Business Combinations

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

Business Combinations

NOTE 11 – BUSINESS COMBINATIONS

As part of our ongoing strategy to increase market share in certain markets, we completed two business combinations during the three months ended March 31, 2017 and three business combinations during the three months ended March 31, 2016. Acquisition-related costs amounted to $0.6 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively. The goodwill recognized in conjunction with these business combinations is attributable to expected improvement in the business of these acquired companies. We expect to deduct $36.6 million of goodwill for tax purposes as a result of 2017 acquisitions.

2017

On January 5, 2017, we consummated our previously announced acquisition of all of the outstanding shares of Trilok Industries, Inc., Alpha Insulation & Waterproofing, Inc. and Alpha Insulation & Waterproofing Company (“Alpha”) for consideration of approximately $103.8 million in cash, including $21.7 million in contingent consideration to satisfy purchase price adjustments related to cash and net working capital requirements, earnout consideration based on Alpha’s change in EBITDA from 2015 and a customary holdback, $10.9 million by issuing 282,577 shares of our common stock and other seller obligations totaling $2.0 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 were $28.2 million and $0.9 million, respectively.

On March 20, 2017, we acquired substantially all of the assets of Custom Glass Atlanta, Inc. and Atlanta Commercial Glazing, Inc. The purchase price consisted of cash of $3.3 million and seller obligations of $0.5 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statement of Operations for the three months ended March 31, 2017 were $0.5 million and $21 thousand, respectively.

2016

On January 25, 2016, we acquired substantially all of the assets of Key Green Builder Services, LLC d/b/a Key Insulation. The purchase price consisted of cash of $5.0 million and seller obligations of $0.7 million. Revenue and net loss since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 were $2.1 million and $(28) thousand, respectively.

On February 2, 2016, we acquired substantially all of the assets of Marshall Insulation, LLC. The purchase price consisted of cash of $0.9 million and seller obligations of $0.1 million. Revenue and net loss since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 were $0.6 million and $(86) thousand, respectively.

On February 29, 2016, we acquired substantially all of the assets of Kern Door Company, Inc. The purchase price consisted of cash of $2.9 million and seller obligations of $0.1 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 were $0.3 million and $13 thousand, respectively.

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 as of March 31 and may be adjusted during the valuation period since acquisition (in thousands):

	2017									2016
	Alpha			Other			Total			Total
Estimated fair values:
Cash	$	247		$	—		$	247		$	—
Accounts receivable		30,405			1,096			31,501			1,518
Inventories		1,751			772			2,523			311
Other current assets		6,030			—			6,030			8
Property and equipment		1,528			462			1,990			789
Intangibles		57,100			1,904			59,004			5,036
Goodwill		36,452			496			36,948			3,220
Other non-current assets		150			82			232			24
Accounts payable and other current liabilities		(16,992	)		(1,001	)		(17,993	)		(1,239	)
Fair value of assets acquired and purchase price		116,671			3,811			120,482			9,667
Less fair value of common stock issued		10,859			—			10,859			—
Less seller obligations		2,002			501			2,503			870
Cash paid	$	103,810		$	3,310		$	107,120		$	8,797

Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party and 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, insignificant 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. Goodwill and intangibles per the above table do not agree to the total gross increases of these assets as shown in Note 3—Goodwill and Intangibles during the three months ended March 31, 2017 due to minor 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. In addition, goodwill and intangibles increased during the three months ended March 31, 2017 due to an immaterial tuck-in acquisition that does not appear in the above table.

Estimates of acquired intangible assets related to the acquisitions are as follows for the three months ended March 31 (dollars in thousands):

	2017				2016
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)
Customer relationships	$	28,501		8	$	3,067		8
Trademarks and trade names		15,496		15		1,535		15
Non-competition agreements		1,607		5		434		5
Backlog		13,400		1.5		—		—

Pro Forma Information

The unaudited pro forma information for the combined results of the Company has been prepared as if the 2017 acquisitions had taken place on January 1, 2016 and the 2016 acquisitions had taken place on January 1, 2015. 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, 2016 and 2015, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results. See Note 12, Business Combinations, to our audited financial statements in Item 8 of Part II of our 2016 Form 10-K for additional information on 2016 acquisitions included in the table below (in thousands, except per share data):

	Pro forma for the three months ended March 31,
	2017		2016
Net revenue	$	258,289	$	232,345
Net income	$	6,579	$	6,559
Basic and diluted net income per share	$	0.21	$	0.21

Unaudited pro forma net income reflects additional intangible asset amortization expense of $56 thousand and $4.2 million for the three months ended March 31, 2017 and 2016, respectively, as well as additional income tax expense of $0.1 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively, and additional interest expense of $0.5 million for the three months ended March 31, 2016 that would have been recorded had the 2017 acquisitions taken place on January 1, 2016 and the 2016 acquisitions taken place on January 1, 2015. There was no additional interest expense for the three months ended March 31, 2017.