Discontinued Operations

6 Months Ended

Jun. 30, 2024

Discontinued Operations and Disposal Groups [Abstract]

3. Discontinued Operations

Pending Sale of Physical Security Business

On April 2, 2024, the Company entered into a Purchase Agreement to sell its Physical Security Business to Buyer for $145.0 million in cash consideration (as may be increased or decreased by certain closing net working capital adjustments). The Company anticipates closing of the transaction in the third quarter of 2024 upon satisfaction of various closing conditions and regulatory approvals.

In connection with the Physical Security Business sale, the Company and Buyer will enter into a transition service agreement. The transition service agreement will outline the information technology, people, and facility support the Company expects to provide to Buyer for a period of 12 months to 18 months after the transaction closing date.

Discontinued Operations

The pending sale of the Company's Physical Security Business represents a significant strategic shift that will have a material effect on the Company's operations and financial results. As a result, the transaction met the "held-for-sale" criteria and the “discontinued operations” criteria in accordance with ASC 205 as of June 30, 2024. As such, all assets and liabilities that meet the criteria for held-for-sale have been separated from the remaining continuing assets and liabilities and its operating results have been reported as discontinued operations for all periods presented.

The following presents the financial results of discontinued operations (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Net revenue	$	17,592		$	18,079		$	33,428		$	35,187
Cost of revenue		9,688			8,863			17,615			17,978
Gross profit		7,904			9,216			15,813			17,209
Operating expenses:
Research and development		2,089			1,864			4,203			3,591
Selling and marketing		4,207			4,277			8,340			8,855
General and administrative		729			742			1,501			1,489
Restructuring and severance		123			36			145			226
Total operating expenses		7,148			6,919			14,189			14,161
Income from operations		756			2,297			1,624			3,048
Non-operating income (expense):
Foreign currency gains (losses), net		(15	)		25			(45	)		18
Income before income tax provision		741			2,322			1,579			3,066
Income tax provision		(34	)		(15	)		(48	)		(39	)
Net income	$	707		$	2,307		$	1,531		$	3,027

The Company performed its annual goodwill impairment analysis in the fourth quarter of 2023. This analysis was updated upon announcement of the sale of its Physical Security Business for the quarter ended June 30, 2024. The Company has concluded that there is no impairment indicator related to the goodwill of its Physical Security Business at either date the impairment analysis was performed. All goodwill and intangible assets have been classified as held-for-sale as of June 30, 2024 and December 31, 2023.

The following presents the significant non-cash items and capital expenditures for the discontinued operations that are included in the condensed consolidated statements of cash flows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Depreciation and amortization	$	333	$	335	$	666	$	679
Capital expenditures		59		147		130		440
Stock-based compensation		490		487		990		993

The carrying value of the assets and liabilities of the discontinued operations on the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 were as follows (in thousands):


	June 30, 2024		December 31, 2023
ASSETS
Accounts receivable, net	$	15,885	$	14,565
Inventories		15,782		15,152
Prepaid expenses and other current assets		1,933		3,199
Total current assets held-for-sale	$	33,600	$	32,916

Property and equipment, net	$	750	$	848
Operating lease right-of-use assets		2,453		2,925
Intangible assets, net		3,749		4,251
Goodwill		10,180		10,218
Other assets		669		556
Total long-term assets held-for-sale	$	17,801	$	18,798

LIABILITIES
Accounts payable	$	7,033	$	7,598
Operating lease liabilities		884		932
Deferred revenue		2,364		2,341
Accrued compensation and related benefits		1,072		958
Other accrued expenses and liabilities		981		1,173
Total current liabilities held-for-sale	$	12,334	$	13,002

Long-term operating lease liabilities	$	1,808	$	2,209
Long-term deferred revenue		1,248		927
Total long-term liabilities held-for-sale	$	3,056	$	3,136

Revenue Recognition

The Physical Security Business recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products or services. The contracts entered into can include various combinations of its products, software licenses, and services, which are generally capable of being distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation, generally on a relative basis using its standalone selling price. The stated contract value is generally the transaction price to be allocated to the separate performance obligations. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities.

Timing of Revenue Recognition

Revenues are derived from sales of hardware products, software licenses, subscriptions, professional services, software maintenance and support, and extended hardware warranties.


Performance Obligation	When Performance Obligation is Typically Satisfied	When Payment is Typically Due	How Standalone Selling Price is Typically Estimated
Hardware products	When customer obtains control of the product (point-in-time)	Within 30-60 days of shipment	Observable in transactions without multiple performance obligations
Software licenses	When license is delivered to customer or made available for download, and the applicable license period has begun (point-in-time)	Within 30-60 days of the beginning of license period	Established pricing practices for software licenses bundled with software maintenance, which are separately observable in renewal transactions
Subscriptions	Ratably over the course of the subscription term (over time)	In advance of subscription term	Contractually stated or list price
Professional services	As services are performed and/or when contract is fulfilled (point-in-time)	Within 30-60 days of delivery	Observable in transactions without multiple performance obligations
Software maintenance and support services	Ratably over the course of the support contract (over time)	Within 30-60 days of the beginning of the contract period	Observable in renewal transactions
Extended hardware warranties	Ratably over the course of the support contract (over time)	Within 30-60 days of the beginning of the contract period	Observable in renewal transactions

Significant Judgments

Contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, the transaction price is allocated to each performance obligation based on its relative standalone selling price (“SSP”).

Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, the SSP is estimated using historical transaction data. In instances where SSP is not directly observable, such as when the product or service is not sold separately, the SSP is determined using information that may include market conditions and other observable inputs. The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSPs reflect current information or trends.