Business Combinations

9 Months Ended

Sep. 30, 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 five and seven business combinations during the nine months ended September 30, 2022 and 2021, respectively.

The largest of these acquisitions were Pisgah Insulation and Fireplaces of NC, LLC ("Pisgah") in March 2022, Central Aluminum Supply Corporation and Central Aluminum Supply of North Jersey, LLC ("Central Aluminum") in April 2022, Statewide Insulation, Inc. dba Tri County Insulation and Acoustical Contractor ("Tri-County") in May 2022, I.W. International Insulation, Inc., dba Intermountain West Insulation (“IWI”) in March 2021, Alert Insulation ("Alert") and Alpine Construction Services ("Alpine") in April 2021, General Ceiling & Partitions, Inc. ("GCP") in June 2021, and Five Star Building Products, LLC and Five Star Building Products of Southern Utah, LLC (collectively "Five Star") in September 2021. Below is a summary of each significant acquisition by year, including revenue and net income (loss) since date of acquisition shown for the year of acquisition. Net income (loss) includes amortization, taxes and interest allocations when appropriate.

For the three and nine months ended September 30, 2022 (in thousands):


									Three months ended September 30, 2022				Nine months ended September 30, 2022
2022 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)		Revenue		Net Income (Loss)
Pisgah	03/01/2022	Share	$	8,050	$	1,878	$	9,928	$	2,847	$	285	$	6,665	$	638
Central Aluminum	4/11/2022	Share	55,150		22,927		78,077		13,404		(1,048)		26,128		(805)
Tri-County	5/23/2022	Asset	9,600		473		10,073		3,548		(40)		5,034		(179)
Other	Various	Asset	3,309		256		3,565		550		(41)		550		(41)




			$	76,109	$	25,534	$	101,643	$	20,349	$	(844)	$	38,377	$	(387)

For the three and nine months ended September 30, 2021 (in thousands)


									Three months ended September 30, 2021				Nine months ended September 30, 2021
2021 Acquisitions	Date	Acquisition Type	Cash Paid		Seller Obligations		Total Purchase Price		Revenue		Net Income (Loss)		Revenue		Net Income (Loss)
IWI	03/01/2021	Share	$	42,098	$	5,959	$	48,057	$	10,556	$	590	$	24,315	$	2,068
Alert	4/13/2021	Asset	5,850		2,980		8,830		4,764		2		8,890		147
Alpine	4/19/2021	Asset	7,945		2,208		10,153		3,045		263		4,996		216
GCP	6/7/2021	Asset	9,700		1,427		11,127		2,624		(152)		3,270		(118)
Five Star	9/13/2021	Share	26,308		5,466		31,774		1,243		25		1,243		25
Other	Various	Asset	4,240		947		5,187		956		(29)		1,252		(43)
			$	96,141	$	18,987	$	115,128	$	23,188	$	699	$	43,966	$	2,295

Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $(0.1) million and $(0.3) million for the three months ended September 30, 2022 and 2021, respectively, and $1.3 million and $1.6 million for the nine months ended September 30, 2022 and 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 $34.3 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):


	Nine months ended September 30, 2022
	Pisgah		Central Aluminum		Tri-County		Other		Total
Estimated fair values:
Cash	$	87	$	243	$	—	$	—	$	330
Accounts receivable	772		3,502		2,823		—		7,097
Inventories	684		14,344		839		199		16,066
Other current assets	21		16		2		—		39
Property and equipment	1,049		2,590		927		513		5,079
Operating lease right-of-use asset	—		844		66		—		910
Intangibles	4,634		34,900		3,488		1,378		44,400
Goodwill	2,743		27,595		2,123		1,523		33,984
Other non-current assets	7		—		12		37		56
Accounts payable and other current liabilities	(69)		(5,388)		(185)		(85)		(5,727)


Other long-term liabilities	—		(569)		(22)		—		(591)
Fair value of assets acquired and purchase price	9,928		78,077		10,073		3,565		101,643
Less seller obligations	1,878		22,927		473		256		25,534
Cash paid	$	8,050	$	55,150	$	9,600	$	3,309	$	76,109


	Nine months ended September 30, 2021
		IWI		Alert		Alpine		GCP		Five Star		Other		Total
Estimated fair values:
Cash		$	168	$	—	$	—	$	—	$	1,472	$	—	$	1,640
Accounts receivable		5,122		4,710		—		3,067		4,583		482		17,964
Inventories		1,157		765		359		—		1,399		138		3,818
Other current assets		3,014		738		—		—		330		—		4,082
Property and equipment		796		693		726		206		1,161		544		4,126
Intangibles		25,200		2,770		5,543		5,670		17,400		2,787		59,370
Goodwill		23,282		940		3,582		2,695		6,626		1,253		38,378
Other non-current assets		264		132		—		—				6		402
Accounts payable and other current liabilities		(8,416)		(1,184)		(57)		(493)		(1,170)		(20)		(11,340)


Other long-term liabilities		(2,530)		(734)		—		(18)		(27)		(3)		(3,312)
Fair value of assets acquired and purchase price		48,057		8,830		10,153		11,127		31,774		5,187		115,128
Less seller obligations		5,959		2,980		2,208		1,427		5,466		947		18,987
Cash paid		$	42,098	$	5,850	$	7,945	$	9,700	$	26,308	$	4,240	$	96,141

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 September 30, 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 nine months ended September 30, 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. All of the goodwill for Central Aluminum was assigned to our Distribution operating segment. All other acquisitions during the nine months ended September 30, 2022 and 2021 had their respective goodwill assigned to our Installation operating segment.

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


	For the nine months ended September 30,
	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	$	29,606	12	$	43,115	12
Trademarks and tradenames	13,228		15	10,147		15
Non-competition agreements	1,566		5	4,530		5
Backlog	—		0	1,578		1.5

Pro Forma Information

The unaudited pro forma information for the combined results of the Company has been prepared as if the 2022 acquisitions had taken place on January 1, 2021 and the 2021 acquisitions 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 September 30,				Unaudited pro forma for the nine months ended September 30,
	2022		2021		2022		2021
Net revenue	$	720,502	$	564,387	$	2,007,475	$	1,603,585
Net income	60,983		38,803		154,732		100,564
Basic net income per share	2.14		1.32		5.36		3.43
Diluted net income per share	2.13		1.31		5.33		3.40

Unaudited pro forma net income reflects additional intangible asset amortization expense of approximately $13 thousand and $2.9 million for the three months ended September 30, 2022 and 2021, respectively, and $1.0 million and $10.1 million for the nine months ended September 30, 2022 and 2021, respectively, as well as additional income tax expense of approximately $2 thousand and $1.3 million for the three months ended September 30, 2022 and 2021, respectively, and $9 thousand and $3.7 million for the nine months ended September 30, 2022 and 2021, respectively. Also there was an additional interest expense of $1.1 million and $3.2 million for the three and nine months ended September 30, 2021, respectively, that would have been recorded had the 2022 acquisitions taken place on January 1, 2021 and the 2021 acquisitions taken place on January 1, 2020.