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Business Combinations | 9 Months Ended
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Sep. 30, 2018
Business Combinations [Abstract] |
Business Combinations | NOTE 14 – BUSINESS COMBINATIONS As part of our ongoing strategy to expand geographically and increase market share in certain markets, we completed eight business combinations and one minor acquisition merged into existing operations during the nine months ended September 30, 2018 and seven business combinations and two minor acquisitions merged into existing operations during the nine months ended September 30, 2017, respectively, in which we acquired 100% of the ownership interests in each. The largest of these acquisitions were Custom Overhead Door, LLC dba Custom Door & Gate (collectively, “CDG”) in March 2018, Trilok Industries, Inc., Alpha Insulation and Waterproofing Inc. and Alpha Insulation and Waterproofing Company (collectively, “Alpha”) in January 2017, Columbia Shelving & Mirror, Inc. and Charleston Shelving & Mirror, Inc. (collectively, “Columbia”) in June 2017, and All In Insulation, LLC d/b/a/ Astro Insulation (collectively, “Astro”) in September 2017. The remaining acquisitions were individually insignificant, but material in the aggregate, and are included in “Other” within each table below. Net Income, as noted below, includes amortization, taxes and interest allocations when appropriate. For the three and nine months ended September 30, 2018 (in thousands):
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total Purchase Price |  |  | Three months ended |  |  | Nine months ended |
|  |  |  |  | Acquisition |  |  |  |  |  | Seller |  |  | September 30, 2018 |  |  | September 30, 2018 |
2018 Acquisitions |  | Date |  |  | Type |  |  | Cash Paid |  |  | Obligations |  |  | Revenue |  |  | Net Income |  |  | Revenue |  |  | Net Income |
CDG |  |  | 3/19/2018 |  |  |  | Asset |  |  | $ | 9,440 |  |  | $ | 1,973 |  |  | $ | 11,413 |  |  | $ | 3,848 |  |  | $ | 164 |  |  | $ | 7,572 |  |  | $ | 229 |
Other |  |  | Various |  |  |  | Shares/Asset |  |  |  | 25,242 |  |  |  | 3,447 |  |  |  | 28,689 |  |  |  | 7,003 |  |  |  | 42 |  |  |  | 12,782 |  |  |  | 423 |
Total |  |  |  |  |  |  |  |  |  | $ | 34,682 |  |  | $ | 5,420 |  |  | $ | 40,102 |  |  | $ | 10,851 |  |  | $ | 206 |  |  | $ | 20,354 |  |  | $ | 652 |
For the three and nine months ended September 30, 2017 (in thousands):
|  |  |  |  |  |  |  |  |  |  |  |  |  | Fair Value of Common Stock |  |  | Total Purchase Price |  |  | Three months ended September 30, 2017 |  |  | Nine months ended September 30, 2017 |
2017 Acquisitions |  | Date |  |  | Acquisition Type |  |  | Cash Paid |  |  | Seller Obligations |  |  | Revenue |  |  | Net (Loss) Income |  |  | Revenue |  |  | Net Income |
Alpha(1) |  |  | 1/5/2017 |  |  |  | Share |  |  | $ | 103,810 |  |  | $ | 2,002 |  |  | $ | 10,859 |  |  | $ | 116,671 |  |  | $ | 29,334 |  |  | $ | (271 | ) |  | $ | 87,830 |  |  | $ | 190 |
Columbia |  |  | 6/26/2017 |  |  |  | Asset |  |  |  | 8,768 |  |  |  | 225 |  |  |  | — |  |  |  | 8,993 |  |  |  | 3,026 |  |  |  | 73 |  |  |  | 3,241 |  |  |  | 80 |
Astro |  |  | 9/18/2017 |  |  |  | Asset |  |  |  | 9,144 |  |  |  | 482 |  |  |  | — |  |  |  | 9,626 |  |  |  | 264 |  |  |  | 46 |  |  |  | 264 |  |  |  | 46 |
Other |  |  | Various |  |  |  | Asset |  |  |  | 9,812 |  |  |  | 1,042 |  |  |  | — |  |  |  | 10,854 |  |  |  | 6,499 |  |  |  | 84 |  |  |  | 11,671 |  |  |  | 366 |
Total |  |  |  |  |  |  |  |  |  | $ | 131,534 |  |  | $ | 3,751 |  |  | $ | 10,859 |  |  | $ | 146,144 |  |  | $ | 39,123 |  |  | $ | (68 | ) |  | $ | 103,006 |  |  | $ | 682 |
(1) | The cash paid included $21.7 million in contingent consideration to satisfy purchase price adjustments related to cash and net working capital requirements, earnout consideration based on Alpha’s change in EBITDA from 2015 and a customary holdback. These payments were based on fair value of each contingent payment at the time of acquisition and subsequently adjusted during the measurement period. We issued 282,577 shares of our common stock with a fair value of $10.9 million.
Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.7 million and $1.9 million for the three and nine months ended September 30, 2018, respectively, and $0.9 million and $2.3 million for the three and nine months ended September 30, 2017, respectively. The goodwill recognized in conjunction with these business combinations represents the excess cost of the acquired entity over the net amount assigned to assets acquired and liabilities assumed. We expect to deduct approximately $12.4 million of goodwill for tax purposes as a result of 2018 acquisitions. Purchase Price Allocations The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total purchase prices and cash paid, approximated the following as of September 30 (in thousands):
|  | 2018 |  |  | 2017 |
|  | CDG |  |  | Other |  |  | Total |  |  | Alpha |  |  | Columbia |  |  | Astro |  |  | Other |  |  | Total |
Estimated fair values: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 247 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 247 |
Accounts receivable |  |  | 1,731 |  |  |  | 3,306 |  |  |  | 5,037 |  |  |  | 29,851 |  |  |  | 989 |  |  |  | 924 |  |  |  | 2,070 |  |  |  | 33,834 |
Inventories |  |  | 514 |  |  |  | 1,027 |  |  |  | 1,541 |  |  |  | 1,852 |  |  |  | 704 |  |  |  | 296 |  |  |  | 1,014 |  |  |  | 3,866 |
Other current assets |  |  | 28 |  |  |  | 892 |  |  |  | 920 |  |  |  | 4,500 |  |  |  | 8 |  |  |  | 36 |  |  |  | 8 |  |  |  | 4,552 |
Property and equipment |  |  | 933 |  |  |  | 1,893 |  |  |  | 2,826 |  |  |  | 1,528 |  |  |  | 659 |  |  |  | 640 |  |  |  | 1,144 |  |  |  | 3,971 |
Intangibles |  |  | 3,711 |  |  |  | 16,681 |  |  |  | 20,392 |  |  |  | 57,200 |  |  |  | 4,760 |  |  |  | 5,168 |  |  |  | 5,939 |  |  |  | 73,067 |
Goodwill |  |  | 4,898 |  |  |  | 6,873 |  |  |  | 11,771 |  |  |  | 38,511 |  |  |  | 2,209 |  |  |  | 2,932 |  |  |  | 2,472 |  |  |  | 46,124 |
Other non-current assets |  |  | 36 |  |  |  | 19 |  |  |  | 55 |  |  |  | 383 |  |  |  | 36 |  |  |  | — |  |  |  | 176 |  |  |  | 595 |
Accounts payable and other current liabilities |  |  | (438 | ) |  |  | (2,002 | ) |  |  | (2,440 | ) |  |  | (17,401 | ) |  |  | (372 | ) |  |  | (370 | ) |  |  | (1,969 | ) |  |  | (20,112 | )
Fair value of assets acquired and purchase price |  |  | 11,413 |  |  |  | 28,689 |  |  |  | 40,102 |  |  |  | 116,671 |  |  |  | 8,993 |  |  |  | 9,626 |  |  |  | 10,854 |  |  |  | 146,144 |
Less fair value of common stock issued |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,859 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,859 |
Less seller obligations |  |  | 1,973 |  |  |  | 3,447 |  |  |  | 5,420 |  |  |  | 2,002 |  |  |  | 225 |  |  |  | 482 |  |  |  | 1,042 |  |  |  | 3,751 |
Cash paid |  | $ | 9,440 |  |  | $ | 25,242 |  |  | $ | 34,682 |  |  | $ | 103,810 |  |  | $ | 8,768 |  |  | $ | 9,144 |  |  | $ | 9,812 |  |  | $ | 131,534 |
Contingent consideration is included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. These contingent payments consist primarily of earnouts based on performance that are recorded at fair value at the time of acquisition, and/or non-complete agreements and amounts based on working capital calculations. When these payments are expected to be made over one year from the acquisition date, the contingent consideration is discounted to net present value using our weighted average cost of capital (WACC), when appropriate. Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party and internal valuations are finalized, certain tax aspects of the transaction are completed and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition and future adjustments may be made through the end of each measurement period. Goodwill and intangibles per the above table do not agree to the total gross increases of these assets as shown in Note 5, Goodwill and Intangibles, during each of the nine months ended September 30, 2018 and 2017 due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement. In addition, goodwill and intangibles increased during each of the nine months ended September 30, 2018 and 2017 due to small acquisitions merged into existing operations that do not appear in the above table. The provisional amounts for Alpha originally reported in our Condensed Consolidated Balance Sheets included in our Quarterly Report on Form 10-Q for the period ended March 31, 2017 were adjusted during the measurement period to reflect the review and ongoing analysis of the fair value measurements. As a result of our continued evaluation during the measurement period, during the twelve months ended December 31, 2017, we increased goodwill by approximately $2.1 million, offset by a corresponding net reduction in various working capital accounts. The provisional amounts for Columbia originally reported in our Condensed Consolidated Balance Sheets included in our Quarterly Report on Form 10-Q for the period ended June 30, 2017 were adjusted to reflect the review and ongoing analysis of the fair value measurements. As a result of our continued evaluation during the measurement period, we increased goodwill by approximately $0.5 million and our seller obligations by approximately $0.4 million for an adjustment to the fair value of a working capital contingent liability. These adjustments, as well as various other insignificant adjustments, resulted in a total purchase price increase for Columbia of approximately $0.6 million as reflected within the above table and were within applicable measurement period guidelines. Estimates of acquired intangible assets related to the acquisitions are as follows for the nine months ended September 30 (dollars in thousands):
|  | 2018 |  |  | 2017 |
Acquired intangibles assets |  | Estimated Fair Value |  |  | Weighted Average Estimated Useful Life (yrs.) |  |  | Estimated Fair Value |  |  | Weighted Average Estimated Useful Life (yrs.) |
Customer relationships |  | $ | 14,480 |  |  |  | 8 |  |  | $ | 37,533 |  |  |  | 8 |
Trademarks and trade names |  |  | 3,920 |  |  |  | 14 |  |  |  | 19,403 |  |  |  | 15 |
Non-competition agreements |  |  | 1,530 |  |  |  | 5 |  |  |  | 2,429 |  |  |  | 5 |
Backlog |  |  | 460 |  |  |  | 2 |  |  |  | 13,400 |  |  |  | 1.5 |
Pro Forma Information The unaudited pro forma information for the combined results of the Company has been prepared as if the 2018 acquisitions had taken place on January 1, 2017 and the 2017 acquisitions had taken place on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2017 and 2016, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results (in thousands, except per share data):
|  | Unaudited pro forma for the three months ended September 30, |  |  | Unaudited pro forma for the nine months ended September 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Net revenue |  | $ | 353,609 |  |  | $ | 316,382 |  |  | $ | 1,006,313 |  |  | $ | 906,283 |
Net income |  |  | 16,215 |  |  |  | 13,020 |  |  |  | 40,305 |  |  |  | 34,277 |
Basic and diluted net income per share |  |  | 0.52 |  |  |  | 0.41 |  |  |  | 1.28 |  |  |  | 1.08 |
Unaudited pro forma net income reflects additional intangible asset amortization expense of $0.2 million and $1.2 million for the three and nine months ended September 30, 2018 and $0.9 million and $3.2 million for the three and nine months ended September 30, 2017, respectively, as well as additional income tax expense of $0.2 million and $0.7 million for the three and nine months ended September 30, 2018 and $0.5 million and $2.0 million for the three and nine months ended September 30, 2017, respectively, that would have been recorded had the 2018 acquisitions taken place on January 1, 2017 and the 2017 acquisitions taken place on January 1, 2016.

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