Business Combination

12 Months Ended

Sep. 30, 2023

Acquisition of Grove Resource Solutions, LLC

On December 8, 2022, the Company acquired 100% of the equity interests of GRSi for a purchase price of $188 million, inclusive of the working capital adjustment completed and paid. The acquisition was financed through a combination of:

•borrowings of $181.5 million under the Company’s amended and restated credit facility; and

•common stock issued of approximately 0.5 million shares, which were valued at $6.5 million in the aggregate, based on the shares issued to the previous owners as determined by the equity purchase agreement and the stock price on the acquisition date.

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

The Company has 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 purchase price for GRSi was $188 million adjusted to reflect acquired cash, assumed liabilities and 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. The Company has assessed the acquisition price to the fair value of the assets and liabilities of GRSi at the acquisition date. We accounted for the total acquisition consideration and allocation of fair value of the related assets and liabilities at December 8, 2022 as follows (in thousands):


Purchase price for GRSi	$	187,997

Purchase price allocation:
Cash	747
Accounts receivable	25,468
Other current assets	1,354
Equipment and improvements, net	463
Intangible assets	98,688
Accounts payable and accrued expenses	(2,449)
Payroll liabilities	(7,826)
Other current liabilities	(325)
Other long-term assets and liabilities	(781)
Identifiable net assets acquired	115,339

Goodwill	$	72,658

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.

During the year ended September 30, 2023, following the completion of the acquisition, GRSi contributed approximately $107.0 million of revenue and $4.4 million of income from operations, which includes $8.2 million of non-cash intangible asset amortization expense.

The unaudited pro forma information below 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.

The following table presents certain unaudited results for the year ended September 30, 2023 as though the acquisition of GRSi had occurred on October 1, 2022 (in thousands):


	Twelve Months Ended
	September 30,
Pro forma results	2023		2022
Revenue	$	402,958	$	507,251
Net income	2,054		18,912

Number of shares outstanding - basic	13,704		12,830
Number of shares outstanding - diluted	14,431		14,179

Basic earnings per share	$0.15		$1.47
Diluted earnings per share	$0.14		$1.33