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Business Combinations | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Business Combinations | 3. Business Combinations On January 4, 2019, the Company acquired all of the outstanding stock of CoreBiome, pursuant to the terms of a merger agreement, dated January 3, 2019. Also on January 4, 2019, the Company, through a wholly-owned subsidiary, acquired all of the outstanding stock of Novosanis, pursuant to a share purchase agreement, dated January 3, 2019. We began operating these entities as of the January 4, 2019 closing date. The aggregate purchase price for both of these transactions was $13,320 adjusted for certain transaction costs, indebtedness, and holdback amounts, and was funded with cash on hand. A portion of the purchase price was deposited into escrow accounts for a limited period after closing, in order to secure the potential payment of certain indemnification obligations of the selling stockholders under each agreement noted above. During the nine months ended September 30, 2019, we incurred a total of $597 of acquisition-related costs, including success-based investment banking fees and accounting, legal and other professional fees, related to both acquisitions, all of which were expensed and reported as a component of general and administrative expenses in the consolidated statement of income. Pursuant to our acquisition agreements, we may pay up to an additional $32,400 of contingent consideration over the next three years based on the achievement of certain performance criteria as defined under the agreements, including generating certain revenue dollars, the achievement of a large customer contract, and the development of certain new technology. The Company, with the assistance of an independent valuation specialist, utilized a Monte Carlo simulation to determine the estimated acquisition-date fair value of the acquisition-related contingent consideration of $4,350. The simulation calculates the probability-weighted payments based on our assessment of the likelihood that the benchmarks will be achieved. The probability-weighted payments were then discounted using a discount rate based on an internal rate of return analysis using the probability-weighted cash flows. The fair value measurement was based on significant inputs, including revenue forecasts, not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The change in the fair value of the contingent consideration obligation from $4,350 as of the acquisition date to $3,424 as of September 30, 2019 is a result of changes in our estimated revenue forecasts, offset by the probability associated with achieving a certain technical milestone. In October 2019, management agreed to settle the contingent consideration associated with one of the acquisition’s 2019 results for $3,500, which will result in an increase of approximately $500 in the fair market value of the related contingent consideration liability in the fourth quarter of 2019. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Assets Acquired |  |  |  |
Accounts receivable |  | $ | 791 |
Inventories |  |  | 310 |
Other current assets |  |  | 82 |
Property, plant, and equipment, net |  |  | 414 |
Other assets |  |  | 5 |
Acquired intangible assets |  |  | 8,400 |
Goodwill |  |  | 9,994 |
Total assets acquired |  |  | 19,996 |
Liabilities Assumed |  |  |  |
Current liabilities |  |  | 1,180 |
Notes payable, short-term |  |  | 730 |
Deferred tax liability |  |  | 445 |
Other long-term liabilities |  |  | 74 |
Total liabilities assumed |  |  | 2,429 |
Net Assets Acquired |  |  | 17,567 |
Estimated fair value of contingent consideration |  |  | (4,350 | )
Net Cash Paid (net of cash acquired of $103) |  | $ | 13,217 |
The purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their acquisition-date estimate fair values. The identifiable intangible assets principally included developed technology, customer relationships, and tradenames, all of which are subject to amortization on a straight-line basis and are being amortized over estimated useful lives as summarized below:
|  | Estimated Useful |  |  |  |
Description |  | Life (in yrs) |  | Amount |
Developed Technology |  | 10 |  | $ | 5,000 |
Customer relationships |  | 10 |  |  | 2,200 |
Tradenames |  | 8.34 |  |  | 1,200 |
Total acquired intangibles |  |  |  | $ | 8,400 |
The Company, with the assistance of an independent valuation specialist, assessed the fair value of the assets of CoreBiome and Novosanis. The income approach was used to value the acquired intangibles and the fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 fair value measurements. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The useful lives of the intangible assets were estimated based on the expected future economic benefit of the assets and are being amortized over the estimated useful life in proportion to the economic benefits consumed using the straight-line method. The amortization of intangible assets is not deductible for income tax purposes. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. We believe the goodwill related to the acquisitions was a result of providing us a complementary service and product offering that will enable us to leverage those services and products with existing and new customers. The goodwill is not deductible for income tax purposes. All of the goodwill identified above has been allocated to our DNAG segment. We continue to evaluate the fair value of certain assets acquired and liabilities assumed, including the fair valuation of deferred tax assets acquired, related to the acquisition. Additional information, which existed as of the acquisition date, but was at that time unknown to us, may become known during the remainder of the measurement period. Changes to amounts recorded as a result of the final determination may result in a corresponding adjustment to these assets and liabilities, including goodwill. The determination of the estimated fair values of all assets acquired is expected to be completed within one year from the date of acquisition. Revenues from CoreBiome primarily consist of microbiome laboratory services that utilize optimal analytical algorithms to deliver speed and scalability in the lab with precise analytics. Revenues from Novosanis primarily consist of the sale of its Colli-Pee collection device which was designed for the standard collection of first-void urine used in the liquid biopsy and sexually transmitted infection screening market. For the three and nine months ended September 30, 2019, consolidated net revenues include combined revenues associated with the CoreBiome and Novosanis business were $1,437 and $3,482, respectively. Consolidated results from operations for the three and nine months ended September 30, 2019 included net income (loss) of $1,377 and $(1,142), respectively, generated from the combined companies since the acquisition date. Effective as of January 4, 2019, the financial results of CoreBiome and Novosanis are included in our DNAG segment. Unaudited Pro Forma Financial Information The unaudited pro forma results presented below include the results of the CoreBiome and Novosanis acquisitions as if they had been consummated as of January 1, 2018. The unaudited pro forma results include the amortization associated with acquired intangible assets and the estimated tax effect of adjustments to income before income taxes but do not include changes in the fair value of our contingent consideration obligations. Material nonrecurring charges, directly attributable to the transactions, including direct acquisition costs, are also excluded. In addition, the unaudited pro forma results do not include any expected benefits of the acquisitions. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2018.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Revenue |  | $ | 35,989 |  |  | $ | 46,628 |  |  | $ | 104,937 |  |  | $ | 133,150 |
Net income |  |  | 13,078 |  |  |  | 7,649 |  |  |  | 14,218 |  |  |  | 7,335 |
Net income per share, basic and diluted |  |  | 0.21 |  |  |  | 0.12 |  |  |  | 0.23 |  |  |  | 0.11 |

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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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