Acquisitions | 3 Months Ended |
Mar. 31, 2015 |
Business Combinations [Abstract] | |
Acquisitions | Acquisitions |
MD Office Solutions (2015) |
On March 5, 2015, we entered into an Agreement of Merger and Plan of Reorganization (the Merger Agreement) to acquire MD Office Solutions (MD Office). MD office is a provider of in-office nuclear cardiology imaging in the northern and central California regions. The acquisition expands the geographical region in which we are able to provide our in-office nuclear cardiology imaging services. |
Total consideration related to the Merger Agreement paid to the sellers was 610,000 shares of common stock of Digirad Corporation, with a total value at closing of $2,684,000, as well as settlement of a $15,000 accounts receivable balance owed to the Company. The Company issued new shares for the consideration. In addition, there is an earn-out opportunity of up to $400,000 in cash over approximately three years based on the MD Office business meeting certain earnings before interest, taxes, depreciation, and amortization (EBITDA) milestones. The sellers will receive fifty percent of the EBITDA generated by the MD Office business in excess of the EBITDA milestone amounts, which are $650,000 for each of the annual periods ending December 31, 2015, 2016, and 2017, with the target for 2015 being prorated based on the close date. |
At March 31, 2015, we have estimated the fair value of the contingent earn-out opportunity to be $6,000. The earn-out opportunity is estimated based on the expected performance of the business over the period from the acquisition date through December 31, 2017, 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 Merger Agreement is also subject to a post-closing purchase price adjustment based on the final working capital balance, as defined in the Merger Agreement, as well as a Registration Rights Agreement related to the common shares provided to the sellers as part of the consideration. |
The following table summarizes the preliminary purchase price allocation recognized as of the close date of March 5, 2015: |
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(in thousands) | | Allocation of purchase price | | | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 3 | | | | | |
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Accounts receivable, net | | 457 | | | | | |
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Other current assets | | 32 | | | | | |
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Total current assets | | 492 | | | | | |
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Property and equipment, net | | 481 | | | | | |
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Intangible assets, net | | 1,007 | | | | | |
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Goodwill | | 1,552 | | | | | |
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Other assets | | 24 | | | | | |
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Total assets | | $ | 3,556 | | | | | |
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Liabilities | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 149 | | | | | |
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Accrued compensation | | 81 | | | | | |
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Other accrued liabilities | | 33 | | | | | |
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Total current liabilities | | 263 | | | | | |
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Deferred tax liability | | 588 | | | | | |
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Other liabilities | | 6 | | | | | |
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Total liabilities | | $ | 857 | | | | | |
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The goodwill recognized as part of the transaction primarily represents synergies between Digirad and MD Office that were not separately identified as part of the acquisition valuation process. MD Office activities are included within the Diagnostic Services reportable segment. The resulting goodwill from the acquisition is not deductible for federal and state tax reporting purposes. |
The following table summarizes the fair value of acquired identifiable intangible assets as of the acquisition date: |
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(in thousands) | Weighted Average Useful Lives (in years) | | Fair Value | | | |
Customer relationships | 7 | | $ | 639 | | | | |
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Trademarks | 5 | | 187 | | | | |
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Covenants not to compete | 5 | | 181 | | | | |
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Total intangible assets acquired, excluding goodwill | | | $ | 1,007 | | | | |
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As of March 31, 2015, 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 5, 2015 at approximately $7,000 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 Merger 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, 2015. |
The below tables display estimated proforma results had the business acquisition been completed as of January 1, 2014. In deriving the proforma results, we utilized the historical operating results of MD Office and adjusted for the impact of the purchase accounting and transaction costs as if the acquisition occurred on January 1, 2014. |
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| | Three Months Ended March 31, |
(in thousands) | | 2015 | | 2014 |
Revenues | | $ | 14,406 | | | $ | 13,751 | |
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Net income (loss) | | $ | 895 | | | $ | (324 | ) |
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Included within our consolidated operating results for the period ending March 31, 2015 are MD Office operations for the period March 6, 2015 through March 31, 2015 as follows: |
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| | March 6, 2015 - March 31, 2015 | | | | |
Revenues | | $ | 216 | | | | | |
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Net loss | | $ | (106 | ) | | | | |
Included within the results for MD Office is approximately $136,000 of transaction costs related to the acquisition. These costs are classified as general and administrative expenses in the consolidated statements of comprehensive income (loss). |
Telerhythmics, LLC (2014) |
On March 13, 2014, we acquired 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's service offerings. |
We paid to the sellers of the membership interest (the Sellers) aggregate up-front consideration of $3.4 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, 2015, we have estimated the fair value of the contingent earn-out opportunity to be $229,000. The earn-out opportunity is estimated based on the expected performance of the business over the period from January 1, 2015 through December 31, 2016, utilizing an income approach. No earn-out consideration was earned by the Sellers for the period from the closing date through December 31, 2014. 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 allocation of the purchase price to the assets acquired and liabilities assumed on the acquisition date was as follows: |
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(in thousands) | | Allocation of purchase price | | | | |
Assets | | | | | | |
Current assets: | | | | | | |
Accounts receivable, net | | $ | 256 | | | | | |
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Other current assets | | 34 | | | | | |
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Total current assets | | 290 | | | | | |
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Property and equipment, net | | 290 | | | | | |
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Intangible assets, net | | 2,580 | | | | | |
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Goodwill | | 1,153 | | | | | |
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Total assets | | $ | 4,313 | | | | | |
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Liabilities | | | | | | |
Current liabilities: | | | | | | |
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. The resulting goodwill from the acquisition is expected to be deductible for federal and state tax reporting purposes. |
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, |
(in thousands) | | 2014 | | 2013 |
Revenues | | $ | 14,152 | | | $ | 12,959 | |
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Net income (loss) | | $ | 26 | | | $ | (2,534 | ) |
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