Note L - Acquisition of Inside Out Solutions, LLC

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note L — Acquisition of Inside Out Solutions, LLC

On December 1, 2022 (the “Closing Date”), we purchased substantially all of the assets (the “Transaction”) of Inside Out Solutions, LLC, a Florida limited liability company (“InsideOut”), for an aggregate purchase price of approximately $7.5 million (the “Purchase Price”) pursuant to an asset purchase agreement, dated as of December 1, 2022 by and between Harte Hanks and InsideOut (the “Asset Purchase Agreement”).

InsideOut is a premium sales enablement agency offering technology and data driven support to technology, media telecommunications, business services, industrial, and financial technology customers in the North American and European markets with its headquarters in St. Petersburg, Florida. 

The acquisition of InsideOut further expands our capabilities within our marketing services and customer care segments and strengthens our ability to drive profitable revenue growth within our current sales enablement offerings, including: (i) demand generation which creates qualified marketing leads for our clients, and (ii) inside sales offerings to further promote a client’s internal growth objectives. In addition, the owner and CEO of InsideOut entered into a two-year consulting agreement with the Company, which will ensure consistency in our delivery of these sales enablement offerings, post-closing.

Pursuant to the Asset Purchase Agreement, $5.75 million of the Purchase Price was paid in cash at closing, $1.0 million in cash was placed in escrow to satisfy indemnification obligations, if any, and separately, to satisfy earn-outs related to future revenue performance. In addition, $0.75 million of the Purchase Price was paid at closing in shares of Common Stock issued in a private placement. The share amount was based on the volume weighted closing price over the fifteen trading days ending on November 28, 2022. The $1.0 million of cash in the escrow account is included in other current assets in our balance sheet as of  June 30, 2023 and  December 31, 2022. 

The Purchase Price is subject to a post-closing net working capital true-up 180-days after the Closing Date if net working capital is not between $1.3 million and $1.6 million.  

The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity.  Accordingly, the consideration paid by the Company to complete the acquisition has been recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities.  The following table shows the amounts recorded as of their acquisition date. 

In thousands	Amount
Accounts receivable	$	1,445
Prepaid expenses		148
Property, plant and equipment		177
Total assets acquired		1,770
Less: Current liabilities assumed		(761	)
Net assets acquired	$	1,009

We recognized $3.6 million of intangible assets and $2.4 million of goodwill associated with this acquisition.   The amount of goodwill recorded reflects expected earning potential and synergies with our Customer Care segment. We are amortizing the intangible assets on a straight-line basis over its useful life of five years. The amortization expense for the three and six months ended  June 30, 2023 were $180 thousand and $360 thousand, respectively.  A summary of the Company’s intangible asset as of  June 30, 2023  is as follows:

	Weighted
	Average		Gross		Accumulated		Net Carrying
In thousands	Amortization Period		Carrying Amount		Amortizations		Amount
Customer Relationships		5 years		3,600		420		3,180

Estimated future amortization expense related to intangible assets as of  June 30, 2023 is as follows:

In thousands
Year Ending December 31,	Amount
Remainder of 2023	$	360
2024		720
2025		720
2026		720
2027		660
Total	$	3,180

The Company's result of operations for the three and six months ended  June 30, 2023 includes revenue of $2.3 million and $5.1 million, respectively, and net earnings of $0.1 million and 0.6 million, respectively, from the InsideOut operation.