Business Acquisitions

3 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

Business Acquisitions

NOTE B – Business Acquisitions

Toolbox Solutions, Inc.

On January 5, 2016, we completed our acquisition of all of the outstanding common shares of Toolbox Solutions, Inc., a privately held company providing point-of-sale analytics and category management services to retailers and consumer packaged goods suppliers in North America. This acquisition expands our retail network and strengthens our analytics offerings. Pursuant to the share purchase agreement, we paid $17.9 million in cash and issued $3.3 million in stock, or 48,668 shares of common stock, to the shareholders of Toolbox Solutions. Furthermore, up to an additional 16,222 shares of common stock will be payable contingent upon the completion of certain revenue milestones. See Note C for subsequent measurements of this contingent liability.

Purchase Price Allocation

We accounted for the acquisition as a business combination. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. We engaged a third-party valuation firm to assist us in the determination of the value of the purchased intangible assets. The excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. Goodwill is attributed to a trained workforce and other buyer-specific value resulting from expected synergies, including long-term cost savings, which are not included in the fair values of assets.

The purchase price consisted of the following (in thousands):

Cash	$	17,942
SPS Commerce, Inc. common stock		3,251
Fair value of share-based earn-out liability		1,043
	$	22,236

The final purchase price is subject to a net working capital adjustment to be determined by SPS Commerce and the sellers, pursuant to the terms of the purchase agreement. The number of shares of our common stock issued for the acquisition was 48,668 shares as calculated according to the terms of the purchase agreement. The fair value of the shares issued was determined using the closing price of our common stock on the acquisition date.

The following table summarizes the estimated fair values of the assets acquired, net of cash acquired of $359,000, and liabilities assumed at the acquisition date (in thousands):

Current assets	$	1,233
Property and equipment		56
Goodwill		15,430
Intangible assets		9,070
Current liabilities		(1,031	)
Deferred revenue		(301	)
Deferred income tax liability		(2,221	)
	$	22,236

Purchased Intangible Assets

The following table summarizes the estimated fair value of the purchased intangible assets and their estimated useful lives:

Purchased Intangible Assets	Estimated Fair Value (in thousands)		Estimated Life (in years)
Subscriber relationships	$	7,400		8
Developed technology		1,200		4
Trade names		70		1
Non-competition agreements		400		5
Total	$	9,070

The fair values of purchased intangible assets are preliminary and are subject to adjustment as additional information becomes available about the facts and circumstances that existed at the acquisition date. The purchased intangible assets are being amortized on a straight-line basis over their estimated useful lives. Amortization expense for the period from January 5, 2016 through March 31, 2016 was $337,000.

Acquisition-Related Costs and Post-Acquisition Operating Results

Acquisition-related costs were $107,000 and are included in our condensed consolidated statements of income for the three months ended March 31, 2016. The operating results of Toolbox Solutions, Inc. have been included in our condensed consolidated financial statements from January 5, 2016, the closing date of the acquisition. For the period from January 5, 2016 through March 31, 2016, approximately $1.6 million of our revenues were derived from Toolbox Solutions’ customers. The amount of operating income or loss from Toolbox Solutions was not separately identifiable due to our integration.

Pro Forma Financial Information

The pro forma financial information in the table below presents the combined operating results of SPS Commerce and Toolbox Solutions as if the acquisition had occurred on January 1, 2015. The pro forma information includes the historical operating results of each company and pro forma adjustments for the approximate $1.5 million of annual amortization expense related to purchased intangible assets and the additional impact on the provision or benefit for income taxes, resulting from the combined income and intangible amortization expense, using our statutory blended income tax rate of 26.5%.

	Three Months Ended March 31,
(in thousands, except per share data)	2016		2015
Pro forma total revenue	$	45,829	$	38,717
Pro forma net income (loss)		1,310		(482	)
Pro forma net income per share
Basic		0.08		(0.03	)
Diluted		0.08		(0.03	)

The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on January 1, 2015, nor is it necessarily indicative of our results of operations for any future periods.