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Business Combinations | 3 Months Ended
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Mar. 31, 2021
Business Combinations [Abstract] |
Business Combinations | Note 4. Business Combinations On January 7, 2021, the Company entered into a Stock Purchase Agreement, by and among the Company, NimbeLink, the sellers set forth therein (the Sellers) and Scott Schwalbe in his capacity as seller representative (the Purchase Agreement). NimbeLink is an industrial Internet of Things (IIoT) company focused on the design, development and delivery of edge-based cellular connectivity solutions for enterprise customers. The acquisition of NimbeLink supports the Company's transition toward becoming a more system-level company and will play an important role in the Company's overall growth strategy to broaden market diversification, especially within the IIoT space. Pursuant to the Purchase Agreement, at the closing on January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink for an upfront cash purchase price of approximately $15.0 million, subject to working capital and other customary adjustments of $1.0 million and $0.7 million in deferred cash payments due to the Sellers fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders may receive up to $8.0 million in contingent consideration, subject to the acquired business's achievement of certain revenue targets in 2021. The Company assumed unvested common stock options of continuing employees and service providers. Acquisition Consideration The following table summarizes the fair value of purchase consideration to acquire NimbeLink (in thousands):
Fair value of purchase consideration |  |  |
Cash |  | $ | 15,991 |
Deferred payments(1) |  |  | 728 |
Contingent consideration(2) |  |  | 5,986 |
Replacement options(3) |  |  | 40 |
Total purchase consideration |  | $ | 22,745 |
(1) The fair value of the holdback payment was determined by discounting to present value, payments totaling $/0.7 million expected to be made to NimbeLink fifteen months after the close of the transaction. (2) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $8 million in payments subject to the acquired business’s satisfying certain revenue targets in 2021. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration. (3) Represents the pre-combination stock compensation expense for replacement options issued to NimbeLink employees. Preliminary Purchase Price Allocation The following is an allocation of purchase price as of the January 7, 2021 closing date based upon a preliminary estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition (in thousands):
Purchase price allocation |  |  |
Cash |  | $ | 1,806 |
Accounts receivable |  |  | 1,127 |
Inventory |  |  | 1,671 |
Prepaids and other current assets |  |  | 141 |
Property and equipment |  |  | 151 |
Right of use assets |  |  | 402 |
Other assets |  |  | 194 |
Identified intangible assets |  |  | 14,065 |
Accounts payable |  |  | (654 | )
Accrued compensation |  |  | (139 | )
Accrued expenses and other current liabilities |  |  | (432 | )
Short-term lease liabilities |  |  | (78 | )
Long-term lease liabilities |  |  | (324 | )
Deferred tax liabilities |  |  | (2,330 | )
Identifiable net assets acquired |  |  | 15,600 |
Goodwill |  |  | 7,145 |
Total purchase price |  | $ | 22,745 |
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
Category | Estimated Life in Years | Fair value |
Finite-lived intangible assets |  |  |
Market-related intangibles | 5 | $ | 1,700 |
Customer relationships | 5 |  | 8,950 |
Developed technology | 12 |  | 2,600 |
Covenants to non-compete | 2 |  | 115 |
Indefinite-lived intangible assets |  |  |
In-process research and development | N/A |  | 700 |
Total identifiable intangible assets acquired |  | $ | 14,065 |
Assumptions in the Allocations of Purchase Price Management prepared the purchase price allocations and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets and inventory, and the portions of the purchase consideration expected to be paid to NimbeLink securityholders in the future, as described above. Certain NimbeLink securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration. Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the operations of the NimbeLink business with the operations of the Company. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates. The fair value of the customer relationships was determined using the multi-period excess earnings method, or MPEEM. MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the asset, and discounting those cash flows to the present. Future cash flows for contractual and non-contractual customers were estimated based on forecasted revenue and costs, taking into account the growth rates and contributory charges. The fair value of market-related intangible assets, developed technology, and in-process research and development (IPR&D) was determined using the Relief from Royalty Method. The Relief-from-Royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset. The fair value of non-compete intangible assets was estimated using the with-or-without method. The with-and-without method estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical condition where only the subject intangible does not exist and needs to be re-created. Projected revenues, operating expenses and cash flows are calculated in each "with" and "without" scenario and the difference in the cash flow is discounted to present value. Inventory was valued at net realizable value. Raw materials were valued at book value and finished goods were valued assuming hypothetical revenues from finished goods adjusted for disposal costs, profit attributable to the seller and holding costs. An inventory step-up of $0.4 million is included in the purchase price allocation above. The Company assumed liabilities in the acquisition which primarily consist of accrued employee compensation and certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above. Goodwill recorded in connection with the NimbeLink acquisition was $7.1 million. The Company does not expect to deduct any of the acquired goodwill for tax purposes. Supplemental proforma financial information The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented as if the NimbeLink acquisition had occurred at the beginning of 2020 (in thousands):
| Three months ended March 31, |
| 2021 |  |  | 2020 |
Net revenue - pro forma combined | $ | 17,409 |  |  | $ | 15,946 |
Net loss - pro forma combined |  | 236 |  |  |  | (1,324 | )
The following adjustments were included in the unaudited pro forma combined net revenues (in thousands):
| Three months ended March 31, |
| 2021 |  |  | 2020 |
Net revenue | $ | 17,377 |  |  | $ | 11,216 |
Add: Net revenue - acquired businesses |  | 32 |  |  |  | 4,730 |
Net revenues - pro-forma combined | $ | 17,409 |  |  | $ | 15,946 |
The following adjustments were included in the unaudited pro forma combined net income (loss) (in thousands):
| Three months ended March 31, |
| 2021 |  |  | 2020 |
Net income (loss) | $ | 237 |  |  | $ | (1,202 | )
Add: Results of operations of acquired business |  | (310 | ) |  |  | 771 |
Less: pro forma adjustments |  |  |  |  |
Amortization of historical intangibles |  | — |  |  |  | 24 |
Amortization of acquired intangibles |  | (38 | ) |  |  | (587 | )
Inventory fair value adjustments |  | 353 |  |  |  | (353 | )
Interest income |  | (6 | ) |  |  | — |
Interest expense |  | — |  |  |  | 23 |
Net loss - pro forma combined | $ | 236 |  |  | $ | (1,324 | )
The unaudited pro forma financial information has been adjusted to reflect the amortization expense for acquired intangibles, removal of historical intangible asset amortization and recognition of expense associated with the step-up of inventory. The pro forma data is presented for illustrative purposes only, and the historical results of NimbeLink are based on its books and records prior to the acquisition, and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2020. In addition, future results may vary significantly from the pro forma results reflected herein and should not be relied upon as an indication of the results of future operations of the combined business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquired entity. For the three months ended March 31, 2021, $3.2 million of revenue and $0.2 million of net loss included in the Company's condensed consolidated statements of operations was related to NimbeLink. The Company does not consider the revenue and net loss related to the acquired entity to be indicative of results of the acquisition due to integration activities since the acquisition date. Also see Note 7, Goodwill and Intangible Assets for further information on goodwill and intangible assets related to the NimbeLink acquisition.

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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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