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Business Combinations | 6 Months Ended
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Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | Business Combinations On February 24, 2022, QuoteLab, LLC (“QL”), a wholly owned subsidiary of QLH, and CHT Buyer, LLC, a wholly owned subsidiary of QL ("Buyer"), entered into an Asset Purchase Agreement (as amended, the “Agreement”) to acquire substantially all of the assets of Customer Helper Team, LLC ("Seller" or "CHT"). CHT is a provider of customer generation and acquisition services for Medicare insurance, automobile insurance, health insurance, life insurance, debt settlement, and credit repair companies. The Company acquired CHT to increase its customer generation capabilities on various social media and short form video platforms. The transaction was closed on April 1, 2022. The Company accounted for the transaction as a business combination using the acquisition method of accounting as CHT contained inputs and processes that were capable of being operated as a business. The acquisition date fair value of the purchase consideration for the acquisition was $56.7 million, and consisted of the following (in thousands):
| Fair Value
Cash consideration (net of working capital adjustments) | $ | 49,677 |
Contingent consideration | 7,007 |
Total purchase consideration | $ | 56,684 |
A portion of the cash consideration paid at closing was funded by drawing $25.0 million under the 2021 Revolving Credit Facility, and the balance was funded from the Company's cash on hand as of the closing. The Agreement also provides that the Company shall pay contingent consideration which could range from zero to $20.0 million, based upon CHT's achievement of certain revenue and gross margin targets for the two successive 12-month periods following the closing, as set forth in the Agreement. The contingent consideration has been classified as a liability and the estimated fair value was determined using a Monte Carlo model based on the revenue and gross margin projected to be generated by CHT during the applicable periods. The contingent consideration is subject to remeasurement at each reporting date until paid, with any adjustment resulting from the remeasurement reported within general & administrative expenses in the consolidated statements of operations. The fair value measurements of the contingent consideration are based primarily on significant unobservable inputs and thus represent a Level 3 measurement in the valuation hierarchy as defined in ASC 820. Transaction-related costs incurred by the Company were $0.2 million and $0.5 million and were expensed as incurred and included in general and administrative expenses in the Company's consolidated statement of operations for the three and six months ended June 30, 2022, respectively. In accordance with the acquisition method of accounting, the purchase consideration has been allocated to the assets acquired and liabilities assumed based on their fair values on the date of the acquisition as follows (in thousands):
Accounts receivable | $ | 1,275 |
Prepaid expenses and other current assets | 17 |
Intangible assets | 26,120 |
Goodwill | 29,337 |
Accounts payable | (18) |
Accrued expenses | (47) |
Net assets acquired | $ | 56,684 |
The Company considers the measurement period to be one year form the date of acquisition. The fair value of working capital related items, including accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses, approximated their book values as of the closing date of the acquisition. The excess of the purchase consideration over the fair value of the net assets acquired was recorded as goodwill. The resulting goodwill is attributable primarily to CHT's assembled workforce and the expanded market opportunities provided by the CHT business by increasing the Company’s ability to generate Consumer Referrals on various social media and short form video platforms. The goodwill resulting from the acquisition is tax deductible. For tax purposes, contingent consideration does not become part of tax goodwill until paid. As such, the amount of goodwill deductible for tax purposes as of the closing date of the acquisition was $22.6 million. The Company's estimate of the amount of tax deductible goodwill may change as the amounts of the payments of contingent consideration, if any, are finalized. The identifiable intangible assets for the transaction are definite lived assets. The intangible assets are measured at fair value on a nonrecurring basis and are based primarily on significant unobservable inputs and thus represent a Level 3 measurement in the valuation hierarchy as defined in ASC 820. The acquired intangible asset categories, fair value, and amortization periods, were as follows (in thousands):
| Useful lives |  | Fair Value
Customer relationships | 7 years |  | $ | 18,460 |
Trademarks, trade names, and domain names | 10 years |  | 7,660 |
|  |  | $ | 26,120 |
Customer relationships represent the fair value of the existing contractual relationships and were calculated using the excess earnings methodology of the income approach. The fair value for trademarks, trade names, and domain names was calculated using the relief-from-royalty methodology of the income approach. These fair value measurements were determined using risk-adjusted discount rates of 18.0%. The weighted average life of intangible assets as of the acquisition date was 7.9 years. The fair value of the identified intangible assets subject to amortization will be amortized over the assets’ estimated useful lives based on the pattern in which the economic benefits are expected to be received. Revenue and pretax loss of CHT included in the Company’s results from the acquisition date of April 1, 2022 through June 30, 2022 are as follows (in thousands):
Total revenues | $ | 2,134 |
Pretax loss | $ | (803) |
The following pro forma financial information summarizes the combined results of operations for the Company and CHT, as though the companies were combined as of the beginning of the Company’s fiscal 2021. The unaudited pro forma financial information was as follows (in thousands):
|  | Three months ended June 30, |  | Six Months Ended June 30,
(in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Total revenues |  | $ | 103,449 |  |  | $ | 164,504 |  |  | $ | 252,318 |  |  | $ | 345,068 |
Pretax (loss) income |  | $ | (12,398) |  |  | $ | (227) |  |  | $ | (19,606) |  |  | $ | 10 |
The pro forma financial information for all periods presented above has been calculated after adjusting the results of CHT to reflect certain business combination and one-time accounting effects such as fair value adjustment of amortization expense from acquired intangible assets, interest expense on the amounts drawn under the 2021 Revolving Credit facility, and acquisition costs as though the acquisition occurred as of the beginning of the Company’s fiscal 2021. The historical consolidated financial information has been adjusted in the pro forma combined financial results to give effect to pro forma events that are directly attributable to the business combination, reasonably estimable and factually supportable. The pro forma financial information does not include the impact of remeasurement adjustments to the contingent considerations and restricted stock units granted to employees of CHT on the date of acquisition for post combination services and are included within the periods they were incurred. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2021.

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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 https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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