Acquisitions

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Business Combinations

During 2023, the Company completed eleven acquisitions, diversifying across geographic regions and services. The Company paid total consideration of $75.7 million which was comprised of 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. 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. In connection with these acquisitions, the Company recognized $1.2 million of acquisition related expenses within Other Income and Expenses in the consolidated statement of income for the year ended December 31, 2023, including legal fees, consulting fees, and other miscellaneous expenses associated with acquisitions. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

During 2022, the Company completed nine acquisitions. The Company paid total consideration of $47.5 million which was comprised of any combination 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 3.50% to 7.00% and is payable in lump sum payments or in quarterly payments of principal and interest beginning May 2022 and ending in May 2027. Convertible notes bear a simple interest rate ranging from 4.75% to 7.00% and is payable in quarterly payments of principal and interest beginning November 2022 and ending in May 2027; see Note 12 Notes Payable for information regarding the convertible notes payable. For tax purposes, the acquisitions were treated as asset acquisitions, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting. The purchase agreement for one of the acquisitions 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 a non-negotiable promissory note, based on certain financial performance thresholds. The payout amount ranges between $0 and $3.0 million; see Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes. The purchase price allocations have been completed and the amounts are deemed final.

The purchase price allocations at fair value, for 2023 and 2022 acquisitions as of December 31, 2023 and 2022 are presented below:


(in thousands)	2023		2022
Assets:
Accounts Receivable, net	$	10,112	$	12,427
Contract assets	6,334		2,253
Prepaid and other current assets	361		595
Property and equipment, net	1,952		2,068
Operating lease, right-of-use assets	7,078		96
Goodwill	43,512		25,225
Other intangible assets	27,361		19,626
Other assets - non-current	44		–
Total assets acquired:	$	96,754	$	62,290
Liabilities:
Accounts payable and accrued liabilities, current portion	$	3,258	$	6,182
Contract liabilities	4,891		2,906
Other non-current obligations	23,920		18,475
Operating lease obligation, less current portion	7,078		–
Finance lease obligation, less current portion	–		304
Pension and post-retirement obligation, less current portion	–		5,782
Deferred tax liability	5,787		–
Total liabilities assumed:	$	44,934	$	33,649
Net assets acquired:	$	51,820	$	28,641
Cash flow reconciling items:
Issuance of common stock as partial consideration	(26,133)		(10,606)
Cash paid for acquisitions, net of cash acquired	$	25,687	$	18,035

For the year ended December 31, 2023, the Company recorded measurement period adjustments of $0.1 million increase to prepaid and other current assets, $0.3 million increase to contract assets, $3.2 million increase to goodwill and intangible assets offset by $3.7 million increase to deferred tax liability and $0.1 million decrease to contract liabilities and accrued liabilities. If the change in provisional amounts had been recorded at the acquisition date it would have resulted in a decrease in revenue by $0.4 million in prior periods.

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 2023 and 2022:


	2023		Weighted-Average Life	2022		Weighted-Average Life
Customer relationships	$	20,050	10.45	$	14,177	12.90
Contract rights	6,980		1.18	4,448		2.28
Favorable leaseholds	331		7.76	27		1.42
Licensing rights	$	–		$	974	Indefinite
Total	$	27,361		$	19,626

Results from Acquisitions

The consolidated financial statements of the Company include the results of operations from any business acquired from their respective dates of acquisition. The following table presents the results of operations of companies acquired during 2023 from their respective dates of acquisition for the year ended December 31, 2023 (in thousands):


	For the Year Ended December 31, 2023
Gross Contract Revenue1	$	32,271
Pre-tax Net Income3	$	6,651

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.

3 Pre-tax Net Income excludes corporate overhead allocation.

The following table presents the unaudited, pro forma consolidated results of operations for the year ended December 31, 2023 and December 31, 2022 assuming that the companies acquired in 2023, described above, occurred on January 1, 2022. 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 Year Ended
	December 31, 2023		December 31, 2022
Gross Contract Revenue 2	$	386,220	$	324,907
Pre-tax Net Income	$	1,053	$	4,427

2Gross contract revenue in these pro forma financials does not conform to GAAP as required by ASC 606, Revenue from Contract 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.