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Acquisitions

6 Months Ended

Jun. 30, 2020

Note 4. Acquisitions

ZuluDesk B.V.

On February 1, 2019, the Company purchased all of the outstanding membership units of ZuluDesk B.V. whose products are designed to offer a cost-effective mobile device management system for today’s modern digital classroom. ZuluDesk B.V’s software complement the Company’s existing product offerings. The Company accounted for the acquisition by applying the acquisition method of accounting for business combinations in accordance with ASC Topic 805. The final aggregate purchase price was approximately $38.6 million. This acquisition was funded by term debt, and borrowings under a revolving line of credit. The goodwill represents the excess of the purchase consideration over the fair value of the underlying net identifiable assets. The goodwill recognized in this acquisition is primarily attributable to the offerings in mobile device management of ZuluDesk B.V. and its assembled workforce. The goodwill is not deductible for income tax purposes.

The fair value of the separately identifiable intangible assets acquired, consisting of trademarks, customer relationships and developed technology, was estimated by applying an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. The weighted-average economic life of the intangible assets acquired is 7.0 years. For more details on the intangible assets, see Note 5.

Acquisition-related expenses were expensed as incurred and totaled $0.9 million for the three and six months ended June 30, 2019. These expenses were recognized as acquisition costs in general and administrative expenses. ZuluDesk B.V. contributed revenue and net loss of $1.0 million and $0.3 million, respectively, during the three months ended June 30, 2019, excluding the effects of the acquisition and integration costs. ZuluDesk B.V. contributed revenue and net loss of $1.5 million and $0.5 million, respectively, during the six months ended June 30, 2019, excluding the effects of the acquisition and integration costs. The Company used its then-existing term loan facility (the “Term Loan Facility”) of $175.0 million with a maturity date of November 13, 2022 under its secured credit agreement entered into November 13, 2017 (the “Prior Credit Agreement”), which was increased to $205.0 million on January 30, 2019 when the Company entered into that certain Amendment Agreement No. 1 to such Prior Credit Agreement, to complete the acquisition and approximately $0.5 million of debt issuances costs were capitalized as a reduction in Debt on the balance sheet. These costs are amortized over the course of the debt agreements.

The Company allocated the net purchase consideration to the net assets acquired, including finite-lived intangible assets, based on their respective fair values at the time of the acquisition as follows (in thousands):



Assets acquired:
Cash	$	3,325
Other current assets		1,306
Long‑term assets		154
Liabilities assumed:
Accounts payable and accrued liabilities		(419)
Deferred revenue		(3,050)
Deferred tax liability		(2,996)
Intangible assets acquired		12,310
Goodwill		28,000
Total purchase consideration	$	38,630

Digita Security LLC

On July 26, 2019, the Company purchased all of the outstanding membership interests of Digita Security LLC (“Digita”). With this acquisition, Digita’s acquired technology will complement the Company’s existing Apple management, authentication and account management solutions with a security offering to provide a more robust suite of capabilities and service offerings in the Apple enterprise market. The Company accounted for the acquisition by applying the acquisition method of accounting for business combinations in accordance with ASC Topic 805. The acquisition aggregate purchase consideration totaled $14.4 million which included contingent purchase consideration with an estimated fair value of $9.0 million and the remainder provided for with cash. Acquisition-related expenses were expensed as incurred. Goodwill in the amount of $1.7 million is deductible for income tax purposes.

The maximum contingent consideration is $15.0 million if the acquired business achieves certain revenue milestones by December 31, 2022. The estimated fair value of these contingent payments was determined using a Monte Carlo simulation model, which uses Level 3 inputs for fair value measurements, including assumptions about probability of growth of subscription services and the related pricing of the services offered. During the three and six months ended

June 30, 2020, the fair value of the contingent consideration was decreased by $3.7 million, which was included in general and administrative expenses in the consolidated statement of operations. This adjustment reflects updated assumptions about the probability of change in control in light of our initial public offering. At June 30, 2020 and December 31, 2019, the contingent consideration was $5.5 million and $9.2 million, respectively, which was included in other liabilities in the consolidated balance sheet.

In addition, the terms of the purchase agreement provide for additional future payments to the Digita shareholders in the amount of up to $5.0 million if certain key employees continue their employment with the Company through December 31, 2020, which will be recognized as a compensation expense in our consolidated statement of operations. The Company paid and recognized as expense $1.6 million and $3.2 million during the three and six months ended June 30, 2020.

The fair value of the acquired developed technology was estimated by discounting future net cash flows to their present value at market-based rates of return (income approach). The estimated useful life of the acquired developed technology is estimated to be 5 years. For more details on the Company’s intangible assets, see Note 5, Goodwill and other intangible assets. Pro forma results of operations for this acquisition were not presented as the effects were not material to our financial results.

The following table summarizes the fair value of consideration transferred and the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):



Assets acquired:
Cash	$	512
Other current assets		1
Long‑term assets		12
Liabilities assumed:
Accounts payable and accrued liabilities		(119)
Intangible assets acquired		3,300
Goodwill		10,673
Total purchase consideration	$	14,379