Note 3 - Acquisitions

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

  (3)             Acquisitions

ExamWorks operates in a highly fragmented industry and has completed 50 acquisitions since July 14, 2008 through the date of this filing. A key component of ExamWorks’ acquisition strategy is growth through acquisitions that expand its geographic coverage, that provide new or complementary lines of business, expand its portfolio of services and that increase its market share.

The Company has accounted for all business combinations using the purchase method to record a new cost basis for the assets acquired and liabilities assumed. The Company recorded, based on a preliminary purchase price allocation, intangible assets representing client relationships, tradenames, covenants not to compete, technology and the excess of purchase price over the estimated fair value of the tangible assets acquired and liabilities assumed as goodwill in the accompanying consolidated financial statements. The goodwill is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence. The results of operations are reflected in the consolidated financial statements of the Company from the date of acquisition.

  (a)             2012 Acquisitions

In 2012, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $109.5 million, comprised of $112.3 million cash consideration less cash acquired of $2.9 million, and 6,190 shares of the Company’s common stock with an estimated fair value of $85,000. In conjunction with these 2012 acquisitions, the Company incurred transaction costs of $1.3 million, of which $1.3 million and $28,000 were incurred in the years ended December 31, 2012 and 2013, respectively. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions expanded the geographic coverage and, to a lesser extent, enhanced the service offering of the Company.

Company name	Form of acquisition	Date of acquisition
Makos Health Associates Corp (Canada)	Substantially all of the assets and assumed certain liabilities	July 12, 2012
MedHealth Holdings Pty Limited (Australia)	100% of the outstanding common stock	August 31, 2012
PMG (United States)	100% of the outstanding common stock	December 19, 2012

The final allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2012			Adjustments/ reclassifications			Final purchase price allocation December 31, 2013
Equipment and leasehold improvements		850			—			850
Customer relationships		44,413			—			44,413
Tradename		11,901			—			11,901
Covenants not to compete		313			—			313
Technology		666			—			666
Goodwill		60,373			5,606			65,979
Net deferred tax liability associated with step-up in book basis		(9,610	)		(5,836	)		(15,446	)
Assets acquired and liabilities assumed, net		269			580			849
Totals		109,175			350			109,525

In 2013, the Company finalized the purchase price allocation and recorded adjustments to working capital resulting in an increase in total consideration paid of $350,000. Additionally, the Company recorded adjustments relating to the final estimated tax values associated with foreign tax limitations. Goodwill of $59.1 million and other intangible assets of $50.2 million are expected to be deductible for U.S. federal income tax purposes, a portion of which are subject to the provisions of IRC Section 901(m) which contain foreign tax credit limitations.

(b)               2013 Acquisitions

In 2013, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $7.3 million, comprised of $3.3 million cash consideration less cash acquired of $8,000, and $4.0 million of contingent consideration. In conjunction with these 2013 acquisitions, the Company incurred transaction costs of $83,000, all of which were incurred in the year ended December 31, 2013. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced the service offering of the Company.

Company name	Form of acquisition	Date of acquisition
AGS Risk Limited (United Kingdom)	Substantially all of the assets and assumed certain liabilities	December 10, 2013
Evaluation Resource Group (United States)	Substantially all of the assets and assumed certain liabilities	December 20, 2013

The final allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2013		Adjustments/ reclassifications			Final purchase price allocation December 31, 2014
Equipment and leasehold improvements		130		—			130
Customer relationships		3,141		—			3,141
Tradename		710		—			710
Goodwill		3,024		(309	)		2,715
Assets acquired and liabilities assumed, net		688		(64	)		624
Totals		7,693		(373	)		7,320

In 2014, the Company finalized the purchase price allocation and recorded adjustments to contingent consideration resulting in a decrease in total consideration paid of $373,000. Goodwill of $2.8 million and other intangible assets of $3.9 million are expected to be deductible for U.S. federal income tax purposes.

(c)                2014 Acquisitions

In 2014, the Company completed the following individually insignificant acquisitions, as defined in SEC Regulation S-X Rule 3-05, with an aggregate purchase price of $194.7 million, comprised of $188.9 million cash consideration less cash acquired of $1.1 million, and $6.9 million of contingent consideration. In conjunction with these 2014 acquisitions, the Company incurred transaction costs of $1.6 million, of which $569,000 and $1.0 million was incurred in the years ended December 31, 2013 and 2014, respectively. These amounts are reported in SGA expenses in the Company’s accompanying Consolidated Statements of Comprehensive Income (Loss). These acquisitions enhanced and expanded the presence of the service offerings of the Company.

Company name	Form of acquisition	Date of acquisition
Newton Medical Group (United States)	Substantially all of the assets and assumed certain liabilities	January 13, 2014
Cheselden (United Kingdom)	100% of the outstanding share capital	January 16, 2014
G&L Intermediate Holdings (“Gould & Lamb”) (United States)	100% of the outstanding common stock	February 3, 2014
Assess Medical Group Pty Ltd (Australia)	100% of the outstanding common stock	February 14, 2014
Solomon Associates (United States)	Substantially all of the assets and assumed certain liabilities	May 30, 2014
Ability Services Network (United States)	100% of the outstanding common stock	June 6, 2014
Expert Medical Opinions (United States)	Substantially all of the assets and assumed certain liabilities	August 22, 2014

The preliminary allocation of consideration for these acquisitions is summarized as follows (in thousands):

	Preliminary purchase price allocation December 31, 2014
Equipment and leasehold improvements	$	886
Customer relationships		50,216
Tradename		10,342
Covenants not to compete		590
Technology		1,870
Goodwill		136,034
Net deferred tax liability associated with step-up in book basis		(9,041	)
Assets acquired and liabilities assumed, net		3,785
Total	$	194,682

Goodwill of $116.5 million and other intangible assets of $36.7 million are expected to be deductible for U.S. federal income tax purposes, a portion of which are subject to the provisions of IRC Section 901(m) which contain foreign tax credit limitations. The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but the Company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are subject to change. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. The 2014 acquisitions contributed $63.9 million in revenues and $2.0 million in operating losses, respectively, for the year ended December 31, 2014.

(d)               Pro forma Financial Information

The following unaudited pro forma results of operations for the years ended December 31, 2013 and 2014 assumes that the 2013 acquisitions were completed on January 1, 2012 and the 2014 acquisitions were completed on January 1, 2013.

For the years ended December 31, 2013 and 2014, the pro forma results include adjustments to reflect interest expense of $(3.3) million and $103,000, respectively, associated with the termination of prior debt instruments and funding of the acquisitions assuming that acquisition related debt was incurred as referenced above.  In addition, incremental depreciation and amortization expense was recorded as if the acquisitions had occurred on the dates referenced above and amounted to $17.7 million and $3.4 million for the years ended December 31, 2013 and 2014, respectively.  Finally, adjustments of $7.3 million and $5.6 million were made to reduce SGA expenses for the years ended December 31, 2013 and 2014, respectively, principally related to certain salary and other personal  expenses attributable to the previous owners and employees of the acquired businesses.  These adjustments represent contractual reductions and are considered to be non-recurring and are not expected to have a continuing impact on the operations of the Company.

	Years ended December 31,
	2013			2014
	(In thousands, except per share data)
Pro forma revenues	$	707,064		$	798,337
Pro forma net income (loss)		(10,144	)		10,900
Pro forma net income (loss) per share - basic	$	(0.29	)	$	0.28
Pro forma net income (loss) per share - diluted	$	(0.29	)	$	0.26

The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisitions been effective as of January 1 of the respective years or of future operations of the Company.