, we acquired substantially all of the assets of American Utility Management, Inc. (“AUM”) for purchase consideration of $69.4 million.
Axiometrics LLC
In January 2017, we acquired substantially all of the assets of Axiometrics LLC (“Axiometrics”) for purchase consideration of $73.8 million.
We recorded the purchase of the acquisitions described above using the acquisition method of accounting and, accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. Tangible assets were valued at their respective carrying amounts, which approximated their estimated fair value. The valuation of identified intangible assets reflects management’s estimates based on, among other factors, use of established valuation methods. Acquisition costs were expensed as incurred. These acquisitions were financed using cash on hand, and in the case of LRO, funds available under our credit facility. For more information regarding these acquisitions, refer to our 2017 Form 10-K.
Purchase Price Allocations
For certain of the acquisitions in the table below, the estimated fair values of assets acquired and liabilities assumed are provisional and are based primarily on the information available as of the acquisition dates. The allocation of each purchase price, including the effects of measurement period adjustments recorded as of September 30, 2018, was as follows:
 
Axiometrics
 
AUM
 
On-Site
 
PEX
 
LRO
 
(Final)
 
(Final)
 
(Final)
 
(Provisional)
 
(Provisional)
 
(in thousands)
Fair value of total purchase consideration:
 
 
 
 
 
 
 
 
 
Cash, net of cash acquired
$
66,050

 
$
64,775

 
$
225,300

 
$
5,103

 
$
298,040

Liabilities assumed

 

 

 

 
377

Deferred cash obligations, net
6,895

 
4,637

 
25,809

 
928

 
1,506

Contingent consideration
812

 

 

 

 

Total purchase consideration
$
73,757

 
$
69,412

 
$
251,109

 
$
6,031

 
$
299,923

 
 
 
 
 
 
 
 
 
 
Fair value of net assets acquired:
 
 
 
 
 
 
 
 
 
Restricted cash
$

 
$
5,954

 
$
3,458

 
$

 
$

Accounts receivable
1,620

 
2,409

 
4,484

 
107

 
4,460

Property, equipment, and software
400

 
319

 
789

 

 
1,507

Intangible assets:
 
 
 
 
 
 
 
 
 
Developed product technologies
15,500

 
10,800

 
16,960

 
2,350

 
42,000

Client relationships
6,830

 
7,470

 
41,360

 
590

 
49,000

Trade names
3,200

 
208

 
7,000

 
160

 
666

Non-compete agreements

 
3,920

 

 

 

Goodwill
54,190

 
45,907

 
182,592

 
3,300

 
202,868

Other assets
273

 
850

 
853

 
95

 
475

Accounts payable and accrued liabilities
(367
)
 
(2,150
)
 
(1,124
)
 
(242
)
 
(192
)
Client deposits held in restricted accounts

 
(5,954
)
 
(3,458
)
 

 

Deferred revenue
(7,115
)
 
(321
)
 
(565
)
 
(221
)
 
(861
)
Other long-term liabilities
(774
)
 

 

 

 

Deferred tax liability

 

 
(1,240
)
 
(108
)
 

Total fair value of net assets acquired
$
73,757

 
$
69,412

 
$
251,109

 
$
6,031

 
$
299,923



Deferred Obligations and Contingent Consideration Activity
The following table presents changes in the Company’s deferred cash and stock obligations and contingent consideration for the nine months ended September 30, 2018 and the year ended December 31, 2017:
 
Deferred Cash and Stock Obligations
 
Contingent Consideration
 
Total
 
(in thousands)
Balance at January 1, 2017
$
14,150

 
$
541

 
$
14,691

Additions, net of fair value discount
42,104

 
812

 
42,916

Cash payments
(8,215
)
 
(700
)
 
(8,915
)
Accretion expense
1,049

 

 
1,049

Change in fair value

 
(239
)
 
(239
)
Indemnification claims and other adjustments
(2,072
)
 

 
(2,072
)
Balance at December 31, 2017
47,016

 
414

 
47,430

Additions, net of fair value discount
25,709

 
7,000

 
32,709

Cash payments
(26,734
)
 
(247
)
 
(26,981
)
Accretion expense
1,491

 

 
1,491

Change in fair value

 
(167
)
 
(167
)
Indemnification claims and other adjustments
(2,753
)
 

 
(2,753
)
Balance at September 30, 2018
$
44,729

 
$
7,000

 
$
51,729


Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for the three and nine months ended September 30, 2018 and 2017, as if the aforementioned 2018 and 2017 acquisitions had occurred as of January 1, 2017 and January 1, 2016, respectively. The pro forma information includes the business combination accounting effects resulting from these acquisitions, including interest expense, tax expense or benefit, issuance of our common shares, 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 periods presented, or of future results.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
Pro Forma
 
2017
Pro Forma
 
2018
Pro Forma
 
2017
Pro Forma
 
(unaudited)
 
(in thousands, except per share amounts)
Total revenue
$
228,588

 
$
202,957

 
$
667,668

 
$
598,560

Net income
$
9,072

 
$
7,221

 
$
26,431

 
$
11,132

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.09

 
$
0.31

 
$
0.14

Diluted
$
0.09

 
$
0.09

 
$
0.29

 
$
0.13