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Business Combinations | 12 Months Ended
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Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | 5. Business Combinations Acquisition of Sixense Enterprises Inc. Transaction Overview On October 1, 2021 (the “Sixense Acquisition Closing Date”), the Company closed the acquisition of Sixense Enterprises Inc. (“Sixense”) pursuant to the Agreement and Plan of Merger, dated September 17, 2021 (the “Merger Agreement”), among the Company, Sixense, Seychelles Merger Corporation, a wholly owned subsidiary of the Company, and a stockholders’ agent (the “Merger”). Sixense, a privately held company, specializes in enterprise use of virtual reality hardware and software and has been an integral partner on the development of the Company’s REAL Immersive System portfolio. The Merger allows the Company to streamline its efforts and collaborate more closely on its Immersive healthcare offerings. The Company and Sixense formed a joint venture, MVI Health Inc. (“MVI”), in 2017 for the purpose of exploring healthcare applications of virtual reality technology. At the time of MVI’s formation, the Company contributed cash and in-kind services to MVI and Sixense contributed an exclusive license to use its technology for healthcare applications, each for a 50% equity interest in MVI. In 2018, the Company acquired 40% of the outstanding shares of MVI from Sixense and consolidated the financial results of MVI into the accompanying consolidated financial statements, with the amounts attributable to the non-controlling interest classified separately. As of the Sixense Acquisition Closing Date, the Company and Sixense owned a 90% and 10% equity interest in MVI, respectively. As a result of the Merger, Sixense became a wholly owned subsidiary of the Company and the Company acquired, among other things, the remaining 10% equity interest in MVI held by Sixense. The Company accounted for the acquired assets and liabilities assumed from Sixense in accordance with ASC 805, Business Combinations (“ASC 805”) and for its changes in ownership interest in MVI as an equity transaction in accordance with ASC 810, Consolidation (“ASC 810”). The carrying amount of the noncontrolling interest was adjusted to zero, and the difference between the acquisition date fair value of the equity interest acquired of $4.2 million and its carrying amount of ($6.2) million was recognized within additional paid in capital. Fair Value of Consideration Transferred The following table summarizes the Sixense Acquisition Closing Date fair value of the consideration transferred (in thousands):
Fair value of common stock issued(1) |  | $ | 174,133 |
Fair value of replacement stock options(2) |  | 80,693 |
Consideration for settlement of pre-existing liabilities due to Sixense(3) |  | (3,810) |
Total purchase price |  | $ | 251,016 |
(1) The fair value of the 661,877 shares of common stock issued as part of consideration transferred was determined based on the acquisition date closing market price of the Company’s common stock of $263.09. (2) Per ASC 805, the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”). As a result of the Company’s obligation to issue replacement awards, a portion of the fair-value-based measure of replacement awards is included in measuring the purchase consideration transferred in the business combination. To determine the portion of the replacement awards that is part of the purchase consideration, the Company measured the fair value of both the replacement awards and the historical awards as of the Sixense Acquisition Closing Date, in accordance with ASC 718. The fair value of the replacement awards, whether vested or unvested, was included in the purchase consideration to the extent that pre-acquisition services had been rendered. The fair value of replacement stock options assumed for which pre-acquisition services were rendered of $80.7 million was allocated to the purchase consideration and $25.8 million was recognized immediately in the post-combination financial statements as pre-acquisition services were not rendered but the vesting of all stock options was accelerated in connection with the Merger. Refer to Note “12. Stockholders’ Equity” for more information. (3) In the connection with the Merger, the Company effectively settled pre-existing liabilities due to or on behalf of Sixense. Fair Value of Consideration Transferred The purchase price measurement period was closed as of September 30, 2022. The following table presents the allocation of the purchase price, reflecting immaterial measurement period adjustments recorded during the three months ended September 30, 2022 (in thousands):
|  | Acquisition-Date Fair Value |  | Estimated Useful Life of Finite-Lived Intangible Assets
Tangible assets acquired and (liabilities) assumed: |  |  |  |
Cash and cash equivalents |  | $ | 2,919 |  |  |
Prepaid expenses and other current and non-current assets |  | 1,971 |  |  |
Deferred tax assets |  | 20,678 |  |  |
Deferred tax liabilities |  | (19,398) |  |  |
Accrued liabilities and other current liabilities |  | (1,341) |  |  |
Intangible assets acquired: |  |  |  |
Developed technology |  | 62,466 |  |  | 8.75 years
In-process research and development |  | 20,823 |  |  |
Net assets acquired |  | 88,118 |  |  |
Fair value of subsidiary stock indirectly acquired through the Merger |  | 4,161 |  |  |
Total net assets acquired |  | 92,279 |  |  |
Goodwill |  | 158,737 |  |  |
Total purchase price |  | $ | 251,016 |  |  |
The intangible assets acquired and the fair value of the privately-held subsidiary stock indirectly acquired are Level 3 fair value measurements for which fair value is derived from valuations using inputs that are unobservable and significant to the overall fair value measurement. The value of the intangible assets was determined based on the replacement cost method, assuming the highest and best use by a market participant which was determined to be a company outside of the healthcare industry due to the intangibles acquired relating to non-healthcare applications. This is due to Sixense having previously licensed the healthcare rights prior to the acquisition to MVI. Since there were no standalone forecasts available due to the early stage of the non-healthcare business, the Company determined the cost approach provides the most reasonable approach to determine fair value of the intangible assets. The fair value of the intangible assets acquired was based on the following significant inputs: (i) total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence; (ii) a developer’s expected profit margin; and (iii) the opportunity cost lost over the period to reconstruct the substitute asset. The acquired in-process research and development (“IPR&D”) intangible asset is accounted for as an indefinite-lived asset until the completion or abandonment of the associated research and development effort. If the research and development effort associated with the IPR&D is successfully completed and commercial feasibility is reached, then the IPR&D intangible asset will be amortized over its estimated useful life to be determined at the date the effort is completed. During the three months ended September 30, 2022, the Company reclassified the $20.8 million IPR&D asset from the Sixense acquisition to a finite-lived developed technology intangible asset upon the completion of the IPR&D project and began amortizing the intangible asset over its useful life of 8.8 years. Refer to Note “7. Intangible Assets” for more information. The finite lived developed technology intangible assets are amortized on a straight-line basis over their assigned estimated useful lives. The acquired intangible assets will not be amortized for tax purposes. As a result, a $19.4 million deferred tax liability was recorded as of December 31, 2021. The goodwill arising from the Sixense acquisition is primarily attributed to the assembled workforce and expected synergies from future growth, which does not qualify for separate recognition as an identifiable intangible asset. Goodwill will not be deductible for tax purposes. The fair value of the noncontrolling interest of $4.2 million was valued using the income approach and an option pricing model. The fair value of the noncontrolling interest was based on the following significant inputs: (i) the amount and timing of projected future cash flows; (ii) the discount rate used to discount those cash flows to present value; and (iii) the discount for lack of marketability. The amount of Sixense’s net revenue and net loss included in the Company’s consolidated statements of operations was not material for the year ended December 31, 2021. The following table presents certain unaudited pro forma information, for illustrative purposes only, for the year ended December 31, 2021, as if Sixense had been acquired on January 1, 2021 (“Pro Forma Closing Date”). The unaudited estimated pro forma information combines the historical results of Sixense with the Company’s consolidated historical results and includes the following pro forma adjustments for the respective periods, net of tax effects: (i) the elimination of pre-acquisition transactions between Sixense and the Company; (ii) the reclassification of MVI’s losses historically presented in “Net loss attributable to non-controlling interest” to “Net loss attributable to Penumbra, Inc.,” (iii) adjustments to reflect the immediately recognized stock-based compensation expense related to the fair value of fully vested replacement stock options outstanding but for which services had not been rendered as of the Pro Forma Closing Date; and (iv) intangible asset amortization. Additionally, transaction costs incurred are assumed to have occurred on the Pro Forma Closing Date. The pro forma information may not be indicative of what would have occurred had the acquisition taken place on January 1, 2021, and may not be indicative of the Company’s future consolidated results. Additionally, the pro forma financial information does not include the impact of possible business model changes and does not reflect the impact of synergies or business integration costs. The unaudited pro forma information is presented below (unaudited, in thousands):
|  | Year Ended December 31, 2021
|  | (unaudited, in thousands)
Pro forma revenues |  | $ | 747,840 |
Proforma net income (loss) attributable to Penumbra, Inc. |  | $ | 17,552 |
Proforma net loss attributable to non-controlling interest |  | $ | — |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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