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Acquisitions | 3 Months Ended
--- | ---
Mar. 31, 2019
Business Combinations [Abstract] |
Acquisitions | (11) Acquisitions (a) Telmetrics Acquisition: In November 2018, the Company acquired 100% of the outstanding stock of Telmetrics, an enterprise call and text tracking and analytics company based in Canada for total consideration consisting of the following:
| • | Approximately $10.1 million in cash, paid at closing; and
| • | Up to $3.0 million in cash based upon the achievement of targeted financial goals over the two (2) twelve (12) month periods following the acquisition date.
The Company accounted for the Telmetrics acquisition as a business combination. As a result of the acquisition, the Company captured additional scale with its call analytics business and enhanced text communications product initiatives. A summary of the consideration for the acquisition is as follows (in thousands):
Cash | $ | 10,100 |
Future consideration |  | 1,600 |
Total | $ | 11,700 |
The future consideration includes an earnout arrangement that requires the Company to pay up to a maximum of $3.0 million in cash to the former shareholders of Telmetrics based upon the achievement of targeted financial goals over the two (2) twelve (12) month periods following the acquisition date. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent earnout arrangement is between $0 and $3.0 million. Of the $3.0 million possible earnout, $450,000 may be paid to certain employees to the extent they remain employed by the Company on the first and second anniversaries following the acquisition date. Such amounts have been excluded from the purchase consideration and are treated as compensation expense. The fair value of the contingent consideration arrangement of approximately $1.6 million was estimated by applying the income approach, which is based on significant inputs that are not observable in the market (Level 3 inputs), such as the discount rate and the probability of meeting targeted financial goals. As of March 31, 2019, the range of outcomes, and the assumptions used to develop the estimates had not changed. The earnout liability is recorded on the balance sheet in acquisition-related liabilities. In connection with the acquisition, a portion of the cash consideration was placed in escrow to secure indemnification obligations for a period of 18 months from the closing date. The escrow amounts are included as part of the purchase price consideration and will ultimately be released in the event no indemnification obligations are identified. In the event any indemnification obligations are identified, the purchase price may be reduced accordingly. The consideration is preliminary pending finalization of potential working capital adjustments. The following summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed as of March 31, 2019 (in thousands):
Cash and cash equivalents | $ | 359 |
Accounts receivable |  | 1,274 |
Prepaid expenses and other current assets | 586 |
Property and equipment | 281 |
Identifiable intangible assets |  | 6,351 |
Liabilities assumed |  | (885 | )
Deferred tax liabilities |  | (1,677 | )
Net assets acquired |  | 6,289 |
Goodwill |  | 5,411 |
Total | $ | 11,700 |
The acquired identifiable intangible assets of approximately $6.4 million consist primarily of customer relationships, technology, tradenames, and non-compete agreements which will be amortized over 24 to 60 months (weighted average of 3.6 years) using the straight-line method. Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of Telmetrics. The goodwill is not anticipated to be deductible for Canadian tax purposes. (b) Callcap Acquisition: In November 2018, the Company acquired 100% of the outstanding stock of Callcap, a call monitoring and analytics solutions company based in Kansas for total consideration of $35.0 million, consisting of the following:
| • | Approximately $25.0 million in cash, and
| • | 3.4 million shares of Class B common stock valued at approximately $10.0 million, to be issued over the four-year period following the acquisition date. The issuance of the Class B common stock is not contingent.
The Company accounted for the Callcap acquisition as a business combination. As a result of the acquisition, the Company expanded its customer base, as well as enhanced its growth opportunities in verticals and new customer channels, such as the small business segment. A summary of the consideration for the acquisition is as follows (in thousands):
Cash | $ | 24,993 |
Fair value of equity consideration |  | 10,017 |
Total | $ | 35,010 |
The fair value of the 3.4 million shares of Class B common stock to be issued over the four-year period following the acquisition date, was calculated based on the closing price of Marchex’s Common Stock on Nasdaq on the acquisition date and is recorded on the Company’s balance sheet within additional paid-in capital. In connection with the acquisition, a portion of the cash and equity consideration was (or will be on issuance) placed in escrow to secure indemnification obligations for a period of 18 months from the closing date. The escrow amounts are included as part of the purchase price consideration and will ultimately be released in the event no indemnification obligations are identified. In the event any indemnification obligations are identified, the purchase price may be reduced accordingly. The following summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed as of March 31, 2019 (in thousands):
Cash and cash equivalents | $ | 490 |
Accounts receivable |  | 246 |
Prepaid expenses and other current assets |  | 504 |
Property and equipment |  | 93 |
Identifiable intangible assets |  | 15,128 |
Liabilities assumed |  | (482 | )
Net assets acquired |  | 15,979 |
Goodwill |  | 19,031 |
Total | $ | 35,010 |
The acquired identifiable intangible assets of approximately $15.1 million consist primarily of customer relationships, tradenames, technologies, and non-compete agreements, which will be amortized over their preliminary estimated useful lives ranging from 24 to 60 months (weighted average of 4.1 years) using the straight-line method. Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of Callcap. The goodwill is deductible for federal tax purposes. (c) Unaudited pro forma financial information (acquisitions): The following unaudited pro forma financial information summarizes the combined results of operations of the Company, Telmetrics, and Callcap, and is based on the historical results of operations of the Company, Telmetrics, and Callcap. The pro forma information reflects the results of operations of the Company as if the acquisitions of Telmetrics and Callcap had taken place on January 1, 2018. The unaudited pro forma financial information for the three months ended March 31, 2018 combine the historical results of operations for the Company for the three months ended March 31, 2018 and Telmetrics’ and Callcap’s historical results of operations during the pre-acquisition period for the three months ended March 31, 2018. The pro forma information includes adjustments for amortization of intangible assets, accretion of interest expense related to the future consideration, and elimination of interest expense and income. The unaudited pro forma financial information is provided for information purposes only and is not necessarily indicative of the combined results that would have occurred had the acquisition taken place on the dates indicated, nor is it necessarily indicative of results that may occur in the future.
|  | (Unaudited) |
|  | (in thousands) |
|  | Three months ended March 31, |
|  | 2018 |
Revenue |  | $ | 26,680 |
Net loss applicable to common stockholders |  |  | (1,308 | )

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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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