NV5 Global, Inc. - Quarter Report: 2016 September (Form 10-Q)

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		September 30, 2016				December 31, 2015
Assets
Current assets:
Cash and cash equivalents		$	53,066			$	23,476
Accounts receivable, net of allowance for doubtful accounts of $1,895 and $1,536 as of September 30, 2016 and December 31, 2015, respectively			64,102				47,747
Prepaid expenses and other current assets			1,195				1,092
Deferred income tax assets			1,496				1,440
Total current assets			119,859				73,755
Property and equipment, net			3,762				3,091
Intangible assets, net			22,740				12,367
Goodwill			37,472				21,679
Other assets			1,014				877
Total Assets		$	184,847			$	111,769
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	11,632			$	6,658
Accrued liabilities			13,013				9,564
Income taxes payable			755				813
Billings in excess of costs and estimated earnings on uncompleted contracts			215				293
Client deposits			109				110
Current portion of contingent consideration			442				458
Current portion of notes payable and other obligations			6,192				4,347
Total current liabilities			32,358				22,243
Contingent consideration, less current portion			467				821
Notes payable and other obligations, less current portion			9,963				6,360
Deferred income tax liabilities			1,727				1,582
Total liabilities			44,515				31,006
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding			-				-
Common stock, $0.01 par value; 45,000,000 shares authorized, 10,394,283 and 8,124,627 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively			104				81
Additional paid-in capital			113,488				62,260
Retained earnings			26,740				18,422
Total stockholders’ equity			140,332				80,763
Total liabilities and stockholders’ equity		$	184,847			$	111,769

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		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2016				2015				2016				2015
Gross revenues		$	60,091			$	48,701			$	160,888			$	112,335
Direct costs:
Salaries and wages			20,274				16,856				53,744				39,122
Sub-consultant services			8,854				6,859				22,246				15,306
Other direct costs			3,307				3,455				8,209				8,120
Total direct costs			32,435				27,170				84,199				62,548
Gross Profit			27,656				21,531				76,689				49,787
Operating Expenses:
Salaries and wages, payroll taxes and benefits			14,096				10,549				40,575				25,258
General and administrative			4,415				3,422				12,640				9,162
Facilities and facilities related			2,066				1,565				5,803				3,429
Depreciation and amortization			1,604				1,048				4,285				2,446
Total operating expenses			22,181				16,584				63,303				40,295
Income from operations			5,475				4,947				13,386				9,492
Other expense:
Interest expense			(81	)			(78	)			(221	)			(180	)
Total other expense			(81	)			(78	)			(221	)			(180	)
Income before income tax expense			5,394				4,869				13,165				9,312
Income tax expense			(1,990	)			(1,867	)			(4,847	)			(3,492	)
Net income		$	3,404			$	3,002			$	8,318			$	5,820
Earnings per share:
Basic		$	0.34			$	0.40			$	0.94			$	0.90
Diluted		$	0.33			$	0.38			$	0.90			$	0.84
Weighted average common shares outstanding:
Basic			9,941,517				7,516,063				8,826,090				6,454,158
Diluted			10,353,793				7,943,131				9,215,365				6,945,274

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		Common Stock								Additional Paid-In				Retained
		Shares				Amount				Capital				Earnings				Total
Balance, December 31, 2015			8,124,627			$	81			$	62,260			$	18,422			$	80,763
Stock compensation			-				-				1,704				-				1,704
Restricted stock issuance, net			123,333				1				(1	)			-				-
Proceeds from secondary offering, net of costs			1,955,000				20				47,127				-				47,147
Proceeds from exercise of unit warrant			140,000				2				1,006				-				1,008
Stock issuance for acquisitions			42,368				-				1,075				-				1,075
Tax benefit from stock based compensation			-				-				155				-				155
Payment of contingent consideration with common stock			8,955				-				162				-				162
Net income			-				-				-				8,318				8,318
Balance, September 30, 2016			10,394,283			$	104			$	113,488			$	26,740			$	140,332

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			Nine Months Ended
		September 30, 2016				September 30, 2015
Cash Flows From Operating Activities:
Net income		$	8,318			$	5,820
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			4,285				2,446
Provision for doubtful accounts			246				263
Stock compensation			1,704				1,229
Change in fair value of contingent consideration			88				72
Loss on disposal of leasehold improvements			2				-
Excess tax benefit from stock based compensation			(155	)			(1,536	)
Deferred income taxes			88				383
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable			(7,795	)			(10,122	)
Prepaid expenses and other assets			372				427
Accounts payable			2,892				(2,016	)
Accrued liabilities			476				1,933
Income taxes payable			96				967
Billings in excess of costs and estimated earnings on uncompleted contracts			(78	)			(221	)
Client deposits			147				(13	)
Net cash provided by (used in) operating activities			10,686				(368	)
Cash Flows From Investing Activities:
Cash paid for acquisitions			(24,388	)			(10,427	)
Purchase of property and equipment			(566	)			(428	)
Net cash used in investing activities			(24,954	)			(10,855	)
Cash Flows From Financing Activities:
Proceeds from secondary offerimg			51,319				32,068
Payments of secondary offering costs			(4,172	)			(2,649	)
Exercise of warrants costs			-				(217	)
Payments on notes payable			(4,156	)			(7,660	)
Payments of contingent consideration			(296	)			(533	)
Excess tax benefit from stock based compensation			155				1,536
Payments on stock repurchase obligation			-				(935	)
Proceeds from exercise of unit warrant			1,008				3,186
Net cash provided by financing activities			43,858				24,796
Net increase in Cash and Cash Equivalents			29,590				13,573
Cash and cash equivalents – beginning of period			23,476				6,872
Cash and cash equivalents – end of period		$	53,066			$	20,445

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		Nine Months Ended
		September 30, 2016				September 30, 2015
Supplemental disclosures of cash flow information:
Cash paid for interest		$	255			$	164
Cash paid for income taxes		$	4,642			$	2,114
Non-cash investing and financing activities:
Contingent consideration (earn-out)		$	-			$	1,307
Notes payable and other obligations for acquisitions		$	9,333			$	9,250
Stock issuance for acquisitions		$	1,075			$	900
Payment of contingent consideration with common stock		$	162			$	100

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Note 1 - Organization and Nature of Business Operations

 

Business

 

NV5 Global, Inc. and its subsidiaries (collectively, the “Company” or “NV5 Global”) is a provider of professional and technical engineering and consulting solutions to public and private sector clients in the infrastructure, energy, construction, real estate and environmental markets, operating through a network of 72 offices in 26 states in the United States and internationally in Macau, Shanghai, Hong Kong and Vietnam. The Company’s clients include the U.S. federal, state and local governments, and the private sector. NV5 Global provides a wide range of services, including, but not limited to, planning, design, consulting, permitting, inspection and field supervision, management oversight, forensic engineering, litigation support, condition assessment and compliance certification.

 

 

Equity Transactions

 

Secondary offering

 

On May 13, 2016, the Company priced a secondary offering of 1,700,000 shares of the Company’s common stock (the “Firm Shares”). Each share was sold at an offering price of $26.25 per share. The shares sold were registered under the Securities Act of 1933, as amended (the “Securities Act”), on an effective registration statement on Form S-3 (Registration No. 333-206644) pursuant to the Securities Act. In addition, the Company granted the underwriters of this secondary offering a 30-day option to purchase an additional 255,000 shares (the “Option Shares”) of common stock to cover over-allotments. On May 18, 2016, the Company closed on the Firm Shares, for which we received net proceeds of approximately $41,000 after deducting the underwriting discount and estimated offering expenses payable by the Company and issued 1,700,000 shares. On June 3, 2016, the Company closed on the full exercise of the Option Shares by the underwriters of the secondary offering with respect to an additional 255,000 shares of its common stock, for which we received net proceeds of approximately $6,200 after deducting the underwriters’ discount.

 

Warrant exercise

 

In conjunction with the Company’s initial public offering on March 26, 2013, the underwriter received a warrant to acquire up to 140,000 units at an exercise price of $7.80 per unit (“Unit Warrant”).  Each of these units consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price of $7.80 per share, which warrant expires on March 27, 2018. On March 23, 2016, the underwriter paid $1,008 to the Company to initiate the exercise of the Unit Warrant.  On March 29, 2016, the Company delivered 140,000 shares of common stock to the underwriter, and, on May 5, 2016, the Company completed the exercise of the Unit Warrant by delivery of the warrant. 

Note 2 - Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The consolidated financial statements include the accounts of NV5 Global, Inc. and those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The accompanying consolidated balance sheet as of December 31, 2015 has been derived from those financial statements. The results of operations and cash flows for the interim periods presented are not necessarily indicative of the results to be expected for any future interim period or for the full 2016 fiscal year.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates and assumptions are based on management’s most recent assessment of underlying facts and circumstances using the most recent information available. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.

 

Estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in the consolidated financial statements relate to the fair value estimates used in accounting for business combinations including the valuation of identifiable intangible assets and contingent consideration, fair value estimates in determining the fair value of its reporting units for goodwill impairment assessment, revenue recognition on the percentage-of-completion method, allowances for uncollectible accounts and provision for income taxes.

 

 

Concentration of Credit Risk

 

 Trade receivable balances carried by the Company are comprised of accounts from a diverse client base across a broad range of industries and are not collateralized. However, approximately 35% and 43% of the Company’s gross revenues for the nine months ended September 30, 2016 and 2015, respectively, are from California-based projects. The Company does not have any client representing more than 10% of gross revenues during the nine months ended September 30, 2016 and 2015. Approximately 50% and 63% of the Company’s accounts receivable as of September 30, 2016 and December 31, 2015, respectively, are from government and government-related contracts. Management continually evaluates the creditworthiness of these and future clients and provides for bad debt reserves as necessary.

 

 

Fair Value of Financial Instruments

 

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:

 

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company considers cash and cash equivalents, accounts receivable, accounts payable, income taxes payable, accrued liabilities and debt obligations to meet the definition of financial instruments. As of September 30, 2016 and December 31, 2015, the carrying amount of cash and cash equivalents, accounts receivable, accounts payable, income taxes payable and accrued liabilities approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 

The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. The allocation of the purchase price to identifiable intangible assets (customer relationships, customer backlog, trade name and non-compete) is based on valuations performed to determine the fair values of such assets as of the acquisition dates. The Company engaged a third-party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities assumed for the 2016 and 2015 acquisitions, other than Allwyn and Weir acquisitions which was prepared internally. The fair values of earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.  The Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability on the consolidated balance sheet. Changes in the estimated fair value of contingent earn-out payments are included in General and Administrative expenses on the Consolidated Statements of Net Income and Comprehensive Income.

 

Several factors are considered when determining contingent consideration liabilities as part of the purchase price, including whether (i) the valuation of the acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (ii) the former owners of the acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of other key employees.  The contingent earn-out payments are not affected by employment termination.

 

We review and re-assess the estimated fair value of contingent consideration liabilities on a quarterly basis, and the updated fair value could differ materially from the initial estimates.  Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income.

 

The Company measures contingent consideration recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3, as defined in the accounting guidance. The Company uses a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration liabilities on the acquisition date and at each reporting period. The significant unobservable inputs used in the fair value measurements are projections over the earn-out period, and the probability outcome percentages that are assigned to each scenario. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and amount paid will be recorded in earnings (see Note 10).

 

 

Goodwill and Intangible Assets 

 

Goodwill is the excess of consideration paid for an acquired entity over the amounts assigned to assets acquired, including other identifiable intangible assets and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.

 

Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is met, then performing the two-step quantitative impairment test is unnecessary. The two-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple valuation techniques, and weights the results accordingly. NV5 Global is required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of its reporting units. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared to the carrying value of its reporting unit goodwill to determine the appropriate impairment charge, if any. The Company has elected to perform its annual goodwill impairment review on August 1 of each year. The Company historically conducts its annual impairment tests on the goodwill using the quantitative method of evaluating goodwill.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

      Identifiable intangible assets primarily include customer backlog, customer relationships, trade names and non-compete agreements. Amortizable intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment, if any, is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model.

 

See Note 7 for further information on goodwill and identified intangibles.

 

 

Earnings Per Share

 

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. In accordance with the FASB ASC 260, Earnings per Share, the effect of potentially dilutive securities is not considered during periods of loss or if the effect is anti-dilutive. The weighted average number of shares outstanding in calculating basic earnings per share for the three and nine months ended September 30, 2016 and 2015 exclude 434,082 and 411,893 non-vested restricted shares, respectively, issued since 2010. These non-vested restricted shares are not included in basic earnings per share until the vesting requirement is met. The weighted average number of shares outstanding in calculating diluted earnings per share for the three and nine months ended September 30, 2016 and 2015 includes, if outstanding, non-vested restricted shares and units, issuable shares related to acquisitions, and the shares and warrants associated with the Company’s initial public offering. In calculating diluted earnings per share for the three and nine months ended September 30, 2016 and 2015, there were no potentially anti-dilutive securities.

 

The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2016 and 2015:

 

 

Note 3 – Recent Accounting Pronouncements

 

In March 2016, FASB issued Accounting Standards Update 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the requirements of ASU 2016-09 and have not yet determined its impact on our consolidated financial statements.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 

In February 2016, FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term. The amendments in this accounting standard update are to be applied using a modified retrospective approach and are effective for fiscal years beginning after December 15, 2018. We are currently evaluating the requirements of ASU 2016-02 and have not yet determined its impact on our consolidated financial statements.

 

In November 2015, FASB issued ASU 2015-17— Balance Sheet Classification of Deferred Taxes. As part of FASB's accounting simplification initiative, ASU 2015-17 removes the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Instead, the update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for entities for fiscal years beginning after December 15, 2016, with prospective or retrospective application to all periods presented. Early application is permitted. The Company does not expect the impact of this ASU to be material to its consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU was originally effective for annual reporting periods beginning after December 15, 2016 and early adoption is permitted as of the original effective date. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU and management has not yet determined which method it will apply. In July 2015, FASB voted to approve a one-year deferral of the effective date to December 31, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. As a result, ASU 2014-09 will become effective for us in the first quarter of our fiscal year ending December 31, 2018. The Company is currently evaluating the impact of adopting ASU 2014-09 on the Company's consolidated net income, financial position and cash flows.

 

Note 4 – Business Acquisitions

 

On September 12, 2016, the Company acquired certain assets of Weir Environmental, L.L.C. (“Weir”), a New Orleans, Louisiana-based emergency remediation and environmental assessment firm. Weir also provides residential and commercial property loss consulting services. The purchase price of this acquisition was $1,000 including $300 in cash, $500 promissory note (bearing interest at 3.0%), payable in four installments of $125, due on the first, second, third and fourth anniversaries of September 12, 2016, the effective date of the acquisition (see Note 9) and $200 of the Company’s common stock (6,140 shares) as of the closing date of the acquisition.

 

On May 20, 2016, the Company acquired Dade Moeller & Associates, Inc., a North Carolina corporation ("Dade Moeller"). Dade Moeller provides professional services in radiation protection, health physics, and worker safety to government and commercial facilities.  Dade Moeller's technical expertise includes radiation protection, industrial hygiene and safety, environmental services and laboratory consulting.  This acquisition expanded the Company’s environmental, health and safety services and allows the Company to offer these services on a broader scale within its existing network. The purchase price of this acquisition was $20,000 including $10,000 in cash, $6,000 in promissory notes (bearing interest at 3.5%), payable in four installments of $1,500, due on the first, second, third and fourth anniversaries of May 20, 2016, the effective date of the acquisition (see Note 9), $1,000 of the Company’s common stock (36,261 shares) as of the closing date of the acquisition, and $3,000 in stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in three installments of $1,000, due on the first, second and third anniversaries of May 20, 2016. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Dade Moeller, we engaged a third-party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities, however as of the date of this report, the valuation was not final. We expect to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter of 2016.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

On February 1, 2016, the Company acquired Sebesta, Inc. (“Sebesta”), a St. Paul, Minnesota-based mechanical, electrical and plumbing (“MEP”) engineering and energy management company. Primary clients include federal and state governments, power and utility companies, and major educational, healthcare, industrial and commercial property owners throughout the United States. The purchase price of this acquisition was $14,000 paid from cash on hand. This acquisition expanded the Company’s MEP engineering and energy and allows the Company to offer these services on a broader scale within its existing network. In addition, this acquisition strengthens the Company’s geographic diversification and allows the Company to continue expanding its national footprint. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Sebesta, we engaged a third-party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities.

 

On July 1, 2015, the Company acquired all of the outstanding equity interests of the RBA, a New Jersey based infrastructure engineering firm focused on the provision of transportation engineering, planning, and construction inspection, environmental engineering, civil engineering, surveying, and architecture services to public and private clients throughout the East Coast. The purchase price of up to $13,000 included $8,000 in cash, less $1,900 held back to cover liabilities associated with RBA’s deferred compensation plan which was paid to the RBA stockholders in July 2015, $4,000 promissory notes (bearing interest at the rate of 3.0% per annum), payable in four installments of $1,000, due on the first, second, third and fourth anniversaries of July 1, 2015, the effective date of the acquisition (see Note 9). The purchase price also included a non-interest bearing earn-out of up to $1,000 payable in cash or the Company’s common stock, subject to the achievement of certain agreed upon financial metrics for the years ended 2016 and 2017. The earn-out of $1,000 is non-interest bearing and was recorded at its estimated fair value of $406, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. As of September 30, 2016 and December 31, 2015, the fair value of this contingent consideration is approximately $533 and $446, respectively. Furthermore, at closing the Company assumed and paid off approximately $4,000 of RBA’s indebtedness.

 

On June 24, 2015, the Company acquired certain assets of Allwyn, an environmental services firm based in Phoenix, Arizona, that specializes in environmental assessment, radon mitigation, NEPA planning and permitting, NQA-1 compliance, geotechnical engineering, construction materials testing and inspection, and water resources projects. The purchase price of up to $1,300 included up to $800 in cash and a $500 promissory note (bearing interest at 3.5%), payable in three installments of $167, due on the first, second and third anniversaries of June 24, 2015, the effective date of the acquisition (see Note 9). 

 

On April 22, 2015, the Company acquired all of the outstanding equity interests of Mendoza, a San Francisco based program management firm, with seven offices throughout California, that specializes in the provision of construction program consulting services to public and private clients in the transportation and clean water/wastewater industries. The purchase price of up to $4,000 included up to $500 in cash, a $3,000 short-term promissory note, based on the collection of acquired accounts receivable and work in process, payable within one year, and a $500 promissory note (bearing interest at 3%), payable in two installments of $250, due on the first and second anniversaries of April 22, 2015, the effective date of the acquisition (see Note 9).

 

On January 30, 2015, the Company acquired all of the outstanding equity interests of Joslin, Lesser & Associates, Inc. (“JLA”), a program management and owner’s representation consulting firm that primarily services government owned facilities and public K through 12 school districts in the Boston, MA area. The purchase price of up to $5,500 included $2,250 in cash, a $1,250 promissory note (bearing interest at 3.5%), payable in four installments of $313, due on the first, second, third, and fourth anniversaries of January 30, 2015, the effective date of the acquisition (see Note 9), and $1,000 of the Company’s common stock (89,968 shares) as of the closing date of the acquisition. The purchase price also included a non-interest bearing earn-out of up to $1,000 payable in cash, notes and the Company’s common stock, subject to the achievement of certain agreed upon metrics for calendar year 2015. The earn-out of $1,000 is non-interest bearing and was recorded at its estimated fair value of $901, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to a related party individual. As of September 30, 2016 and December 31, 2015, this contingent consideration was $375 and $500, respectively.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date for the acquisitions closed during 2016 and final fair values of the assets acquired and liabilities assumed as of the acquisition dates for the acquisitions closed during 2015:

 

 

Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and the amount is attributable to the reputation of the business acquired, the workforce in place and the synergies to be achieved from these acquisitions. The goodwill acquired during the nine months ended September 30, 2016 was assigned to the program management (the “PM”) reportable segment. Goodwill of approximately $15,199 is expected to be deductible for income tax purposes for the 2016 acquisitions.  

 

The consolidated financial statements of the Company for the three and nine months ended September 30, 2016 include the results of operations from the businesses acquired during 2016 from its date of acquisition to September 30, 2016. For the three and nine months ended September 30, 2016, the results include gross revenues of $12,363 and $27,481, respectively, and pre-tax income of approximately $1,108 and $2,560, respectively. The consolidated financial statements of the Company for the three and nine months ended September 30, 2015 include the results of operations from the businesses acquired during 2015 from their respective dates of acquisition to September 30, 2015. For the three and nine months ended September 30, 2015, the results include gross revenues of approximately $16,504 and $22,630, respectively and pre-tax income of $2,147 and $3,659, respectively. Included in general and administrative expense for the three and nine months ended September 30, 2016 is $8 and $439, respectively, of acquisition-related costs pertaining to the Company’s acquisition activities.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

The following table presents the unaudited, pro forma consolidated results of operations (in thousands, except per share amounts) for the three and nine months ended September 30, 2016 and 2015 as if the RBA, Sebesta and Dade Moeller acquisitions had occurred as of January 1, 2015. The pro forma information provided below is compiled from the financial statements of these acquisitions and includes pro forma adjustments for amortization expense, reduction in certain expenses and the income tax impact of these adjustments. The pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had these acquisitions operations actually been acquired on January 1, 2015; or (ii) future results of operations:

 

 

The Company determined that the Weir acquisition does not constitute a significant business combination individually. Therefore, pro forma financial statements are not required to be disclosed.

 

 Note 5 – Accounts Receivable, net

 

Accounts receivable, net, consists of the following:

 

 

Billed accounts receivable represents amounts billed to clients that remain uncollected as of the balance sheet date. Unbilled accounts receivable represents recognized amounts pending billing pursuant to contract terms or accounts billed after period end, and are expected to be billed and collected within the next 12 months.

 

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Note 6 – Property and Equipment, net

 

Property and equipment, net, consists of the following:

 

 

Depreciation expense was $416 and $257 for the three months ended September 30, 2016 and 2015, respectively, and $1,208 and $569 for the nine months ended September 30, 2016 and 2015, respectively.

 

 Note 7 – Goodwill and Intangible Assets

 

 

Goodwill

 

On August 1, 2016, the Company conducted its annual impairment tests using the quantitative method of evaluating goodwill. Based on the quantitative analyses the Company determined the fair value of each of the reporting units exceeded its carrying value. Therefore, the goodwill was not impaired and the Company did not recognize an impairment charge relating to goodwill as of August 1, 2016. There were no indicators, events or changes in circumstances that would indicate goodwill was impaired during the period from August 2, 2016 through September 30, 2016.

 

The table set forth below shows the change in goodwill during the nine months ended September 30, 2016:

 

 

Intangible Assets

 

Intangible assets, net, as of September 30, 2016 and December 31, 2015 consist of the following:

 

 

Trade names are amortized on a straight-line basis over their estimated lives ranging from 1 to 3 years. Customer backlog and customer relationships are amortized on a straight-lines basis over estimated lives ranging from 1 to 9 years. Non-compete agreements are amortized on a straight-line basis over their contractual lives ranging from 4 to 5 years. Favorable lease is amortized on a straight-line basis over the remaining lease term of 9 years.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data) 

 

Amortization expense was $1,189 and $791 for the three months ended September 30, 2016 and 2015, respectively, and $3,077 and $1,877 for the nine months ended September 30, 2016 and 2015, respectively.

 

As of September 30, 2016, the future estimated aggregate amortization related to intangible assets is as follows:

 

Note 8 – Accrued Liabilities

 

Accrued liabilities consist of the following:

 

  Note 9 – Notes Payable and Other Obligations

 

Notes payable and other obligations consists of the following:

 

 

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 Credit Facility

 

On January 31, 2014, the Company entered into a Business Loan Agreement with Western Alliance Bank, an Arizona corporation (“Western Alliance”), as lender, which was amended on September 3, 2014 and provides for a two-year, $8,000 revolving credit facility (the “Credit Facility”). On July 20, 2015, the Company amended the Credit Facility to add additional subsidiary guarantors, establish a within-line facility of up to $1,000 for the issuance of standby letters of credit and extend the maturity date of the Credit Facility to May 31, 2016 from January 31, 2016. The interest rate was prime rate plus 0.50%, with a minimum of 3.75%. The Credit Facility contained certain financial covenants, including an annual maximum debt to tangible net worth ratio of 3.0:1.0 as of December 31, 2014 and for each annual period ending on the last day of each fiscal year thereafter. In addition, the Credit Facility contained an annual minimum debt service coverage ratio equal to 1.5:1.0 for each annual period ending on the last day of the fiscal year beginning December 31, 2013. The Credit Facility also contained financial reporting covenant provisions and other covenants, representations, warranties, indemnities, and events of default that are customary for facilities of this type. The Credit Facility was guaranteed by the Company’s wholly-owned subsidiaries: (i) NV5 Holdings, (ii) NV5, Inc. (iii) NV5, LLC, (iv) JLA, and (v) RBA. As of September 30, 2016 and December 31, 2015, the Company was in compliance with the financial and reporting covenants. As of September 30, 2016 and December 31, 2015, the outstanding balance on the Credit Facility was $0. Standby letters of credit outstanding were $146 as of September 30, 2016 and December 31, 2015.

 

 

Note Payable

 

The note held by the seller of Nolte Associates Inc. (the “Nolte Note”) is currently outstanding with a maturity date of July 29, 2017. The Nolte Note bears interest at the prime rate plus 1%, subject to a maximum rate of 7.0%. As of September 30, 2016 and December 31, 2015, the actual interest rate was 4.25%. Under the terms of the Nolte Note, as amended, the Company pays quarterly principal installments of approximately $100 plus interest. The Nolte Note is unsecured. As of September 30, 2016 and December 31, 2015, the outstanding balance on the Nolte Note was approximately $397 and $754, respectively.

 

Other Obligations

 

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price allowed for the payment of $3,000 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in three installments of $1,000, due on the first, second and third anniversaries of May 20, 2016.

 

 

Uncollateralized Promissory Notes

 

On September 12, 2016, the Company acquired certain assets of Weir. The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the “Weir Note”) payable in four installments of $125, due on the first, second, third and fourth anniversaries of September 12, 2016, the effective date of the acquisition. The outstanding balance of the Weir Note was $500 and $0 as of September 30, 2016 and December 31, 2015, respectively.

 

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the “Dade Moeller Notes”) payable in four equal payments of $1,500 each due on the first, second, third, and fourth anniversaries of May 20, 2016, the effective date of the acquisition. The outstanding balance of the Dade Moeller Notes was approximately $6,000 and $0 as of September 30, 2016 and December 31, 2015, respectively.

 

On July 1, 2015, the Company acquired all of the outstanding equity interests of RBA. The purchase price included an aggregate of $4,000 of uncollateralized promissory notes bearing interest at 3.0% (the “RBA Notes”) payable in four equal payments of $1,000 each due on the first, second, third, and fourth anniversaries of July 1, 2015, the effective date of the acquisition. The outstanding balance of the RBA Notes was $3,000 and $4,000 as of September 30, 2016 and December 31, 2015, respectively.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

On June 24, 2015, the Company acquired certain assets of Allwyn Priorities, LLC. (“Allwyn”). The purchase price included an uncollateralized $500 promissory note bearing interest at 3.5% (the “Allwyn Note”) that is payable in three equal payments of $167 each due on the first, second and third anniversaries of June 24, 2015, the effective date of the acquisition. The outstanding balance of the Allwyn Note was $333 and $500 as of September 30, 2016 and December 31, 2015, respectively.

 

On April 22, 2015, the Company acquired all of the outstanding equity interests of Richard J. Mendoza, Inc. (“Mendoza”). The purchase price included an uncollateralized $3,000 short-term promissory note, based on the collection of acquired accounts receivable and work in process, payable within one year, and an uncollateralized $500 promissory note bearing interest at 3% (the “Mendoza Note”) that is payable in two equal payments of $250 each due on the first and second anniversaries of April 22, 2015, the effective date of the acquisition. The outstanding balance of the short-term promissory note was $0 and $278 as of September 30, 2016 and December 31, 2015, respectively, and for the Mendoza Note was $250 and $500 as of September 30, 2016 and December 31, 2015, respectively.

 

On January 30, 2015, the Company acquired all of the outstanding equity interests of JLA. The purchase price included an uncollateralized $1,250 promissory note bearing interest at 3.5% (the “JLA Note”) that is payable in four equal payments of $313 each due on the first, second, third, and fourth anniversaries of January 30, 2015, the effective date of the acquisition. The outstanding balance of the JLA Note was $938 and $1,250 as of September 30, 2016 and December 31, 2015, respectively.

 

On November 3, 2014, the Company acquired certain assets of the Buric Companies. The purchase price included an uncollateralized, 3% interest bearing promissory note in the aggregate principal amount of $300 (the “Buric Note”). The note is payable in three equal payments of $100 due on the first, second and third anniversaries of November 3, 2014, the effective date of the acquisition. The carrying value of the Buric Note was approximately $200 as of September 30, 2016 and December 31, 2015.

 

On June 30, 2014, the Company acquired certain assets of Owner’s Representative Services, Inc. (“ORSI”). The purchase price included an uncollateralized non-interest bearing promissory note in the aggregate principal amount of $450 (the “ORSI Note”) for which the Company has imputed interest at a rate of 3.75%. This note is payable in two equal payments of $225 due on the first and second anniversaries of June 30, 2014, the effective date of the acquisition. The carrying value of the ORSI Note was $0 and $225 as of September 30, 2016 and December 31, 2015, respectively.

 

On March 21, 2014, the Company acquired all of the outstanding equity interests of NV5, LLC (formerly known as AK Environmental, LLC.). The purchase price included an uncollateralized $3,000 promissory note bearing interest at 3.0% (the “AK Note”) that is payable in three equal payments of $1,000 each due on the first, second and third anniversaries of March 21, 2014, the effective date of the acquisition. The outstanding balance of the AK Note was $1,000 and $2,000 as of September 30, 2016 and December 31, 2015, respectively.

 

On January 31, 2014, the Company acquired certain assets of Air Quality Consulting Inc. (“AQC”). The purchase price included an uncollateralized non-interest bearing promissory note in the aggregate principal amount of $300 (the “AQC Note”) for which the Company has imputed interest at a rate of 3.75%. This note is payable in two equal payments of $150 each, due on the first and second anniversaries of January 31, 2014, the effective date of the acquisition. As of September 30, 2016 and December 31, 2015, the carrying value of the AQC Note was $0 and $150, respectively.

 

On April 30, 2013, the Company acquired certain assets and assumed certain liabilities of Consilium Partners. The purchase price included an uncollateralized promissory note in the aggregate principal amount of $200, bearing interest at 4.0%, payable in three equal payments of approximately $67 each, and due on the first, second and third anniversaries of April 30, 2013, the effective date of the acquisition. The outstanding balance of this note was approximately $0 and $67 as of September 30, 2016 and December 31, 2015, respectively.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

      Future contractual maturities of long-term debt as of September 30, 2016, are as follows:

 

 

 

As of September 30, 2016 and December 31, 2015, the carrying amount of debt obligations approximates their fair values based on Level 2 inputs as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.

Note 10 – Contingent Consideration

 

The following table summarizes the changes in the carrying value of estimated contingent consideration:

 

 

 Note 11 – Commitments and Contingencies

 

Litigation, Claims and Assessments

 

The Company is subject to certain claims and lawsuits typically filed against the engineering, consulting and construction profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

 

The Company’s office leases are classified as operating leases and rent expense is included in facilities and facilities related expense in the Company’s consolidated statements of net income and comprehensive income. Some lease terms include rent and other concessions and rent escalation clauses which are included in computing minimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The variance of rent expense recognized from the amounts contractually due pursuant to the underlying leases is included in accrued liabilities in the Company’s consolidated balance sheets.

 

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Note 12 – Stock-Based Compensation

 

In October 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan, which was subsequently amended and restated in March 2013 (as amended, the “2011 Equity Plan”). The 2011 Equity Plan provides directors, executive officers, and other employees of the Company with additional incentives by allowing them to acquire ownership interest in the business and, as a result, encouraging them to contribute to the Company’s success. The Company may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As of September 30, 2016, 685,115 shares of common stock are authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increases on each January 1 from 2014 through 2023, by an amount equal to the smaller of (i) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Company’s Board of Directors. The restricted shares of common stock granted generally provide for service-based vesting after two to four years following the grant date. A summary of the changes in unvested shares of the restricted stock during the year ended September 30, 2016 is presented below.

 

The following table summarizes the status of restricted stock awards as of September 30, 2016 and December 31, 2015, and changes during 2016:

 

 

Share-based compensation expense relating to restricted stock awards during the three months ended September 30, 2016 and 2015 was $655 and $563, respectively, and for the nine months ended September 30, 2016 and 2015 was $1,704 and $1,229, respectively. Approximately $4,852 of deferred compensation, which is expected to be recognized over the remaining weighted average vesting period of 2.2 years, is unrecognized at September 30, 2016.

Note 13 – Income Taxes

 

As of September 30, 2016 and December 31, 2015, the Company had net current deferred income tax assets of $1,446 and $1,440, respectively, and non-current deferred tax liabilities of $1,727 and $1,582, respectively. No valuation allowance against the Company’s net deferred income tax assets is needed as of September 30, 2016 and December 31, 2015 as it is more-likely-than-not that the positions will be realized upon settlement. Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments where the Company has a future obligation for tax purposes. During the three and nine months ended September 30, 2016, the Company did not record any deferred tax assets or liabilities in conjunction with the purchase price allocation of acquisitions as a result of the intangibles acquired.

 

The Company’s consolidated effective income tax rate was 36.9% and 36.8% for the three and nine months ended September 30, 2016, respectively. The Company’s consolidated effective income tax rate was 38.3% and 37.5% for the three and nine months ended September 30, 2015, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate of approximately 39.0% is principally due to the federal domestic production activities deduction.

 

The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. The California Franchise Tax Board (“CFTB”) is challenging the use of certain research and development tax credits generated and included on the tax returns of an acquired company for the years 2005 to 2009. Fiscal years 2005 through 2015 are considered open tax years in the State of California and 2012 through 2015 in the U.S. federal jurisdiction and other state jurisdictions.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data) 

 

 At September 30, 2016 and December 31, 2015, the Company had $570 of unrecognized tax benefits. Included in the balance of unrecognized tax benefits at September 30, 2016 and December 31, 2015 were $570 of tax benefits that, if recognized, would affect our effective tax rate. It is not expected that there will be a significant change in the unrecognized tax benefits in the next 12 months.

Note 14 – Reportable Segments

 

The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting” (“Topic No. 280”). As of September 30, 2016, the Company continues to report based on the following reportable segments:

 

Infrastructure, engineering and support services (INF): The INF reportable segment provides to clients a broad array of services in the area of engineering, design and support services; and energy services.

 

Construction quality assurance (CQA): The CQA reportable segment provides construction inspection; geotechnical and engineering services; construction claims and litigation services; and environmental quality testing services.

 

Program management services (PM): The PM reportable segment provides program management for transportation and vertical construction projects including construction management. Also currently included in PM are 2016 acquisitions of Sebesta and Dade Moeller.

 

        The Company evaluates the performance of these reportable segments based on their respective operating income before the effect of amortization expense related to acquisitions and other unallocated corporate expenses. We account for inter-segment revenues and transfers as if the sales and transfers were to third parties. All significant intercompany balances and transactions are eliminated in consolidation.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

The following tables set forth summarized financial information concerning our reportable segments. Prior period segment financial information presented has been recast to reflect the reporting structure as evaluated during the fourth quarter of 2015:

 

 

 

(1)

Includes amortization of intangibles of $1,189 and $791 for the three months ended September 30, 2016 and 2015 respectively, and $3,077 and $1,877 for the nine months ended September 30, 2016 and 2015. respectively.

 

Note 15 – Subsequent Events

 

On October 26, 2016, the Company acquired all of the outstanding equity interests of the JBA Consulting Engineers, Inc. (“JBA”), a Las Vegas, Nevada-based MEP engineering, acoustics, technology, and fire protection consulting firm. The acquisition of JBA will expand and strengthen the Company’s existing energy and environmental platform by introducing our professionals to new clients and making new services available to our existing clients. The purchase price of this acquisition was $23,000 including $12,000 in cash paid at closing, $7,000 in promissory notes (bearing interest at 3.5%), payable in five installments of $1,400, due on the first, second, third, fourth and fifth anniversaries of October 26, 2016, the effective date of the acquisition, $1,400 of the Company’s common stock (44,947 shares) as of the closing date of the acquisition, $2,600 in stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in two installments of $1,300, due on the first and second anniversaries of October 26, 2016, and an undertaking to issue by January 24, 2017, an equivalent number of shares of restricted common stock equal to an aggregate of $2,000, to be granted to certain key employees of JBA selected in the Company’s sole discretion and vesting over a period of four years.

 

Under the acquisition method of accounting, the Company will recognize the assets acquired and the liabilities assumed at their fair values and will record an allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company expects goodwill will be recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and the amount attributable to the reputation of the businesses acquired, the workforce in place and the synergies to be achieved from these acquisitions. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, the Company will engage a third party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities of JBA. The initial accounting for this acquisition is incomplete at this time due to the recent closing of this transaction. The Company expects to establish a preliminary purchase price allocation with respect to this transaction by the end of the fourth quarter of 2016.

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data) 

 

On October 14, 2016, NV5 Global, Inc. (the “Company”) entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”). Pursuant to the Commitment Letter, Bank of America has agreed to be the sole administrative agent for a five-year $80,000 Senior Secured Revolving Credit Facility (“Senior Credit Facility”) to the Company and has committed to lend to the Company all of the Senior Credit Facility, subject to certain terms and conditions. MLPFS has undertaken to act as sole lead arranger and sole book manager for the Senior Credit Facility and to use its best efforts to form a syndicate of financial institutions for the Senior Credit Facility (including Bank of America). In addition, the Senior Credit Facility will include an accordion feature permitting the Company to request an increase in the Senior Credit Facility by an additional amount of up to $60,000. The Senior Credit Facility will include a $5,000 sublimit for the issuance of standby letters of credit and a $15,000 sublimit for swingline loans. The proceeds of the Senior Credit Facility are intended to be used (i) to finance permitted acquisitions, (ii) for capital expenditures, and (iii) for general corporate purposes. The Company will pay customary fees, costs and expenses in connection with obtaining the Senior Credit Facility. The Commitment Letter expires on November 30, 2016, unless definitive documentation for the Senior Credit Facility is executed and delivered prior to such date.

 

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