Robert Gregory Partners, LLC Acquisition

9 Months Ended

May 31, 2017

Robert Gregory Partners, LLC Acquisition [Abstract]

Robert Gregory Partners, LLC Acquisition

NOTE 2 – ROBERT GREGORY PARTNERS, LLC ACQUISITION

On May 15, 2017, we acquired the assets of Robert Gregory Partners, LLC (RGP), a Dublin, Ohio based corporate coaching firm, for $3.5 million in cash plus potential contingent consideration totaling $4.5 million.  Robert Gregory Partners is a corporate coaching firm with expertise in executive coaching, transition acceleration coaching, leadership development coaching, implementation coaching, and consulting.  We anticipate that RGP services and methodologies will become a key offering in our training and consulting business.

The acquisition of RGP had an immaterial impact on our financial statements for the quarter ended May 31, 2017.  For the twelve months ended December 31, 2016, RGP had revenues of $3.3 million (unaudited) and operating income of $1.1 million (unaudited).  The following table summarizes the preliminary estimated fair values of the assets acquired, liabilities assumed, and separately identifiable intangible assets at the acquisition date (in thousands):

Current assets	$	593
Intangible assets		3,787
Goodwill		1,261
Current liabilities		(120)
Current contingent earn out liability (accrued
liabilities)		(500)
Deferred revenue		(593)
Long-term contingent earn out liability
(other long-term liabilities)		(928)
Cash paid	$	3,500

The payment of contingent consideration is based on the achievement of specified financial results and the delivery of “add-on coaching services” content that will be included in our All Access Pass offering.  Since we anticipate paying the first $0.5 million for delivered content within the next few months, that portion of the contingent consideration was classified as current and recorded as a component of accrued liabilities in the accompanying condensed consolidated balance sheet.  The fair value of the potential contingent consideration was calculated using a Monte Carlo simulation which evaluates numerous potential earnings and pay out scenarios, and is considered a “level 3” fair value measurement.  The various pay out instances were discounted at a rate that considered RGP’s weighted average cost of capital as well as a risk premium specifically associated with the earn out, the related earnings projections, and the overall business.  Under the applicable accounting guidance, we will reassess the fair value of the contingent consideration at each balance sheet date, similar to the NinetyFive 5 contingent consideration discussed in Note 1.  Any changes to the fair value of the contingent consideration will be recorded in the period of change.

Based on the preliminary estimated fair value of assets purchased, the acquired intangible assets are being amortized over a weighted average life of eight years and are comprised of the following (in thousands):

			Estimated Useful
Description		Amount	Lives
Customer relationships	$	2,226	10 years
Content		461	5 years
Trademark/tradename		341	5 years
Non-compete agreement - employees		311	2 years
Contracts		237	2 years
Coach relationships		150	10 years
Coaching portal		45	3 years
Non-compete agreement - coaches		16	1 year
	$	3,787

The goodwill generated by the RGP acquisition is primarily attributable to the methodologies, content, and coaching capabilities developed by RGP that complement our existing training services and has not yet been allocated to our operating segments.  All of the intangible assets, including goodwill, generated by the acquisition of RGP is expected to be deductible for income tax purposes.  The total acquisition costs were approximately $0.1 million and were recorded as a component of selling, general, and administrative expense in the accompanying condensed consolidated statements of operations.