Acquisition of Telerhythmics (Notes) | 3 Months Ended |
Mar. 31, 2014 |
Business Combinations [Abstract] | ' |
Acquisition of Telerhythmics, LLC | ' |
Acquisition of Telerhythmics, LLC |
On March 13, 2014, we entered into a membership interest purchase agreement (the “Purchase Agreement”) to acquire 100% of the membership interest of Telerhythmics, LLC ("Telerhythmics"), a provider of 24 hour cardiac monitoring services. Telerhythmics and Digirad each have a very similar customer base, yet with only minor overlaps in current customers. We believe this similar customer base will allow us to leverage each company’s strengths to grow sales and also diversify Digirad service offerings. |
Under the terms of the Purchase Agreement, we paid to the sellers of the membership interest (the "Sellers") aggregate estimated up front consideration of $3.52 million and assumed approximately $131,000 in debt. In addition, there is an aggregate earn-out opportunity of up to $501,000 from the period March 14, 2014 through December 31, 2016 based on the Telerhythmics business meeting certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) milestones. The Sellers will receive fifty percent (50%) of the EBITDA generated by the Telerhythmics business in excess of the EBITDA milestone amounts, which are as follows: |
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• | $415,000 of EBITDA for the period from the closing date through December 31, 2014, | | | | | | | | | | | | | | | | | | | | | | | |
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• | $825,000 of EBITDA for the period from January 1, 2015 through December 31, 2015; and | | | | | | | | | | | | | | | | | | | | | | | |
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• | $825,000 of EBITDA for the period from January 1, 2016 through December 31, 2016. | | | | | | | | | | | | | | | | | | | | | | | |
At March 31, 2014, we have estimated the fair value of the contingent earn-out opportunity to be $220,000. The earn-out opportunity is estimated based on expected performance of the business over the period from the acquisition date through December 31, 2016, utilizing an income approach. It is reasonably possible that our estimate of the earn-out potential could change in the near term. Any adjustment in the estimated earn-out opportunity until settled will be recorded as a gain or loss to current operations in the period the estimate changes. |
The Purchase Agreement is also subject to a post-closing purchase price adjustment based on the final working capital balance, as defined in the Purchase Agreement. |
The following table summarizes the purchase price allocation recognized as of the close date of March 13, 2014: |
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| | 13-Mar-14 | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable, net | | $ | 200 | | | | | | | | | | | | | | | | | | | | | |
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Other current assets | | 41 | | | | | | | | | | | | | | | | | | | | | |
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Total current assets | | 241 | | | | | | | | | | | | | | | | | | | | | |
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Property and equipment, net | | 290 | | | | | | | | | | | | | | | | | | | | | |
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Intangible assets, net | | 2,580 | | | | | | | | | | | | | | | | | | | | | |
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Goodwill | | 1,275 | | | | | | | | | | | | | | | | | | | | | |
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Total assets | | $ | 4,386 | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable | | $ | 36 | | | | | | | | | | | | | | | | | | | | | |
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Accrued compensation | | 169 | | | | | | | | | | | | | | | | | | | | | |
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Other accrued liabilities | | 356 | | | | | | | | | | | | | | | | | | | | | |
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Current portion of long-term debt | | 131 | | | | | | | | | | | | | | | | | | | | | |
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Total current liabilities | | 692 | | | | | | | | | | | | | | | | | | | | | |
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Other liabilities | | 174 | | | | | | | | | | | | | | | | | | | | | |
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Total liabilities | | $ | 866 | | | | | | | | | | | | | | | | | | | | | |
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The long-term debt was subsequently paid in full on March 28, 2014. |
The goodwill recognized as part of the transaction primarily represents synergies between Digirad and Telerhythmics that were not separately identified as part of the acquisition valuation process. Telerhythmics activities are considered their own operating segment, which is aggregated into our Diagnostic Services reportable segment (formerly Digirad Imaging Solutions). The resulting goodwill from the acquisition is expected to be deductible for Federal and state tax reporting purposes. |
As of March 31, 2014, the final working capital adjustment has not been completed, and therefore the accounting for the acquisition is incomplete. We have estimated the working capital adjustment at March 13, 2014 at approximately $49,000 due to the Sellers, which is included in the estimated consideration above. It is reasonably possible this estimated working capital adjustment could change based on the final agreed upon amount pursuant to the Purchase Agreement. Any adjustment to this amount will affect the purchase consideration, and therefore the allocation of the purchase price, with the majority of any such adjustment likely affecting the recorded goodwill amount. We anticipate closing the measurement period by June 30, 2014. |
The below tables display estimated proforma results had the business acquisition been completed as of January 1, 2013. In deriving the proforma results, we utilized the historical operating results of Telerhythmics and adjusted for the impact of the purchase accounting and transaction costs as if the acquisition occurred on January 1, 2013. |
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| | Three Months Ended March 31, 2014 | | Three Months Ended March 31, 2013 |
| | Digirad | | Telerhythmics | | Proforma | | Digirad | | Telerhythmics | | Proforma |
Revenues | | $ | 12,742 | | | $ | 1,410 | | | $ | 14,152 | | | $ | 11,546 | | | $ | 1,413 | | | $ | 12,959 | |
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Net income (loss) | | $ | 19 | | | $ | 7 | | | $ | 26 | | | $ | (2,419 | ) | | $ | (115 | ) | | $ | (2,534 | ) |
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Included within our consolidated operating results for the period ending March 31, 2014 are Telerhythmics operations for the period March 14, 2014 through March 31, 2014 as follows: |
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| | March 14, 2014 - March 31, 2014 | | | | | | | | | | | | | | | | | | | | |
Revenues | | $ | 255 | | | | | | | | | | | | | | | | | | | | | |
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Net loss | | $ | (167 | ) | | | | | | | | | | | | | | | | | | | | |
Included within the results for Telerhythmics is approximately $155,000 of transaction costs related to the acquisition. These costs are classified as general and administrative expenses in the consolidated statements of comprehensive loss. |