Business Combinations

12 Months Ended

Dec. 31, 2019

2019 Acquisitions

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’s total allocable purchase price consideration was $14.1 million, 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 a net working capital adjustment due to the seller. 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 seller 12 months after the closing date of the acquisition with a maximum cash payout of $3.6 million. As of December 31, 2019, the Company’s best estimate of the fair value of the contingent consideration was $2.8 million. As a result, the Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Consolidated Statements of Operations of $0.9 million during the year ended December 31, 2019. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred.

The Company allocated 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	4.8
Liabilities assumed	(4.8		)
Goodwill	7.7
Total purchase price	$	14.1

The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $5.5 million.

The following table presents details of the intangible assets acquired during the year ended December 31, 2019 (dollars in millions).



	Weighted Average Useful Life	Estimated Useful Life	Aggregate Acquisitions
Customer relationships	7 years	7 years	$	3.9
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			$	4.8

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 with a maximum cash payout of $6.6 million. Southport achieved a portion of the maximum cash payout pursuant to the Purchase Agreement, and as a result, the Company paid $5.2 million in contingent consideration in the third quarter of 2019. The amount of goodwill deductible for tax purposes is $12.3 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 was not realized by Stone Temple. As a result, the Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Consolidated Statements of Operations of $1.3 million during the year ended December 31, 2019. The amount of goodwill deductible for tax purposes 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. 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 as a result of the net working capital adjustment paid to the sellers in the third quarter of 2019. The purchase price also included $0.9 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, with a maximum cash payout of $1.8 million. The Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Consolidated Statements of Operations of $0.4 million during the year ended December 31, 2019. Elixiter achieved a portion of the maximum cash payout pursuant to the Agreement and Plan of Merger, and as a result, the Company has accrued $1.3 million of contingent consideration as of December 31, 2019. The goodwill is non-deductible for tax purposes.

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

The results of the 2018 and 2019 acquisitions’ operations have been included in the Company’s consolidated financial statements since the respective acquisition dates.

The aggregate amounts of revenue and net income of the Sundog acquisition included in the Company’s Consolidated Statements of Operations from the acquisition date to December 31, 2019 are as follows (in thousands):



	Acquisition Date to December 31, 2019
Revenues	$	7,997
Net income	$	780

Pro-forma Results of Operations (Unaudited)

The following presents the unaudited pro-forma combined results of operations of the Company with the 2019 and 2018 acquisitions for the years ended December 31, 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 assuming 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 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):



	Year Ended December 31,
	2019		2018
Revenues	$	571,025	$	526,664
Net income	$	38,712	$	25,383
Basic net income per share	$	1.23	$	0.78
Diluted net income per share	$	1.20	$	0.75
Shares used in computing basic net income per share	31,497		32,608
Shares used in computing diluted net income per share	32,264		33,674