Zephr Acquisition

12 Months Ended

Jan. 31, 2024

Business Combination and Asset Acquisition [Abstract]

Zephr Acquisition

Note 19. Zephr Acquisition

On September 2, 2022 (Acquisition Closing Date), we acquired all of the outstanding equity securities of Zephr, a leading Subscription Experience Platform used by global digital publishing and media companies, pursuant to a Share Purchase Agreement (Zephr SPA).

Purchase Consideration

The purchase consideration for the Zephr acquisition was $47.9 million, which includes (1) cash payments of $43.1 million and (2) contingent consideration with an estimated fair value of $4.8 million on the Acquisition Closing Date, payable if certain conditions are met.

The contingent consideration arrangement required us to pay the former stockholders of Zephr a multiple of the amount by which Zephr’s Annual Recurring Revenue (ARR) as of January 31, 2023 exceeds a target set in the Zephr SPA. The payment was between zero and $6.0 million, dependent upon Zephr's ARR achievement. The fair value of the contingent consideration arrangement as of the Acquisition Closing Date was estimated by applying a probability-weighted discounted cash flow method. This analysis reflected the contractual terms of the Zephr SPA (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due, etc.) and utilized assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate.

As of January 31, 2023, the contingent consideration arrangement was revalued to $4.4 million based on the expected final payout amount, resulting in a credit of $0.4 million which is included in General and administrative in the accompanying consolidated statements of comprehensive loss for fiscal 2023. Contingent consideration was classified as a liability and included in Accrued expenses and other current liabilities in the accompanying consolidated balance sheets as of January 31, 2023. In fiscal 2024, we paid $4.5 million to settle the contingent consideration.

Assets and Liabilities Acquired

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The excess of the purchase price over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. The Zephr acquisition resulted in recorded goodwill as a result of the synergies expected to be realized and how we expect to leverage the business to create additional value for our shareholders. The goodwill is not deductible for income tax purposes.

The following table summarizes the fair value of the assets acquired and liabilities assumed (in thousands):

	Total
Cash	$	2,103
Accounts receivable	131
Prepaid expenses and other current assets	916
Fixed Assets	120
Intangible assets:
Tradename	800
Developed technology	10,300
Customer relationships	900
Goodwill	35,519
Accounts payable	(292)
Accrued liabilities	(303)
Other current liabilities	(225)
Deferred revenue	(2,056)
Fair value of net assets acquired	$	47,913

The fair value of the acquired trade accounts receivables approximated their carrying value due to the short-term nature of the expected timeframe to collect the amounts due to us and the contractual cash flows.

We engaged a third-party specialist to assist management in the determination of the estimated fair value of intangible assets acquired. Variations of the income approach were used to estimate the fair values. Specifically, the relief from royalty method was used to measure the trade name, the multi period excess earnings method was used to measure the developed technology, and the distributor method was used to measure the customer relationships. The following table summarizes the acquired identifiable intangible assets, Acquisition Closing Date estimated fair values, and estimated useful lives (dollars in thousands):

	Fair Value		Useful Life
Trade name	$	800	3.0 years
Developed technology	10,300		7.0 years
Customer relationships	900		10.0 years
Total intangible assets acquired	$	12,000

Transaction Costs

We incurred transaction costs in connection with the acquisition of $0.2 million and $3.2 million during the fiscal years ended January 31, 2024 and January 31, 2023, respectively, which were expensed as incurred and reflected as part of General and administrative within the accompanying consolidated statements of comprehensive loss.

Employee Deferral

We agreed to pay $2.9 million to certain former Zephr employees, half of which was paid in September 2023 and the remainder of which is payable in September 2024, contingent upon continued employment with us through those dates. These costs are being recognized as compensation expense as service is provided through the respective payment dates.