Business Combinations

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

ClickSWITCH

On April 1, 2021, the Company's wholly-owned subsidiary, Q2 Software, Inc. acquired all of the outstanding equity interests of ClickSWITCH Holdings Inc. ("ClickSWITCH"), a privately-owned provider of digital account switching solutions. The acquisition will further enable the Company to offer end-to-end digital customer acquisition, onboarding, and account switching offerings. The purchase price paid was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill.

ClickSWITCH was acquired for approximately $65.5 million in cash from existing balances. At closing, the Company deposited into an escrow account $1.0 million of the initial consideration, or CS Purchase Price Escrow Amount, to compensate for any post-closing purchase price adjustments. To the extent not utilized, the CS Purchase Price Escrow Amount was to be paid to the former stockholders of ClickSWITCH following an adjustment period which, absent any unresolved disputes, was expected to be completed within 90 days from closing. The Company released $0.9 million of the CS Purchase Price Escrow Amount to the former stockholders of ClickSWITCH during the three months ended September 30, 2021, bringing the balance of the CS Purchase Price Escrow Amount to zero. At closing, the Company also deposited into an escrow account $0.3 million of the initial consideration, or CS Escrow Amount, to compensate for any breach of a representation or warranty or any violation or default of any obligation by the sellers. To the extent not utilized, 50% of the remaining CS Escrow Amount shall be paid to the former equity holders of ClickSWITCH at the end of a 12-month period, with the remaining 50% to be paid at the end of an 18-month period, in each case unless there are any unresolved claims remaining at that time. The total purchase price is as follows:


	Purchase Consideration
Cash purchase price	$	62,500
Estimated working capital and other adjustments	3,008
Total purchase price	$	65,508

The Company recorded the purchase of ClickSWITCH using the acquisition method of accounting and accordingly, recognized assets acquired and liabilities assumed at their fair values as of the date of acquisition. The results of ClickSWITCH's operations are included in the Company's consolidated statements of comprehensive loss from the date of acquisition. Acquisition related transaction costs of $1.1 million related to the ClickSWITCH acquisition were expensed as incurred during the twelve months ended December 31, 2021, and were recorded within acquisition related expenses in the consolidated statements of comprehensive loss.

The table below summarizes the allocation of the purchase price based on the estimated fair value of the assets acquired and liabilities assumed. The fair values of assets acquired and liabilities assumed, including valuations of intangibles assets, accruals, and income taxes, may change as additional information is received during the measurement period. The measurement period will end no later than one year from the acquisition date.


Assets acquired:
Cash	$	856
Accounts receivable, net	491
Prepaid expenses and other current assets	2,417
Property and equipment, net	39
Intangible assets, net	12,805
Goodwill	50,595
Total assets acquired	67,203
Liabilities assumed:
Accounts payable, accrued liabilities, and accrued compensation	643
Deferred tax liability	74
Deferred revenues	978
Total liabilities assumed	1,695
Fair value of assets acquired and liabilities assumed	$	65,508

The goodwill recognized is attributable primarily to synergies expected from the integration of the acquired product offering into the Company's integrated solutions including an increasing customer base, the expanded service capabilities that are expected to become available from planned investments in the acquired products, and the value of the assembled workforce in accordance with generally accepted accounting principles.

The estimated fair value of the separately identifiable finite-lived intangible assets acquired and estimated useful lives are as follows (in thousands, except years):


	Estimated Fair Values		Estimated Useful Lives (in Years)
Customer relationships	$	1,495	4
Non-compete agreements	570		2 - 3
Acquired technology	10,740		6
Total acquisition-related intangible assets	$	12,805

The fair value of the intangible assets was based on the income approach using various methods such as with and without and multi-period excess earnings. Intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to six years. The acquisition is a stock acquisition for tax purposes, resulting in no additional amortizable tax basis in goodwill.

The results of operations of ClickSWITCH have been included in the Company's consolidated financial statements from the date of the acquisition. The acquisition of ClickSWITCH did not have a material impact on the Company's consolidated financial statements, and therefore historical and pro forma disclosures have not been presented.

PrecisionLender

On October 31, 2019, the Company's wholly-owned subsidiary, Q2 Software, Inc. acquired all of the outstanding equity interests of privately-owned PrecisionLender. The acquisition added to the Company's portfolio of solutions PrecisionLender's data-driven sales enablement, pricing and portfolio management solutions for financial institutions globally. The purchase price paid was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill.

PrecisionLender was acquired for approximately $510.0 million in cash from existing balances. At closing, the Company deposited into an escrow account $3.0 million of the initial consideration, or PL Purchase Price Escrow Amount, to compensate for any post-closing working capital adjustments. To the extent not utilized, the PL Purchase Price Escrow Amount was to be paid to the former stockholders of PrecisionLender at the end of the 60-day adjustment period unless there were any unresolved claims remaining at that time. The Company released the $3.0 million in the PL Purchase Price Escrow Amount and paid out an additional $0.2 million related to the finalization of the closing estimates to the former stockholders of PrecisionLender during the three months ended March 31, 2020. At closing, the Company also deposited into an escrow account $1.8 million of the initial consideration, or PL Escrow Amount, to compensate for any breach of a representation or warranty or any violation or default of any obligation by the sellers subsequent to the acquisition during a period of 18 months following the acquisition date. During the three months ended June 30, 2021, the Company released $1.8 million of the PL Escrow amount to the former stockholders of PrecisionLender, bringing the balance of the escrow to zero at June 30, 2021.

The Company accrues for payouts contingent upon continued and future employment of acquired employees and contractors of PrecisionLender, and the unpaid amounts due to the continuing employees are recorded in accrued compensation in the consolidated balance sheets. Compensation expense recognized under these agreements, which is included in cost of revenues in the consolidated statements of comprehensive loss, was $0.4 million, $0.9 million and $0.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, and compensation expense recognized under these agreements included in acquisition related costs in the consolidated statements of comprehensive loss was $1.5 million, $2.7 million and $0.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company paid $2.2 million and $3.7 million to acquired employees during the years ended December 31, 2021 and 2020, respectively.