Business Combinations

6 Months Ended

Jun. 30, 2024

Business Combination and Asset Acquisition [Abstract]

NetComm Acquisition

On June 1, 2024 (the “Closing Date”), the Company completed the acquisition of all the issued and outstanding equity of NetComm Wireless Pty Ltd and its subsidiary (collectively “NetComm”) from Casa Communications Holdings Pty Ltd (“Casa Communications”) for a combination of cash and contingent consideration (the "NetComm Acquisition"). NetComm is a leading broadband networking innovator in the 5G fixed wireless, home broadband, fiber-extension and IoT technology domains. NetComm serves communications service providers and enterprise customers in the United States, Canada, Latin America, Europe, Australia, and New Zealand and is headquartered in Sydney, Australia. The primary driver for the acquisition was to expand its product portfolio and accelerate growth opportunities in foreign markets.

Pursuant to the terms of the Share Purchase Agreement with Casa Communications, all rights, titles, and interests in the shares of NetComm were acquired for approximately $8.1 million in cash in addition to contingent consideration, determined based on the revenues from existing, agreed-upon customers during the year ended December 31, 2024. The contingent consideration in this arrangement includes future cash payments of varying amounts based on the 2024 revenue thresholds achieved, starting at $75 million, with a maximum payout of $3.0 million. This contingent consideration was determined to be liability-classified, as it is settled solely in cash, and the fair value of the contingent consideration as of the Closing Date, approximately $0.1 million, was determined using the income approach, specifically a Monte-Carlo simulation, a Level 3 fair value approach due to the lack of relevant market activity and significant management judgment, which used the following significant assumptions: projected financial information, volatility (30.0%), discount rate (12.1%), risk-free rate (5.4%), and cost of debt (13.5%). The Company will be required to remeasure this liability to fair value quarterly with any changes in the fair value recorded in income until the final payment is made.

The acquisition was accounted for as a business combination under ASC 805, Business Combinations, with the Company identified as the acquirer. In accordance with the acquisition method of accounting, the purchase price has been assigned to the assets acquired, and the liabilities assumed, based on their estimated fair value at the acquisition date. In connection with the acquisition, the Company incurred acquisition-related costs of $0.6 million, which were expensed in the consolidated statement of operations for the six months ended June 30, 2024.

As of June 30, 2024, the purchase price allocation for the acquisition is provisional, pending the completion of management’s review of the valuation of the acquired intangible assets, determination of the associated income tax impacts, and determination of the final bargain purchase gain.

The table below sets forth the consideration paid, the provisional fair value of the assets acquired and liabilities assumed, and the estimated bargain purchase gain for the acquisition (in thousands):


Consideration Paid
Cash	$	8,146
Contingent consideration	81
Total Consideration	$	8,227

Assets acquired and liabilities assumed
Cash and cash equivalents	$	820
Accounts receivable	2,499
Inventories	47,109
Prepaid expenses and other current assets	463
Property, plant and equipment, net	726
Intangible assets:
Trade name	480
Developed technology	2,960
In-process research and development	710
Customer relationships	1,070
Bargain purchase gain	(41,544)
Right-of-use assets from operating leases	961
Total assets	$	16,254

Accrued liabilities	2,190
Due to seller	3,319
Deferred revenue	26
Lease liability	952
Other non-current liabilities	1,540
Total liabilities	$	8,027
Total net assets	$	8,227

The fair value of certain working capital items, including accounts receivable, prepaid expenses and other current assets, and the other non-current liability approximates their respective carrying values at the date of the acquisition. Pursuant to the terms of the Share Purchase Agreement with Casa Communications, certain working capital items remain with Casa Communications, and any amounts collected or paid as a result of these items are to be remitted or collected from Casa Communications in the post-combination period. As a result, a due to seller has been recognized in the consolidated balance sheet as of June 6, 2024 with the net expected amount to be repaid to Casa Communications as a result of this arrangement.

The Company has adopted ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which created an exception to the recognition and measurement principles of ASC 805, Business Combinations, for the Company’s contract assets and liabilities, including deferred revenue, resulting in the carryover of the historical amounts determined in accordance with ASC 606, Revenue from Contracts with Customers, rather than fair value.

The fair value of the fixed assets was determined to be commensurate with their carrying value. The fair value of the trade name, developed technology, and in-process research and development ("IPR&D") was determined using the income approach, specifically the relief-from-royalty method, which includes the following Level 3 assumptions: percent of revenue attributable to the asset, royalty rate (ranging from 0.5% to 3.0%), income tax rate (30%), and discount rate (ranging from 17.1% to 18.1%). The acquired trade name will be amortized over a two-year period. The acquired developed technology and IPR&D will be amortized over periods ranging from one to three years and five to seven years, respectively.

The fair value of the customer relationships was determined using the income approach, specifically the multi-period excess earnings approach, which includes the following Level 3 assumptions: revenue attribution, margin rates (ranging between 5% to 7%), contributory asset charges (2.9%), income tax rates (30%), and discount rates (18.1%). The acquired customer relationships will be amortized over a two-year period.

At acquisition, the Company recognized a provisional bargain purchase gain of approximately $41.5 million, which was separately recorded in the consolidated statement of operations. The bargain purchase gain represents the amount by which the fair value of the net assets acquired in the acquisition exceeds the fair value of the purchase consideration. The Company determined the bargain purchase gain is appropriate as the sellers were in financial distress and the NetComm business was acquired out of bankruptcy.

Unaudited pro forma condensed combined financial information

Included in the Company’s consolidated statement of income for the quarter-ended June 30, 2024 are revenue and net income of NetComm of $4.2 million and $0.4 million, respectively, from June 1, 2024 through June 30, 2024. The following table presents certain provisional unaudited pro forma financial information for the three months ended June 30, 2024 as if the NetComm acquisition had occurred on January 1, 2024, including recognition of the estimated bargain purchase gain of $41.5 million. Additional adjustments include the amortization of certain estimated fair value adjustments related to intangible assets acquired.

The Company expects to achieve operating cost savings and other business synergies resulting from the acquisition that are not reflected in the pro forma amounts. The provisional pro forma information is not necessarily indicative of the historical results of operations had the acquisition occurred on January 1, 2024 nor is it indicative of the results of operations in future periods.


	Combined Pro Forma Results (Unaudited)		Combined Pro Forma Results (Unaudited)
(in thousands)	Year to date June 30, 2024		Year ended December 31, 2023
Revenue	$	76,363	$	213,434
Net income (loss)	$	3,075	$	(118,770)