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Business Combinations | 3 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
Business Combinations | 8. BUSINESS COMBINATIONS CrendentialMyDoc On December 16, 2019, the Company acquired substantially all the assets of Covenant Technology Group, LLC (“CredentialMyDoc”), a Savannah, Georgia-based company focusing on intuitive, easy to use, and fast to implement software-as-a-service solution, especially in ambulatory care settings. The consideration paid for CredentialMyDoc consisted of $9.0 million in cash, subject to a post-closing working capital adjustment. Of the purchase price paid at closing, $1.1 million is being held in escrow for a period of time following the closing to serve as a source of recovery for the working capital adjustment and certain potential indemnification claims by the Company. The results of operations for CredentialMyDoc have been included in the Provider 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 |  | $ | 7,920 |
Cash held in escrow |  |  | 1,080 |
Total consideration paid |  | $ | 9,000 |
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 |  | $ | 216 |
Prepaid and other current assets |  |  | 3 |
Operating lease right-of-use assets |  |  | 30 |
Deferred tax assets |  |  | 71 |
Goodwill |  |  | 4,657 |
Intangible assets |  |  | 4,340 |
Accounts payable and accrued liabilities |  |  | (7 | )
Deferred revenue |  |  | (280 | )
Operating lease liabilities |  |  | (30 | )
Net assets acquired |  | $ | 9,000 |
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. The primary intangible assets acquired were customer relationships and developed technology. The fair value estimate for customer relationships intangible asset included significant assumptions in the prospective financial information, such as revenue growth, customer attrition, and EBITDA margin, and the discount rate. The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology. Additionally, these assumptions are forward looking and could be affected by future economic and market conditions. 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 working capital. The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering CredentialMyDoc products, and expected synergies from integrating CredentialMyDoc 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 $595,000 to an estimated fair value of $280,000. The $315,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services. 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 |  | $ | 2,100 |  |  | 9 years
Developed technology |  |  | 2,100 |  |  | 4 years
Non-compete |  |  | 110 |  |  | 5 years
Trade name |  |  | 30 |  |  | 3 years
Total intangible assets subject to amortization |  | $ | 4,340 |  |  |
The following unaudited pro forma financial information summarizes the results of operations of the Company and CredentialMyDoc as though the companies were combined as of January 1, 2019 (in thousands, except per share data):
|  | Three Months Ended March 31, |
|  | 2020 |  |  | 2019 |
Total revenues |  | $ | 61,703 |  |  | $ | 65,678 |
Income from continuing operations |  | $ | 7,191 |  |  | $ | 4,684 |
Net income |  | $ | 7,191 |  |  | $ | 5,878 |
Net income per share - basic |  | $ | 0.22 |  |  | $ | 0.18 |
Net income per share - diluted |  | $ | 0.22 |  |  | $ | 0.18 |
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, 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. NurseGrid On March 9, 2020, the Company acquired all of the outstanding stock of HcT2 Co. dba NurseGrid (“NurseGrid”), a Portland, Oregon-based healthcare technology company offering NurseGrid Mobile and its corollary application for nurse managers, NurseGrid Enterprise for net cash consideration of approximately $21.4 million, subject to a post-closing working capital adjustment. The Company accounted for this transaction as a business combination achieved in stages which required the Company to remeasure its previously existing minority ownership interest, which was accounted for as a non-marketable equity investment measured using the fair value alternative, to fair value at the acquisition date based on the total enterprise value, adjusting for a control premium. The fair value of the Company’s interest in NurseGrid was $3.6 million at closing, resulting in a gain of $1.2 million, recorded as a change in fair value of non-marketable equity investments in the Company’s Condensed Consolidated Statement of Income. Additionally, the Company’s previously recorded non-marketable equity investment in NurseGrid was de-recognized from the Company’s Condensed Consolidated Balance Sheet. The financial results of NurseGrid have been included in the Workforce Solutions segment from March 9, 2020. A summary of the purchase price is as follows (in thousands):
Cash paid at closing |  | $ | 25,485 |
Cash acquired |  |  | (4,064 | )
Net consideration paid |  |  | 21,421 |
Fair value of existing equity interest in NurseGrid |  |  | 3,594 |
Total purchase price |  | $ | 25,015 |
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 |  | $ | 92 |
Prepaid and other current assets |  |  | 145 |
Operating lease right-of-use assets |  |  | 50 |
Deferred tax assets |  |  | 2,119 |
Goodwill |  |  | 21,087 |
Intangible assets |  |  | 1,845 |
Accounts payable and accrued liabilities |  |  | (194 | )
Deferred revenue |  |  | (78 | )
Operating lease liabilities |  |  | (51 | )
Net assets acquired |  | $ | 25,015 |
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. 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, income tax attributes, and working capital. The goodwill balance is primarily attributed to the assembled workforce, future market opportunities to engage and support the NurseGrid Mobile user community, and expected synergies from integrating NurseGrid with other combined functional areas within the Company. The goodwill balance is not 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 $157,000 to an estimated fair value of $78,000. The $78,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services. 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 |  | $ | 35 |  |  | 8 years
Developed technology |  |  | 1,110 |  |  | 5 years
Trade name |  |  | 700 |  |  | Indefinite
Total intangible assets subject to amortization |  | $ | 1,845 |  |  |
The amounts of revenue and operating loss of NurseGrid included in the Company’s Consolidated Statement of Income since the date of acquisition of March 9, 2020 for the three months ended March 31, 2020 are as follows (in thousands):
Total revenues |  | $ | 28 |
Operating loss |  | $ | (220 | )
The following unaudited pro forma financial information summarizes the results of operations of the Company and NurseGrid as though the companies were combined as of January 1, 2019 (in thousands, except per share data):
|  | Three Months Ended March 31, |
|  | 2020 |  |  | 2019 |
Total revenues |  | $ | 61,644 |  |  | $ | 65,375 |
Income from continuing operations |  | $ | 6,515 |  |  | $ | 3,876 |
Net income |  | $ | 6,515 |  |  | $ | 5,071 |
Net income per share - basic |  | $ | 0.20 |  |  | $ | 0.16 |
Net income per share - diluted |  | $ | 0.20 |  |  | $ | 0.16 |
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 NurseGrid’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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