BUSINESS COMBINATIONS

6 Months Ended

Jun. 30, 2020

Saba

On April 22, 2020, the Company acquired 100% of the equity interests of the direct and indirect subsidiaries of Vector Talent Holdings, L.P., including Saba Software, Inc. (such subsidiaries, collectively, “Saba”), to expand its cloud-based learning, talent management, and talent experience software offerings. The Company acquired Saba for an aggregate purchase price of $1.313 billion, consisting of $1.280 billion in cash (net of cash acquired) and 1,110,352 shares of the Company's common stock with an aggregate value of $32.9 million. The acquisition was financed with a combination of cash on hand and proceeds from new borrowings (refer to Note 3 – Debt for further details). Under the terms of the purchase agreement, the final consideration is subject to certain adjustments based on a determination of closing net working capital and net indebtedness (as defined in the purchase agreement). The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill is primarily attributable to the acquired workforce and synergies expected to arise after the acquisition, including future technologies and customers of the combined business. The final allocation of purchase consideration to assets and liabilities, remains in process as the Company continues to evaluate certain balances, estimates, and assumptions during the measurement period (up to one year from the acquisition date).

The results of operations and the provisional fair values of the assets acquired and liabilities assumed have been included in the condensed consolidated financial statements as of the date of acquisition. During the three months ended June 30, 2020, Saba contributed $29.4 million to revenue. The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as a result of the acquisition of Saba (in thousands):


Cash and cash equivalents	$	49,471
Accounts receivable	58,764
Prepaid expenses and other current assets	13,020
Property and equipment	9,446
Operating right-of-use assets	16,700
Intangible assets	481,000
Goodwill	905,498
Other assets	2,698
Total assets	1,536,597
Accounts payable and accrued expenses	28,978
Deferred revenue	69,940
Operating lease liabilities	16,532
Deferred tax liabilities, net	46,472
Other liabilities	12,782
Total liabilities	174,704
Total purchase consideration	$	1,361,893

Identifiable Intangible Assets

The following table provides the preliminary valuation of the Saba intangible assets, along with their estimated useful lives:


	Estimated Fair Value (in thousands)		Estimated Useful Life (in years)
Customer relationships	$	294,800	11
Customer contracts	58,500		2
Developed technology	120,500		3 – 5




Trade names, trademarks, and domain names	7,200		3
Total	$	481,000

The identifiable intangible assets are amortized on a straight-line basis over their respective estimated useful lives to sales and marketing for customer-related intangible assets, cost of revenue for developed technology intangible assets, and general and administrative expense for all other intangible assets. Management applied significant judgment in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to estimated future subscription revenue and related profit margins; costs anticipated to fulfill remaining acquired performance obligations and related profit margins; customer retention rates; technology migration curves; royalty rates; discount rates; and economic lives assigned to acquired intangible assets.

Unaudited Pro Forma Financial Information

The following table presents the unaudited pro forma results for the three and six months ended June 30, 2020 and 2019. The unaudited pro forma financial information combines the results of operations of Cornerstone OnDemand and Saba as though the companies had been combined as of January 1, 2019. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time. The unaudited pro forma results presented below include adjustments for amortization of identifiable intangible assets, interest expense related to debt financing, and related tax effects (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenue	$	220,574	$	206,703	$	439,538	$	409,300
Net loss	(22,947)		(32,911)		(60,193)		(59,671)

Clustree

On January 24, 2020, the Company purchased all of the outstanding shares of Clustree SAS (“Clustree”), a developer of a skills engine and skills ontology. The Company paid cash consideration of approximately $18.6 million. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill generated from this transaction is primarily attributable to the ability to enhance the Company's product portfolio. The final allocation of purchase consideration to certain assets and liabilities, primarily related to taxes and assumed liabilities, remains in process as the Company continues to evaluate certain estimates and assumptions during the measurement period (up to one year from the acquisition date).

The Company's preliminary allocation of the total purchase consideration as of January 24, 2020 is summarized below:


	Fair Value (in thousands)
Tangible assets	$	1,275
Intangible assets – developed technology	9,800
Intangible assets – customer relationships	800
Goodwill	8,875
Deferred tax liabilities	(1,020)
Accounts payable and accrued expenses	(755)
Deferred revenue	(336)
Net assets acquired	$	18,639

The intangible assets related to developed technology and customer relationships are amortized on a straight-line basis over three years to cost of revenue and two years to sales and marketing expense, respectively.

Pro forma results of operations related to the acquisition of Clustree have not been presented as the impact of the acquisition is not material to the Company’s financial results.

Acquisition-related costs for both Saba and Clustree primarily consisted of external fees for advisory, legal, and other professional services, and totaled approximately $20.1 million and $26.9 million, for the three and six months ended June 30, 2020, respectively. These costs were expensed as incurred and recorded in acquisition-related costs in the condensed consolidated statements of operations.