(3)	Business Combinations

Acquisition of RevelOps, Inc.

On October 13, 2015, we acquired 100% of the outstanding equity of RevelOps, Inc. (d/b/a Logentries) for total consideration of $67.9 million. We made an initial payment of $36.2 million in cash, issued 1,252,627 shares of our common stock with an aggregate fair value of $27.4 million, inclusive of a discount from the quoted market price due to certain trading restrictions associated with the shares, and issued vested replacement options with respect to 221,759 shares of our common stock to certain continuing employees with an aggregate value of $4.5 million upon the closing of the acquisition. As a partial offset to the initial cash payment, we estimate we will receive $0.2 million related to the final working capital adjustment for the acquisition. The fair value of the vested replacement options included in the purchase price was based on the fair value of the vested Logentries options on the acquisition date. The excess fair value when comparing the fair value of the new vested replacement options and the vested Logentries options of $0.3 million was expensed immediately in the post-combination financial statements of the combined entity. We expensed the related acquisition costs of $0.9 million in general and administrative expense.

The following table summarizes the consideration paid for Logentries and the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed based on their fair values on the acquisition date (in thousands):

 

Consideration:
Cash		$	36,212
Common stock			27,382
Vested replacement options			4,494
Net working capital receivable			(150)
Total purchase price allocation		$	67,938

 

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash			$745
Accounts receivable			526
Prepaid expenses and other current assets			297
Intangible assets			9,425
Other non-current assets			155
Accounts payable			(512)
Accrued expenses			(1,048)
Deferred revenue			(360)
Total identifiable net assets assumed			9,228
Goodwill			58,710
Total purchase price allocation			$67,938

The fair values of identifiable intangible assets were based on valuations using the income approach. The estimated fair values and useful lives of the identifiable intangible assets are as follows:

 

		Amount				Weighted average amortization             life (years)
		(in thousands)
Developed technology			$8,300				6
Customer relationships			900				7
Trade name			225				1
Identifiable intangible assets			$9,425

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe that the goodwill is related to the expected synergistic benefits of us being able to leverage the integration of our existing products and services with the acquired products to both Logentries’ and our customer bases. The goodwill was allocated to our one reporting unit. The acquired goodwill will not be 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 Logentries RSAs with respect to an aggregate of 942,388 restricted shares of our common stock, which will vest subject to continued service. These RSAs will be accounted for as stock-based compensation expense over the required service periods based on the grant date fair value.

Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and Logentries, on a pro forma basis, as though we had acquired Logentries on January 1, 2014. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including amortization expense from acquired intangibles assets, reversal of acquisition related expenses and the stock-compensation expense recorded to retain certain employees.

 

		Year Ended December 31,
		2015				2014
		(in thousands)
Total revenue			$112,870				$77,891
Net loss			(61,192)				(49,813)

 

Acquisition of NT OBJECTives, Inc.

On April 30, 2015, we acquired 100% of the outstanding equity of NT OBJECTives, Inc. (NTO), a web application security testing company, expanding the web application testing capabilities of our threat exposure management offering. We acquired NTO for total consideration of $6.1 million. We made an initial payment of $3.4 million in cash, issued 9,091 shares of our common stock with a fair value of $0.1 million, are obligated to pay $0.1 million in cash for the settlement of a working capital adjustment and are obligated to make two additional payments of $1.5 million each, less the amount of any indemnity claims, on the first and second anniversary dates of the closing. The net present value of these two additional payments, or $2.5 million, is included in the total purchase consideration paid. We expensed the related acquisition costs of $0.4 million in general and administrative expense.

The following table summarizes the consideration paid for NTO and 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		$	3,404
Common stock			99
Net working capital liability			56
Net present value of deferred cash payments			2,535
Fair value of total consideration transferred		$	6,094

 

Recognized amounts of identifiable assets acquired and liabilities assumed:
Net working capital		$	(586)
Intangible assets			2,090
Total identifiable net assets assumed			1,504
Goodwill			4,590
Total purchase price allocation		$	6,094

The fair values of identifiable intangible assets were based on valuations using the income approach. The estimated fair values and useful lives of the identifiable intangible assets are as follows:

 

		Amount				Weighted Average Amortization             Life (years)
		(in thousands)
Developed technology		$	1,950				6
Customer relationships			100				4
Non-compete agreements			40				2
Identifiable intangible assets		$	2,090

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe that the amount of goodwill is the expected synergistic benefits of being able to leverage the integration of our existing products and services with the acquired products to both NTO and our customer bases. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets will not be 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, certain retained employees of NTO received 416,117 restricted shares of our common stock, which will vest on a monthly basis subject to continued service.

 

Pro forma results of operations have not been included, as the acquisition of NTO was not material to our results of operations for any periods presented.

In May 2015, we entered into loan agreements with certain retained employees of NTO. The terms of these agreements require the employees to pay us the total amount borrowed, with accrued interest at 1.7% per annum, within 18 months of the agreement date. The loan agreements are secured by restricted stock awards granted to the employees. The aggregate amount of these loans was $0.5 million and is classified as prepaid expenses and other current assets on the consolidated balance sheets.