Etsy 2015 Annual Report Download - page 89

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Etsy, Inc.
Notes to Consolidated Financial Statements
aggregate of $0.1 million cash to the Company at the date of acquisition and the Company recorded a $0.1 million liability for the fair value of the put
options at that time. Additionally, the Company issued 599,497 shares of common stock, with a fair value of $6.3 million on the acquisition date, which are
tied to continuous service with the Company as an employee or consultant and are being accounted for as post-acquisition stock-based compensation
expense over the three-year vesting period. Since the put options relate in part to these shares, these restricted shares will be recorded as liability-classified
stock awards as earned.
The following table summarizes the components of the purchase price at fair value and the allocation of the purchase price at fair value (in thousands):
Cash paid $ 5,290
Common shares 25,521
Total purchase consideration $ 30,811
Working capital $ 625
Property and equipment and other assets 95
Developed technology 1,636
Customer relationships 1,693
Trademarks 775
Goodwill 27,309
Deferred tax liability (757)
Other long-term liabilities (565)
Net assets acquired $ 30,811
Included in working capital is approximately $0.5 million of cash and cash equivalents acquired.
The amount allocated to developed technology, customer relationships and trademark (the acquired intangible assets) totals $4.1 million. The fair value
assigned to developed technology was determined primarily by using the cost approach, which estimates the cost to reproduce the asset, adjusted for loss due
to functional and economic obsolescence. The fair value of the Company’s customer relationships was determined primarily by using the income approach,
which discounts expected future cash flows to present value using estimates and assumptions determined by management. The fair value assigned to
trademark was determined using the relief from royalty method, where the owner of the asset realizes a benefit from owning the intangible asset rather than
paying a rental or royalty rate for use of the asset. The acquired identifiable intangible assets are being amortized on a straight-line basis over three years,
which approximates the pattern in which the assets are utilized. Goodwill of $27.3 million, none of which is deductible for tax purposes, was recorded in
connection with the ALM acquisition, which is primarily attributed to synergies arising from the acquisition and the value of the acquired workforce.
The Company incurred approximately $2.1 million in acquisition-related costs, included in general and administrative expenses. These acquisitions
increased revenue by $1.8 million and contributed $5.7 million to the Company’s consolidated net loss in the year ended December 31, 2014. The impact to
net loss was primarily due to amortization of intangibles and stock-based compensation associated with the acquisitions.
The following unaudited pro forma financial information presents the combined operating results of the Company, Grand St. and ALM as if each acquisition
had occurred as of January 1, 2013. The unaudited pro forma financial information includes the accounting effects of the business combinations, including
adjustments to the amortization of intangible assets and professional fees associated with the acquisition. The unaudited pro forma information does not
necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of our future consolidated results.
The unaudited pro forma financial information is presented in the table below for the years ended December 31, 2013 and 2014 (in thousands except per
share amounts):
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Revenue $ 127,838
$ 197,395
Net loss (7,533)
(15,403)
Basic net loss per share (0.21)
(0.37)
Diluted net loss per share (0.21)
(0.37)
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