Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v3.22.1
Business Combinations
 9 Months Ended
Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations
Adcole Acquisition
On March 2, 2020, the Successor acquired 100% of the equity interest of Adcole in exchange for cash. The acquisition supports the Company’s growth in its offering of space structures.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
March 2, 2020
Cash paid
 $ 32,640 
Purchase consideration
 $ 32,640 
Assets:
Cash
 $ 156 
Accounts receivable
 840 
Contract assets
 1,427 
Inventory
 212 
Prepaid expenses and other current assets
 661 
Property, plant and equipment
 444 
March 2, 2020
Intangible assets
 9,690 
Total assets 13,430 
Liabilities:
Accounts payable
 894 
Accrued expenses
 644 
Deferred revenue
 777 
Total liabilities 2,315 
Fair value of net identifiable assets acquired
 11,115 
Goodwill
 $ 21,525 
The following table summarizes the intangible assets acquired by class:
March 2, 2020 Weighted average useful life in years
Trademark
 $ 1,000  10
Technology
 2,400  10
Customer relationships
 6,100  20
In-process research and development
 190 
Total intangible assets
 $ 9,690 
The fair value of the acquired trademark and technology was estimated using the relief from royalty (“RFR”) method. The fair value of the acquired customer relationships was estimated using the excess earnings method. The fair value of the in-process research and development (“IPR&D”) was estimated using the replacement cost method.

The acquisition was accounted for as a business combination, whereby the excess of the consideration paid over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is deductible over 15 years.

The results of operations of Adcole for the period from March 2, 2020 to September 30, 2020 have been included in the results of operations for the Successor 2020 Period; the post-acquisition revenues and net loss included in the Successor 2020 Period were $5,733 thousand and $1,145 thousand, respectively. The acquisition-related costs included in transaction expenses in the condensed consolidated statements of operations and comprehensive income (loss) for the Successor 2020 Period were $2,055 thousand.

DSS Acquisition
On June 1, 2020, the Successor acquired 100% of the equity interest of DSS in exchange for cash and 1,000,000 units of the Successor’s Holdings’ equity (“Parent Units”). The acquisition supported the Company’s growth in its offering of engineering solutions.

The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
June 1, 2020
Cash paid
 $ 3,940 
Equity issued
 1,000 
Purchase consideration
 $ 4,940 
Assets:
Cash
 $ 1,071 
Accounts receivable
 1,282 
Contract assets
 107 
Inventory
 39 
Prepaid expenses and other current assets
 37 
Property, plant and equipment
 710 
Intangible assets
 850 
Other non-current assets
 26 
Total assets 4,122 
Liabilities:
Accounts payable
 284 
Deferred revenue
 103 
Current portion of long-term debt
 353 
Other current liabilities
 1,178 
Long-term debt
 705 
Deferred tax liabilities
 458 
Total liabilities 3,081 
Fair value of net identifiable assets acquired
 1,041 
Goodwill
 $ 3,899 
The following table summarizes the intangible assets acquired by class:
June 1, 2020 Weighted average useful life in years
Trademark
 $ 150  5
Customer relationships
 700  20
Total intangible assets
 $ 850 
The fair value of the acquired trademark was determined using the RFR method. The fair value of the acquired customer relationships was determined using the excess earnings method.

The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is not deductible.

The results of operations of DSS for the period from June 1, 2020 to September 30, 2020 have been included in the results of operations for the Successor 2020 Period; the post-acquisition revenues and net loss included in the Successor 2020 Period were $3,134 thousand and $563 thousand, respectively. The acquisition-related costs included in transaction expenses in the condensed consolidated statements of operations and comprehensive income (loss) for the Successor 2020 Period were $434 thousand.

During the Successor 2021 Period, there was a measurement period adjustment to goodwill of $85 thousand, decreasing the balance to $3,899 thousand. Refer to Note H for further discussion.

MIS Acquisition
On June 22, 2020, the Successor acquired 100% of the equity interest of MIS in exchange for cash and 2,615,726 Parent Units. The acquisition supports the Company’s growth in its offering of space structures.

The purchase agreement with the sellers of MIS awarded such sellers with a contingent right to an earnout payment from the Company upon the achievement of certain revenue milestones over the year ended December 31, 2020. The earnout amount would be computed as $1.50 for every $1.00 of MIS Revenue (as defined in the purchase agreement), in excess of $40,000
thousand for the year ended December 31, 2020, and the contingent earnout would not exceed $15,000 thousand or be less than $0.

The fair value of the earnout is arrived at using the Black-Scholes option pricing model (“OPM”) using the following assumptions:
MIS Black-Scholes OPM Assumptions
Risk-free interest rate
 0.05  %
Revenue volatility
 51.7  %

Including the equity component, the total fair value of the contingent earnout payment of $11,491 thousand was settled as of September 30, 2021 for $2,203 thousand in cash and $9,288 thousand in equity of Holdings and is reflected in contingent earnout expense on the condensed consolidated statements of operations and comprehensive income (loss) for the Successor 2021 Period as the adjustment in fair value occurred subsequent to the MIS measurement period.

The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
June 22, 2020
Cash paid
 $ 42,177 
Equity issued
 2,616 
Contingent consideration
 600 
Purchase consideration
 $ 45,393 
Assets:
Cash
 $ 13,559 
Accounts receivable
 1,097 
Contract assets
 665 
Property, plant and equipment
 451 
Intangible assets
 35,000 
Other non-current assets
 676 
Total assets 51,448 
Liabilities:
Accounts payable
 3,689 
Deferred revenue
 7,128 
Other current liabilities
 2,749 
Deferred tax liabilities
 7,297 
Total liabilities 20,863 
Fair value of net identifiable assets acquired
 30,585 
Goodwill
 $ 14,808 

The following table summarizes the intangible assets acquired by class:
June 22, 2020 Weighted average useful life in years
Trademarks
 $ 3,400  6
Technology
 16,000  10
Customer relationships
 15,600  20
Total intangible assets
 $ 35,000 
The fair value of the acquired trademark and technology was estimated using the RFR method. The fair value of the acquired customer relationships was estimated using the excess earnings method.
The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is not deductible.

The results of operations of MIS for the period from June 22, 2020 to September 30, 2020 have been included in the results of operations for the Successor 2020 Period; the post-acquisition revenues and net income included in the Successor 2020 Period were $8,788 thousand and $440 thousand, respectively. The acquisition-related costs included in transaction expenses in the condensed consolidated statements of operations and comprehensive income (loss) for the Successor 2020 Period were $4,132 thousand.

During the Successor 2021 Period, there was a measurement period adjustment to goodwill of $512 thousand, decreasing the balance to $14,808 thousand. Refer to Note H for further discussion.

Roccor Acquisition
On October 28, 2020, the Successor acquired 100% of the equity interest of Roccor in exchange for cash and 1,564,531 Parent Units. The acquisition supports the Company’s growth in its offering of space structures.

The purchase agreement with the sellers of Roccor awarded such sellers with a contingent right to an earnout payment from the Company upon the achievement of certain revenue milestones for the year ended December 31, 2021. The earnout amount would be based on one of the following: (i) $0 if Roccor revenue for the year ended December 31, 2021 is less than $30,000 thousand, (ii) $1,000 thousand if Roccor revenue for the year ended December 31, 2021 is equal to or greater than $30,000 thousand but less than $40,000 thousand, (iii) $2,000 thousand if Roccor revenue for the year ended December 31, 2021 is equal to or greater than $40,000 thousand. The fair value of the Roccor contingent earnout was estimated using the Black-Scholes OPM; the fair value of the Roccor contingent earnout was $550 thousand as of the acquisition date. 

The assumptions used in the Black-Scholes OPM were as follows:
Roccor Black-Scholes OPM Assumptions
Risk-free interest rate
 0.1  %
Revenue discount rate
 7.0  %
Revenue volatility
 30.0  %
Earnout payment discount rate
 4.0  %

During the Successor 2021 Period, the revenue based earnout described above and accrued to date of $338 thousand was recorded in contingent earnout expense on the condensed consolidated statements of operations and comprehensive income (loss).

The purchase agreement also stipulated that certain funds in the amount of $466 thousand were to be held in escrow (the “PBR Escrow”), subject to a variance (the “PBR Variance”), for the benefit of the sellers. The PBR Variance was defined as the excess revenue recorded by Roccor for the year ended December 31, 2020, based on the difference between Roccor’s forecasted revenues and Roccor’s actual revenues for the eight months ended August 31, 2020. Upon determination of the PBR Variance, an amount equal to (i) the PBR Escrow less (ii) the PBR Variance will be disbursed to the sellers of Roccor; any remaining PBR Escrow funds will be disbursed to the Company. Since the transfer of the PBR Escrow funds is contingent upon the PBR Variance, the Company’s obligation to deliver the PBR Escrow funds net of PBR Variance was determined to be a contingent consideration. The fair value of the PBR Variance was determined to be $359 thousand as of the acquisition date, therefore contingent consideration related to PBR Escrow was determined to be $107 thousand. PBR Escrow amount of $107 thousand was paid to sellers of Roccor in March 2021.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
October 28, 2020
Cash paid
 $ 14,999 
Equity issued
 1,565 
Contingent consideration
 657 
Purchase consideration
 $ 17,221 
Assets:
Cash
 $ 6,161 
Accounts receivable
 517 
Contract assets
 1,797 
Property, plant and equipment
 1,128 
Intangible assets
 13,400 
Other non-current assets
 361 
Total assets 23,364 
Liabilities:
Accounts payable
 1,880 
Deferred revenue
 3,240 
Other current liabilities
 5,112 
Deferred tax liabilities
 1,952 
Total liabilities 12,184 
Fair value of net identifiable assets acquired
 11,180 
Goodwill
 $ 6,041 
The following table summarizes the intangible assets acquired by class:
October 28, 2020 Weighted average useful life in years
Trademarks
 $ 1,200  10
Technology
 6,500  15
Customer relationships
 5,700  20
Total intangible assets
 $ 13,400 
The fair value of the acquired trademark and technology was estimated using the RFR method. The fair value of the acquired customer relationships was estimated using the excess earnings method.

The acquisition was accounted for as a business combination, whereby the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is not deductible.

During the Successor 2021 Period, there was a measurement period adjustment to goodwill of $684 thousand, decreasing the balance to $6,041 thousand. Refer to Note H for further discussion.

LoadPath Acquisition
On December 11, 2020, the Successor acquired 100% of the equity interest of LoadPath in exchange for cash and 800,000 Parent Units. The acquisition supports the Company’s growth in its offering of engineering solutions.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
December 11, 2020
Cash paid
 $ 7,598 
Equity issued
 800 
Purchase consideration
 $ 8,398 
Assets
Cash
 $ 995 
Accounts receivable
 1,208 
Contract assets
 187 
Prepaid expenses and other current assets
 2 
Property, plant and equipment
 42 
Intangible assets
 4,230 
Total assets 6,664 
Liabilities
Accounts payable
 334 
Deferred revenue
 115 
Other current liabilities
 1,203 
Total liabilities 1,652 
Fair value of net identifiable assets acquired
 5,012 
Goodwill
 $ 3,386 
The following table summarizes the intangible assets acquired by class:
December 11, 2020 Weighted average useful life in years
Trademarks
 $ 560  10
Technology
 370  10
Customer relationships
 3,300  15
Total intangible assets
 $ 4,230 
The fair value of the acquired trademark and technology was estimated using the RFR method. The fair value of the acquired customer relationships was estimated using the excess earnings method.

The acquisition was accounted for as a business combination, whereby the excess of purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is deductible.

During the Successor 2021 Period, there was a measurement period adjustment to goodwill of $1,427 thousand, decreasing the balance to $3,386 thousand. Refer to Note H for further discussion.

Oakman Acquisition
On January 15, 2021, the Successor acquired 100% of the equity interest of Oakman for cash and 1,000,000 Parent Units. The acquisition supports the Company’s growth in its offering of engineering solutions.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
January 15, 2021
Cash paid
 $ 12,142 
January 15, 2021
Equity issued
 2,110 
Purchase consideration
 $ 14,252 
Assets:
Accounts receivable
 $ 1,279 
Contract assets
 121 
Inventory
 40 
Prepaid expenses and other current assets
 50 
Property, plant and equipment
 493 
Intangible assets
 7,980 
Total assets 9,963 
Liabilities:
Accounts payable
 46 
Accrued expenses
 2,022 
Deferred revenue
 253 
Other current liabilities
 45 
Deferred tax liabilities
 2,162 
Total liabilities 4,528 
Fair value of net identifiable assets acquired
 5,435 
Goodwill
 $ 8,817 
The following table summarizes the intangible assets acquired by class:
January 15, 2021 Weighted average useful life in years
Trademark
 $ 80  1
Technology
 4,400  15
Customer relationships
 3,500  20
Total intangible assets
 $ 7,980 
The amounts above represent the current preliminary fair value estimates but the measurement period is still open and subject to further adjustments as additional information becomes available and as additional analyses and final allocations are completed.

The fair value of the acquired trademark and technology was estimated using the RFR method. The fair value of the acquired customer relationships was estimated using the excess earnings method.

During the Successor 2021 Period, there was a measurement period adjustment to goodwill of $1,951 thousand, increasing the balance to $8,817 thousand. Refer to Note H for further discussion.

The acquisition was accounted for as a business combination, whereby the excess of the consideration paid over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is not deductible.
The results of operations of Oakman for the period from January 15, 2021 to September 30, 2021 have been included in the results of operations for the Successor Q3 2021 Period and Successor 2021 Period. The table below presents the post-acquisition revenues, net income (loss), and acquisition-related costs (included in transaction expenses) of Oakman included in the condensed consolidated statements of operations and comprehensive income (loss) for the following periods:
Successor Period Ended
  Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Post-acquisition revenues
 $ 855  $ 3,543 
Net income (loss)
 $ (716) $ (1,281)
Transaction expenses $ —  $ 657 

DPSS Acquisition
On February 17, 2021, the Successor acquired 100% of the equity interest of DPSS in exchange for cash. The acquisition supports the Company’s growth in its offering of deployable technology.
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
February 17, 2021
Cash paid
 $ 27,305 
Purchase consideration
 $ 27,305 
Assets:
Cash
 $ 711 
Accounts receivable
 1,270 
Contract assets
 1,534 
Inventory
 3 
Prepaid expenses and other current assets
 53 
Property, plant and equipment
 734 
Intangible assets
 24,370 
Other non-current assets
 48 
Total assets $ 28,723 
Liabilities:
Accounts payable
 $ 1,186 
Accrued expenses
 1,282 
Deferred revenue
 3,767 
Other current liabilities 63 
Deferred tax liabilities
 6,112 
Total liabilities $ 12,410 
Fair value of net identifiable assets acquired
 16,313 
Goodwill
 $ 10,992 
The following table summarizes the intangible assets acquired by class:
February 17, 2021 Weighted average useful life in years
Trademark
 $ 170  1
Technology
 11,900  20
Customer relationships
 12,300  20
Total intangible assets
 $ 24,370 
The amounts above represent the current preliminary fair value estimates but the measurement period is still open and subject to further adjustments as additional information becomes available and as additional analyses and final allocations are completed.

The fair value of the acquired trademark was determined using the RFR method. The fair value of the acquired customer relationships was determined using the excess earnings method.

The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill is not deductible.

During the Successor 2021 Period, there was a measurement period adjustment to goodwill of $88 thousand, increasing the balance to $10,992 thousand. Refer to Note H for further discussion.

The results of operations of DPSS for the period from February 17, 2021 to September 30, 2021 have been included in the results of operations for the Successor Q3 2021 Period and Successor 2021 Period. The table below presents the post-acquisition revenues, net income (loss), and acquisition-related costs (included in transaction expenses) of DPSS included in the condensed consolidated statements of operations and comprehensive income (loss) for the following periods:
Successor Period Ended
  Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021
Post-acquisition revenues
 $ 6,117  $ 17,005 
Net income (loss)
 $ (250) $ (544)
Transaction expenses $ —  $ 1,566 

Pro Forma Financial Data (Unaudited)
The tables below present the pro forma combined results of operations for the business combinations for the three months ended September 30, 2021 and 2020 as though the acquisitions of Adcole, DSS, MIS, Roccor, and LoadPath (the “2020 business combinations”) had been completed as of January 1, 2019, and the acquisitions of Oakman and DPSS (the “2021 business combinations”) had been completed as of January 1, 2020.
The pro forma information for the three months ended September 30, 2021 includes the Successor Q3 2021 Period. The pro forma information for the three months ended September 30, 2020 includes the Successor Q3 2020 Period and the pre-acquisition results of Roccor, LoadPath, Oakman, and DPSS for the three months ended September 30, 2020.
Pro forma for the Three Months Ended
September 30, 2021 September 30, 2020
Revenues
 $ 32,680  $ 27,095 
Net income (loss)
 (24,252) (2,095)
The pro forma for the nine months ended September 30, 2021 includes the Successor 2021 Period and the pre-acquisition 2021 results of Oakman and DPSS for the nine months ended September 30, 2020. The pro forma for the nine months ended September 30, 2020 includes the Predecessor 2020 Period, the Successor 2020 Period, and the pre-acquisition results of Adcole, DSS, Roccor, LoadPath, Oakman, and DPSS for the nine months ended September 30, 2020.

Pro forma for the Nine Months Ended
September 30, 2021 September 30, 2020
Revenues
 $ 100,834  $ 81,320 
Net income (loss)
 (47,099) (6,425)

The amounts included in the pro forma information are based on the historical results and do not necessarily represent what would have occurred if the 2021 business combinations had taken place as of January 1, 2020 and the 2020 business combinations had taken place as of January 1, 2019, nor do they represent the results that may occur in the future. Accordingly, the pro forma financial information should not be relied upon as being indicative of the results that would have been realized had the business combination occurred as of the date indicated or that may be achieved in the future.
During the Successor 2021 Period, the Company incurred $2,419 thousand of acquisition related costs attributable to the business combinations, included in the Successor 2021 Period transaction expenses on the condensed consolidated statements of operations and comprehensive income (loss). These expenses are reflected in the pro forma earnings for the nine months ended September 30, 2020, in the table above.