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Business Combinations | 9 Months Ended
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Sep. 30, 2020
Business Combinations [Abstract] |
Business Combinations | Business Combinations Divvy Cloud Corporation On May 1, 2020, we acquired Divvy Cloud Corporation (DivvyCloud), a Cloud Security Posture Management (CSPM) company, for a purchase price with an aggregate fair value of $137.8 million. The purchase consideration consisted of $130.8 million in cash paid at closing, $7.4 million in deferred cash payments and $0.1 million in estimated working capital and other purchase price adjustments. The deferred cash payments will be held by Rapid7 to satisfy indemnification obligations and certain post-closing purchase price adjustments. The deferred cash payments for post-closing purchase price adjustments is payable three months from the acquisition date in the amount of $0.2 million and the remaining $7.2 million is payable on the fifteenth month anniversary of the acquisition date. We have determined the fair value of the deferred cash payments was $7.0 million as of the acquisition date. During the third quarter of 2020, we made a $0.2 million payment for the first deferred cash payment and final working capital and other purchase price adjustments. In addition, in connection with the acquisition, we will issue an aggregate of 200,596 shares of Rapid7’s common stock to the founders of DivvyCloud in three equal annual installments beginning on the first anniversary of the closing date. The 200,596 shares of common stock were accounted for as stock-based compensation expense as continued service was required. The fair value of the 200,596 shares of common stock was $8.9 million. In the nine months ended September 30, 2020, we recorded $1.1 million of acquisition-related costs in general and administrative expense. The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Consideration: |  |
Cash |  | $ | 130,810 |
Deferred cash consideration |  | 6,963 |
Working capital and other purchase price adjustments |  | 55 |
Fair value of total consideration transferred |  | $ | 137,828 |
Recognized amounts of identifiable assets and liabilities assumed: |  |
Cash and cash equivalents |  | $ | 5,039 |
Accounts receivable, net |  | 904 |
Prepaid expenses and other current assets |  | 810 |
Property and equipment, net |  | 492 |
Operating lease right-of-use assets |  | 3,320 |
Accounts payable |  | (288) |
Accrued expenses |  | (1,308) |
Operating lease liabilities, current portion |  | (313) |
Deferred revenue, current portion |  | (3,545) |
Operating lease liabilities, non-current portion |  | (2,984) |
Deferred revenue, non-current portion |  | (1,360) |
Intangible assets |  | 21,200 |
Total identifiable net assets assumed |  | $ | 21,967 |
Goodwill |  | 115,861 |
Net purchase price |  | $ | 137,828 |
The fair value of identifiable intangible assets was based on valuations using the income approach. The estimated fair value and useful life of identifiable intangible assets are as follows:
|  | Amount |  | Weighted Average Life
|  | (in thousands) |  | (in years)
Developed technology |  | $ | 18,600 |  |  | 6
Customer relationships |  | 1,700 |  |  | 6
Trade name |  | 900 |  |  | 5
Total identifiable intangible assets |  | $ | 21,200 |  |  |
The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe the goodwill is attributable to expanded product offerings resulting from the integration of the technology acquired with our existing product offerings and increased opportunities to successfully market and sell these new products and features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes. These preliminary amounts are subject to subsequent adjustment as we obtain additional information to finalize certain components of working capital. Following the acquisition, we granted to certain retained employees of DivvyCloud restricted stock units (RSUs) for an aggregate of 153,643 shares of our common stock, which will vest over three years subject to continued service. In addition, we granted certain retained employees of DivvyCloud performance-based restricted stock units (PSUs) for an aggregate of 109,760 shares of our common stock, which will vest over a maximum of three years based upon achievement of certain performance conditions and continued service. The RSUs and PSUs are expensed as stock-based compensation expense over the required service periods, assuming the service and performance conditions are achieved. Our revenue attributable to the DivvyCloud business for the three and nine months ended September 30, 2020 was $2.3 million and $3.4, respectively. Our net loss attributable to the DivvyCloud business for the three and nine months ended September 30, 2020 was $6.7 million and $11.1 million, respectively. Pro Forma Financial Information The unaudited pro forma financial information in the table below summarizes the combined results of our operations and DivvyCloud, on a pro forma basis, as though we had acquired DivvyCloud on January 1, 2019. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, reversal of acquisition-related expenses and the stock-compensation expense recorded to retain certain employees.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenue | $ | 105,904 |  |  | $ | 84,628 |  |  | $ | 303,203 |  |  | $ | 238,695 |
Net loss | $ | (24,712) |  |  | $ | (19,726) |  |  | $ | (74,485) |  |  | $ | (59,954) |
NetFort Technologies Limited On April 1, 2019, we acquired NetFort Technologies Limited (NetFort), a provider of end-to-end network traffic visibility and analytics across cloud, virtual and physical platforms for a purchase price of $16.1 million. The $16.1 million purchase price was funded with cash. In the nine months ended September 30, 2019, we recorded $0.5 million of acquisition-related costs in general and administrative expense. The assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. The fair value of net assets acquired, goodwill and intangible assets were $0.6 million, $9.4 million and $6.1 million, respectively. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible asset will not be deductible for tax purposes. Accordingly, a $0.8 million deferred tax benefit was recorded resulting from a partial release of our valuation allowance to account for the creation of a deferred tax liability for the developed technology intangible asset acquired. Following the acquisition, certain retained employees and non-employee contractors of NetFort received an aggregate of 123,623 RSUs, which vest over a maximum of three years. The vesting of the RSUs is subject to the employee's continued service with us. Accordingly, the compensation expense associated with the RSUs is expensed as incurred in our post-acquisition financial statements.

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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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