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Business Combinations | 9 Months Ended
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Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | 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 six business combinations and one insignificant tuck-in acquisition merged into an existing operation during the nine months ended September 30, 2023 and five business combinations during the nine months ended September 30, 2022. The largest of these acquisitions were Anchor Insulation Co., Inc. ("Anchor") in March 2023 and Central Aluminum Supply Corporation and Central Aluminum Supply of North Jersey, LLC ("CAS") in April 2022. 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 and taxes when appropriate. For the three and nine months ended September 30, 2023 (in thousands):
|  |  |  |  |  |  |  |  |  |  |  | Three months ended September 30, 2023 |  | Nine months ended September 30, 2023
2023 Acquisitions |  | Date |  | Acquisition Type |  | Cash Paid |  | Seller Obligations |  | Total Purchase Price |  | Revenue |  | Net Income |  | Revenue |  | Net Income
Anchor |  | 3/12/2023 |  | Share |  | $ | 35,928 |  |  | $ | 2,756 |  |  | $ | 38,684 |  |  | $ | 9,288 |  |  | $ | 321 |  |  | $ | 20,805 |  |  | $ | 818 |
Other |  | Various |  | Asset |  | 8,927 |  |  | 615 |  |  | 9,542 |  |  | 2,711 |  |  | 225 |  |  | 4,591 |  |  | 212 |
|  |  |  |  |  | $ | 44,855 |  |  | $ | 3,371 |  |  | $ | 48,226 |  |  | $ | 11,999 |  |  | $ | 546 |  |  | $ | 25,396 |  |  | $ | 1,030 |
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)
CAS |  | 4/11/2022 |  | Share |  | $ | 55,150 |  |  | $ | 27,335 |  |  | $ | 82,485 |  |  | $ | 13,404 |  |  | $ | (1,048) |  |  | $ | 26,128 |  |  | $ | (805) |
Other |  | Various |  | Share/Asset |  | 20,959 |  |  | 2,607 |  |  | 23,566 |  |  | 6,945 |  |  | 204 |  |  | 12,249 |  |  | 418 |
|  |  |  |  |  | $ | 76,109 |  |  | $ | 29,942 |  |  | $ | 106,051 |  |  | $ | 20,349 |  |  | $ | (844) |  |  | $ | 38,377 |  |  | $ | (387) |
Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.2 million and $(0.1) million for the three months ended September 30, 2023 and 2022, respectively, and $1.3 million for both of the nine months ended September 30, 2023 and 2022. 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 (including the identifiable intangible assets). The goodwill recognized for Anchor reflects the value of its location, revenue enhancements, assembled workforce and other synergies that are expected to be realized from the acquisition. We expect to deduct approximately $15.3 million of goodwill for tax purposes as a result of 2023 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, 2023 |  |
| Anchor |  |  |  |  |  | Other |  | Total |  |
Estimated fair values: |  |  |  |  |  |  |  |  |  |  |
Cash | $ | 10 |  |  |  |  |  |  | $ | — |  |  | $ | 10 |  |  |
Accounts receivable | 5,000 |  |  |  |  |  |  | 473 |  |  | 5,473 |  |  |
Inventories | 1,613 |  |  |  |  |  |  | 490 |  |  | 2,103 |  |  |
Other current assets | 1,862 |  |  |  |  |  |  | — |  |  | 1,862 |  |  |
Property and equipment | 2,309 |  |  |  |  |  |  | 1,250 |  |  | 3,559 |  |  |
Operating lease right-of-use asset | — |  |  |  |  |  |  | 182 |  |  | 182 |  |  |
Intangibles | 16,420 |  |  |  |  |  |  | 5,114 |  |  | 21,534 |  |  |
Goodwill | 13,364 |  |  |  |  |  |  | 2,496 |  |  | 15,860 |  |  |
Other non-current assets | 184 |  |  |  |  |  |  | 50 |  |  | 234 |  |  |
Accounts payable and other current liabilities | (2,078) |  |  |  |  |  |  | (398) |  |  | (2,476) |  |  |
Other long-term liabilities | — |  |  |  |  |  |  | (115) |  |  | (115) |  |  |
Fair value of assets acquired and purchase price | 38,684 |  |  |  |  |  |  | 9,542 |  |  | 48,226 |  |  |
Less seller obligations | 2,756 |  |  |  |  |  |  | 615 |  |  | 3,371 |  |  |
Cash paid | $ | 35,928 |  |  |  |  |  |  | $ | 8,927 |  |  | $ | 44,855 |  |  |
| Nine months ended September 30, 2022
| CAS |  |  |  |  |  | Other |  | Total
Estimated fair values: |  |  |  |  |  |  |  |  |
Cash | $ | 243 |  |  |  |  |  |  | $ | 87 |  |  | $ | 330 |
Accounts receivable | 3,502 |  |  |  |  |  |  | 3,595 |  |  | 7,097 |
Inventories | 13,443 |  |  |  |  |  |  | 1,729 |  |  | 15,172 |
Other current assets | 53 |  |  |  |  |  |  | 23 |  |  | 76 |
Property and equipment | 2,590 |  |  |  |  |  |  | 2,489 |  |  | 5,079 |
Operating lease right-of-use asset | 844 |  |  |  |  |  |  | 66 |  |  | 910 |
Intangibles | 34,900 |  |  |  |  |  |  | 9,500 |  |  | 44,400 |
Goodwill | 32,867 |  |  |  |  |  |  | 6,330 |  |  | 39,197 |
Other non-current assets | — |  |  |  |  |  |  | 56 |  |  | 56 |
Accounts payable and other current liabilities | (5,388) |  |  |  |  |  |  | (287) |  |  | (5,675) |
Other long-term liabilities | (569) |  |  |  |  |  |  | (22) |  |  | (591) |
Fair value of assets acquired and purchase price | 82,485 |  |  |  |  |  |  | 23,566 |  |  | 106,051 |
Less seller obligations | 27,335 |  |  |  |  |  |  | 2,607 |  |  | 29,942 |
Cash paid | $ | 55,150 |  |  |  |  |  |  | $ | 20,959 |  |  | $ | 76,109 |
Contingent consideration, non-compete agreements and/or amounts based on working capital calculations are included as “seller obligations” in the above table or within “fair value of assets acquired” if subsequently paid during the period presented. Contingent consideration payments consist primarily of earnouts based on performance that are recorded at fair value at the time of acquisition. 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 and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, 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, 2022 is deemed to be within the measurement period and its purchase price considered preliminary. During the nine months ended September 30, 2023, we increased the purchase price for CAS by $4.4 million primarily due to measurement period adjustments associated with a tax election. Goodwill and intangibles per the above table may not agree to the total gross increase of these assets as shown in Note 6, Goodwill and Intangibles, during each of the nine months ended September 30, 2023 and 2022 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 CAS was assigned to our Distribution operating segment. All other acquisitions during the nine months ended September 30, 2023 and 2022 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,
| 2023 |  | 2022
Acquired intangibles assets | Estimated Fair Value |  | Weighted Average Estimated Useful Life (yrs.) |  | Estimated Fair Value |  | Weighted Average Estimated Useful Life (yrs.)
Customer relationships | $ | 13,755 |  |  | 12 |  | $ | 29,606 |  |  | 12
Trademarks and tradenames | 6,442 |  |  | 15 |  | 13,228 |  |  | 15
Non-competition agreements | 517 |  |  | 5 |  | 1,566 |  |  | 5
Backlog | 820 |  |  | 1 |  | — |  |  | 0
Pro Forma Information The unaudited pro forma information for the combined results of the Company has been prepared as if the 2023 acquisitions had taken place on January 1, 2022 and the 2022 acquisitions had taken place on January 1, 2021. 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, 2022 and 2021, 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,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net revenue | $ | 707,482 |  |  | $ | 748,325 |  |  | $ | 2,073,593 |  |  | $ | 2,080,848 |
Net income | 68,098 |  |  | 63,169 |  |  | 179,759 |  |  | 159,782 |
Basic net income per share | 2.41 |  |  | 2.22 |  |  | 6.39 |  |  | 5.54 |
Diluted net income per share | 2.40 |  |  | 2.21 |  |  | 6.35 |  |  | 5.51 |
Unaudited pro forma net income reflects additional intangible asset amortization expense of approximately $37 thousand and $1.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.5 million and $4.2 million for the nine months ended September 30, 2023 and 2022, respectively, as well as additional income tax expense of approximately $35 thousand and $0.7 million for the three months ended September 30, 2023 and 2022, respectively, and $0.3 million and $1.7 million for the nine months ended September 30, 2023 and 2022, respectively, that would have been recorded had the 2023 acquisitions taken place on January 1, 2022 and the 2022 acquisitions taken place on January 1, 2021.

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