On September 2, 2022 (Acquisition Closing Date), we acquired all of the outstanding equity securities of Zephr, a leading subscription experience platform used by global digital publishing and media companies, pursuant to a Share Purchase Agreement (Zephr SPA).

The purchase consideration for the Zephr acquisition was $47.9 million, which includes (1) cash payments of $43.1 million, and (2) contingent consideration with an estimated fair value of $4.8 million on the Acquisition Closing Date, payable if certain conditions are met.

The contingent consideration arrangement requires us to pay the former stockholders of Zephr a multiple of the amount by which Zephr’s Annual Recurring Revenue (ARR) as of January 31, 2023 exceeds a target set in the Zephr SPA. The future payment is expected to be between $0 and $6.0 million, depending upon Zephr's ARR achievement. The fair value of the contingent consideration arrangement as of the Acquisition Closing Date was $4.8 million and was estimated by applying a probability-weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the Zephr SPA (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate.

As of October 31, 2022, the contingent consideration arrangement was revalued, resulting in a credit of $1.8 million, which is included in General and administrative in the accompanying unaudited condensed consolidated statements of comprehensive loss. Contingent consideration was classified as a liability and included in Accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheets.

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The excess of the purchase price over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed has been recorded as goodwill. The Zephr acquisition resulted in recorded goodwill as a result of the synergies expected to be realized and how we expect to leverage the business to create additional value for our shareholders. The goodwill is not expected to be deductible for income tax purposes.


	Total
Cash	$	2,103
Accounts receivable	641
Prepaid expenses and other current assets	916
Fixed Assets	120
Intangible assets:
Tradename	800
Developed technology	10,300
Customer relationships	900
Goodwill	35,009
Accounts payable	(292)
Accrued liabilities	(303)
Other current liabilities	(225)
Deferred revenue	(2,056)
Fair value of net assets acquired	$	47,913

The fair value of the acquired trade accounts receivables approximates the carrying value of trade accounts receivables due to the short-term nature of the expected timeframe to collect the amounts due to us and the contractual cash flows, which are expected to be collected related to these receivables.

We engaged a third-party specialist to assist management in the determination of the estimated fair value of intangible assets acquired. Variations of the income approach were used to estimate the fair values. Specifically, the relief from royalty method was used to measure the trade name, the multi period excess earnings method was used to measure the developed technology, and the distributor method was used to measure the customer relationships. The following table summarizes the acquired identifiable intangible assets, Acquisition Closing Date estimated fair values, and estimated useful lives (dollars in thousands):

The estimated fair values of the consideration transferred and net assets acquired are subject to refinement for up to one year after the Acquisition Closing Date as additional information regarding closing date fair value becomes

available. During this one-year period, the causes of any changes in cash flow estimates are considered to determine whether the change results from circumstances that existed at the acquisition date, or if the change results from an event that occurred after the Acquisition Closing Date. The purchase price allocation for Zephr is preliminary as the working capital adjustments have not been finalized.

We incurred transaction costs in connection with the acquisition of $3.4 million during the nine months ended October 31, 2022, which were expensed as incurred and reflected as part of General and administrative within the accompanying unaudited condensed consolidated statements of comprehensive loss.

We agreed to pay $2.9 million to certain former Zephr employees, half of which is payable on September 2, 2023 and the remainder of which is payable on September 2, 2024, contingent upon continued employment with us through those dates. These costs are being recognized as compensation expense as service is provided through the respective payment dates.