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Business Combination | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Business Combination | 10. BUSINESS COMBINATION Providigm, LLC On January 10, 2019, the Company acquired the outstanding equity of Providigm, LLC (“Providigm”), a Denver, Colorado based company focusing on quality assurance and performance improvement in healthcare, primarily serving skilled nursing facilities. The Company acquired Providigm to add its comprehensive quality management system, known as “abaqis®,” to its product portfolio and gain customers in the skilled nursing market. The consideration paid for Providigm consisted of $18.0 million in cash, which the Company funded with cash on hand. In addition, up to an additional $500,000 in cash may be paid by the Company based on the financial performance of Providigm during an 18-month period following closing. Of the purchase price paid by the Company at closing, $3.65 million is being held in escrow for a period of time following the closing to serve as a source of recovery for certain potential indemnification claims by the Company. The Company incurred $388,000 in transaction costs, of which $63,000 was incurred during the nine months ended September 30, 2019 and $325,000 was incurred during 2018. The transaction costs were recorded in Other general and administrative expense in the Condensed Consolidated Statements of Income for such periods. The results of operations for Providigm have been included in the HealthStream Workforce Solutions segment of the Company’s Financial Statements from the date of acquisition. A summary of the purchase price is as follows (in thousands):
Cash paid at closing |  | $ | 14,368 |
Cash held in escrow |  |  | 3,650 |
Total consideration paid |  | $ | 18,018 |
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):
Accounts and unbilled receivable, net |  | $ | 960 |
Prepaid assets |  |  | 847 |
Property and equipment |  |  | 50 |
Operating lease right-of-use assets |  |  | 1,233 |
Other assets |  |  | 49 |
Deferred tax assets |  |  | 104 |
Goodwill |  |  | 11,395 |
Intangible assets |  |  | 5,950 |
Accounts payable and accrued liabilities |  |  | (1,196 | )
Deferred revenue |  |  | (141 | )
Operating lease liabilities |  |  | (1,233 | )
Net assets acquired |  | $ | 18,018 |
The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. During the three months ended September 30, 2019, the Company updated the composition and valuation of intangible assets and recorded a measurement period adjustment increasing goodwill and decreasing intangible assets by approximately $300,000. The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of these items. The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of intangible assets and indemnification asset and liability. The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering Providigm’s products, and expected synergies from integrating Providigm with other products or other combined functional areas within the Company. The goodwill balance is deductible for U.S. income tax purposes. The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $266,000 to an estimated fair value of $141,000. The $125,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services. The acquired assets and liabilities include a $750,000 indemnification asset and liability related to tax liabilities. The purchase agreement also contains a provision for up to $500,000 of additional consideration based on the achievement of financial performance targets by Providigm during an 18-month period following the closing date. Management assessed the likelihood of achieving the financial performance targets, which has been included in the preliminary purchase price allocation. The following table sets forth the preliminary components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):
|  | Preliminary Fair Value |  |  | Useful life
Customer relationships |  | $ | 3,500 |  |  | 12 years
Developed technology |  |  | 2,200 |  |  | 5 years
Trade Name |  |  | 250 |  |  | 7 years
Total preliminary intangible assets subject to amortization |  | $ | 5,950 |  |  |
The amounts of revenue and operating income (loss) of Providigm included in the Company’s Condensed Consolidated Statements of Income since the date of acquisition of January 10, 2019 for the three and nine months ended September 30, 2019 are as follows (in thousands):
|  | Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019 |
Revenues, net |  | $ | 1,862 |  | $ | 5,199 |
Operating income (loss) |  | $ | 30 |  | $ | (458 | )
The following unaudited pro forma financial information summarizes the combined results of continuing and discontinued operations of the Company, unless otherwise noted, and Providigm as though the companies were combined as of January 1, 2018 (in thousands, except per share data):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Total revenues |  | $ | 62,450 |  |  | $ | 62,502 |  |  | $ | 191,728 |  |  | $ | 182,102 |
Income from continuing operations |  | $ | 3,461 |  |  | $ | 3,222 |  |  | $ | 10,696 |  |  | $ | 10,320 |
Net income |  | $ | 3,712 |  |  | $ | 3,222 |  |  | $ | 12,141 |  |  | $ | 29,427 |
Net income per share - basic |  | $ | 0.11 |  |  | $ | 0.10 |  |  | $ | 0.38 |  |  | $ | 0.91 |
Net income per share - diluted |  | $ | 0.11 |  |  | $ | 0.10 |  |  | $ | 0.38 |  |  | $ | 0.91 |
These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to Providigm’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances. The unaudited pro forma combined results of operations is for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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