Quarterly report pursuant to Section 13 or 15(d)

Business Acquisitions

v3.22.2
Business Acquisitions
6 Months Ended
Jun. 30, 2022
Business Combinations [Abstract]  
Business Acquisitions

Note 4. Business Acquisitions

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts from Customers. ASU 2021-08 aimed to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognized by the acquirer. These amendments were effective prospectively for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company early adopted this ASU effective January 1, 2022.

 

On January 3, 2022, the Company completed the acquisition of 100% of the membership interests in Forensic Logic, LLC (“Forensic Logic”) for purchase consideration of $4.9 million in cash, subject to working capital adjustments, and $14.3 million in 464,540 shares of ShotSpotter common stock based on the closing price on the date of acquisition. The purchase consideration also included a contingent consideration agreement based on 2022 and 2023 Forensic Logic revenues. If 2022 Forensic Logic revenues exceed $7.0 million, the contingent consideration payable may be $3.75 million up to a maximum of $9.5 million. An additional amount up to $10.5 million in contingent consideration will be payable based on Forensic Logic’s revenues generated during 2023. The amounts are payable within approximately 120 days after the end of 2022 and 2023, respectively. The estimated fair value of the contingent consideration on the date of acquisition was $12.4 million, resulting in a total estimated purchase consideration of $31.6 million. The acquisition will enable the Company to broaden its suite of precision policing solutions and cloud-based investigative platforms to offer its customers.

 

The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date, January 3, 2022 (in thousands):

 

Cash and cash equivalents

 

 

$

303

 

Accounts receivable and contract asset, net

 

 

 

220

 

Property and equipment, net

 

 

 

200

 

Operating lease right-of-use asset

 

 

 

1,893

 

Software technology

 

 

 

7,140

 

Tradename

 

 

 

1,000

 

Customer relationships

 

 

 

8,200

 

Goodwill

 

 

 

20,355

 

Other asset

 

 

 

186

 

Accrued expenses and other current liabilities

 

 

 

(635

)

Operating lease liabilities

 

 

 

(1,893

)

Deferred revenue

 

 

 

(5,382

)

Total estimated consideration

 

 

$

31,587

 

 

The purchase price allocation above is final except for measure period adjustments which may be required in the future following purchase price adjustments related to working capital true-up. Goodwill primarily represents the value of cash flows from future customers and the employee workforce. The Company expects to deduct the amortization of goodwill and intangible assets for tax purposes. A portion of the amortization deduction will commence upon settlement of contingent consideration liabilities. The Company valued the intangible assets using income-based approaches. Significant assumptions included forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense, technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash flows at 24%, reflecting the risk profile of the assets.

 

Acquisition-related expenses totaled $0.6 million, of which $0.1 million is included in general and administrative expense for the six months ended June 30, 2022 and the remainder was incurred during the year ended December 31, 2021. There were no acquisition-related expenses in the three months ended June 30, 2022.

 

The unaudited pro forma combined revenue and net loss have been prepared as if the Company had acquired Forensic Logic on January 1, 2021. The unaudited pro forma financial information has been derived from the consolidated statements of operations of the Company and Forensic Logic for the respective periods. The historical financial information has been adjusted in the unaudited combined pro forma information based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on the Company. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021.

 

 

The unaudited pro forma combined revenue and net loss for the three months ended June 30, 2021 would have been $16.3 million and $1.1 million, respectively. The unaudited pro forma combined revenue and net loss for the six months ended June 30, 2021 would have been $32.7 million and $2.2 million, respectively.