Note 6 - Acquisition of AAT Carriers, Inc.

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

6. ACQUISITION OF AAT CARRIERS, INC.

On February 9, 2022, we acquired 100% of the outstanding stock of AAT headquartered in Chattanooga, TN. AAT specializes in highly regulated, time-sensitive loads for the U.S. government. The acquisition date fair value of the consideration transferred was $54.7 million. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions. The Stock Purchase Agreement includes an earnout component of up to an aggregate of $20.0 million based on AAT's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first and second years following closing. The total purchase price, including any earnout achieved, is expected to range from $38.5 million to $57.0 million depending on the results achieved by AAT.

AAT’s results have been included in the consolidated financial statements since the date of acquisition and are reported within our Expedited reportable segment.

The acquisition date fair value of the consideration transferred consisted of the following:

	February 9, 2022
(in thousands)
Cash paid pursuant to Stock Purchase Agreement	$	40,347
Cash acquired included in historical book value of AAT's assets and liabilities		(1,846	)
Contingent consideration		16,210
Net purchase price	$	54,711

The contingent consideration arrangement requires us to pay up to $20.0 million of additional consideration to AAT's former shareholders based on AAT's results during the first two post-acquisition years. We estimated the fair value of the contingent consideration using a probability-weighted model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2022:

(in thousands)
	December 31, 2021		Additions			Adjustments to fair market value			December 31, 2022
Contingent consideration	$	-	$	(16,210	)	$	(813	)	$	(17,023	)

Because of our 338(h)10 election, all goodwill related to the acquisition is deductible for tax purposes, and there are no deferred income taxes arising from the acquisition.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.

	February 9, 2022
Accounts receivable	$	842
Prepaid expenses		33
Other short-term assets		19
Net property and equipment		7,994
Credentialing intangible asset		32,000
Total identifiable assets acquired		40,888
Accounts payable		(19	)
Accrued expenses		(1,396	)
Finance lease obligations		(458	)
Other long-term liabilities		(3	)
Total liabilities assumed		(1,876	)
Net identifiable assets acquired		39,012
Goodwill		15,699
Net assets acquired	$	54,711

The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel, purchases of revenue equipment. Refer to Note 7, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired.

The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended December 31, 2022 are as follows:

(in thousands)	Year Ended
	December 31, 2022
Total revenue	$	33,061
Net income	$	13,263