Annual report pursuant to Section 13 and 15(d)

Business Combinations

v3.24.0.1
Business Combinations
 12 Months Ended
Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations
On December 31, 2022, and February 16, 2023, the Company entered into definitive agreements to purchase 60% of the equity interests in Digital Technology Identity Services, LLC (“DTIS”), a privately held company that specializes in collecting and processing biometric and biographical data, for a total purchase price of $26.5 million, including a one-year $2.3 million cash holdback, which, subject to claims by the Company under the purchase agreement, is due no later than 15 days following the first anniversary of the closing date (the “DTIS Acquisition”).
The purchase of 60% of the equity interests represents a controlling interest in DTIS. The purchase was completed on July 3, 2023 and was funded with available cash. The remaining 40% of the equity interest in DTIS is retained by a leading professional organization representing individuals who work at public-use commercial and general aviation airports. The DTIS Acquisition expands the Company’s biometric-based screening capabilities as a critical component for customers in both regulated and non-regulated industries.
Acquisition-related costs incurred by the Company for the year ended December 31, 2023 related to the DTIS Acquisition were $0.4 million and are included in selling, general and administrative expenses in the consolidated statements of operations.
The acquisition constitutes a business combination and therefore was accounted for as an acquisition of a business under the applicable guidance. The Company fully consolidated the assets and liabilities of DTIS, with a corresponding noncontrolling interest classified as equity in the Company’s consolidated balance sheets. The following table summarizes the purchase consideration.
Preliminary Allocation
Final Determination
As of
July 3, 2023
Fair Value Adjustments
 As of
July 3, 2023
(in thousands)
Consideration transferred, net of cash acquired (1)
$ 23,903  $ —  $ 23,903 
Estimated fair value of noncontrolling interest 17,647  57  17,704 
Total consideration $ 41,550  $ 57  $ 41,607 
(1)Consideration transferred includes a one-year $2.3 million cash holdback.
The total purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values on the date of acquisition. During the quarter ended December 31, 2023, the fair value of the biometric screening platform and goodwill were reduced by $0.7 million and increased by $0.6 million, respectively,with a decrease in deferred tax liabilities by $0.2 million reflecting the final determination of the fair values as of the acquisition date. The following table presents the allocation of the fair value of consideration transferred:
Preliminary Allocation
Final Determination
As of
July 3, 2023
Fair Value Adjustments
 As of
July 3, 2023
(in thousands)
Current assets $ 1,742  $ —  $ 1,742 
Other non-current assets 470  —  470 
Intangible assets 24,100  (700) 23,400 
Goodwill 22,669  578 23,247 
Total assets acquired 48,981  (122) 48,859 
Accounts payable and accrued liabilities 814  —  814 
Long-term deferred tax liabilities 6,333  (179) 6,154 
Other non-current liabilities 284  —  284 
Total liabilities assumed 7,431  (179) 7,252 
Net assets acquired $ 41,550  $ 57  $ 41,607 
Identifiable intangible assets acquired in the DTIS Acquisition and their useful lives consist of the following:
Preliminary Allocation
Final Determination
Useful Lives
 As of
July 3, 2023
Fair Value Adjustments
 As of
July 3, 2023
(in thousands)
Biometric screening platform 12.5 years $ 23,700  $ (700) $ 23,000 
Trade names 8.5 years 400  —  400 
Total $ 24,100  $ (700) $ 23,400 
The Company used a third-party valuation specialist to determine the acquisition-date fair value of the intangible assets using various methods. The biometric screening platform was valued using the income method, specifically the Greenfield Method, which estimates the present value of future cash flows associated with developing an operating business assuming an entity holds only the identified intangible asset. Key assumptions in valuing the biometric screening platform included significant judgments and assumptions relating to (i) forecasted revenue attributable to the platform, (ii) costs incurred, and (iii) a discount rate of 19%. Trade names were valued using the relief from royalty method. Key assumptions in valuing the acquired trade names included (i) a royalty rate of 1%, (ii) forecasted revenue attributable to the trade names, and (iii) a discount rate of 19%.
The goodwill represents the excess of the purchase price over the fair value of the assets acquired less liabilities assumed. The Company expects to realize strategic benefits by offering enhanced biometric-based screening from the DTIS Acquisition, which can be integrated into the Company’s current service offerings. None of the goodwill is deductible for tax purposes.
Revenue and earnings of the entity acquired were not presented as they were not material to the consolidated financial statements.