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Business Acquisitions | 9 Months Ended
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Sep. 30, 2018
Business Acquisitions |
Business Acquisitions | Note 3 – Business Acquisitions On May 30, 2018, OneSpan acquired the remaining interest in Dealflo Limited and its subsidiaries (“Dealflo”), increasing our ownership percentage to 100% from 1%. Dealflo, formerly a privately-held company based in the United Kingdom, provides identity verification and end-to-end financial agreement solutions. Upon acquisition, Dealflo became a wholly-owned subsidiary of OneSpan. Dealflo’s total purchase price consideration was $53.9 million, net of $5.7 million of cash acquired. The total purchase price consideration includes $53.1 million of cash paid to acquire the remaining 99% interest in Dealflo, as well as $0.8 million of fair value of our previous 1% ownership interest. At December 31, 2017, the book value of this ownership interest was $0.3 million. As described in Note 2, upon the adoption of ASU 2016-01 on January 1, 2018, the book value of this ownership interest was increased by $0.5 million to record the equity investment at $0.8 million within our consolidated financial statements. The acquisition is accounted for as a business combination using the acquisition method of accounting, which requires the net assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q, and may be adjusted during the measurement period of up to 12 months from the date of acquisition. Any changes in the estimated fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of September 30, 2018, the primary areas that are not yet finalized are estimates of the fair values of acquired intangible assets and related deferred tax liabilities, and the estimated fair value of assumed deferred revenue. We are still in the process of seeking and evaluating information used in the estimation of these fair value estimates as of the acquisition date. The following table summarizes our preliminary allocation of the purchase price consideration based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (net of cash acquired), all of which are preliminary pending completion of the final valuation:
|  |  |  | Total
|  |  |  | (in thousands)
| Acquired tangible assets |  | $ | 1,873
| Acquired intangible assets |  |  | 16,100
| Liabilities assumed |  |  | (3,998)
| Goodwill |  |  | 39,879
| Total purchase price consideration |  | $ | 53,854
The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to Dealflo, including expected benefits from synergies resulting from the acquisition, as well as the knowledge and experience of the workforce in place. In accordance with applicable accounting standards, goodwill is not amortized and will be tested for impairment at least annually, or more frequently, if certain indicators are present. Goodwill and intangible assets related to this acquisition are not deductible for foreign tax purposes. Based on the preliminary results of the acquisition valuation, approximately $16.1 million of the purchase price consideration has been allocated to identifiable intangible assets. The following table summarizes the major classes of intangible assets, as well as the estimated weighted-average amortization periods:
|  | Estimated Fair Value |  | Weighted Average Amortization Period
Identifiable Intangible Assets |  | (in thousands) |  | (Years)
Customer relationships | $ | 10,000 |  | 7
Technology |  | 5,900 |  | 4
Trademarks |  | 200 |  | 3
| $ | 16,100 |  |
The results of operations of Dealflo subsequent to the acquisition date have been included in the consolidated statements of operations. Revenue generated by Dealflo for the three and nine months ended September 30, 2018, was $1.8 million and $2.3 million, respectively. Dealflo net losses included in the results of operations for the three and nine months ended September 30, 2018 were $2.1 million and $2.9 million, respectively. The acquisition related costs directly attributable to the business combination of $1.1 million, including professional fees, and other direct expenses, were expensed as incurred and included in general and administrative expense in the unaudited condensed consolidated statements of operations. Unaudited Pro Forma Financial Information The following presents the unaudited pro forma combined results of operations of the Company with Dealflo for the nine months ended September 30, 2018 and 2017, assuming that Dealflo was acquired at the beginning of 2017, and after giving effect to certain pro forma adjustments. Pro forma adjustments for the nine months ended September 30, 2018 reflect estimated amortization expense for intangible assets purchased of $2.2 million, the elimination of $0.4 million of revenue related to intercompany transactions, and the elimination of $1.1 million of non-recurring acquisition-related costs. Pro forma adjustments for the nine months ended September 30, 2017 reflect estimated amortization expense for intangible assets purchased of $2.2 million, the addition of $1.1 million of non-recurring acquisition-related costs, the elimination of $0.4 million of revenue related to intercompany transactions, and a $0.6 million reduction of revenue to reflect the estimated fair value adjustment of acquired deferred revenue. These unaudited pro forma results are not necessarily indicative of the actual consolidated results of operations had the acquisition actually occurred on January 1, 2017 or of future results of operations of the consolidated entities (in thousands except per share data):
|  | Nine months ended
|  | September 30,
|  | 2018 |  | 2017
|  | (in thousands)
Revenue |  | $ | 153,049 |  | $ | 142,636
Net loss |  |  | (7,112) |  |  | (5,187)
Basic net loss per share |  |  | (0.18) |  |  | (0.13)
Diluted net loss per share |  |  | (0.18) |  |  | (0.13)
Shares used in computing basic and diluted net loss per share |  |  | 39,924 |  |  | 39,792

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