Quarterly report pursuant to Section 13 or 15(d)

Acquisitions of Businesses and Other Intangibles

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Acquisitions of Businesses and Other Intangibles
9 Months Ended
Sep. 30, 2016
Acquisitions of Businesses and Other Intangibles

2. Acquisitions of Businesses and Other Intangibles

TNT Energy, LLC

On May 9, 2016, we completed the acquisition of TNT, a turnkey provider of LED lighting-based energy savings projects within the commercial, industrial, hospitality, retail, education and municipal sectors. TNT’s headquarters is located in Raynham, Massachusetts. The acquisition of TNT is expected to expand our footprint within key lighting retrofit markets in the United States. We believe this is a direct complimentary fit with our division, Energy Source, based in Providence, RI. In addition to its broad existing customer base, TNT is a contract vendor for the Small C&I Business Programs of northeast utility companies, with a defined territory of approximately 120 municipalities throughout Massachusetts. We acquired TNT for its management team, its client base and operational and business development synergies. Final valuations and allocations are subject to additional analyses and may differ from amounts reflected below.

Purchase Price Allocation

We accounted for the acquisition of TNT under Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), which requires recording assets and liabilities at fair value. Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liabilities assumed were recorded based on their preliminary estimated fair values on the date of the acquisition. The initial valuations were derived from estimated fair value assessments and assumptions used by management, and were preliminary.

 

Consideration:

  

Cash paid (1)

   $ 8.6   

Promissory note

     2.0   

Contingent consideration (2)

     4.1   
  

 

 

 

Total Consideration

   $ 14.7   
  

 

 

 

Fair Value of Assets Acquired and Liabilities Assumed:

  

Working capital, net

   $ 1.3   

Goodwill (3)

     7.5   

Intangible assets (4)

     5.9   
  

 

 

 

Net Assets

   $ 14.7   
  

 

 

 

 

(1) Includes the prepayment of a preliminary working capital adjustment of $0.6 million. The cash payment was funded through the common stock offering (see Note 10).
(2) Contingent consideration is based on expected revenue and adjusted EBITDA.
(3) During the third quarter, we recorded a $1.3 million increase to goodwill related to an adjustment in working capital. Goodwill is expected to be deductible for income tax purposes.
(4) The acquired intangible assets are being amortized consistent with the period the underlying cash flows are generated.

 

Energy Source

On August 5, 2015, we completed the acquisition of Energy Source, a provider of turnkey comprehensive energy savings projects (principally LED fixtures and lamps) within the commercial, industrial, hospitality, retail, education and municipal sectors. We acquired Energy Source for its management team, its client base and operational and business development synergies.

Purchase Price Allocation

 

Consideration:

  

Cash paid (1)

   $ 10.0   

Common stock issued

     9.7   

Promissory notes (2)

     10.0   

Contingent consideration (3)

     1.8   
  

 

 

 

Total Consideration

   $ 31.5   
  

 

 

 

Fair Value of Assets Acquired and Liabilities Assumed:

  

Working capital, net

   $ 1.4   

Goodwill (4)

     21.3   

Intangible assets (5)

     8.8   
  

 

 

 

Net Assets

   $ 31.5   
  

 

 

 

 

(1) The cash payment funded through the issuance of common stock to a third-party investor for $10.0 million.
(2) The promissory notes are supported by an irrevocable letter of credit from RVL (see Note 14).
(3) Contingent consideration is based on projected EBITDA during 2015, 2016 and 2017.
(4) Goodwill is expected to be deductible for income tax purposes.
(5) The acquired intangible assets are being amortized consistent with the period the underlying cash flows are generated.

Pro forma information

The following unaudited supplemental pro forma information assumes the TNT and Energy Source acquisitions referred to above had been completed as of January 1, 2015 and is not indicative of the results of operations that would have been achieved had the transactions been consummated on such date or of results that might be achieved in the future.

 

     Nine Months Ended
September 30, 2016
     Year Ended
December 31,
2015
 

Revenue

   $ 128.8       $ 163.4   

Operating income

   $ 0.5       $ 0.2   

Net loss

   $ (1.4    $ (1.7

The pro forma results for the nine months ended September 30, 2016 and year ended December 31, 2015 include the amortization of customer backlog, and acquisition, severance and transition costs totaling $3.3 million and $2.6 million respectively. The preponderance of these charges are non-recurring and will not have a continuing impact on the future results of operations.

The revenue and net income of TNT included in our actual results of operations from May 9, 2016 through September 30, 2016 totaled $12.8 million and $2.0 million, respectively.