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Acquisitions | 6 Months Ended
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Jun. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Acquisitions | Acquisitions Business Combinations Surdex Corporation On April 2, 2024, the Company entered into a merger agreement with Surdex Corporation (“Surdex”), a St. Louis-based geospatial and engineering services firm providing low, medium and high-altitude digital orthoimagery, advanced high-resolution LiDAR, intelligent digital mapping, 3D hydrography, and disaster mapping. The Company paid total consideration of $43.3 million, which was comprised of cash, promissory note, common stock and assumed liabilities. The shares are subject to a six-month lock up. The promissory notes bear a simple interest rate fixed at 6.50%, and is payable in equal quarterly payments of principal and interest beginning on July 2024 and ending July 2027. The merger agreement contains a contingent consideration feature which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, dependent on the average trading price of the Company's common stock for the 90 trading days post-acquisition. For tax purposes, this transaction is considered a tax-free merger, in which the assets have been recorded at their respective carrying values. As a result, there is no corresponding tax goodwill, and therefore no tax goodwill to be amortized or otherwise deductible. The following summarizes the preliminary calculations of the fair values of Surdex assets acquired and liabilities assumed as of the acquisition date (in thousands):
(in thousands) | Surdex
Assets: |
Accounts receivable, net | $ | 4,052 |
Contract assets | 3,210 |
Prepaid and other current assets | 1,940 |
Property and equipment, net | 15,167 |
Operating lease, right-of-use assets | 1,030 |
Goodwill | 17,461 |
Other intangible assets | 12,810 |
Total assets acquired: | $ | 55,670 |
Liabilities: |
Accounts payable and accrued liabilities, current portion | $ | 3,083 |
Contract liabilities | 685 |
Other non-current obligations | 11,465 |
Operating lease obligation, less current portion | 1,030 |
Deferred tax liability | 6,987 |
Total liabilities assumed: | $ | 23,250 |
Net assets acquired: | $ | 32,420 |
Cash flow reconciling items: |
Issuance of common stock as partial consideration | $ | (16,536) |
Cash paid for acquisitions, net of cash acquired | $ | 15,884 |
The purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date. The condensed consolidated financial statements of the Company include the results of operations since the date Surdex was acquired. The following table presents the results of operations of Surdex since the date of acquisition for the three and six months ended June 30, 2024 (in thousands):
| For the Three Months Ended |  | For the Six Months Ended
| June 30, 2024 |  | June 30, 2024
Gross Contract Revenue 1 | $ | 6,333 |  |  | $ | 6,333 |
Pre-tax Net Income 2 | $ | 1,201 |  |  | $ | 1,201 |
1 Gross contract revenue includes adjustments as required by ASC 606, Revenue from Contracts with Customers based on opening balance sheet provided by the acquired companies. There is no assurance these adjustments will be consistent in future periods. Opening balance sheet balances are subject to adjustment prior to being finalized. 2 Pre-tax Net Income excludes corporate overhead allocation. The following table presents the unaudited pro forma condensed consolidated results of operations for the three and six months ended June 30, 2024 and 2023 assuming that the Surdex acquisition, discussed above, occurred on January 1, 2023. The pro forma information provided below is compiled from pre-acquisition information and includes pro forma adjustments for amortization and depreciation. The unaudited pro forma results are presented for informational purposes only and are not meant to represent actual operating results that would have been achieved had the related events occurred on such date (in thousands):
| For the Three Months Ended |  | For the Six Months Ended
| June 30, 2024 | June 30, 2023 |  | June 30, 2024 | June 30, 2023
Gross Contract Revenue 3 | $ | 104,582 |  | $ | 91,215 |  |  | $ | 205,426 |  | $ | 171,923 |
Pre-tax Net (Loss) Income | $ | (2,048) |  | $ | 1,453 |  |  | $ | (4,009) |  | $ | 1,376 |
3 Gross contract revenue in these pro forma financials does not conform to GAAP as required by ASC 606, Revenue from Contracts with Customers, as it is impracticable to obtain the historical information necessary to apply this accounting standard. The historical estimates required to be able to accurately determine the percent complete accounting on the contracts that comprise the revenue is not available for the required periods. 2024 Acquisitions During the six months ended June 30, 2024, the Company completed three additional acquisitions in diverse geographic regions and service lines. The Company paid total consideration of $13.9 million through combinations of cash, promissory notes, shares of common stock and assumed liabilities. No cash was acquired with these acquisitions. Shares of common stock issued in connection with the acquisitions are subject to a six-month lock-up. Promissory notes bear a simple interest rate ranging from 5.00% to 6.75% and are payable in quarterly payments of principal and interest beginning May 2024 and ending in April 2027. For tax purposes, dependent on the transaction, the acquisitions were treated either as an asset acquisition, in which case the assets have been stepped up and recorded at their respective fair values, or a tax-free merger, in which case the assets have been recorded at their respective carrying values. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. For asset acquisitions, all the goodwill recognized is expected to be deductible for tax purposes. For two of the acquisitions, the purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, cash and non-negotiable promissory notes, based on certain financial performance thresholds. The final settlement amount will depend on ongoing operations of the acquired company. The payout amounts range between $0 and $1.0 million. See Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration. For the six months ended June 30, 2024, for all of the 2024 acquisitions, the Company recorded measurement period adjustments of $0.6 million increase to goodwill offset by a $0.6 million increase to deferred tax liabilities. The change did not result in a change to operating income. In connection with all of the 2024 acquisitions, the Company recognized $0.6 million and $1.1 million of acquisition related expenses within Other Income and Expenses in the condensed consolidated statement of income for each of the three and six months ended June 30, 2024, respectively, including legal fees, consulting fees, and other miscellaneous expenses associated with acquisitions. 2023 Acquisitions During 2023, the Company completed eleven acquisitions in diverse geographic regions and service lines. The Company paid total consideration of $75.7 million through combinations of cash, promissory notes, convertible notes, shares of common stock and assumed liabilities. No cash was acquired with these acquisitions. Shares of common stock are subject to a six-month lock-up. Promissory notes bear a simple interest rate ranging from 5.00% to 11.00% and are payable in quarterly payments of principal and interest beginning February 2023 and ending in December 2026. Convertible notes bear a simple interest rate ranging from 7.00% to 8.00% and are payable in lump sum payments or quarterly payments of principal and interest beginning December 2024 and ending in September 2027; see Note 12 Notes Payable for additional information regarding the convertible notes payable. For tax purposes, dependent on the transaction, the acquisitions were treated either as an asset, stock or a merger. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. Portions of the Goodwill recognized is expected to be deductible for tax purposes. For six of the acquisitions, the purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, cash and non-negotiable promissory notes, based on certain financial performance thresholds. The final settlement amount will depend on ongoing operations of the acquired company. The payout amounts range between $0 and $3.0 million; see Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration. For the six months ended June 30, 2024, for the 2023 acquisitions, the Company recorded measurement period adjustments of $0.4 million increase to goodwill offset by $0.4 million increase to consideration. The change did not result in a change to operating income. In connection with these acquisitions, the Company recognized $0.2 million and $0.7 million of acquisition related expenses within Other Income and Expenses in the condensed consolidated statement of income for each of the three and six months ended June 30, 2023, respectively, including legal fees, consulting fees, and other miscellaneous expenses associated with acquisitions. The purchase price allocations at fair value, for the 2023 acquisitions as of December 31, 2023 are presented below:
(in thousands) |  | 2023
Assets: |  |
Accounts receivable, net |  | $ | 10,112 |
Contract assets |  | 6,334 |
Prepaid and other current assets |  | 361 |
Property and equipment, net |  | 1,952 |
Operating lease, right-of-use assets |  | 7,078 |
Goodwill |  | 43,900 |
Other intangible assets |  | 27,361 |
Other assets - non-current |  | 44 |
Total assets acquired: |  | $ | 97,142 |
Liabilities: |  |
Accounts payable and accrued liabilities, current portion |  | $ | 3,228 |
Contract liabilities |  | 4,891 |
Other non-current obligations |  | 24,222 |
Operating lease obligation, less current portion |  | 7,078 |
Deferred tax liability |  | 5,787 |
Total liabilities assumed: |  | $ | 45,206 |
Net assets acquired: |  | $ | 51,936 |
Cash flow reconciling items: |  |
Issuance of common stock as partial consideration |  | $ | (26,133) |
Cash paid for acquisitions, net of cash acquired |  | $ | 25,803 |
The amounts in the tables above represent the preliminary purchase allocation for the 2023 acquisitions. The purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date. Definite-lived intangible assets that were acquired through asset acquisitions or business combinations include customer relationships, contract rights, and favorable leaseholds. These intangible assets are amortized over their estimated useful lives ranging from two to thirteen years using a straight-line method as it approximates the accelerated method. The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets acquired in 2024 and 2023:
| 2024 |  | Weighted-Average Life |  | 2023 |  | Weighted-Average Life
Customer relationships | $ | 14,830 |  |  | 12.94 |  | $ | 20,050 |  |  | 10.45
Contract rights | 1,870 |  |  | 0.64 |  | 6,980 |  |  | 1.18
Favorable leaseholds | - |  |  | n/a |  | 331 |  |  | 7.76
Total | $ | 16,700 |  |  |  |  | $ | 27,361 |  |  |

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