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Acquisition

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

On January 13, 2022, we completed our acquisition of 100% of the outstanding shares of Busuu Online S.L (Busuu) in cash, an online language learning company that offers a comprehensive solution through a combination of self-paced lessons, live classes with expert tutors and the ability to learn and practice with members of the Busuu language learning community. The acquisition helps to expand our existing offerings and global reach through language learning, allowing us to drive further into international markets.

The following table presents the preliminary allocation of purchase consideration recorded on our condensed consolidated balance sheet as of the acquisition date (in thousands):


	Busuu
Cash and cash equivalents	$	20,525
Accounts receivable	2,446
Right of use assets	2,715
Other acquired assets	3,710
Acquired intangible assets	71,600
Total identifiable assets acquired	100,996
Accounts payable	(5,174)
Accrued liabilities(1)	(21,964)
Deferred revenue	(16,761)
Long term operating lease liabilities	(2,038)
Other long-term liabilities(1)	(1,646)
Net identifiable assets acquired	53,413
Goodwill	368,237
Total fair value of purchase consideration	$	421,650

(1) During the three months ended June 30, 2022, we recorded a $0.8 million decrease to accrued liabilities and a $1.7 million increase to other long-term liabilities as a result of measurement period adjustments to the fair value of the initial liabilities related to taxes.

The estimates and assumptions regarding the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as we obtain additional information during the measurement period, which usually lasts for up to one year from the acquisition date.

Goodwill is primarily attributable to the potential for expanding our offerings to include an online language learning platform and global reach allowing us to drive further into international markets. Substantially all of the amounts recorded for intangible assets and goodwill are deductible for tax purposes.

The following table presents the details of the allocation of purchase consideration to the acquired intangible assets (in thousands, except weighted-average amortization period):


	Busuu
	Amount		Weighted-Average Amortization Period (in months)
Trade name	$	4,600	72
Customer lists	18,000		24
Developed technology	49,000		84
Total acquired intangible assets	$	71,600	68

During the six months ended June 30, 2022 and year ended December 31, 2021, we incurred acquisition-related expenses of $0.6 million and $5.3 million, respectively, associated with our acquisition of Busuu, which have been included in general and administrative expense on our condensed consolidated statement of operations.

The purchase consideration was paid in Euros, which is different from our functional currency of United States Dollars. We initially funded an equivalent of $417.0 million that was remeasured at $421.7 million at closing, which is included in our statement of cash flows as a cash outflow from investing activities net of cash acquired, resulting in a $4.6 million gain included in other income (expense), net on our condensed consolidated statement of operations.

The Busuu purchase agreement provides for additional payments of up to approximately $25.5 million, subject to the continued employment of certain key employees. These payments are not included in the fair value of the purchase consideration but rather are expensed ratably as acquisition-related compensation costs and classified based on the seller's job function, on our condensed consolidated statement of operations. As of June 30, 2022, we have recorded approximately $3.6 million within accrued liabilities on our condensed consolidated balance sheets for these payments.

Since the acquisition date, we have recorded revenues and net loss from Busuu of $19.7 million and $19.5 million, respectively. These results should not be taken as representative of future results of operations of the combined company. The following unaudited supplemental pro forma revenues and earnings is for informational purposes only and presents our combined results as if the acquisition of Busuu had occurred on January 1, 2021. During the three and six months ended June 30, 2022, our unaudited supplemental pro forma revenues from Busuu would have been $194.8 million and $397.7 million, respectively. During the three and six months ended June 30, 2021, our unaudited supplemental pro forma revenues from Busuu would have been $208.7 million and $417.3 million, respectively. During the three and six months ended June 30, 2022, our unaudited supplemental pro forma earnings would have been a net income of $8.2 million and $13.6 million, respectively. During the three and six months ended June 30, 2021, our unaudited supplemental pro forma earnings would have been a net income of $22.4 million and net loss of $51.7 million, respectively. The unaudited supplemental pro forma earnings information includes the historical combined operating results adjusted for acquisition-related compensation costs, amortization of intangible assets, share-based compensation expense and acquisition-related expenses and does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of our future consolidated results.