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Business Combination | 6 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Business Combination |
4. | Business Combination
Aerohive Acquisition On August 9, 2019 (the “Acquisition Date”) the Company consummated its acquisition (the “Acquisition”) of all of the outstanding common stock of Aerohive Networks, Inc. (“Aerohive”) pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”) entered into as of June 26, 2019. Under the terms of the Acquisition, the preliminary net consideration paid by Extreme to Aerohive stockholders was $267.1 million. The Acquisition was accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of Aerohive have been recorded at their respective fair values and added to those of the Company including an amount for goodwill calculated as the difference between the acquisition consideration and the fair value of the identifiable net assets. The purchase price was preliminarily allocated to tangible and identifiable intangible assets acquired and liabilities assumed. The final purchase price allocation is pending the finalization of valuations including intangible assets, goodwill and income tax assets and liabilities that are not able to be finalized yet, which may result in an adjustment to the preliminary purchase price allocation. The estimated fair values were determined through established and generally accepted valuation techniques, including work performed by third-party valuation specialists. The fair value of working capital related items, such as other current assets and accrued liabilities, approximated their book values at the Acquisition Date. Inventories were valued at fair value using the net realizable value approach. The fair value of the acquired deferred revenue was estimated using the cost build-up approach. The cost build-up approach determines fair value using estimates of the costs required to provide the contracted deliverables plus an assumed profit. The total costs including the assumed profit were adjusted to present value using a discount rate considered appropriate. The resulting fair value approximates the amount the Company would be required to pay to a third party to assume the obligation. Valuations of the intangible assets were valued using income approaches based on management projections, which the Company considers to be Level 3 inputs. The Company also continues to analyze the tax implications of the Acquisition and the intangible assets which may ultimately impact the overall level of goodwill associated with the acquisition. Results of operations of Aerohive have been included in the operations of the Company beginning with the Acquisition Date. The components of aggregate estimated purchase consideration are as follows (in thousands):
Estimated purchase consideration | August 9, 2019 |
Cash paid to acquire outstanding shares | $ | 263,616 |
Replacement of stock-based awards |  | 3,530 |
Aggregate estimated purchase consideration | $ | 267,146 |
The preliminary purchase price allocation is set forth in the table below and reflects estimated fair values (in thousands).
| Preliminary Allocation as of August 9, 2019 |  |  | Adjustments |  |  |  |  | Allocation as of December 31, 2019 |
Cash and cash equivalents | $ | 44,158 |  |  | $ | — |  |  |  |  | $ | 44,158 |
Short-term investments |  | 45,148 |  |  |  | — |  |  |  |  |  | 45,148 |
Accounts receivable, net |  | 11,753 |  |  |  | — |  |  |  |  |  | 11,753 |
Inventories |  | 16,698 |  |  |  | 2,534 |  |  | a |  |  | 19,232 |
Prepaid expenses and other current assets |  | 3,980 |  |  |  | (56 | ) |  | b |  |  | 3,924 |
Property and equipment |  | 2,185 |  |  |  | 179 |  |  | c |  |  | 2,364 |
Operating lease right-of-use assets |  | 6,336 |  |  |  | — |  |  |  |  |  | 6,336 |
Other assets |  | 2,195 |  |  |  | — |  |  |  |  |  | 2,195 |
Debt |  | (20,000 | ) |  |  | — |  |  |  |  |  | (20,000 | )
Accounts payable |  | (9,737 | ) |  |  | — |  |  |  |  |  | (9,737 | )
Accrued compensation and benefits |  | (7,129 | ) |  |  | — |  |  |  |  |  | (7,129 | )
Accrued warranty |  | (570 | ) |  |  | — |  |  |  |  |  | (570 | )
Other accrued liabilities |  | (1,960 | ) |  |  | — |  |  |  |  |  | (1,960 | )
Operating lease liabilities |  | (4,752 | ) |  |  | — |  |  |  |  |  | (4,752 | )
Deferred revenue |  | (68,415 | ) |  |  | — |  |  |  |  |  | (68,415 | )
Other liabilities |  | (408 | ) |  |  | — |  |  |  |  |  | (408 | )
Net tangible assets |  | 19,482 |  |  |  | 2,657 |  |  |  |  |  | 22,139 |
Identifiable intangible assets |  | 53,400 |  |  |  | — |  |  |  |  |  | 53,400 |
Goodwill |  | 194,264 |  |  |  | (2,657 | ) |  | a,b,c |  |  | 191,607 |
Total intangible assets acquired |  | 247,664 |  |  |  | (2,657 | ) |  |  |  |  | 245,007 |
Total net assets acquired | $ | 267,146 |  |  | $ | - |  |  |  |  | $ | 267,146 |
The changes during the period in the table above include: a) adjustment of the fair value of inventories acquired, b) write-off of an asset with no future economic value as of the Acquisition Date, c) adjustment to the value of property and equipment as of the Acquisition Date at an international location. The following table presents details of the identifiable intangible assets acquired as part of the Acquisition (dollars in thousands):
Intangible Assets |  | Estimated Useful Life (in years) |  |  | Amount |
Developed technology |  |  | 4 |  |  | $ | 40,000 |
Backlog |  |  | 1 |  |  |  | 400 |
Customer relationships |  |  | 7 |  |  |  | 11,400 |
Trade names |  |  | 1 |  |  |  | 1,600 |
Total identifiable intangible assets |  |  |  |  |  | $ | 53,400 |
The amortization for the developed technology and backlog is recorded in “Cost of revenues” for product and the amortization for the remaining intangibles is recorded in “Amortization of intangibles” in the accompanying condensed consolidated statements of operations. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Aerohive. The Company will not be entitled to amortization of the goodwill and intangible assets for tax purposes as this acquisition is a nontaxable stock acquisition. The results of operations of Aerohive are included in the accompanying condensed consolidated results of operations beginning August 9, 2019. The Aerohive revenue for the three and six months ended December 31, 2019 was $41.9 million and $67.3 million, respectively, and was incorporated into the revenue of the Company. Certain associated expenses of Aerohive were incorporated with the results of operations of the Company and, therefore, stand-alone operating results are not available. In the three and six months ended December 31, 2019, the Company incurred acquisition and integration related expenses of $9.0 million and $24.9 million, respectively, associated with the Acquisition. In the quarter ended September 30, 2019, this included a $6.8 million compensation charge for certain Aerohive Executive stock awards which were accelerated due to change-in-control and termination provisions included in the Executives’ employment contracts. Other acquisition and integration costs consist primarily of professional fees for financial and legal advisory services and severance charges for terminated Aerohive employees. Such acquisition-related costs were expensed as incurred and are included in “Acquisition and integration costs” in the accompanying condensed consolidated statements of operations. Pro forma financial information The following unaudited pro forma results of operations are presented as though the Acquisition had occurred as of July 1, 2018, the beginning of fiscal 2019, after giving effect to purchase accounting adjustments relating to inventories, deferred revenue, depreciation and amortization of intangibles, acquisition and integration costs, interest income and expense and related tax effects. The pro forma results of operations are not necessarily indicative of the combined results that would have occurred had the acquisition been consummated as of the beginning of fiscal 2019, nor are they necessarily indicative of future operating results. The unaudited pro forma results do not include the impact of synergies, nor any potential impacts on current or future market conditions which could alter the unaudited pro forma results. The unaudited pro forma financial information for the three and six months ended December 31, 2019 combines the historical results for Extreme for the period, which include the results of Aerohive subsequent to the Acquisition Date, and Aerohive’s historical results up to the Acquisition Date. Pro forma results of operations for the three and six months ended December 31, 2018 combines the historical results of operations for Extreme and for Aerohive. The following table summarizes the unaudited pro forma financial information (in thousands, except per share amounts):
|  | Three Months Ended |  |  | Six Months Ended |
|  | December 31, 2019 |  |  | December 31, 2018 |  |  | December 31, 2019 |  |  | December 31, 2018 |
Net revenues |  | $ | 268,367 |  |  | $ | 288,873 |  |  | $ | 536,045 |  |  | $ | 568,107 |
Net loss |  | $ | (5,031 | ) |  | $ | (20,694 | ) |  | $ | (28,847 | ) |  | $ | (59,779 | )
Net loss per share - basic and diluted |  | $ | (0.04 | ) |  | $ | (0.18 | ) |  | $ | (0.24 | ) |  | $ | (0.51 | )
Shares used in per share calculation - basic and diluted |  |  | 119,555 |  |  |  | 117,544 |  |  |  | 119,891 |  |  |  | 117,456 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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