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Business Acquisitions | 3 Months Ended
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Mar. 31, 2021
Business Combinations [Abstract] |
Business Acquisitions | 6. BUSINESS ACQUISITIONS In line with the Company’s strategic growth initiatives, the Company acquired one business during the three months ended March 31, 2021 and several businesses during the year ended December 31, 2020. The results of each of those acquired businesses are included in the unaudited condensed consolidated financial statements beginning on the acquisition date. Each transaction qualified as an acquisition of a business and was accounted for as a business combination. All acquisitions resulted in the recognition of goodwill. The Company paid these premiums resulting in such goodwill for a number of reasons, including expected synergies from combining operations of the acquiree and the Company while also growing the Company’s customer base, acquiring assembled workforces, expanding its presence in certain markets and expanding and advancing its product and service offerings. The Company recorded the assets acquired and liabilities assumed at their acquisition date fair value, with the difference between the fair value of the net assets acquired and the acquisition consideration reflected as goodwill. The identifiable intangible assets for acquisitions are valued using the excess earnings method discounted cash flow approach for customer relationships, the relief from royalty method for trade names, the patent and external proprietary software, the “with and without” method for covenants not to compete and the replacement cost method for the internal proprietary software by incorporating Level 3 inputs as described under the fair value hierarchy of ASC 820. These unobservable inputs reflect the Company’s own assumptions about which assumptions market participants would use in pricing an asset on a non-recurring basis. These assets will be amortized over their respective estimated useful lives. Other purchase price obligations (primarily deferred purchase price liabilities and target working capital liabilities or receivables) are included on the unaudited condensed consolidated statements of financial position in accounts payable and other accrued liabilities, other non-current liabilities or accounts receivable-net in the case of working capital deficits. Contingent consideration outstanding from acquisitions are included on the unaudited condensed consolidated statements of financial position in business acquisition contingent consideration, current or in business acquisitions contingent consideration, long-term. These obligations are scheduled to be settled if certain performance thresholds are met. The Company considers several factors when determining whether or not contingent consideration liabilities are part of the purchase price, including the following: (i) the valuation of its acquisitions is not supported solely by the initial consideration paid, (ii) the former stockholders of acquired companies that remain as key employees receive compensation other than contingent consideration payments at a reasonable level compared with the compensation of the Company’s other key employees and (iii) contingent consideration payments are not affected by employment termination. The Company reviews and assesses the estimated fair value of contingent consideration at each reporting period. Transaction costs related to business combinations totaled $0.2 million and $1.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. These costs are expensed within selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations. Acquisitions Completed During the Three Months Ended March 31, 2021 MSE Group—In January 2021, the Company completed the acquisition of MSE Group (“MSE”) by acquiring 100.0% of its membership interests. MSE is a provider of environmental assessment, compliance, engineering, and design services primarily to the U.S. federal government. MSE is based in Orlando, FL with additional offices in Tampa, Orlando, Jacksonville, San Antonio, TX, and Wilmington, NC, and satellite locations nationwide. The upfront cash payment made to acquire MSE was funded through cash on hand and the common stock portion of the purchase price was funded through the issuance of 71,740 shares of common stock. The following table summarizes the elements of the purchase price of MSE:
|  | Cash |  |  | Common Stock |  |  | Other Purchase Price Components Current |  |  | Other Purchase Price Components Long Term |  |  | Contingent Consideration Current |  |  | Contingent Consideration Long Term |  |  | Total Purchase Price |
MSE |  | $ | 9,082 |  |  | $ | 2,271 |  |  | $ | 10,146 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,804 |  |  | $ | 23,303 |
The other purchase price components of the MSE purchase price consist of a target working capital amount, a 338 election tax liability, 2020 and 2021 purchase price true ups and contingent consideration. The 2020 and 2021 purchase price true up elements are based on MSE’s actual 2020 and 2021 results. The contingent consideration element is related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount is limited. The Company paid the target working capital amount and the 2020 purchase price true up in April 2021 (Note 22). The Company may be required to make up to $6.2 million in aggregate true up and earn-out payments in 2022 and 2023. The preliminary purchase price attributable to the MSE acquisition was allocated as follows:
|  | MSE |
Cash |  | $ | 2,810 |
Accounts receivable |  |  | 3,068 |
Other current assets |  |  | 31 |
Current assets |  |  | 5,909 |
Property and equipment |  |  | 513 |
Customer relationships |  |  | 8,720 |
Trade names |  |  | 521 |
Covenants not to compete |  |  | 922 |
Goodwill |  |  | 7,532 |
Total assets |  |  | 24,117 |
Current liabilities |  |  | (814 | )
Total liabilities |  |  | (814 | )
Purchase price |  | $ | 23,303 |
MSE results of operations have been combined with those of the Company since the date of acquisition. The Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2021 includes revenue and pre-tax loss of $4.0 million and $0.3 million, respectively. MSE is included in the Company’s Remediation and Reuse segment. The weighted average useful lives for the acquired customer relationships and related backlog for the MSE acquisition are 7 years and 2 years, respectively. The weighted average useful lives for the acquired tradenames and covenants not to compete for the MSE acquisition are 2 years and 5 years, respectively. Goodwill associated with the MSE acquisition is deductible for income tax purposes. The Company has not yet completed the initial purchase price allocation for this acquisition due to the timing of the close of the transaction. Acquisitions Completed During the Year Ended December 31, 2020 The Center for Toxicology and Environmental Health, L.L.C.—In April 2020, the Company completed the acquisition of The Center for Toxicology and Environmental Health, L.L.C. (“CTEH”) by acquiring 100.0% of its membership interests. CTEH is an environmental consulting company headquartered in Arkansas that specializes in environmental response and toxicology. The cash payment made to acquire CTEH was funded through the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 16) and the common stock portion of the purchase price was funded through the issuance of 791,139 shares of common stock. Leed Environmental Inc.— In September 2020, the Company acquired certain testing assets, and operations from Leed Environmental Inc. (“LEED”). LEED provides environmental project management and coordination services. LEED expands the Company’s remediation capabilities in the Northeast region of the United States. The cash payment made to acquire LEED was funded via cash on hand. American Environmental Testing Co.— In September 2020, the Company acquired certain assets and operations of American Environmental Testing Co. (“AETC”), a stack testing company in Utah. AETC expands the Company’s air measurement and analysis capabilities in the West Coast region. The cash payment made to acquire AETC was funded via cash on hand. The following table summarizes the elements of purchase price of the acquisitions completed during the year ended December 31, 2020:
|  | Cash |  |  | Common Stock |  |  | Other Purchase Price Components Current |  |  | Other Purchase Price Components Long Term |  |  | Contingent Consideration Current |  |  | Contingent Consideration Long Term |  |  | Total Purchase Price |
CTEH |  | $ | 175,000 |  |  | $ | 25,000 |  |  | $ | (1,939 | ) |  | $ | — |  |  | $ | 34,451 |  |  | $ | 10,543 |  |  | $ | 243,055 |
All other acquisitions |  |  | 450 |  |  |  | — |  |  |  | 50 |  |  |  | 100 |  |  |  | 210 |  |  |  | — |  |  |  | 810 |
Total |  | $ | 175,450 |  |  | $ | 25,000 |  |  | $ | (1,889 | ) |  | $ | 100 |  |  | $ | 34,661 |  |  | $ | 10,543 |  |  | $ | 243,865 |
The contingent consideration elements of the purchase price of the acquisitions is related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount is limited. The CTEH first year earn-out was calculated at twelve times CTEH’s 2020 EBITDA (as defined in the purchase agreement) in excess of $18.3 million, with a maximum first year earn-out payment of $50.0 million, which was fully achieved. The second year earn-out is to be calculated at ten times CTEH’s 2021 EBITDA in excess of actual 2020 EBITDA (with actual 2020 EBITDA subject to a minimum of $18.3 million and a maximum of $22.5 million), with a maximum second year earn-out payment of $30.0 million. The 2020 earn-out was initially payable 100.0% in common stock, but as a result of the completion of the Company’s IPO (Note 1), 50.0% was payable in cash. In April 2021, the 2020 earn-out payment was made with 50.0% paid in cash and the remaining 50.0% paid in common stock of the Company (Note 22). The 2021 earn-out, if any, is payable 100.0% in cash. The purchase price attributable to the acquisitions was allocated as follows:
|  | CTEH |  |  | All Other Acquisitions |  |  | Total |
Cash |  | $ | 1,527 |  |  | $ | — |  |  | $ | 1,527 |
Accounts receivable |  |  | 17,059 |  |  |  | — |  |  |  | 17,059 |
Other current assets |  |  | 1,265 |  |  |  | — |  |  |  | 1,265 |
Current assets |  |  | 19,851 |  |  |  | — |  |  |  | 19,851 |
Property and equipment |  |  | 7,042 |  |  |  | 75 |  |  |  | 7,117 |
Customer relationships |  |  | 56,000 |  |  |  | — |  |  |  | 56,000 |
Trade names |  |  | 4,200 |  |  |  | — |  |  |  | 4,200 |
Covenants not to compete |  |  | 4,000 |  |  |  | 109 |  |  |  | 4,109 |
Proprietary software |  |  | 14,700 |  |  |  | — |  |  |  | 14,700 |
Goodwill |  |  | 146,983 |  |  |  | 626 |  |  |  | 147,609 |
Total assets |  |  | 252,776 |  |  |  | 810 |  |  |  | 253,586 |
Current liabilities |  |  | 9,721 |  |  |  | — |  |  |  | 9,721 |
Total liabilities |  |  | 9,721 |  |  |  | — |  |  |  | 9,721 |
Purchase price |  | $ | 243,055 |  |  | $ | 810 |  |  | $ | 243,865 |
CTEH, LEED and AETC are included in the Company’s Assessment, Permitting and Response, Remediation and Reuse and Measurement and Analysis segments, respectively. The weighted average useful lives for the acquired customer relationships and internal proprietary software for the CTEH acquisition are 15 years and 3 years, respectively. The weighted average useful lives for the acquired tradenames, covenants not to compete and external proprietary software for the CTEH acquisition is 5 years. The weighted average useful lives for the acquired covenants not to compete for the other acquisitions is 4 years. Goodwill associated with the CTEH, LEED and AETC acquisitions is deductible for income tax purposes. Supplemental Unaudited Pro-Forma—The unaudited condensed consolidated financial information summarized in the following table gives effect to the 2021 and the 2020 acquisitions discussed above assuming they occurred on January 1, 2020. These unaudited consolidated pro forma operating results do not assume any impact from revenue, cost or other operating synergies that are expected or may have been realized as a result of the acquisitions. These unaudited consolidated pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the acquisitions occurred on January 1, 2020, nor does the information purport to reflect results for any future period.
|  | For the Three Months Ended March 31, |
|  | 2021 |  |  | 2020 |
|  | As reported |  |  | Acquisitions Pro-Forma (Unaudited) |  |  | Consolidated Pro-Forma (Unaudited) |  |  | As reported |  |  | Acquisitions Pro-Forma (Unaudited) |  |  | Consolidated Pro-Forma (Unaudited) |
Revenues |  | $ | 133,817 |  |  | $ | — |  |  | $ | 133,817 |  |  | $ | 61,031 |  |  | $ | 36,197 |  |  | $ | 97,228 |
Net (loss) income |  |  | (11,596 | ) |  |  | — |  |  |  | (11,596 | ) |  |  | (41,248 | ) |  |  | 11,352 |  |  |  | (29,896 | )
During the first quarter of 2020, the Company determined to reduce the footprint of its environmental lab in Berkeley, California, and to exit its non-specialized municipal water engineering service line and its food waste biogas engineering service line, (together, “the Discontinued Service Lines”). Revenues from Discontinued Service Lines included in revenues in the above table for the three months ended March 31, 2021 and March 31, 2020 were zero and $2.5 million, respectively.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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