| Discontinued Operations | 3. Discontinued Operations Sale of Physical Security Business On September 6, 2024, the Company completed the sale of its Physical Security Business to Buyer, and Buyer assumed certain of the Company’s liabilities related to the Physical Security Business (collectively, the “Asset Sale”) pursuant to that certain Stock and Asset Purchase Agreement, dated as of April 2, 2024 (the “Purchase Agreement”), by and between the Company and Buyer. As consideration for the Asset Sale, the Company received approximately $ 144.3 million in cash, subject to further customary adjustments as set forth in the Purchase Agreement. In connection with the closing of the Asset Sale, the Company and Buyer entered into a transition services agreement (the “Transition Services Agreement”). The Transition Services Agreement outlines the information technology, people, and facility support the Company will provide to Buyer for a period of 12 months to 18 months after the transaction closing date. The agreed upon charges for such services are intended to allow the Company and Buyer, respectively, to recover all costs and expenses of providing such services. Fees earned and incurred under the Transition Services Agreement for the three months ended September 30, 2024 were immaterial. The following summarizes the components of the gain on sale of the Physical Security Business, net of taxes (in thousands):
Cash proceeds $ 144,262
Assets sold:
Cash 868
Accounts receivable 11,610
Inventories 15,969
Prepaid expenses and other current assets 1,640
Property and equipment 861
Other assets 2,963
Total assets sold 33,911
Liabilities divested:
Accounts payable 4,179
Deferred revenue 3,579
Other accrued expenses and liabilities 718
Other liabilities 2,482
Total liabilities divested 10,958
Other:
Goodwill written off related to sale of Physical Security Business ( 10,196 )
Intangible assets written off related to sale of Physical Security Business ( 3,595 )
Transaction and other costs ( 676 )
Total other ( 14,467 )
Income tax provision 7,296
Gain on sale of Physical Security Business, net of taxes $ 99,546 The gain on sale of the Physical Security Business is subject to adjustment as the Company completes its tax analysis on the ability to utilize net operating loss and credit carryforwards to reduce the amount of income tax provision. Any adjustment to the income tax provision recorded in connection with the Sale of the Physical Security Business will be completed by December 31, 2024 . Discontinued Operations As the sale of the Company's Physical Security Business represented a significant strategic shift that has a material effect on the Company's operations and financial results, the Company has separately reported the results of its Physical Security Business as discontinued operations in the condensed consolidated statements of comprehensive income (loss) for all periods presented. The following presents the financial results of discontinued operations (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Net revenue $ 9,045 $ 20,114 $ 42,473 $ 55,301
Cost of revenue 5,210 9,492 22,825 27,470
Gross profit 3,835 10,622 19,648 27,831
Operating expenses:
Research and development 2,311 1,897 6,514 5,488
Selling and marketing 3,620 4,237 11,960 13,092
General and administrative 2,240 724 3,741 2,213
Restructuring and severance — 104 145 330
Total operating expenses 8,171 6,962 22,360 21,123
Income (loss) from operations ( 4,336 ) 3,660 ( 2,712 ) 6,708
Non-operating income (expense):
Foreign currency gains (losses), net 20 ( 15 ) ( 25 ) 3
Income (loss) before income tax benefit (provision) ( 4,316 ) 3,645 ( 2,737 ) 6,711
Income tax benefit (provision) 48 ( 7 ) — ( 46 )
Net income (loss) $ ( 4,268 ) $ 3,638 $ ( 2,737 ) $ 6,665 The cash flows related to the discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows. The following presents the significant non-cash items and capital expenditures related to discontinued operations (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Depreciation and amortization $ 226 $ 366 $ 892 $ 1,045
Capital expenditures 192 206 322 646
Stock-based compensation 4,264 475 5,254 1,468 The carrying value of the assets and liabilities of the discontinued operations on the condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023 were as follows (in thousands):
September 30, December 31,
ASSETS
Accounts receivable, net $ — $ 14,565
Inventories — 15,152
Prepaid expenses and other current assets — 3,199
Total current assets held-for-sale $ — $ 32,916
Property and equipment, net $ — $ 848
Operating lease right-of-use assets — 2,925
Intangible assets, net — 4,251
Goodwill — 10,218
Other assets — 556
Total long-term assets held-for-sale $ — $ 18,798
LIABILITIES
Accounts payable $ — $ 7,598
Operating lease liabilities — 932
Deferred revenue — 2,341
Accrued compensation and related benefits — 958
Other accrued expenses and liabilities — 1,173
Total current liabilities held-for-sale $ — $ 13,002
Long-term operating lease liabilities $ — $ 2,209
Long-term deferred revenue — 927
Total long-term liabilities held-for-sale $ — $ 3,136 Revenue Recognition The Physical Security Business recognized revenue upon transfer of control of promised products or services to customers in an amount that reflected the consideration expected to be received in exchange for those products or services. The contracts entered into could have included various combinations of its products, software licenses, and services, which were generally capable of being distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the transaction price was allocated to each performance obligation, generally on a relative basis using its standalone selling price. The stated contract value was generally the transaction price to be allocated to the separate performance obligations. Revenue was recognized net of any taxes collected from customers that were subsequently remitted to governmental authorities. Timing of Revenue Recognition Revenues are derived from sales of hardware products, software licenses, subscriptions, professional services, software maintenance and support, and extended hardware warranties.
Performance When Performance Obligation is When Payment is How Standalone Selling Price is
Hardware products When customer obtains control of the product (point-in-time) Within 30 - 60 days of shipment Observable in transactions without multiple performance obligations
Software licenses When license is delivered to customer or made available for download, and the applicable license period has begun (point-in-time) Within 30 - 60 days of the beginning of license period Established pricing practices for software licenses bundled with software maintenance, which are separately observable in renewal transactions
Subscriptions Ratably over the course of the subscription term (over time) In advance of subscription term Contractually stated or list price
Professional services As services are performed and/or when contract is fulfilled (point-in-time) Within 30 - 60 days of delivery Observable in transactions without multiple performance obligations
Software maintenance Ratably over the course of the support contract (over time) Within 30 - 60 days of the beginning of the contract period Observable in renewal transactions
Extended hardware Ratably over the course of the support contract (over time) Within 30 - 60 days of the beginning of the contract period Observable in renewal transactions |
