Business Combinations

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisition of StreetShares

On April 1, 2022, the Company acquired all of the outstanding stock of StreetShares, Inc. (“StreetShares”) for cash consideration of $27.9 million, $30.0 million in escrow for a contingent earnout, subject to adjustment as defined in the purchase agreement, and $1.6 million in acquisition costs. The $30.0 million is considered contingent consideration and accounted for separate from the business combination accounting. The acquisition was funded by the Company’s available cash. StreetShares is based out of Reston, VA, and is a financial technology company that provides digital small business lending technology to banks and credit unions. The acquisition is accounted for using the acquisition method of accounting whereby the acquired assets and liabilities are recorded at their respective fair values and added to those of the Company, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. Results of operations of StreetShares have been included in the operations of the Company beginning with the closing date of the acquisition. The acquisition was deemed immaterial to the Company’s operating results as a whole.

The table below summarizes the allocation of the purchase price of StreetShares based on the estimated fair value of the assets acquired and the liabilities assumed (in thousands):


Assets acquired:
Cash and cash equivalents	$	1,580
Restricted cash (1)	3,265
Accounts receivable	157
Prepaid expenses and other current assets	519
Property and equipment	142
Right of use assets	613
Deferred tax asset	10,557
Goodwill	4,330
Intangible assets	15,800
Other assets	84
Total assets acquired	37,047
Liabilities assumed:
Accounts payable	368
Accrued compensation and benefits	3,585
Accrued expenses	684
Contingent earnout	162
Notes payable to Regulation A+ investors (1)	3,265
Deferred revenue	854
Other long-term liabilities	225
Total liabilities assumed	9,143
Fair value of assets acquired and liabilities assumed	$	27,904
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(1)Prior to the acquisition, StreetShares was subject to Regulation A+ of the Securities and Exchange Commission and had offered StreetShares notes to investors. The notes were scheduled to mature during various dates through 2023. Subsequent to the acquisition, during April 2022, the Company used the $3.3 million restricted cash balance to repay the Regulation A+ payable in full.

As of June 30, 2022, the Company is still finalizing the provisional purchase price allocation related to the fair value of identifiable intangible assets, final working capital adjustment, and income tax effects. The goodwill recognized is attributable to the Company’s expected acceleration of its small business lending service capabilities. The StreetShares acquisition is treated as a stock purchase for income tax purposes; therefore, of the goodwill recorded, none is considered deductible for income tax purposes.

The fair value of the separately identifiable finite-lived intangible assets acquired and estimated useful lives are as follows (in thousands, except years):


	Estimated Fair Values		Weighted Average Amortization Life (years)
Customer relationships	$	2,400	5
Developed technology	13,300		10
Trademarks	100		2
Total acquisition-related intangible assets	$	15,800	9

The fair value estimates for intangible assets include significant assumptions in the prospective financial information, such as revenue growth and discount rates. The fair value of the intangible assets was primarily based on the income approach using various methods such as the relief from royalty, with-or-without, and excess earnings methods.

Goodwill Rollforward

A rollforward of the Company’s goodwill balance from January 1, 2022 to June 30, 2022 is as follows:


	Six Months Ended June 30,
	2022
Beginning balance	$	564,799
StreetShares acquisition	4,330
Ending balance	$	569,129

Contingent Earnout Liability

The purchase price for StreetShares includes a potential earnout that will be measured over 12 months from April 2, 2022 through April 1, 2023, based on performance factors outlined in the acquisition agreement.

The contingent earnout liability is recorded at estimated fair value each reporting period using a Monte Carlo simulation based on the forecasted operating results over the earnout period, estimates for market volatility, discount rates, and the earnout formula specified in the acquisition agreement. As the fair value uses significant unobservable inputs, it is considered a Level 3 fair value measurement.

The contingent earnout liability is recorded in accrued liabilities on the Company’s condensed consolidated balance sheets. Changes to the fair value are recorded as gain or loss on change in fair value of earnout liability on the condensed consolidated statements of operations. The fair value of the contingent earnout liability was $0.2 million as of both April 1, 2022 and June 30, 2022.