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Acquisitions
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Asset Acquisition - Van Hook Crude Terminal, LLC
The acquisition of the assets of Van Hook Crude Terminal, LLC occurred on March 15, 2018. The Company acquired all of the rights, title, and interest in certain properties and assigned contracts for a total consideration of $15,549 in cash. The acquisition cost has been allocated to the Company’s fixed assets as set forth below.
Machinery, equipment and tooling
$
1,478

Plant and building
1,407

Railroad and sidings
9,926

Land improvements
2,738

Total assets acquired
$
15,549


Business Combination - Quickthree Solutions Inc.
On June 1, 2018, the Company acquired substantially all of the assets of Quickthree Solutions, Inc., a manufacturer of portable vertical frac sand storage solution systems.
The aggregate purchase price consisted of approximately $30,000 cash paid at closing, subject to adjustment based upon Quickthree’s closing date working capital, and up to $12,750 in potential earn-out payments over a three-year period after closing. Payment of the earn-out is based upon the production of silos and related equipment during the earn-out period. The closing portion of the purchase price was paid using cash on hand and advances under the Company’s Credit Facility. The Company expects the earn-out portion of the purchase price to be paid using cash on hand, equipment financing options available to the Company and advances under the Company’s Credit Facility. Goodwill in this transaction is attributable to planned expansion into the wellsite proppant storage solutions market, and is fully deductible for tax purposes. The table below presents the calculation of the total purchase consideration.
Base price - cash
$
30,000

Contingent consideration – earnout
9,200

Working capital adjustment
(122
)
Total purchase consideration
$
39,078


The Company’s allocation of the purchase price in connection with the acquisition was calculated as follows:
 
 
Fair Value
 
Useful Life (in years)
Assets Acquired
 
 
 
 
Accounts receivable
 
$
112

 
 
Inventory
 
1,700

 
 
Prepaid expenses and other current assets
 
126

 
 
      Total current assets acquired
 
$
1,938

 
 
Property, plant and equipment
 
740

 
 
Customer relationships
 
270

 
1 year
Developed technology
 
18,800

 
13 years
Trade name
 
900

 
Indefinite
Goodwill
 
16,935

 
 
Other assets
 
225

 
 
      Total non-current assets acquired
 
37,870

 
 
      Total assets acquired
 
$
39,808

 
 

 
 
 
 
Liabilities Assumed
 
 
 
 
Accounts payable
 
$
331

 
 
Accrued and other expenses
 
399

 
 
      Total liabilities assumed
 
730

 
 
      Estimated fair value of net assets acquired
 
$
39,078

 
 

The purchase price allocation was considered complete as of December 31, 2018. There were no acquisition costs for the Quickthree acquisition during the three months ended March 31, 2019 and 2018.
The goodwill and trade name have been fully impaired as of December 31, 2018. The Company conducts its evaluation of goodwill at the reporting unit level on an annual basis as of December 31 and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. All of the Company’s operations are in one reporting unit. The Company determined the fair value of its reporting unit using both a market multiples approach and the discounted cash flows method. In the second half of 2018, the Company saw a decline in demand for frac sand, consistent with the industry as a whole, which resulted in a decline in the Company’s stock price near the measurement date. The decline in the Company’s stock price near the measurement date and the relationship between the resulting market capitalization and the equity recorded on the Company’s balance sheet resulted in a full impairment of goodwill as of December 31, 2018.
Contingent Consideration 
The Company determined the fair value of the contingent consideration to be $9,200 at June 1, 2018, the acquisition date and recorded it as a liability in the Company’s unaudited condensed consolidated balance sheets. Each reporting period, the Company reassesses its inputs including market comparable information and management assessments regarding potential future scenarios, then discounts the liabilities to present value. For the three months ended March 31, 2019, the Company recorded an adjustment to the fair value of contingent consideration in the amount of $967 on the condensed consolidated income statements, related the change in fair value of contingent consideration. The Company will continue to reassess earn-out calculations related to the contingent consideration in future periods.
The Company’s contingent consideration is remeasured at fair value on a recurring basis and is comprised of payments for production of silos and related equipment during the three-year period after the acquisition. Contingent liabilities are valued using significant inputs that are not observable in the market, which are defined as Level 3 inputs according to fair value measurement accounting. The Company used a probability-weighted average between 10 and 54 manufactured fleets over the earnout period, as the basis of its fair value determination. The actual contingent consideration could vary from the determined amount based on the actual number of silos and related equipment produced and the timing thereof. The Company estimates the fair value of contingent liabilities using a Monte Carlo simulation-based, real option pricing methodology implementation of the Income Approach. This approach utilizes inputs including market comparable information and management assessments regarding potential future scenarios, then discounts the liabilities to present value. The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved. The Company’s financial instruments remeasured and carried at fair value were as follows:
 
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
Contingent consideration
 
$
5,500

 
$

 
$

 
$
5,500

Total liabilities
 
$
5,500

 
$

 
$

 
$
5,500


The following table provides a summary of changes in the fair value of the Company’s Level 3 financial instruments for the three months ended March 31, 2019.
Balance as of December 31, 2018
 
$
7,167

Payment of contingent consideration
 
(700
)
Fair value adjustment
 
(967
)
Balance as of March 31, 2019
 
$
5,500