Business Combinations

3 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

4. Business Combinations

Acquisition of Grove Resource Solutions, LLC

On December 8, 2022, the Company acquired 100% of the equity interests of Grove Resource Solution, LLC ("GRSi") for a net preliminary purchase price of $185.1 million, inclusive of the preliminary working capital adjustment. The acquisition was financed through a combination of:

•borrowings of $178.1 million under the Company’s amended and restated credit facility; and

•common stock issued of approximately 0.5 million shares, which were valued at $7.0 million in the aggregate, based on the 20-day volume-adjusted average price of its common stock.

The acquisition of GRSi was consistent with the Company’s growth strategy, as it provided contract diversification, addition of key capabilities and increased presence in the military health market. The estimated goodwill derived from this transaction is primarily due to these attributes.

We have used the acquisition method of accounting for this transaction, whereby the assets acquired and liabilities assumed are recognized based upon their estimated fair values at the acquisition date.

The preliminary purchase price for GRSi was $188.5 million adjusted to reflect acquired cash, assumed liabilities and preliminary net working capital adjustments.

The Purchase Agreement contains customary representations, warranties and covenants by the parties. Subject to certain limitations and conditions, the seller and the equity holders of the seller do not have indemnity obligation for damages resulting from breaches or inaccuracies of the representations, warranties, and covenants of the seller, GRSI and the equity holders as set forth in the Purchase Agreement. The Purchase Agreement also provided for the establishment of an escrow account in order to satisfy (i) any downward adjustment of the purchase price base on GRSI's net working capital at the closing and (ii) certain specified indemnification obligations of the seller and equity holders that may arise following the closing. The escrow account is funded by an aggregate amount of approximately $4.3 million and the stock consideration. A representations and warranties insurance policy has been purchased by the Company in connection with the Purchase Agreement, under which the Company may seek recourse for breaches of the representations and warranties of the seller, GRSI and the equity holders. The representations and warranties insurance policy is subject to certain customary exclusions and a deductible.

In accordance with ASU 2017-01, the Company evaluated the transaction as an acquisition of a business. We are still assessing the acquisition price to the fair value of the assets and liabilities of GRSi at the acquisition date. We are awaiting the fair values of the intangibles assets from the third party valuation firm. The preliminary purchase price and its allocation are shown below and are subject to change once the valuation is complete. Based on the unaudited financial statements of GRSi on December 8, 2022, we accounted for the total acquisition consideration and allocation of fair value to the related assets and liabilities on a preliminary basis as follows (in thousands):


Preliminary purchase price for GRSi	$	188,458



Purchase price allocation:
Cash	747
Accounts receivable	25,468
Other current assets	1,354
Accounts payable and accrued expenses	(2,449)
Payroll liabilities	(7,827)
Other current liabilities	(325)
Equipment and improvements, net	463
Other long-term assets and liabilities	(611)
Intangible assets	98,004
Total identifiable net assets acquired	114,824

Goodwill	73,634

All operating units are aggregated into a single reportable segment. The acquisition of GRSi did not create an additional reportable segment as all operations report to a single Chief Operating Decision Maker (CODM), serve a similar customer base, and provide similar services within a common regulatory environment. The goodwill represents intellectual capital and the acquired workforce, of which both do not qualify as a separate intangible asset. The tax deductible goodwill is in the process of being calculated.

During the three months ended December 31, 2022 following the completion of the acquisition, GRSi contributed approximately $6.9 million of revenue and $0.3 million of income from operations.

The following table presents certain results for the three months ended December 31, 2022 and 2021 as though the acquisition of GRSi had occurred on October 1, 2021. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of our results if the acquisition had taken place on that date. The pro forma information was prepared by combining our reported historical results with the historical results of GRSi for the pre-acquisition periods. In addition, the reported historical amounts were adjusted for the following items, net of associated tax effects:

•The impact of recording GRSi's intangible asset amortization.

•The impact of interest expense for the new credit facility.

•The removal of legacy GRSi director's fees.

•The removal of transaction costs for the acquisition incurred by GRSi.


	(in thousands)
	Three Months Ended
	December 31,
Pro forma results	2022		2021
Revenue	$	99,823	$	178,854

Net income (loss)	$	2,181	$	6,857

Number of shares outstanding - basic	13,306		12,749
Number of shares outstanding - diluted	14,276		14,295

Basic earnings per share (loss)	$0.16		$0.54
Diluted earnings per share (loss)	$0.15		$0.48