Acquisitions | 9 Months Ended |
Sep. 30, 2013 |
Business Combinations [Abstract] | ' |
Acquisitions | ' |
3. Acquisitions |
Sensor Enabled Notification System |
Effective on the close of business on October 1, 2013, the Company completed the acquisition of certain assets and liabilities of Comtech Mobile Datacom Corporation (“Comtech”) Sensor Enabled Notification System (“SENS”) operations pursuant to an Asset Purchase Agreement (“Comtech Asset Purchase Agreement”) dated as of October 1, 2013. The consideration paid to acquire SENS was $1,978 in cash. The operations of SENS will be included in the Company’s consolidated financial statements subsequent to the acquisition date of October 1, 2013. |
The acquisition of SENS will enable the Company to offer new product offerings to the Company’s existing suite of satellite and cellular network services. |
The allocation of the purchase price to the net assets acquired of SENS is currently in process. At this time, it is not practicable to disclose financial information regarding SENS. |
GlobalTrak |
Effective on the close of business on April 3, 2013, the Company completed the acquisition of certain assets and liabilities of GlobalTrak, a division of System Planning Corporation (“SPC”), pursuant to an Asset Purchase Agreement (“GlobalTrak Asset Purchase Agreement”) dated as of March 13, 2013. The consideration paid to acquire GlobalTrak on closing was $2,990 in cash, subject to a final working capital adjustment, of which $500 was deposited in escrow with a third party escrow agent. The $500 is available to pay indemnification obligations of SPC to the Company primarily relating for breaches of representations and warranties made by SPC. |
During the three months ended September 30, 2013, the Company reached an agreement with SPC for a final working capital adjustment of $86 which was paid to the Company. As of September 30, 2013, this amount was recorded as a decrease to goodwill in the condensed consolidated balance sheet since the adjustment was within the one-year measurement period. |
As this acquisition was effective on April 3, 2013, the results of operations of GlobalTrak are included in the condensed consolidated financial statements beginning April 4, 2013. |
Preliminary Estimated Purchase Price Allocation |
The total preliminary estimated purchase price was allocated to the net assets acquired based upon their preliminary estimated fair values as of the close of business on April 3, 2013 as set forth below. The excess of the preliminary purchase price over the preliminary net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions are subject to change. The areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain assets and liabilities, including intangible assets and goodwill. The Company anticipates finalizing the purchase price allocation by the end of the first quarter of 2014. The preliminary estimated purchase price allocation for the acquisition is as follows: |
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Cash and cash equivalents | | $ | 1,037 | | | | | | | | | |
Accounts receivable | | | 343 | | | | | | | | | |
Inventory | | | 1,023 | | | | | | | | | |
Other current assets | | | 405 | | | | | | | | | |
Equipment | | | 13 | | | | | | | | | |
Intangible assets | | | 500 | | | | | | | | | |
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Total identifiable assets acquired | | | 3,321 | | | | | | | | | |
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Accounts payable and accrued expenses | | | (912 | ) | | | | | | | | |
Deferred revenues | | | (1,707 | ) | | | | | | | | |
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Total liabilities assumed | | | (2,619 | ) | | | | | | | | |
Net identifiable assets acquired | | | 702 | | | | | | | | | |
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Goodwill | | | 2,202 | | | | | | | | | |
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Total preliminary purchase price | | $ | 2,904 | | | | | | | | | |
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Intangible Assets |
The fair values of the technology and trade names and trademarks were estimated using a relief from royalty method under the income approach based on discounted cash flows. A discount rate of 37% was selected to reflect risk characteristics of these intangible assets. The discount rate was applied to the projected cash flows associated with the assets in order to value the intangible assets. The remaining useful lives of the technology and trade names and trademarks were based on historical product development cycles, the projected rate of technology migration and a market participant’s use of these intangible assets and the pattern of projected economic benefit of these intangible assets. |
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| | Estimated | | | Amount | | | | | |
useful life (in | | | | |
years) | | | | |
Technology | | | 10 | | | $ | 380 | | | | | |
Trade names and trademarks | | | 5 | | | | 70 | | | | | |
Customer lists | | | 5 | | | | 50 | | | | | |
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| | | | | | $ | 500 | | | | | |
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Goodwill |
The acquisition of GlobalTrak gives the Company access to a customer base that includes military, international, government and commercial customers as well as expanded reach in growing regions, such as the Middle East, Asia and South America. These factors contributed to a preliminary estimated purchase price resulting in the recognition of goodwill. The acquired goodwill is deductible for income tax purposes. |
Indemnification Asset |
In connection with the GlobalTrak Asset Purchase Agreement, the Company entered into an escrow agreement with SPC and an escrow agent. Under the terms of this escrow agreement, $500 was placed in an escrow account for up to fifteen months to fund any indemnification obligations to the Company primarily relating for breaches of representations and warranties made by SPC. Under the terms of the escrow agreement, SPC will be entitled to receive one-half of the $500, less the aggregate amount of claims made by the Company against SPC six months from April 3, 2013. In the event that the Company believes that an indemnity obligation of SPC has arisen under the GlobalTrak Asset Purchase Agreement, the Company shall have the right to provide written notice to the escrow agent and SPC setting forth a description of the claim and the amount of cash to be distributed to the Company from the escrow account. As of September 30, 2013, the Company has not recorded an indemnification asset for any indemnity obligations of SPC arising under the GlobalTrak Asset Purchase Agreement. The Company will continue to evaluate if there are any indemnity obligations of SPC arising under the GlobalTrak Asset Purchase Agreement during the remainder of the measurement period. In October 2013, the Company notified the escrow agent to release $250 from escrow and distribute the amount to SPC. |
Pre-Acquisition Contingencies |
The Company has evaluated and continues to evaluate pre-acquisition contingencies related to GlobalTrak that existed as of the acquisition date. If any pre-acquisition contingencies that were acquired as part of the acquisition become probable and estimable, the Company will record such amounts in the measurement period or the Company’s results of operations, as applicable. |
MobileNet, Inc. |
Effective on the close of business on April 1, 2013, the Company completed the acquisition of substantially all of the assets of MobileNet, Inc. (“MobileNet”), pursuant to an Asset Purchase Agreement (the “MobileNet Asset Purchase Agreement”) dated as of March 13, 2013. As this acquisition was effective on April 1, 2013, the results of operations of MobileNet are included in the condensed consolidated financial statements beginning April 2, 2013, however the impact of this acquisition was not material to the Company’s condensed consolidated results of operations. |
The consideration paid by the Company on closing consisted of $3,203 in cash, subject to a final working capital adjustment specified in the MobileNet Asset Purchase Agreement and the issuance of 329,344 shares of the Company’s common stock (valued at $4.96 per share, which reflects the Company’s common stock closing price on April 1, 2013), of which 164,672 shares of common stock were placed into an escrow account for up to fifteen months from closing to fund any indemnification obligations to the Company primarily relating for breaches of representations and warranties made by MobileNet. During the three months ended September 30, 2013, the Company reached an agreement with MobileNet for a final working capital adjustment of $28 which was paid to MobileNet. As of September 30, 2013, this amount was recorded as an increase to goodwill in the condensed consolidated balance sheet since the adjustment was within the one-year measurement period. |
In addition to the consideration paid at closing, the MobileNet Asset Purchase Agreement provides for contingent consideration payable by the Company to MobileNet if service revenues attributable to the MobileNet business for either of the two one year earn-out periods May 1, 2013 through April 30, 2014 and May 1, 2014 through April 30, 2015 are in excess of the specified baseline amount. In that event, the Company has agreed to pay to MobileNet an amount equal to (i) 50% of the first $2,000 of such excess amount for the applicable earn-out period and (ii) 35% of any amount of such excess amount for the applicable earn-out period which is greater than $2,000. Up to 50% of any potential earn-out amounts can be paid in common stock at the Company’s option. Any shares of common stock to be issued will be based on the 20-day average closing price of the common stock prior to the last trading day of the earn-out period. At the acquisition date, the Company recorded a liability of $1,539 for the estimated value of the earn-out amounts. |
The following table summarizes the preliminary fair values of the purchase price: |
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Cash | | $ | 3,231 | | | | | | | | | |
Issuance of 329,344 shares of common stock (valued at $4.96 per share, which reflects the Company’s common stock closing price on April 1, 2013) | | | 1,634 | | | | | | | | | |
Fair value of contingent earn-out amounts | | | 1,539 | | | | | | | | | |
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Total | | $ | 6,404 | | | | | | | | | |
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Contingent earn-out consideration |
The estimated fair value of the contingent earn-out amounts was determined based on the Company’s preliminary estimates using weighted probabilities to achieve the service revenues attributable to the MobileNet business for either of the two one year earn-out periods May 1, 2013 through April 30, 2014 and May 1, 2014 through April 30, 2015. At the acquisition date, the Company estimated the fair value of the contingent earn-out amounts using a probability-weighted discounted cash flow models discounted at 19% and recorded a liability for the estimated fair value of the contingent earn-out consideration. The fair value measurements are based on significant inputs not observed in the market and thus represents a Level 3 measurement. Any change in the fair value of the contingent earn-out amounts subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized in earnings in the period the estimated fair value changes. Achievement of the service revenues lower than the targets will result in less being paid out. Achievement below certain thresholds will reduce the liability to zero. As of September 30, 2013, the Company estimated the fair value of the contingent earn-out amounts using a probability-weighted discounted models discounted at 18%. For the three and nine months ended September 30, 2013, the fair value of the earn-out amounts was increased by $67 which is recorded in selling, general and administrative expenses in the condensed consolidated statements of operations. As of September 30, 2013, $33 is included in accrued liabilities and $1,573 is included in other liabilities in the condensed consolidated balance sheet. |
Preliminary Estimated Purchase Price Allocation |
The total preliminary estimated purchase price was allocated to the net assets acquired based upon their preliminary estimated fair values as of the close of business on April 1, 2013 as set forth below. The excess of the preliminary purchase price over the preliminary net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions are subject to change. The areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain assets and liabilities, including contingent consideration, deferred revenues, intangible assets and goodwill. The Company anticipates finalizing the purchase price allocation by the end of the first quarter of 2014. The preliminary estimated purchase price allocation for the acquisition is as follows: |
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Accounts receivable | | $ | 363 | | | | | | | | | |
Inventory | | | 255 | | | | | | | | | |
Other current assets | | | 10 | | | | | | | | | |
Intangible assets | | | 3,460 | | | | | | | | | |
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Total identifiable assets acquired | | | 4,088 | | | | | | | | | |
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Accrued expenses | | | (238 | ) | | | | | | | | |
Deferred revenues | | | (346 | ) | | | | | | | | |
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Total liabilities assumed | | | (584 | ) | | | | | | | | |
Net identifiable assets acquired | | | 3,504 | | | | | | | | | |
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Goodwill | | | 2,900 | | | | | | | | | |
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Total preliminary purchase price | | $ | 6,404 | | | | | | | | | |
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Intangible Assets |
The fair values of the technology and trademarks were estimated using a relief from royalty method under the income approach based on discounted cash flows. The fair value of the customer lists was estimated based on an income approach using the excess earnings method. A discount rate of 24% was selected to reflect risk characteristics of these intangible assets. The discount rate was applied to the projected cash flows associated with the assets in order to value the intangible assets. The remaining useful lives of the technology and trademarks were based on historical product development cycles, the projected rate of technology migration, a market participant’s use of these intangible assets and the pattern of projected economic benefit of these intangible assets. The remaining useful lives of customer relationships were based on the customer attrition and the projected economic benefit of these customers. |
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| | Estimated | | | | | | | | |
| | useful life (in | | | | | | | | |
| | years) | | | Amount | | | | | |
Customer lists | | | 10 | | | $ | 2,600 | | | | | |
Technology | | | 10 | | | | 730 | | | | | |
Trademarks | | | 5 | | | | 130 | | | | | |
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| | | | | | $ | 3,460 | | | | | |
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Goodwill |
The acquisition of MobileNet will enable the Company to offer MobileNet’s complete fleet management solution directly to original equipment manufacturers, dealers and fleet owners. These factors contributed to a preliminary estimated purchase price resulting in the recognition of goodwill. The acquired goodwill is deductible for income tax purposes. |
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Indemnification Asset |
In connection with the MobileNet Asset Purchase Agreement, the Company entered into an escrow agreement with MobileNet and an escrow agent. Under the terms of this escrow agreement, 164,672 shares of common stock were issued to MobileNet and placed in an escrow account for up to fifteen months to fund any indemnification obligations to the Company primarily relating for breaches of representations and warranties made by MobileNet. Under the terms of the escrow agreement, MobileNet will retain all rights and privileges of ownership of the common stock placed in the escrow account. Further subject to certain resale restrictions, MobileNet has the right to sell any of the common stock that was placed in escrow provided that all proceeds of any such sale are deposited directly with the escrow agent. In the event that the Company believes that an indemnity obligation of MobileNet has arisen under the MobileNet Asset Purchase Agreement, the Company shall have the right to provide written notice to the escrow agent and MobileNet setting forth a description of the distribution event and the number of shares of the Company’s common stock and or amount of cash to be distributed to the Company from the escrow account. The Company will direct the escrow agent to release to the Company from the escrow account a number of shares of common stock equal to the distribution amount valued at the 20-day average closing price from April 1, 2013. As of September 30, 2013, the Company has not recorded an indemnification asset for any indemnity obligations of MobileNet arising under the MobileNet Asset Purchase Agreement. The Company will continue to evaluate if there are any indemnity obligations of MobileNet arising under the MobileNet Asset Purchase Agreement during the remainder of the measurement period. |
Pre-Acquisition Contingencies |
The Company has evaluated and continues to evaluate pre-acquisition contingencies related to MobileNet that existed as of the acquisition date. If any pre-acquisition contingencies that were acquired as part of the acquisition become probable and estimable, the Company will record such amounts to goodwill in the one-year measurement period, or the Company’s results of operations, if outside the one-year measurement period as applicable. |
LMS |
Effective on the close of business on January 12, 2012, the Company completed the acquisition of the assets of LMS, pursuant to an Asset Purchase Agreement dated as of December 23, 2011. As this acquisition was effective on January 12, 2012, the results of operations of LMS are included in the condensed consolidated financial statements beginning January 13, 2012. |
The consideration paid by the Company to PAR on closing to acquire LMS consisted of $4,000 in cash, subject to a final working capital adjustment specified in the Asset Purchase Agreement and the issuance of 645,162 shares of the Company’s common stock, of which 387,097 shares of common stock were placed into an escrow account for up to fifteen months from closing to fund any indemnification obligations to the Company, including for breaches of representations and warranties made by PAR. During the six months ended June 30, 2013, the Company and PAR agreed to a working capital adjustment of $112 for amounts owed to the Company by PAR. This amount was recorded to other income in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2013 since the adjustment to the working capital exceeded the one-year measurement period. |
In addition to the consideration paid at closing, the Asset Purchase Agreement provides for contingent payments of up to $3,950 payable post-closing by the Company to PAR. Up to $3,000 of the contingent payments will be payable based on achieving subscriber targets for calendar year 2012. For the year ended December 31, 2012, LMS did not achieve the subscriber targets. Up to $950 of the contingent payments will be payable based on achieving sales targets through 2014. Any potential earn-out amount can be paid in common stock, cash or a combination at the Company’s option. Any shares of common stock to be issued will be based on the 20-day average closing price ending on the third trading day preceding the date of payment. The potential earn-out amount for achieving the sales targets for any calendar year if earned will be paid within 30 days after the Company files its Form 10-K for years 2013 and 2014. |
Contingent earn-out consideration |
The estimated fair value of the contingent earn-out amount was determined based on the Company’s estimates using weighted probabilities to achieve the sales targets for calendar years 2013 through 2014. The Company estimated the fair value of the sales targets contingent earn-out amounts using a probability-weighted discounted cash flow model. The Company has recorded a liability for the estimated fair value of the contingent earn-out consideration. The fair value measurements are based on significant inputs not observed in the market and thus represents a Level 3 measurement. Any change in the fair value of the contingent earn-out amounts subsequent to the acquisition date, including changes from events after the acquisition date will be recognized in earnings in the period the estimated fair value changes. Achievement of the sales target lower than the target will result in less than the $950 being paid out. Achievement below certain thresholds will reduce the liability to zero. For the three and nine months ended September 30, 2013, the fair value of the earn-out amounts was decreased by $220 which is recorded as a reduction of selling, general and administrative expenses in the condensed consolidated statements of operations. As of September 30, 2013, $370 is included in other liabilities in the condensed consolidated balance sheet. |
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Indemnification Asset |
PAR and the Company have agreed to release $843 from escrow to PAR. During the six months ended June 30, 2013, the Company and PAR have agreed to release the remaining balance of $285 to the Company. The $285 was recorded to other income in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2013 since the resolution of the claim exceeded the one-year measurement period. |
Warranty Liabilities and Escrow Agreement |
As a result of the acquisition of StarTrak on May 16, 2011, the Company recorded warranty obligations on StarTrak’s product sales, which provide for costs to replace or fix the product. One-year warranty coverage is accrued on product sales which provide for costs to replace or fix the product. |
In connection with the acquisition, the Company entered into an escrow agreement with Alanco. Under the terms of the escrow agreement, 166,611 shares of common stock were issued to Alanco and placed in an escrow account to cover 50% of certain costs relating to fuel sensor warranty obligations incurred by the Company. In the event that the sum of (i) aggregate warranty expenses (other than for fuel sensors) and (ii) any fuel sensor damages directly expended or accrued on the StarTrak balance sheet from March 1, 2011 through March 1, 2012 exceeds $600, the Company shall have the right to provide written notice to the escrow agent and Alanco setting forth a description of the fuel sensor distribution event and the number of shares of the Company’s common stock to be distributed to the Company from the escrow account. The number of shares of common stock that the Company will direct the escrow agent to release to the Company from the escrow account will equal 50% of the fuel sensor damages (excluding the amount of damages that when added to the non-fuel sensor damages equals $600) incurred or suffered from June 1, 2011 through March 1, 2012, valued at $3.001 per share. The Company is in the process of finalizing the arrangement. As a result, the Company recorded $547 relating to the escrow agreement as an indemnification asset, which is included in other assets. For the three months ended September 30, 2013 and 2012, the Company recorded a gain of $78 and $50, respectively, and for the nine months ended September 30, 2013 and 2012 recorded a gain of $138 and $78 on the fair value of the common stock held in escrow, which is recorded in selling, general and administrative expenses in the condensed consolidated statements of operations. |
Pro Forma Results for the Acquisitions of GlobalTrak and LMS |
The following table presents the unaudited pro forma results of the Company and GlobalTrak for the three months ended September 30, 2012 and the unaudited pro forma results of the Company, GlobalTrak and LMS for the nine months ended September 30, 2012 and the unaudited pro forma results of GlobalTrak for the nine months ended September 30, 2013 as though the companies had been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of each period presented. |
The supplemental pro forma revenues, net income (loss) attributable to ORBCOMM Inc. and the net income attributable to common stockholders for the period presented in the table below were adjusted to include the amortization of the intangible assets and income tax expense calculated from January 1, 2012 to the acquisition dates. Also the supplemental pro forma information was adjusted to exclude acquisition costs directly related to GlobalTrak and LMS. |
The amount of GlobalTrak’s revenues and net loss included in the Company’s condensed consolidated statements of operations from the acquisition date to September 30, 2013 and GlobalTrak and LMS results of operations of the combined entity had the acquisition dates been January 1, 2012, are as follows: |
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| | | | | | | | Net Income (loss) | |
| | | | | Net Income (loss) | | | Attributable to | |
| | | | | Attributable | | | ORBCOMM Inc. | |
| | Revenues | | | ORBCOMM Inc. | | | Common Stockholders | |
Actual from April 4, 2013 to September 30, 2013 (GlobalTrak) | | $ | 3,502 | | | $ | (5 | ) | | $ | (5 | ) |
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Supplemental pro forma for the three months ended September 30, 2012 (GlobalTrak) | | $ | 16,862 | | | $ | 1,707 | | | $ | 1,690 | |
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Supplemental pro forma for the nine months ended September 30, 2013 (GlobalTrak) | | $ | 55,636 | | | $ | 3,126 | | | $ | 3,080 | |
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Supplemental pro forma for the nine months ended September 30, 2012 (GlobalTrak and LMS) | | $ | 49,420 | | | $ | 5,589 | | | $ | 5,536 | |
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