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Acquisitions | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Acquisitions | Acquisitions Asset Acquisition - Van Hook Crude Terminal, LLC The acquisition of the assets of Van Hook Crude Terminal, LLC occurred on March 15, 2018. The Company acquired all of the rights, title, and interest in certain properties and assigned contracts for a total consideration of $15,549 in cash. The acquisition cost has been allocated to the Company’s fixed assets as set forth below.
Machinery, equipment and tooling | $ | 1,478 |
Plant and building | 1,407 |
Railroad and sidings | 9,926 |
Land improvements | 2,738 |
Total assets acquired | $ | 15,549 |
Business Combination - Quickthree Solutions Inc. On June 1, 2018, the Company acquired substantially all of the assets of Quickthree, a manufacturer of portable vertical frac sand storage solution systems, which now comprise the Company’s SmartSystems offerings. The aggregate purchase price consisted of approximately $30,000 cash paid at closing, subject to adjustment based upon Quickthree’s closing date working capital, and up to $12,750 in potential earn-out payments over a three-year period after closing. Payment of the earn-out is based upon the production of SmartDepot (formerly known as Quickstand) silos and related equipment during the earn-out period. The closing portion of the purchase price was paid using cash on hand and advances under the Company’s Credit Facility. The Company expects the earn-out portion of the purchase price to be paid using cash on hand, equipment financing options available to the Company and advances under the Company’s Credit Facility. Goodwill in this transaction was attributable to planned expansion into the wellsite proppant storage solutions market, and is fully deductible for tax purposes. The table below presents the calculation of the total purchase consideration.
Base price - cash | $ | 30,000 |
Contingent consideration – earnout | 9,200 |
Working capital adjustment | (122 | )
Total purchase consideration | $ | 39,078 |
The Company’s allocation of the purchase price in connection with the acquisition was calculated as follows:
|  | Fair Value |  | Useful Life (in years)
Assets Acquired |  |  |  |
Accounts receivable |  | $ | 112 |  |  |
Inventory |  | 1,700 |  |  |
Prepaid expenses and other current assets |  | 126 |  |  |
Total current assets acquired |  | $ | 1,938 |  |  |
Property, plant and equipment |  | 740 |  |  |
Customer relationships |  | 270 |  |  | 1 year
Developed technology |  | 18,800 |  |  | 13 years
Trade name |  | 900 |  |  | Indefinite
Goodwill |  | 16,935 |  |  |
Other assets |  | 225 |  |  |
Total non-current assets acquired |  | 37,870 |  |  |
Total assets acquired |  | $ | 39,808 |  |  |
Liabilities Assumed |  |  |  |
Accounts payable |  | $ | 331 |  |  |
Accrued and other expenses |  | 399 |  |  |
Total liabilities assumed |  | 730 |  |  |
Estimated fair value of net assets acquired |  | $ | 39,078 |  |  |
There were no acquisition costs for the Quickthree acquisition during the three and nine months ended September 30, 2019. Total acquisition costs for the Quickthree acquisition incurred during the three and nine months ended September 30, 2018 were $0 and $1,159, respectively, which are included in selling, general and administrative expense in the Company’s condensed consolidated income statements. The purchase price allocation was considered complete as of December 31, 2018. The goodwill and trade name have been fully impaired as of December 31, 2018. The Company conducts its evaluation of goodwill at the reporting unit level on an annual basis as of December 31 and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. All of the Company’s operations are in one reporting unit. The Company determined the fair value of its reporting unit using both a market multiples approach and the discounted cash flows method. In the second half of 2018, the Company saw a decline in demand for frac sand, consistent with the industry as a whole, which resulted in a decline in the Company’s stock price near the measurement date. The decline in the Company’s stock price near the measurement date and the relationship between the resulting market capitalization and the equity recorded on the Company’s balance sheet resulted in a full impairment of goodwill as of December 31, 2018. The Company impaired $8,500 of gross intangible assets related to developed technology acquired in the Quickthree acquisition. See Note 6 - Intangible Assets for additional information. Contingent Consideration The Company determined the fair value of the contingent consideration to be $9,200 at June 1, 2018, the acquisition date and recorded it as a liability in the Company’s unaudited condensed consolidated balance sheets. Each reporting period, the Company reassesses its inputs including market comparable information and management assessments regarding potential future scenarios, then discounts the liabilities to present value. The Company recorded adjustments to the fair value of contingent consideration in the amount of $1,215 and $2,757 for the three and nine months ended September 30, 2019, respectively, and $2,100 for each the three and nine months ended September 30, 2018, on the condensed consolidated income statements. The Company will continue to reassess earn-out calculations related to the contingent consideration in future periods. The Company’s contingent consideration is remeasured at fair value on a recurring basis and is comprised of payments for production of silos and related equipment during the three-year period after the acquisition. Contingent liabilities are valued using significant inputs that are not observable in the market, which are defined as Level 3 inputs according to fair value measurement accounting. The Company used a probability-weighted average between 10 and 37 manufactured SmartDepot fleets over the earnout period, as the basis of its fair value determination. The actual contingent consideration could vary from the determined amount based on the actual number of SmartDepot silos and related equipment produced and the timing thereof. The Company estimates the fair value of contingent liabilities using a Monte Carlo simulation-based, real option pricing methodology implementation of the Income Approach. This approach utilizes inputs including market comparable information and management assessments regarding potential future scenarios, then discounts the liabilities to present value. The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved. The Company’s financial instruments remeasured and carried at fair value were as follows:
|  | September 30, 2019 |  | Level 1 |  | Level 2 |  | Level 3
Contingent consideration |  | $ | 2,800 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,800 |
Total liabilities |  | $ | 2,800 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,800 |
The following table provides a summary of changes in the fair value of the Company’s Level 3 financial instruments for the nine months ended September 30, 2019.
Balance as of December 31, 2018 |  | $ | 7,167 |
Payment of contingent consideration |  | (1,610 | )
Fair value adjustment |  | (2,757 | )
Balance as of September 30, 2019 |  | $ | 2,800 |

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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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