Acquisitions

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Jake Marshall Transaction

On December 2, 2021 (the “Effective Date”), the Company and LFS entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with JMLLC, CSLLC, a Tennessee limited liability company (together with JMLLC, the “Acquired Companies” and each an “Acquired Company”) and the owners of the Acquired Companies (collectively, the “Sellers”), pursuant to which LFS purchased all of the outstanding membership interests in the Acquired Companies from the Sellers (the transactions contemplated by the Purchase Agreement collectively being the “Jake Marshall Transaction”). The Jake Marshall Transaction closed on the Effective Date. As a result of the Jake Marshall Transaction, each of the Acquired Companies became wholly-owned indirect subsidiaries of the Company. The acquisition expands the Company’s market share within its existing product and service lines.

Total consideration paid by the Company for the Jake Marshall Transaction was $21.3 million (the “Closing Purchase Price”), consisting of cash paid to the Sellers, net of adjustments for working capital. Of the consideration paid to the Sellers, $1.0 million is being held in escrow for indemnification purposes. The purchase price is subject to customary post-closing adjustments. In addition, the Sellers may receive up to an aggregate of $6.0 million in cash, consisting of two tranches of $3.0 million, as defined in the Purchase Agreement, if the gross profit of the Acquired Companies equals or exceeds $10.0 million in (i) the approximately 13 month period from closing through December 31, 2022 (the “2022 Earnout Period”) or (ii) fiscal year 2023 (the “2023 Earnout Period”), respectively (collectively, the “Earnout Payments”). To the extent,

however, that the gross profit of the Acquired Companies is less than $10.0 million, but exceeds $8.0 million, during any of the 2022 Earnout Period or 2023 Earnout Period, the $3.0 million amount will be prorated for such period.

The Company recorded $0.6 million in acquisition-related expenses related to the Jake Marshall Transaction during the year ended December 31, 2021 associated with professional fees, which are included in selling, general and administrative expense in the consolidated statement of operations.

Allocation of Purchase Price. The Jake Marshall Transaction was accounted for as a business combination using the acquisition method. The following table summarizes the final purchase price and estimated fair values of assets acquired and liabilities assumed as of the Effective Date, with any excess of purchase price over estimated fair value of the identified net assets acquired recorded as goodwill. As a result of the acquisition, the Company recognized $5.2 million of goodwill, all of which was allocated to the ODR reporting unit and fully deductible for tax purposes. Such goodwill primarily related to anticipated future earnings. The following table summarizes the allocation of the fair value of the assets and liabilities of the Jake Marshall Transaction as of the Effective Date by the Company.


(in thousands)	Purchase Price Allocation
Consideration:
Cash	$	21,313
Earnout provision	3,089
Total Consideration	24,402

Fair value of assets acquired:
Cash and cash equivalents	2,336
Accounts receivable	7,165
Contract assets	1,711
Other current assets	164
Property and equipment	5,762
Intangible assets	5,710
Amount attributable to assets acquired	22,848

Fair value of liabilities assumed:
Accounts payable, including retainage	2,655
Accrued expenses and other current liabilities	570
Contract liabilities	462
Amount attributable to liabilities assumed	3,687
Goodwill	$	5,241

For working capital items, such as cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities, the Acquired Companies’ carrying value was assumed to represent the fair value of these assets due to the current nature of the assets and liabilities. There was no difference between the contract value and fair value of accounts receivable acquired.

The estimated fair value of property and equipment, generally consisting of leasehold improvements and machinery and equipment, was estimated using the cost approach. Significant unobservable inputs in the estimate of fair value under this approach included management's assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or functional obsolescence associated with the acquired assets. As a result, the estimated fair value of the property and equipment represented a Level 3 fair value measurement.

As part of the purchase price allocation, the Company identified certain definite-lived intangible assets associated with customer relationships with third-party customers, the acquired trade name and acquired backlog. The fair value of the customer relationships with third-party customers and acquired backlog was determined using the multi-period excess earning method under the income approach. The multi-period excess earnings method is a variation of the discounted cash-flow analysis, which isolates the cash flows that can be associated with a single intangible asset and measures fair value by discounting it back to present value. The fair value of the acquired trade name intangible asset was determined using an income approach, specifically

known as the relief-from-royalty method. This method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs.

The Company calculates amortization of the acquired intangible assets using the straight-line method over the estimated useful lives of each acquired intangible assets. Amortization expense recorded in the consolidated statements of operations for the period from December 2, 2021 to December 31, 2021 was approximately $0.1 million. The estimated annual amortization expense over the next five years is approximately $1.3 million, $1.0 million, $0.7 million, $0.7 million and $0.7 million.

Intangible assets, net as of December 31, 2021 are detailed below.


(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Weighted Average Useful Life (Years)
Trade name	$	1,150	$	(15)	$	1,135	6.2
Customer relationships - GCR	570		(6)		564		7.1
Customer relationships - ODR	3,050		(34)		3,016		7.6
Backlog - GCR	260		(14)		246		1.6
Backlog - ODR	680		(36)		644		1.6
Total	$	5,710	$	(105)	$	5,605	6.3

The aforementioned contingent Earnout Payments are associated with the achievement of specified gross profit milestones. The Company estimated that the fair value of the Earnout Payments was approximately $3.1 million at the date of acquisition, of which the entire balance was included in other long-term liabilities in the Company’s consolidated balance sheet as of December 31, 2021. The Company determined the initial fair value of the Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Effective Date, the Earnout Payments associated with the Jake Marshall Transaction were valued utilizing a discount rate of 6.83%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the Earnout Payments based on the U.S. Treasury Constant Maturity Yield. Subsequent to the Effective Date, the Earnout Payments are re-measured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

Unaudited Pro Forma Information. The following unaudited pro forma combined financial information presents the Company's results as though the Jake Marshall Transaction had been completed at January 1, 2020. The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Jake Marshall Transaction taken place on January 1, 2020; furthermore, the financial information is not intended to be a projection of future results.


	Year Ended December 31,
(in thousands) (unaudited)	2021		2020
Pro forma revenue	$	523,479	$	599,013
Pro forma net income	$	5,392	$	4,310
Pro forma EPS (basic)	$	0.54	$	0.55
Pro forma EPS (diluted)	$	0.53	$	0.53