4. Acquisitions

ESI Business Acquisition

On March 1, 2026, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Estech Holdings, Inc., a Texas corporation (“Seller”), pursuant to which the Company agreed to purchase from Seller one hundred percent (100%) of the issued and outstanding membership interests (the “Purchased Interests”) of Estech Systems, LLC, a Delaware limited liability company, and its operating subsidiary, ESI Hosted Services, LLC (collectively, “ESI”), subject to the terms and conditions set forth in the Purchase Agreement. The aggregate purchase price for the Purchased Interests was $34,733, subject to customary post-closing purchase price adjustments based on working capital, indebtedness, and transaction expenses. The Purchase Price consists of $27,300 in cash and $7,433 in shares of the Company’s common stock, resulting in the issuance following closing of the Acquisition of 1,159,638 shares of the Company’s common stock, par value $0.001, calculated based on the Average Share Price as defined in the Purchase Agreement. The Shares were issued in a private transaction in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The shares have not been registered under the Securities Act and may not be offered or sold absent registration or an applicable exemption. Pursuant to the lock-up agreement, after six months, 50% of the shares will be permitted to be sold, with an additional 50% permitted to be sold after twelve months. On March 1, 2026, the Company closed the transaction, and the Company issued the seller cash consideration of $27,300 and 1,159,638 shares of the Company’s common stock valued at $6.41 per share, for an aggregate purchase price of approximately $34.7 million.

The acquisition was accounted for under the acquisition method of accounting, and the operating results of ESI have been included in our condensed consolidated financial statements from the closing date of the acquisition. The historical results of operations of ESI were not significant to the Company’s condensed consolidated results of operations for the periods presented. Under the acquisition method of accounting, the aggregate amount of consideration paid by us was allocated to ESI’s net tangible assets and intangible assets based on their estimated fair values as of the acquisition closing date. The preliminary purchase price allocation, as set forth in the table below, reflects various preliminary fair value estimates and analysis prepared by the Company. We retained an independent third-party valuation firm to assist management in our valuation of the acquired assets and liabilities assumed and we expect this valuation to be completed during the second quarter of 2026. ESI required additional time to complete their historical audited financial statement for the year ended December 31, 2025, which was issued in May 2026. Due to the timing of the completion and issuance of the historical audited financial statements, the Company was not able to finalize our review of the opening balance sheet assets and liabilities prior to the filing of this Form 10-Q for the three months ended March 31, 2026, and therefore the amounts presented are deemed preliminary. The preliminary purchase price allocation is subject to revision as a more detailed analysis is completed by a third-party valuation specialist and additional information on the fair values of ESI’s assets and liabilities becomes available. Any change in the fair value of the net assets of ESI will change the amount of the purchase price allocable to goodwill. Final purchase accounting adjustments may differ materially from preliminary purchase price allocation presented here. The preliminary areas of the purchase price allocation that are not yet finalized relate to the identification and valuation of intangible assets by an independent third-party valuation firm and the determination of fair values of certain assets and liabilities; trade receivable, right-of-use assets and associated liabilities, deferred tax assets, contract costs, and various accrued liabilities. We anticipate finalizing our purchase price allocation during 2026. The following table presents the preliminary allocation of the assets acquired and liabilities assumed as of March 1, 2026 (in thousands):

The preliminary fair value of the customer relationships and trademarks and trade names of $23,400 was established based upon the income approach. The income approach relies on an estimation of the present value of the future monetary benefits expected to flow to the owner of an asset during its remaining economic life. This approach requires a projection of the cash flow that the asset is expected to generate in the future. The projected cash flow is discounted to its present value using a rate of return, or discount rate that accounts for the time value of money and the degree of risk inherent in the asset. The income approach may take the form of a “relief from royalty” methodology, a cost savings methodology, a “with and without” methodology, or excess earnings methodology, depending on the specific asset under consideration. 

The customer relationships were valued using the multi-period excess earnings method. Inherent in the multi-period excess earnings method is the recognition that, in most cases, all of the assets of the business, both tangible and intangible, contribute to the generation of the cash flow of the business and the net cash flows attributable to the subject asset must recognize the support of the other assets which contribute to the realization of the cash flows. This future cash flow was then discounted using an estimated required rate of return for the asset to determine the present value of the future cash flows attributable to the asset. The key assumptions used in valuing the customer relationships acquired are as follows: weighted average cost of capital of 17%, tax rate of 25.0%, and estimated economic life of 14 years.

The preliminary estimate of the trademarks and trade name were valued using the relief from royalty methodology. The relief-from-royalty method estimates the cost savings that accrue to the owner of an intangible asset that would otherwise be required to pay royalties or license fees on revenues earned through the use of the asset. The royalty rate used is based on an analysis of empirical, market-derived royalty rates for guideline intangible assets. Typically, revenue is projected over the expected remaining useful life of the trademarks and trade name. The market-derived royalty rate is then applied to estimate the royalty savings. The key assumptions used in valuing the trademarks and trade name are as follows: royalty rate of 1.0%, discount rate of 18%, tax rate of 25% and estimated average economic life of 6 years.

The following unaudited pro forma information presents our consolidated results of operations as if ESI had been included in our consolidated results since January 1, 2025:

The unaudited pro forma financial information is presented for informational purposes only and may not necessarily reflect the Company’s future results of operations or what the results of operations would have been had the Company owned and operated ESI as of January 1, 2025.

Acquisition-related expenses incurred by us in connection with the ESI acquisition of $839 for the three months ended March 31, 2026, are recorded within general and administrative expenses in our condensed consolidated statements of operations.