Acquisitions

12 Months Ended

Jan. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisitions

ACQUISITIONS

On May 3, 2022, we acquired 100% of the issued and outstanding equity securities (the Acquisition) of Attivo Networks, Inc. (Attivo), an identity security and lateral movement protection company. Attivo expands our coverage of critical attack surfaces. Identity is an adjacent security solution that complements our core endpoint solution. The Acquisition closed on May 3, 2022 and has been accounted for as a business combination in accordance with ASC Topic 805, Business Combinations.

We had post-combination expense with a fair value of $32.9 million that was not included in the total purchase consideration, which is comprised of 307,396 of restricted common stock with an aggregate fair value of $10.0 million, and 378,828 assumed options with an aggregate fair value of $11.5 million. Restricted common stock and assumed options will be recognized as stock-based compensation expense. In addition, in connection with the acquisition, certain employees who were promised compensation related to their previous employment agreements will be paid $11.4 million in cash based on continued employment which will be recognized on a straight-line basis as acquisition-related compensation costs. All post-combination expense is expected to be recognized through May 2026. Post-combination compensation expense is subject to adjustment based on continuing service obligations to the Company of certain stockholders of Attivo.

In connection with the Acquisition, we also granted restricted stock units (RSUs) and performance share units (PSUs) under our 2021 Equity Incentive Plan. For further details refer to Note 9, Stock-Based Compensation.

The following table presents the preliminary allocation of purchase consideration recorded on our consolidated balance sheet as of the acquisition date (in thousands):

	Amount
Consideration:
Cash	$	348,917
Common Stock (6,032,231 shares)(1)	185,885
Fair value of total consideration transferred	$	534,802
Cash and cash equivalents	$	8,836
Accounts receivable	4,867
Prepaid expense and other current assets	3,880
Operating lease right-of-use assets	260
Intangible assets	151,900
Accrued liabilities	(4,270)
Accrued payroll and benefits	(1,113)
Operating lease liabilities	(259)
Deferred revenue	(51,746)
Other liabilities	(2,357)
Deferred tax liability	(7,310)
Total identifiable net assets	102,688
Goodwill	432,114
Total purchase consideration	$	534,802

(1) Consideration calculated using the fair value of our common stock

The estimates and assumptions regarding the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as we obtain additional information during the measurement period, which usually lasts for up to one year from the acquisition date.

The excess of the purchase price over the fair value of net tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits resulting from the acquisition that will enhance the value of our product for both new and existing customers and strengthen our competitive position. Goodwill is not deductible for tax purposes.

The following table sets forth the preliminary amounts allocated to the intangible assets identified and their estimated useful lives as of the date of acquisition:

	Fair Value		Useful Life
	(in thousands)		(in years)
Customer relationships	$	77,600	10
Developed technology	63,200		5
Backlog	11,100		2
Total intangible assets acquired	$	151,900

The preliminary fair value assigned to customer relationships was determined using the multi-period excess earnings method of the income approach. The fair value assigned to developed technology was determined using the relief from royalty method under the income approach. The fair value assigned to backlog was determined using the multi-period excess earnings method of the income approach. The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.

Aside from $61.0 million, net, within restricted cash on the consolidated balance sheet, held in an indemnity escrow expected to be paid out within 15 months of the Acquisition, there are no other contingent consideration or cash consideration expected to be paid out subsequent to the Acquisition. The indemnity escrow was measured at fair value within other liabilities in our consolidated balance sheet at Acquisition and will be accreted to face value until paid out. The results of operations of Attivo have been included in our consolidated financial statements from the date of the Acquisition.

We have incurred $5.5 million of transaction expenses in connection with the Acquisition during the year ended January 31, 2023. $3.2 million of these costs were recorded as general and administrative expenses in our consolidated statements of operations during the year ended January 31, 2023, with the remainder allocated to purchase price consideration.

Our consolidated statements of operations from the date of the Acquisition to the period ended January 31, 2023 includes revenue and net loss of Attivo of $30.2 million and $36.4 million, respectively.

The following unaudited supplemental pro forma financial information is provided for informational purposes only and summarizes our combined results of operations as if the Acquisition occurred on February 1, 2021 (in thousands):

	Year Ended January 31,
	2023		2022
Revenue	$	429,683	$	235,321
Net loss	$	(393,773)	$	(326,829)

The unaudited supplemental pro forma results reflect certain adjustments for the amortization of acquired intangible assets, recognition of stock-based compensation, acquisition-related transaction expenses, and acquisition-related compensation costs. Such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the Acquisition been completed on the date indicated, nor is it indicative of our future operating results.