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Business Acquisition and Purchase of Technology
9 Months Ended
Sep. 30, 2017
Business Combinations [Abstract]  
Business Acquisition and Purchase of Technology

6. Business Acquisition and Purchase of Technology


On September 20, 2017, the Company acquired 100% of the equity interests of Motion AI, Inc., a Delaware technology corporation that allows users to scale one-to-one communications.  The acquisition strengthens the Company’s position in the one-to-one communication space. Under the terms of the purchase agreement, the Company paid $9.0 million. The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets and liabilities acquired was recorded as goodwill and is primarily attributable to expanded market opportunities. The goodwill recognized is not deductible for U.S. income tax purposes.  

 

The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed as part of the business combination were determined based on the replacement costs and present value of expected after-tax cash flows attributable to the business which were derived from management’s estimates and assumptions. The sole intangible asset acquired in the business combination was developed technology and the estimate of fair value of the developed technology was determined using a replacement cost approach and the useful life of the technology was estimated to be two years.  

 

The preliminary allocation of the purchase price to the estimated fair value of acquired assets and assumed liabilities is $32 thousand of tangible assets, $6.0 million of acquired technology, and $5.2 million of goodwill. As part of the purchase price allocation, the Company recorded a discrete tax benefit of $2.2 million from a partial release of its deferred tax asset valuation allowance.  The net deferred tax liability from this acquisition provided a source of additional income to support the realizability of the Company’s pre-existing deferred tax assets and as a result, the Company released a portion of its valuation allowance. Lastly, there was approximately $4.0 million of potential consideration that was not included in the purchase price allocation as it is not associated with pre-combination services.  If earned, this will be recorded in the consolidated statement of operations over a period of approximately three years.   

 

The Company has included the operating results of the business combination in its consolidated financial statements since the date of the acquisition. The acquisition did not have a material effect on the revenue or earnings in the consolidated income statement for the reporting periods presented.  The pro forma results of the Company as if the acquisition had taken place on the first day of the periods presented were not materially different from the amounts reflected in the accompanying consolidated financial statements.

 

During the third quarter of 2017 the Company also acquired technology for $400 thousand.  The estimated useful life of the acquired technology is two years.