Business Acquisitions | 6. BUSINESS ACQUISITIONS In line with the Company’s strategic growth initiatives, the Company acquired several businesses during the nine months ended September 30, 2020 and September 30, 2019. The results of each of those acquired businesses are included in the condensed consolidated financial statements beginning on the respective acquisition dates. Each transaction qualified as an acquisition of a business and was accounted for as a business combination. All acquisitions resulted in the recognition of goodwill. The Company paid these premiums resulting in such goodwill for a number of reasons, including expected synergies from combining operations of the acquiree and the Company while also growing the Company’s customer base, acquiring assembled workforces, expanding its presence in certain markets and expanding and advancing its product and service offerings. The Company recorded the assets acquired and liabilities assumed at their acquisition date fair value, with the difference between the fair value of the net assets acquired and the acquisition consideration reflected as goodwill. The identifiable intangible assets for acquisitions are valued using the excess earnings method discounted cash flow approach for customer relationships, the relief from royalty method for trade names, the patent and external proprietary software, the “with and without” method for covenants not to compete and the replacement cost method for the internal proprietary software by incorporating Level 3 inputs as described under the fair value hierarchy of ASC 820. These unobservable inputs reflect the Company’s own assumptions about which assumptions market participants would use in pricing an asset on a non-recurring basis. Other purchase price obligations (primarily deferred purchase price liabilities and target working capital liabilities or receivables) are included on the condensed consolidated statements of financial position in accounts payable and other accrued liabilities, other non-current liabilities or accounts receivable-net in the case of working capital deficits. Contingent consideration outstanding from acquisitions are included on the condensed consolidated statements of financial position in business acquisition contingent consideration, current or in business acquisitions contingent consideration, long-term. These obligations are scheduled to be settled if certain performance thresholds are met. The Company considers several factors when determining whether or not contingent consideration liabilities are part of the purchase price, including the following: (i) the valuation of its acquisitions is not supported solely by the initial consideration paid, (ii) the former stockholders of acquired companies that remain as key employees receive compensation other than contingent consideration payments at a reasonable level compared with the compensation of the Company’s other key employees and (iii) contingent consideration payments are not affected by employment termination. The Company reviews and assesses the estimated fair value of contingent consideration at each reporting period. Transaction costs related to business combinations totaled $3.8 million and $2.4 million for the nine months ended September 30, 2020 and September 30, 2019, respectively, and zero and $1.3 million for the three months ended September 30, 2020 and September 30, 2019, respectively. These costs are expensed within the selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The cash payment made to acquire The Center for Toxicology and Environmental Health, L.L.C. (“CTEH”) was funded through the issuance of the Convertible and Redeemable Series A-2 Acquisitions completed during the nine months ended September 30, 2020 The Center for Toxicology and Environmental Health, L.L.C. Leed Environmental Inc. American Environmental Testing Co. The following table summarizes the elements of purchase price of the acquisitions completed during the nine months ended September 30, 2020: Cash Common Stock Other Purchase Price Component Current Other Purchase Price Component Long Term Contingent Consideration Current Contingent Consideration Long Term Total Purchase Price CTEH $ 175,000 $ 25,000 $ (2,297 ) $ — $ 34,451 $ 10,543 $ 242,697 All other acquisitions 450 — 50 100 210 — 810 $ 175,450 $ 25,000 $ (2,247 ) $ 100 $ 34,661 $ 10,543 $ 243,507 The contingent consideration elements of the purchase price of the acquisitions is related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount is limited. CTEH first year earnout is to be calculated at twelve times CTEH’s 2020 EBITDA (as defined in the purchase agreement) in excess of $18.3 million, with a maximum first year earn-out payment year earn-out is year earn-out payment The preliminary purchase price attributable to the acquisitions was allocated as follows: CTEH All Other Acquisitions Total Cash $ 1,527 $ — $ 1,527 Accounts receivable 17,059 — 17,059 Other current assets 1,265 — 1,265 Current assets 19,851 — 19,851 Property and equipment 7,042 75 7,117 Customer relationships 56,000 — 56,000 Trade names 4,200 — 4,200 Covenants not to compete 4,000 109 4,109 Proprietary software 14,700 — 14,700 Goodwill 146,625 626 147,251 Total assets 252,418 810 253,228 Current liabilities 9,721 — 9,721 Total liabilities 9,721 — 9,721 Purchase price $ 242,697 $ 810 $ 243,507 For the acquisitions completed during the nine months ended September 30, 2020, the results of operations have been combined with those of the Company. The Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2020 includes revenue and pre-tax income The weighted average useful lives for the acquired customer relationships and internal proprietary software for the CTEH acquisition are 15 years and 3 years, respectively. The weighted average useful lives for the acquired tradenames, covenants not to compete and external proprietary software for the CTEH acquisition is 5 years. The weighted average useful lives for the acquired covenants not to compete for the other acquisitions is 4 years. Goodwill associated with the CTEH, LEED and AETC acquisitions is deductible for income tax purposes. Acquisitions completed during the nine months ended September 30, 2019 Golden Specialty, Inc. — Target Emission Services Inc. Target Emission Services USA LP Air Water & Soil Laboratories, Inc. the mid-Atlantic region. Advanced Environmental Compliance LLC LEHDER Environmental Services Ltd Emerging Compounds Treatments Technologies, Inc. The following table summarizes the elements of purchase price of the acquisitions completed during the nine months ended September 30, 2019: Cash Common Stock Other Purchase Price Components Contingent Consideration Total Purchase Price Golden $ 1,500 — — $ 477 $ 1,977 TES 2,359 322 25 4,911 7,617 TESUS 18,683 3,041 1,495 — 23,219 AWS 6,020 — 150 — 6,170 AEC 808 — — — 808 LEHDER 3,878 684 — 13 4,575 ECT2 54,037 — (220 ) — 53,817 $ 87,285 $ 4,047 $ 1,450 $ 5,401 $ 98,183 Contingent consideration elements of the purchase price of these acquisitions are related to earn-outs which are based on the expected achievement of revenue or earnings thresholds by the applicable business as of the date of the acquisition and for which the maximum potential amount to be earned is generally not limited. The purchase price attributable to the acquisitions was allocated as follows: ECT2 All Other Acquisitions Total Cash $ 3,149 $ 2,137 $ 5,286 Restricted cash 629 — 629 Accounts receivable 1,707 3,751 5,458 Other current assets 498 61 559 Current assets 5,983 5,949 11,932 Property and equipment 776 3,288 4,064 Customer relationships 13,840 12,748 26,588 Trade names 1,008 659 1,667 Covenants not to compete 3,360 2,083 5,443 Proprietary software — 2,560 2,560 Patent 17,479 — 17,479 Goodwill 16,395 20,227 36,622 Total assets 58,841 47,514 106,355 Current liabilities 5,024 977 6,001 Non- — 2,171 2,171 Total liabilities 5,024 3,148 8,172 Purchase price $ 53,817 $ 44,366 $ 98,183 The weighted average useful lives for the acquired customer relationships, trade names, covenants not to compete, proprietary software and patent for these acquisitions are 9.5 years, 1.5 years, 4 years, 3 years and 16 years, respectively. For the acquisitions completed during the nine months ended September 30, 2019, the results of operations since the acquisition dates have been combined with those of the Company. The Company’s three and nine months ended September 30, 2019 condensed consolidated statement of operations includes revenue of $7.7 million and pre-tax income Goodwill associated with the acquisitions of Golden, AEC and ECT2 is deductible for income tax purposes. Supplemental Unaudited Pro-Forma For the Three Months Ended September 30, 2020 2019 As Acquisitions Pro-Forma (Unaudited) Consolidated Pro-Forma (Unaudited) As Acquisitions Pro-Forma (Unaudited) Consolidated Pro-Forma (Unaudited) Revenues $ 84,705 $ — $ 84,705 $ 57,623 $ 18,551 $ 76,174 Net (loss) income (30,737 ) — (30,737 ) (6,683 ) 4,042 (2,641 ) For the Nine Months Ended September 30, 2020 2019 As Acquisitions Pro-Forma (Unaudited) Consolidated Pro-Forma (Unaudited) As Acquisitions Pro-Forma (Unaudited) Consolidated Pro-Forma (Unaudited) Revenues $ 219,502 $ 31,253 $ 250,755 $ 165,978 $ 107,459 $ 273,437 Net (loss) income (58,761 ) 10,288 (48,473 ) (12,247 ) 30,002 17,755 | 7. BUSINESS ACQUISITIONS In line with the Company’s strategic growth initiatives, the Company acquired several businesses during the years ended December 31, 2019 and 2018. The results of each of those acquired businesses are included in the consolidated financial statements beginning on the respective acquisition dates. Each transaction qualified as an acquisition of a business and was accounted for as a business combination. All acquisitions resulted in the recognition of goodwill. The Company paid these premiums resulting in such goodwill for a number of reasons, including expected synergies from combining operations of the acquiree and the Company while also growing the Company’s customer base, acquiring assembled workforces, expanding its presence in certain markets and expanding and advancing its product and service offerings. The Company recorded the assets acquired and liabilities assumed at their acquisition date fair value, with the difference between the fair value of the net assets acquired and the acquisition consideration reflected as goodwill. The identifiable intangible assets for acquisitions occurring in 2019 and 2018 were valued using the excess earnings method discounted cash flow approach for customer relationships, the relief from royalty method for trade names and the patent, and the “with and without” method for covenants not to compete by incorporating Level 3 inputs as described under the fair value hierarchy of ASC 820. These unobservable inputs reflect the Company’s own assumptions about which assumptions market participants would use in pricing an asset on a non-recurring Other purchase price obligations (primarily deferred purchase price liabilities and target working capital liabilities) and contingent consideration outstanding from 2019 and 2018 acquisitions are included on the consolidated statements of financial position in accounts payable and other accrued liabilities, other non-current receivable-net The Company considers several factors when determining whether or not contingent consideration liabilities are part of the purchase price, including the following: (i) the valuation of its acquisitions is not supported solely by the initial consideration paid, (ii) the former stockholders of acquired companies that remain as key employees receive compensation other than contingent consideration payments at a reasonable level compared with the compensation of the Company’s other key employees and (iii) contingent consideration payments are not affected by employment termination. The Company reviews and assesses the estimated fair value of contingent consideration at each reporting period. External transaction costs related to business combinations totaled $2.4 million and $1.2 million for the years ended December 31, 2019 and 2018, respectively. These costs are expensed within the selling, general and administrative expense in the accompanying consolidated statements of operations. Cash payments made to acquire these businesses were funded primarily through the Company’s Credit Facilities. 2019 Acquisitions Golden Specialty, Inc. Target Emission Services Inc. Target Emission Services USA LP Air Water & Soil Laboratories, Inc. mid-Atlantic Advanced Environmental Compliance LLC LEHDER Environmental Services Ltd Emerging Compounds Treatments Technologies, Inc. The following table summarizes the elements of purchase price of the 2019 acquisitions: Cash Common Other Contingent Total Golden $ 1,500 $ $ $ 477 $ 1,977 TES 2,359 322 25 4,911 7,617 TESUS 18,683 3,041 1,495 23,219 AWS 6,020 150 6,170 AEC 808 808 LEHDER 3,878 684 13 4,575 ECT2 54,037 (220 ) 53,817 $ 87,285 $ 4,047 $ 1,450 $ 5,401 $ 98,183 Contingent consideration elements of the purchase price of the Company’s acquisitions are related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount to be earned is generally not limited. The purchase price attributable to each acquisition was allocated as follows: ECT2 All Other Total Cash $ 3,149 $ 2,137 $ 5,286 Restricted cash 629 629 Accounts receivable 1,707 3,751 5,458 Other current assets 498 61 559 Current assets 5,983 5,949 11,932 Property and equipment 776 3,288 4,064 Customer relationships 13,840 12,748 26,588 Trade names 1,008 659 1,667 Covenants not to compete 3,360 2,083 5,443 Proprietary software 2,560 2,560 Patent 17,479 17,479 Goodwill 16,395 20,227 36,622 Total assets 58,841 47,514 106,355 Current liabilities 5,024 977 6,001 Non- 2,171 2,171 Total liabilities 5,024 3,148 8,172 Purchase price $ 53,817 $ 44,366 $ 98,183 The weighted average useful lives for the acquired customer relationships, trade names, covenants not to compete, proprietary software and patent for these acquisitions are 9.5 years, 1.5 years, 4 years, 3 years and 16 years, respectively. For the acquisitions completed during 2019, the results of operations since the acquisition dates have been combined with those of the Company. The Company’s 2019 consolidated statement of operations includes revenue and pre-tax pre-tax Goodwill associated with the acquisitions of Golden, AEC and ECT2 is deductible for income tax purposes. 2018 Acquisitions Southern Environmental Sciences, Inc. First Analytical Laboratories NC, LLC — Advanced GeoServices Corp. Streamline Environmental, Inc. Leymaster Environmental Consulting, LLC Analytical Environmental Services, Corp. Environmental Planning Specialists, Inc. The following table summarizes the elements of purchase price of the 2018 acquisitions: Cash Common Other Contingent Total SES $ 450 $ $ 50 $ $ 500 FA 1,096 360 372 1,828 AGC 7,400 925 95 871 9,291 Streamline 5,678 631 180 6,489 Leymaster 2,465 435 250 434 3,584 AES 21,877 2,028 (16 ) 1,274 25,163 EPS 9,995 1,615 (71 ) 11,539 $ 48,961 $ 5,634 $ 848 $ 2,951 $ 58,394 Contingent consideration elements of the purchase price of the Company’s acquisitions are related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount to be earned is generally not limited. The purchase price attributable to each acquisition was allocated as follows: AES All Other Total Cash $ 2,746 $ 380 $ 3,126 Accounts receivable 1,404 5,045 6,449 Other current assets 32 288 320 Current assets 4,182 5,713 9,895 Property and equipment 532 1,002 1,534 Customer relationships 11,296 15,543 26,839 Trade names 241 812 1,053 Covenants not to compete 961 1,813 2,774 Goodwill 11,019 13,661 24,680 Total assets 28,231 38,544 66,775 Current liabilities 3,068 2,141 5,209 Non- 3,172 3,172 Total liabilities 3,068 5,313 8,381 Purchase price $ 25,163 $ 33,231 $ 58,394 The weighted average useful lives for the acquired customer relationships, trade names, and covenants not to compete for all acquisitions are 7 years, 1.5 years and 4 years, respectively. For the acquisitions completed during 2018, the results of operations since the acquisition dates have been combined with those of the Company. The Company’s 2018 consolidated statement of operations includes revenue and pre-tax pre-tax Goodwill associated with the acquisitions of FA, SES, Leymaster, AES and EPS is deductible for income tax purposes. Supplemental Unaudited Pro-Forma As reported Acquisitions Pro-Forma Consolidated Pro-Forma 2019 Revenues $ 233,854 $ 25,446 $ 259,300 Net income (loss) (23,557 ) 5,199 (18,358 ) 2018 Revenues $ 188,805 $ 58,526 $ 247,331 Net income (loss) (16,491 ) 14,580 (1,911 ) |