Acquisitions

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

In April 2021, the Company completed its acquisition of Prodigy Software, Inc. (“Prodigy”). Prodigy provides an e-commerce platform for car dealerships which enables both online and in-store vehicle discovery, credit application, and checkout. Prodigy provides a modern multi-channel car buying experience, helping dealerships serve consumers with a holistic software solution that integrates legacy systems. In addition to modernizing the car buying experience, Prodigy has brought Upstart's AI enabled auto loans to dealerships across the country where a significant number of auto loans are transacted.

The total consideration the Company provided for Prodigy was $89.0 million, comprised of the following:


	April 8, 2021
Fair value of Upstart common stock issued to Prodigy stockholders(1)	$	70,121
Cash paid to common and preferred stockholders, warrant holders, and vested option holders(2)	17,151
Fair value of assumed Prodigy options attributable to pre-combination service period	889
Transactions costs paid by Upstart on behalf of Prodigy	883
Total purchase consideration	$	89,044

_________

(1) The fair value is based on 568,539 shares of Company common stock at $123.33 per share, the closing stock price on April 8, 2021, and 87,339 shares are held in escrow as security for certain indemnification obligations of former Prodigy stockholders.

(2) $1.9 million of the cash paid is being held in escrow as security for certain indemnification obligations of former Prodigy stockholders.

Excluded from the total purchase consideration above are 82,201 shares of the Company’s restricted common stock (“restricted stock”) with a fair value of $10.1 million issued to certain Prodigy employees. The restricted stock is subject to transfer restrictions and a repurchase option and is contingent upon the employees' continued employment with the Company. The repurchase option will lapse with respect to 1/8th of the shares of restricted stock at the end of each successive three-month period following the closing date of the Prodigy acquisition. The Company will record stock-based compensation expense straight-line over the two-year period that the repurchase option lapses.

The acquisition has been accounted for as a business combination. The purchase consideration was allocated to the tangible and intangible assets and liabilities acquired as of the acquisition date, with the excess recorded to goodwill as shown below. The values assigned to the assets acquired and liabilities assumed were based on estimates of fair value available to us as of the date of acquisition, and adjusted during the measurement period which ended on January 1, 2022. No material adjustments to the fair value of assets and liabilities were made during the measurement period.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:


	April 8, 2021
Goodwill	$	66,866
Acquisition-related intangible assets	23,200
Cash	1,479
Deferred tax liability, net	(2,328)
Other assets acquired and liabilities assumed, net	(173)
Total purchase consideration	$	89,044

The goodwill recognized was primarily attributable to the opportunity to bring Upstart's AI enabled auto loans to dealerships across the country where the vast majority of loans are transacted. The goodwill is not deductible for U.S. federal income tax purposes.

The Company recognized acquisition-related costs of $1.2 million in the nine months ended September 30, 2021, which are included in the general and administrative expense in the condensed consolidated statement of operations and comprehensive income (loss). No acquisition-related costs were incurred during the nine months ended September 30, 2022.

The following table summarizes the fair values of the acquisition-related intangible assets acquired as of the acquisition date:


	Fair values (in thousands)		Useful life (years)
Developed technology	$	9,400	3.0
Trade name	100		2.0
Customer relationships	13,700		12.0
Total acquisition-related intangible assets	$	23,200

The fair values of the acquisition-related intangibles were determined using the following methodologies: replacement cost method, the relief from royalty method, and the with/without method, a form of the income approach, for developed technology, trade name, and customer relationships, respectively. The acquired intangible assets have a total weighted-average amortization period of 8.3 years at the time of acquisition.

We have included the financial results of the acquired business in our condensed consolidated financial statements from the date of acquisition. These revenues and expenses were immaterial for the three and nine months ended September 30, 2021. Pro forma results of operations have not been presented because the effects of this acquisition were not material to our financial results.