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Business Combinations | 12 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Business Combinations | Business Combinations: Acquisition of Social and Scientific Systems, Inc. ("S3") On June 7, 2019, the Company acquired 100% of the equity interests of S3 for a net purchase price of $67.1 million, or $70.1 million inclusive of cash acquired of $3.0 million. The acquisition was financed through a combination of:
• | borrowings of $70 million under the Company’s new senior credit facility
• | cash on hand to pay transaction expenses and financings costs of $4.9 million
The acquisition of S3 is consistent with the Company’s growth strategy, as it provided contract diversification, addition of key capabilities and increased presence in the public health market. We have used the acquisition method of accounting for this transaction, whereby the assets acquired and liabilities assumed are recognized based upon their estimated fair values at the acquisition date. The preliminary base purchase price for S3 was $70 million adjusted to reflect acquired cash, assumed liabilities and preliminary net working capital adjustments. The final purchase price of $70.1 million was determined based on S3’s final debt, transaction costs, net working capital, and other adjustments, as determined in accordance with the Purchase Agreement. The Company has remitted all necessary payments to the seller as a result of purchase price adjustments. Subject to certain limitations and conditions, the Company will be indemnified by the seller for damages resulting from breaches or inaccuracies of the representations, warranties, and covenants of the seller and S3 as set forth in the Purchase Agreement. The Purchase Agreement further provides that escrow funds of an aggregate amount of approximately $1.2 million were established at closing. The Company does not expect to draw on these funds as both the buyer and seller have agreed on the final purchase price. A representations and warranties insurance policy has been purchased by the Company in connection with the Purchase Agreement, under which the Company may seek recourse for breaches of the seller’s representations and warranties to supplement the indemnity escrow. The representations and warranties insurance policy is subject to certain customary exclusions and a deductible. In accordance with ASU 2017-01, which was previously adopted, the Company is accounting for this transaction as an acquisition of a business. We have completed the process of allocating the acquisition price to the fair value of the assets and liabilities of S3 at the acquisition date. The purchase price and its allocation are shown below. Based on the unaudited financial statements of S3 on June 7, 2019, we accounted for the total acquisition consideration and allocation of fair value to the related assets and liabilities as follows:
(Amounts in thousands) |  |
Final purchase price for S3 |  | $ | 70,115 |
Net assets acquired |  |
Cash and cash equivalents |  | $ | 3,037 |
Accounts receivable |  | 13,038 |
Other current assets |  | 1,418 |
Total current assets |  | 17,493 |
Accounts payable and accrued expenses |  | (4,488 | )
Payroll liabilities |  | (3,624 | )
Long term liabilities |  | (1,206 | )
Net working capital |  | 8,175 |
Equipment and improvements, net |  | 4,605 |
Net identifiable assets acquired |  | 12,780 |
Goodwill |  | 26,769 |
Customer contracts and related customer relationships |  | 28,974 |
Trade name |  | 1,592 |
Intangible assets acquired |  | 57,335 |
Net assets acquired |  | $ | 70,115 |
During the year ended September 30, 2019, S3 contributed approximately $24.3 million of revenue and $1.3 million of income from operations. All operating units are aggregated into a single reportable segment. The acquisition of S3 did not create an additional reportable segment as all operations report to a single Chief Operating Decision Maker (CODM), serve a similar customer base, and provide similar services within a common regulatory environment. The goodwill represents intellectual capital and the acquired workforce, of which both do not qualify as a separate intangible asset. The tax deductible goodwill is $26.8 million. The following table presents certain results for the years ended September 30, 2019 and 2018 as though the acquisition of S3 had occurred on October 1, 2017. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of our results if the acquisition had taken place on that date. The pro forma information was prepared by combining our reported historical results with the historical results of S3 for the pre-acquisition periods. In addition, the reported historical amounts were adjusted for the following items, net of associated tax effects:
• | The impact of acquisition financing.
• | The removal of certain S3 operations due to completed and nonrecurring contracts.
• | The removal of the legacy S3 Employee Stock Ownership Plan ("ESOP") expenses.
• | The removal of S3's historical goodwill amortization.
• | The impact of recording S3's intangible asset amortization.
• | The removal of S3's historical debt-related interest expense.
• | The impact of interest expense for the new credit facility.
• | The removal of legacy S3 director's fees.
• | The removal of transaction costs for the acquisition incurred by S3.
|  |  | (unaudited)
|  |  | (in thousands)
|  |  | Year ended
|  |  | September 30,
Pro forma results |  | Ref | 2019 |  | 2018
Revenue |  |  | $ | 204,043 |  |  | $ | 203,287 |
Net income (loss) |  | (a) | 2,044 |  |  | (1,456 | )
Number of shares outstanding - basic |  |  | 12,018 |  |  | 11,881 |
Number of shares outstanding - diluted |  |  | 13,041 |  |  | 12,873 |
Basic earnings per share (loss) |  |  | $ | 0.17 |  |  | $ | (0.12 | )
Diluted earnings per share (loss) |  |  | $ | 0.16 |  |  | $ | (0.11 | )
Ref (a): Fiscal 2018 results include the impact of writing down the deferred tax asset by $3.4 million. The write down is further described in Note 12 - Income Taxes.

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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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