Business Combinations

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

BUSINESS COMBINATIONS

As part of our ongoing strategy to expand geographically and increase market share in certain markets, as well as diversify our products and end markets, we completed one business combination during each of the three months ended March 31, 2022 and 2021, respectively.

We acquired Pisgah Insulation and Fireplaces of NC, LLC. ("Pisgah") in March 2022 and I.W. International Insulation, Inc., dba Intermountain West Insulation (“IWI”) in March 2021. Below is a summary of each significant acquisition by year, including revenue and net income since date of acquisition shown for the year of acquisition. Net income includes amortization, taxes and interest allocations when appropriate.

For the three months ended March 31, 2022 (in thousands):


									Three months ended March 31, 2022
2022 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income
Pisgah	03/01/2022	Share	$	8,050	$	1,878	$	9,928	$	915	$	97

For the three and three months ended March 31, 2021 (in thousands)


									Three months ended March 31, 2021
2021 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income
IWI	03/01/2021	Share	$	42,098	$	5,959	$	48,057	$	3,608	$	450

Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.7 million for the three months ended March 31, 2022, and $1.2 million for the three months ended March 31, 2021, 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 $2.8 million of goodwill for tax purposes as a result of 2022 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 (in thousands):


	As of March 31, 2022		As of March 31, 2021
	Pisgah		IWI
Estimated fair values:
Cash	$	—	$	168
Accounts receivable	772		5,122
Inventories	684		1,157
Other current assets	21		3,014
Property and equipment	1,049		796
Intangibles	4,634		25,200
Goodwill	2,830		23,282
Other non-current assets	7		264
Accounts payable and other current liabilities	(69)		(8,416)


Other long-term liabilities	—		(2,530)
Fair value of assets acquired and purchase price	9,928		48,057
Less seller obligations	1,878		5,959
Cash paid	$	8,050	$	42,098

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-compete 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 of future payments based on a weighted average of various future forecast scenarios.

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party or internal valuations are finalized, certain tax aspects of the transaction are completed, contingent consideration is settled 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. Any acquisition acquired after March 31, 2021 is deemed to be within the measurement period and its purchase price considered preliminary. Goodwill and intangibles per the above table may not agree to the total gross increases of these assets as shown in Note 6, Goodwill and Intangibles, during each of the three months ended March 31, 2022 and 2021 due to adjustments to goodwill for the allocation of certain acquisitions still under measurement as well as other immaterial intangible assets added during the ordinary course of business.

Estimates of acquired intangible assets related to the acquisitions are as follows (in thousands):


	For the three months ended March 31,
	2022			2021
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)
Customer relationships	$	3,125	12	$	18,200	12
Trademarks and tradenames	1,136		15	4,400		15
Non-competition agreements	374		5	2,600		5

Pro Forma Information

The unaudited pro forma information for the combined results of the Company has been prepared as if the 2022 acquisition had taken place on January 1, 2021 and the 2021 acquisition had taken place on January 1, 2020. 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, 2021 and 2020, 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 March 31,
	2022		2021
Net revenue	$	589,356	$	484,248
Net income	34,009		21,621
Basic net income per share	1.16		0.74
Diluted net income per share	1.15		0.73

Unaudited pro forma net income reflects additional intangible asset amortization expense of approximately $68 thousand and $3.2 million for the three months ended March 31, 2022 and 2021, respectively, as well as additional income tax expense of approximately $66 thousand and $1.5 million for the three months ended March 31, 2022 and 2021, respectively, that would have been recorded had the 2022 acquisition taken place on January 1, 2021 and the 2021 acquisition taken place on January 1, 2020.