Note 3 - Business Combination

12 Months Ended

Dec. 31, 2025

Notes to Financial Statements

Business Combination [Text Block]

3. Business Combination

Ydentic Acquisition

On  January 29, 2025, the Company consummated its acquisition of 80% of the outstanding shares of Ydentic Holding B.V., which owns 100% of the outstanding equity interests of Ydentic B.V. (together, “Ydentic”). The acquisition was made pursuant to the Share Purchase Agreement, by and among the Company and the former Ydentic shareholders. The Company completed the acquisition of Ydentic to further expand its SaaS solutions for providing robust, simple, centralized multi-tenant management for managed service providers (“MSPs”) that utilize Microsoft solutions. The estimated fair value of the transaction consideration is approximately $20.4 million, consisting of $14.9 million in cash paid at closing and a $5.5 million unconditional purchase obligation with variability in the timing and amount of settlement.

The acquisition-related costs incurred by the Company totaled $1.3 million, of which $0.5 million was incurred during the year ended December 31, 2025. These costs are recognized as an expense in the general and administrative item in the consolidated statements of income (loss).

The financial results of Ydentic have been included in our consolidated financial statements since the date of the acquisition. The Company established a deferred tax liability with an offset to goodwill in connection with the accounting for the opening balance sheet of the Ydentic acquisition as a result of book-to-tax differences primarily related to the technology and software intangibles and customer related assets.

The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:

	Purchase Consideration Allocation
	(in thousands)
Accounts receivable, net	$	618
Prepaid expenses and other current assets		173
Property and equipment, net		68
Goodwill		17,195
Intangible assets, net		3,943
Operating lease right-of-use assets		562
Other assets		30
Accounts payable		(347	)
Accrued expenses and other current liabilities		(374	)
Current portion of deferred revenue		(2	)
Long-term operating lease liabilities		(457	)
Other liabilities		(1,017	)
Total purchase consideration	$	20,392

The goodwill, which is generally not tax-deductible, is attributed to intangible assets that do not qualify for separate recognition, including the assembled workforce of the acquired business and the synergies expected to arise as a result of the acquisition.

The following table summarizes the purchase price allocated to the intangible assets acquired:

	Amount		Weighted Average Life
	(in thousands)		(in years)
Technology and software	$	3,632		6.0
Customer related assets		311		5.0
Fair value of intangible assets acquired	$	3,943		5.9

The estimated fair values of identifiable intangible assets were determined using the multiperiod excess earnings method and distributor method. The multiperiod excess earnings method is a method of estimating the value of the primary income-generating intangible asset within a group of assets, by calculating the cash flow attributable to that asset after deducting contributory asset charges. The distributor method is a form of the multiperiod excess earnings method that relies upon market-based distributor data to value customer relationship intangible assets. Some of the significant assumptions inherent in the development of such asset valuations include revenues, contributory asset charges, discount rate and useful life. The fair value of intangible assets is based on publicly available benchmarking information as well as assumptions in our valuation procedures.

Mandatorily Redeemable Noncontrolling Interest

As part of the acquisition, the Company agreed to purchase the remaining 20% of the outstanding shares of Ydentic. The unconditional purchase obligation is a liability-classified mandatorily redeemable noncontrolling interest with subsequent measurement at its estimated redemption value. The liability was initially recognized as a level 3 investment at fair value of $5.5 million. The Company estimated the fair value of the mandatorily redeemable noncontrolling interest using a Monte Carlo simulation model, with the significant input of risk-free rate at 4.27%. The model incorporated multiple random iterations, simulating various potential future price paths over the contractual life of the noncontrolling interest shares, based on appropriate probability distributions.

Subsequent to the initial measurement, mandatorily redeemable noncontrolling interests are measured at the higher of the initial recorded liability and the amount of cash that would be paid under the conditions specified in the applicable agreement, assuming settlement occurred as of the reporting date. Any change in the estimated redemption amount compared to the prior reporting date is recognized as interest expense (income) in the consolidated statements of income (loss).

As of December 31, 2025, the liability was $6.2 million, $1.9 million is included in accrued expenses and other current liabilities and $4.3 million is included in other liabilities within the consolidated balance sheets. Under the agreement, the Company has a minimum obligation to purchase one-third of the outstanding shares of Ydentic on an annual basis.