Business Combinations

6 Months Ended

Jun. 30, 2020

2020 Acquisitions

Acquisition of MedTouch

On January 6, 2020, the Company acquired substantially all of the assets of MedTouch, pursuant to the terms of an Asset Purchase Agreement. The acquisition of MedTouch expands the Company’s digital healthcare marketing services.

The Company’s total allocable purchase price consideration was $20.1 million, subject to finalization of a net working capital settlement. The purchase price was comprised of $13.9 million in cash paid and $1.9 million in Company common stock issued at closing, increased by $0.1 million for an estimated net working capital adjustment due to the seller. The purchase price also included $4.2 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the seller 12 months after the closing date of the acquisition with a maximum cash payout of $10.2 million. As of June 30, 2020, the Company’s best estimate of the fair value of the contingent consideration was $6.2 million. The Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $2.0 million during the three months ended June 30, 2020. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred.

The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):


Acquired tangible assets	$	4.6
Identified intangible assets	6.7
Liabilities assumed	(6.0)
Goodwill	14.8
Total purchase price	$	20.1

The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $11.4 million.

Acquisition of Brainjocks

On March 23, 2020, the Company acquired substantially all of the assets of Brainjocks, pursuant to the terms of an Asset Purchase Agreement. The acquisition of Brainjocks expands the Company’s strategic marketing and technical delivery services.

The Company has initially estimated the total allocable purchase price consideration to be $21.2 million. The purchase price was comprised of $15.8 million in cash paid and $2.4 million in Company common stock issued at closing, increased by $0.7 million for an estimated net working capital adjustment due to the seller. The purchase price also included $2.3 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the seller 12 months after the closing date of the acquisition with a maximum cash payout of $4.8 million. The Company incurred approximately $1.1 million in transaction costs, which were expensed when incurred. On May 4, 2020 pursuant to a separate Asset Purchase Agreement, a wholly-owned subsidiary of the Company completed the acquisition of substantially all of the assets of Brainjocks Europe d.o.o. Novi Sad, an affiliate of Brainjocks operating in Serbia. With the completion of this acquisition, the Company now has facilities located in Novi Sad, Serbia.

The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):


Acquired tangible assets	$	7.0
Identified intangible assets	8.5
Liabilities assumed	(5.0)
Goodwill	10.7
Total purchase price	$	21.2

The amount of goodwill expected to be deductible for tax purposes, excluding contingent consideration, is $8.6 million.

Acquisition of PSL

On June 17, 2020, a wholly-owned subsidiary of the Company acquired PSL pursuant to the terms of a Stock Purchase Agreement. PSL is based in Medellin, Colombia, with additional locations in Bogota and Cali, Colombia. The acquisition of PSL strengthens the Company’s global delivery capabilities, enhancing its nearshore systems and custom software application development, testing, and ongoing support for customers. PSL adds more than 600 skilled professionals and brings strategic client relationships with customers across several industries.

The Company has initially estimated the total allocable purchase price consideration to be $82.0 million, net of cash acquired. The purchase price was comprised of $60.9 million in cash paid (net of cash acquired) and $4.5 million in Company common stock issued at closing, increased by $0.4 million for an estimated net working capital adjustment due to the sellers. The purchase price also included $16.2 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the sellers 12 months after the closing date of the acquisition with a maximum cash payout of $22.2 million. The Company incurred approximately $2.0 million in transaction costs, which were expensed when incurred.

The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):


Acquired tangible assets	$	11.1
Identified intangible assets	30.0
Liabilities assumed	(16.0)
Goodwill	56.9
Total purchase price	$	82.0

The goodwill is non-deductible for tax purposes.

The above purchase price accounting estimates for MedTouch are pending finalization of a net working capital adjustment, while the purchase price accounting estimates for Brainjocks and PSL are pending finalization of certain acquired tangible and intangible assets, contingent consideration valuation, and a net working capital settlement that is subject to final adjustment as the Company evaluates information during the measurement period.

The following table presents details of the intangible assets acquired during the six months ended June 30, 2020 (dollars in millions).


	Weighted Average Useful Life	Estimated Useful Life	Aggregate Acquisitions
Customer relationships	7 years	7 years	$	34.2
Customer backlog	1 year	1 year	9.1
Non-compete agreements	5 years	5 years	0.3
Trade name	1 year	1 year	0.4
Developed software	3 years	3 years	1.2
Total acquired intangible assets			$	45.2

2019 Acquisition

Acquisition of Sundog

On May 22, 2019, the Company acquired substantially all of the assets of Sundog, pursuant to the terms of an Asset Purchase Agreement. The Company’s total allocable purchase price consideration was $14.1 million. The purchase price was comprised of $10.3 million in cash paid and $1.3 million in Company common stock issued at closing, increased by $0.6 million as a result of the net working capital adjustment paid to the seller in the first quarter of 2020. The purchase price also included $1.9 million representing the initial fair value estimate of additional revenue and earnings-based contingent consideration, with a maximum cash payout of $3.6 million. The Company recorded a pre-tax adjustment in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $0.4 million during the six months ended June 30, 2020. Sundog achieved a portion of the potential maximum cash payout pursuant to the Asset Purchase Agreement, and as a result, the Company has accrued $2.5 million of contingent consideration as of June 30, 2020.

The results of the 2019 and 2020 acquisitions have been included in the Company’s interim unaudited condensed consolidated financial statements since the respective acquisition dates.

The aggregate amounts of revenue and net income of the MedTouch, Brainjocks, and PSL acquisitions in the Unaudited Condensed Consolidated Statements of Operations from the respective acquisition dates to June 30, 2020 are as follows (in thousands):


	Acquisition Date to June 30, 2020
Revenues	$	12,552
Net income	$	746

Pro-forma Results of Operations

The following presents the unaudited pro-forma combined results of operations of the Company with PSL for the six months ended June 30, 2020 and 2019, after giving effect to certain pro-forma adjustments and assuming PSL was acquired as of the beginning of 2019. Pro-forma results of operations have not been presented for MedTouch or Brainjocks because the effect of these acquisitions on the Company's consolidated financial statements were not material individually or in the aggregate.

These unaudited pro-forma results are presented in compliance with the adoption of ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, and are not necessarily indicative of the actual consolidated results of operations had the acquisition of PSL actually occurred on January 1, 2019 or of future results of operations of the consolidated entities (in thousands except per share data):


	Six Months Ended June 30,
	2020		2019
Revenues	$	308,529	$	291,371
Net income	$	19,400	$	11,369
Basic net income per share	$	0.61	$	0.36
Diluted net income per share	$	0.60	$	0.35
Shares used in computing basic net income per share	31,896		31,359
Shares used in computing diluted net income per share	32,602		32,337