Business Combinations

6 Months Ended

Jun. 30, 2019

Acquired Finite-Lived Intangible Assets [Line Items]

Business Combinations

2018 Acquisitions

Acquisition of Southport

On April 2, 2018, the Company acquired substantially all of the assets of Southport, pursuant to the terms of an Asset Purchase Agreement. The Company’s total allocable purchase price consideration was $18.6 million. The purchase price was comprised of $11.3 million in cash paid and $2.7 million in Company common stock issued at closing increased by $0.3 million as a result of the net working capital adjustment paid to Southport in the first quarter of 2019. The purchase price also included $4.3 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the seller 12 months after the closing date of the acquisition, with a maximum cash payout of $6.6 million. Southport achieved a portion of the maximum cash payout pursuant to the Asset Purchase Agreement, and as a result, the Company has accrued $5.2 million of contingent consideration as of June 30, 2019. The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $7.1 million.

Acquisition of Stone Temple

On July 16, 2018, the Company acquired substantially all of the assets of Stone Temple, pursuant to the terms of an Asset Purchase Agreement. The Company’s total allocable purchase price consideration was $12.3 million. The purchase price was comprised of $9.9 million in cash paid and $1.1 million in Company common stock issued at closing increased by $0.1 million as a result of the net working capital adjustment paid to Stone Temple in the third quarter of 2019. The purchase price also included $1.2 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the seller 12 months after the closing date of the acquisition, with a maximum cash payout of $2.6 million. As of June 30, 2019, the Company’s best estimate of the fair value of the contingent consideration was zero. As a result, the Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $1.3 million during the six months ended June 30, 2019. The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $5.4 million.

Acquisition of Elixiter

On October 29, 2018, the Company acquired Elixiter pursuant to the terms of an Agreement and Plan of Merger. The Company’s total allocable purchase price consideration was $8.1 million, subject to finalization of a net working capital settlement. The purchase price was comprised of $5.4 million in cash paid (net of cash acquired) and $1.4 million in Company common stock issued at closing increased by $0.4 million for an estimated net working capital adjustment due to the sellers. The purchase price also included $0.9 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the sellers 12 months after the closing date of the acquisition, with a maximum cash payout of $1.8 million. As of June 30, 2019, the Company’s best estimate of the fair value of the contingent consideration was $1.6 million. As a result, the Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $0.7 million during the six months ended June 30, 2019. The goodwill recognized in the acquisition of Elixiter is non-deductible for tax purposes. The purchase price accounting estimates are pending finalization of the net working capital settlement that is subject to final adjustment as the Company evaluates information during the measurement period.

The following table presents details of the intangible assets acquired during the year ended December 31, 2018 (dollars in millions):



	Weighted Average Useful Life	Estimated Useful Life	Aggregate Acquisitions
Customer relationships	5 years	5 - 6 years	$	10.6
Customer backlog	1 year	1 - 1.5 years	1.5
Non-compete agreements	5 years	4 - 5 years	0.3
Trade name	1 year	1 year	0.1
Developed software	3 years	3 years	0.4
Total acquired intangible assets			$	12.9

2019 Acquisition

Acquisition of Sundog

On May 22, 2019, the Company acquired substantially all of the assets of Sundog, pursuant to the terms of an Asset Purchase Agreement. The acquisition of Sundog expands the Company’s strategic marketing and technical delivery services.

The Company has initially estimated the total allocable purchase price consideration to be $14.1 million. The purchase price was comprised of $10.3 million in cash paid and $1.3 million in Company common stock issued at closing, increased by $0.6 million for an estimated net working capital adjustment due to the sellers. The purchase price also included $1.9 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the sellers 12 months after the closing date of the acquisition with a maximum cash payout of $3.6 million. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred.

The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):




Acquired tangible assets	$	6.4
Identified intangible assets	4.6
Liabilities assumed	(4.9		)
Goodwill	8.0
Total purchase price	$	14.1

The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $6.2 million.

The above purchase price accounting estimates are pending finalization of certain acquired tangible and intangible assets, contingent consideration valuation and a net working capital settlement that is subject to final adjustment as the Company evaluates information during the measurement period.

The following table presents details of the intangible assets acquired during the six months ended June 30, 2019 (dollars in millions).



	Weighted Average Useful Life	Estimated Useful Life	Aggregate Acquisitions
Customer relationships	7 years	7 years	$	3.7
Customer backlog	9 months	9 months	0.4
Non-compete agreements	5 years	5 years	0.1
Trade name	1 year	1 year	0.1
Developed software	3 years	3 years	0.3
Total acquired intangible assets			$	4.6

The results of the 2018 and 2019 acquisitions have been included in the Company's interim unaudited condensed consolidated financial statements since the respective acquisition date.

The aggregate amounts of revenue and net income of the Sundog acquisition in the Unaudited Condensed Consolidated Statements of Operations from the acquisition date to June 30, 2019 are as follows (in thousands):



	Acquisition Date to June 30, 2019
Revenues	$	1,239
Net income	$	(39	)

Pro-forma Results of Operations

The following presents the unaudited pro-forma combined results of operations of the Company with the 2018 and 2019 acquisitions for the six months ended June 30, 2019 and 2018, after giving effect to certain pro-forma adjustments and assuming the 2019 acquisitions were acquired as of the beginning of 2018 and the 2018 acquisitions were acquired as of the beginning of 2017.

These unaudited pro-forma results are presented in compliance with the adoption of ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, and are not necessarily

indicative of the actual consolidated results of operations had the acquisitions actually occurred on January 1, 2018 or January 1, 2017 or of future results of operations of the consolidated entities (in thousands except per share data):



	Six Months Ended June 30,
	2019		2018
Revenues	$	281,182	$	262,059
Net income	$	16,195	$	11,270
Basic net income per share	$	0.51	$	0.34
Diluted net income per share	$	0.50	$	0.33
Shares used in computing basic net income per share	31,554		32,973
Shares used in computing diluted net income per share	32,209		34,140