7. ACQUISITIONS

Profeatable

On July 1, 2014, the Company acquired all of the outstanding capital stock of Profeatable Corporation (“Profeatable”), the provider of Firefly co-browsing technology, based in Philadelphia, Pennsylvania, for $2.3 million in cash consideration, inclusive of $0.2 million in cash acquired, of which $1.1 million will be paid within one year from the acquisition date or earlier, based on the achievement of certain performance milestones.

MeshLabs

On April 28, 2014, the Company acquired the assets of MeshLabs Software Private Limited (“MeshLabs”), a provider of advanced text analytics and social engagement solutions based in Bangalore, India, for $0.8 million in cash consideration.

Antenna

On October 9, 2013, the Company acquired Antenna, a leading provider of mobile application development platforms. The Company acquired all of the outstanding capital stock of Antenna in a cash merger for $27.1 million, including the final working capital adjustment to the purchase price, which was paid by the Company in the first quarter of 2014. The total purchase price of $27.1 million included $4.2 million, which was deposited in escrow to secure the selling stockholders’ indemnification obligations to the Company. Under the merger agreement, this amount may be due to the former shareholders of Antenna in or before April 2015 less any amounts presented and approved for payment against the escrow. During the nine months of 2014, the Company incurred and recorded direct and incremental expenses associated with the transaction of $0.3 million, which were primarily professional fees.

The operations of Antenna are included in the Company’s operating results from the date of acquisition. Due to the integration of the products, sales force, and operations of Antenna, other than the maintenance and hosting revenue attributable to the recognition of the fair value of acquired deferred maintenance and hosting revenue, it is no longer feasible for the Company to identify revenue from new arrangements solely attributable to Antenna.

In the nine months of 2014, the Company made $6 million in purchase price adjustments to goodwill. These purchase price adjustments are also reflected retrospectively as of December 31, 2013 in the accompanying unaudited condensed consolidated balance sheet.

As of September 30, 2014, as a result of the purchase price allocation, the Company recognized $23.0 million of goodwill, which is primarily due to the expected synergies of the combined entities and the workforce in place. The goodwill created by the transaction is nondeductible for tax purposes. The Company recorded $37.2 million of deferred tax assets, a $27.7 million valuation allowance related to the Company’s determination it will not be able to utilize all of the acquired Antenna federal and foreign net operating losses due to various limitations and restrictions, and a $6.9 million deferred tax liability associated with the acquired intangibles, for a net deferred tax asset of $2.6 million. A summary of the final purchase price allocation for the acquisition of Antenna is as follows:


(in thousands)

Total purchase consideration:

Cash	$	27,141


Allocation of the purchase consideration:

Cash	$	783

Accounts receivable, net of allowance		4,184

Other assets		3,951

Property and equipment		655

Deferred tax assets, net		2,638

Identifiable intangible assets		10,355

Goodwill		23,018

Accounts payable		(1,396)

Accrued liabilities		(12,861)

Deferred revenue		(4,186)


Net assets acquired	$	27,141

The valuation of the assumed deferred revenue was based on the Company’s contractual commitment to provide post-contract customer support to Antenna clients and future contractual performance obligations under existing hosting arrangements. The fair value of this assumed liability was based on the estimated cost plus a reasonable margin to fulfill these service obligations. The majority of the deferred revenue was recognized in the 12 months following the acquisition.

The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired customer related, technology and trade name intangible assets. The non-compete assets were valued using the with-and-without method, a form of the income approach which considers the cash flow differentials under multiple scenarios with or without key executives. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company’s estimates of contract renewal, technology attrition and revenue growth projections.

The estimated fair values for specifically identifiable intangible assets acquired, by major asset class, are as follows:


(in thousands)			Weighted-average amortization period (in years)

Customer related intangible assets	$	4,279	4

Technology		3,656	3

Non-compete		1,342	1

Trade name		1,078	3

	$	10,355	3.2

Pro forma Information

The following pro forma financial information presents the combined results of operations of the Company and Antenna as if the acquisition had occurred on January 1, 2012 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are directly attributable to the Antenna acquisition, factually supportable, and expected to have a continuing impact on the Company. These pro forma adjustments include a net increase in amortization expense to eliminate historical amortization of Antenna intangible assets and to record amortization expense for the $10.4 million of acquired identifiable intangibles, a decrease in interest income as a result of the cash paid for the acquisition, and a decrease in interest expense as a result of the repayment of all Antenna outstanding debt in connection with the acquisition. The pro forma financial information does not reflect any adjustments for anticipated synergies resulting from the acquisition and is not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on January 1, 2012.


	Pro Forma
	Three Months Ended		Nine Months Ended
(in thousands, except per share amounts)	September 30, 2013

Revenue	$	131,301	$	379,595

Net income	$	9,750	$	19,413

Net income per basic share	$	0.13	$	0.26


Net income per diluted share	$	0.12	$	0.25