Acquisition

12 Months Ended

Dec. 31, 2020

3. Acquisition

On September 1, 2020, the Company completed the acquisition of Crosspointe Insurance & Financial Services, LLC (“Crosspointe”), a health insurance agency headquartered in Evansville, Indiana. Crosspointe is a sales and decision support contact center that connects consumers to high

quality health insurance in a customer-centric

environment and serves the individual and family health, Medicare, and ancillary health product markets. This acquisition enables the Company to accelerate and expand its opportunity in the health insurance market, by providing insurance shoppers with a broader range of health insurance products through access to a greater number of carrier partners, and an improved and more personalized customer buying experience.

The Crosspointe acquisition was accounted for as a purchase of a business under ASC Topic 805,

Business Combinations

. Under the acquisition method of accounting, the assets and liabilities of Crosspointe were recorded as of the acquisition date, at their respective fair values. The purchase consideration of $16.7 million reflected a cash payment of $14.9

million and contingent consideration of

$1.8

million representing the fair value of Class A common stock issuable to the former owners of Crosspointe upon achievement of certain revenue targets over

three years.

The former owners of

Crosspointe

are eligible to receive up to 97,922

shares of Class A common stock upon achievement of certain revenue targets. These revenue targets are measured in annual intervals. Shares of Class A common stock issuable upon achievement of the first two annual targets are for a fixed number of shares of Class A common stock and

as such, the Company has recorded the fair value of these shares within stockholders’ equity based on the number of shares issuable and the fair market value of Class A common stock on the acquisition date. Achievement of the third annual target will result in the issuance of a variable number of shares of Class A common stock and

as such, the Company has recorded the fair value of these shares as a long-term liability. The Company’s consolidated financial statements reflect the preliminary allocation of the purchase price to the assets and liabilities assumed based on fair value as of the date of the acquisition. The Company’s preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to change upon finalizing its valuation analysis. The

final determination may result in changes in the fair value of certain assets and liabilities as compared to these preliminary estimates, which is expected to be finalized in the first half of 2021.

The Company estimated the fair value of the shares of Class A common stock issuable upon achievement of the three annual targets as of the acquisition date. The Company remeasures the fair value of the shares of Class A common stock issuable upon the estimated achievement levels of the third annual target at each subsequent reporting date until the liability is fully settled. The Company uses a Monte Carlo simulation model in its estimates. Significant assumptions and estimates utilized in the model include the forecasted revenue, revenue volatility and discount rate. As of September 1, 2020, the acquisition date, the estimated fair value of the contingent consideration included in other long-term liabilities was

$0.4

million. The Company recognizes changes in the fair value of the liability in earnings until the liability is fully settled. As of December 31, 2020, the Company estimated the fair value of the contingent consideration included in other long-term liabilities to be

$2.2 million, and as a result recorded a $1.8 million charge to acquisition-related costs for the increase in fair value subsequent to the acquisition date.

The following tables summarize the preliminary purchase price for Crosspointe and the preliminary allocation of the purchase price (in thousands):


Cash paid	$	14,930
Fair value of contingent consideration to be settled in stock		1,751

Total purchase price consideration	$	16,681


Assets acquired and liabilities assumed:
Commission receivable (current and long-term)	$	3,460
Customer relationships		3,600
Other identifiable intangible assets		270
Operating lease right-of-use assets		1,469
Goodwill		9,794

Total assets acquired		18,593
Accounts payable and accrued expenses (current and long-term)		(443	)
Operating lease liabilities		(1,469	)

Total allocation of purchase price consideration	$	16,681

Customer relationships were valued using the income approach.

Significant assumptions and estimates utilized in the model include the customer attrition rate and discount rate.

Acquired intangible assets are amortized over their estimated useful lives of three to five years based on the pattern of consumption of the economic benefits of the intangible asset.

Commissions receivable were recorded at constrained lifetime values.

Goodwill was recognized for the excess purchase price over the fair value of the net assets acquired. Goodwill is primarily attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and future growth. Goodwill from the Crosspointe acquisition is included within the Company’s one reporting unit and is included in the Company’s enterprise-level annual review for impairment. Goodwill resulting from the acquisition of Crosspointe is deductible for tax purposes.

The Company incurred costs of $0.5 million for third-party professional services utilized for the acquisition, which were expensed as incurred within acquisition-related costs on the Company’s consolidated statements of operations and comprehensive loss. The operating results of the acquired entity have been included in the consolidated financial statements beginning on the acquisition date but have not been disclosed as the Company does not account for the results of the acquired entity separate from its own results. Pro forma results

of operations for the acquisition have not been presented as they are not

material

to the Company’s consolidated results of operations.