The accompanying notes are an integral
part of these unaudited consolidated financial statements.
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Atlas Technical Consultants, Inc. (the “Company”,
“We”, or “Atlas” and formerly named Boxwood Merger Corp. (“Boxwood”)) was a blank check company,
incorporated in Delaware on June 28, 2017. The Company was formed for the purpose of acquiring, through a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization, recapitalization, or other similar business transaction, one or more
operating businesses or assets.
On February 14, 2020 (the “Closing Date”),
the Company consummated its acquisition of Atlas Intermediate Holdings LLC, a Delaware limited liability company (“Atlas
Intermediate”), pursuant to the Unit Purchase Agreement, dated as of August 12, 2019, as amended on January 22, 2020 (the
“Purchase Agreement”), by and among the Company, Atlas TC Holdings LLC, a wholly-owned subsidiary of the Company and
a Delaware limited liability company (“Holdings”), Atlas TC Buyer LLC, a wholly-owned subsidiary of Holdings and a
Delaware limited liability company (the “Buyer”), Atlas Intermediate and Atlas Technical Consultants Holdings LP, a
Delaware limited partnership (the “Seller”). The acquisition of Atlas Intermediate pursuant to the Purchase Agreement
together with the other transactions contemplated by the Purchase Agreement is referred to herein as the “Atlas Business
Combination.”
Following the consummation of the Atlas Business
Combination, the combined company is organized in an “Up-C” structure in which the business of Atlas Intermediate and
its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which
the Company’s only direct assets will consist of common units of Holdings (“Holdings Units”). The Company is
the sole manager of Holdings in accordance with the terms of the amended and restated limited liability company agreement of Holdings
(the “Holdings LLC Agreement”) entered into in connection with the consummation of the Atlas Business Combination.
The Company has more than 140 offices in 40
states and employs more than 3,200 employees and is headquartered in Austin, Texas.
The Company provides
public and private sector clients with comprehensive support in managing large-scale infrastructure improvement programs including
engineering, design, program development/management, compliance services acquisition and project control services, as well as
construction engineering & inspection and materials testing.
Services are provided
throughout the United States and its territories to a broad base of clients with no single client representing 10% or more of
our revenues for either the quarter ended March 31, 2019 or 2018. Services are rendered primarily on a time and materials and
cost-plus basis with approximately 95% of our contracts on that basis and the remainder represented by firm fixed price contracts.
Basis of Presentation
The acquisition of Atlas Intermediate has
been accounted for as a reverse recapitalization. Under this method of accounting, Atlas is treated as the acquired company and
Atlas Intermediate is treated as the acquirer for financial reporting purposes. Therefore, the consolidated financial results
include information regarding Atlas Intermediate as the Company’s predecessor entity. Thus, the financial statements included
in this report reflect (i) the historical operating results of Atlas Intermediate prior to the Atlas Business Combination; (ii)
the combined results of the Company and Atlas Intermediate following the Atlas Business Combination; (iii) the assets, liabilities
and members’ capital of Atlas Intermediate at their historical costs; and (iv) the Company’s equity and earnings per
share presented for the period from the Closing Date.
The accompanying interim statements of
the Company have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the United States Securities and Exchange Commission
(the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial
statements.
In the opinion of management, all adjustments,
consisting only of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements have
been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported
for the entire year or for any other period. These interim statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K that the Company filed with the SEC
on March 16, 2020 and Form 8-K/A filed with the SEC on March 16, 2020.
Emerging Growth Company
The Company is an “emerging growth
company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012
(the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that
apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out
of such extended transition period which means that when a standard is issued or revised and it has different application dates
for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with
another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Fiscal Year
The Company’s subsidiaries report
the results of operations based on 52 or 53-week periods ending on the Friday nearest December 31 while Atlas reports on a calendar
year end. For clarity of presentation, all periods are presented as if the year ended on December 31. During each quarter, our
subsidiaries will close on the Friday closest to March 31, June 30, and September 30 and Atlas will close on the actual calendar
day. The impact of the difference between these dates was insignificant. The Company has appropriately eliminated all transactions
between itself and its subsidiaries when presenting its balance sheet.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable and Accrued Billings
The Company records its trade accounts
receivable and unbilled receivables at their face amounts less allowances. On a periodic basis, the Company monitors the trade
accounts receivable and unbilled receivables from its customers for any collectability issues. The allowance for doubtful accounts
is established based on reviews of individual customer accounts, recent loss experience, current economic conditions, and other
pertinent factors. As of March 31, 2020 and December 31, 2019, the allowance for trade accounts receivable was $2.0 million and
$2.1 million, respectively, while the allowance for unbilled receivables was $0.7 million and $0.6 million, respectively. The
allowances reflect the Company’s best estimate of collectability risks on outstanding receivables and unbilled services.
Property and Equipment
Purchases of new assets and costs of improvement
to extend the useful life of existing assets are capitalized. Routine maintenance and repairs are charged to expenses as incurred.
When an asset is sold or retired, the costs and related accumulated depreciation are eliminated from the accounts, and the resulting
gains or losses on disposal are recognized in the accompanying combined statement of operations. The Company depreciates its assets
on a straight-line basis over the assets’ useful lives, which range from 3 to 10 years.
Impairment of Long-Lived Assets
The Company assesses long-lived assets
for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. The Company recognizes
an impairment if the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. There
were no impairment charges for the quarters ended March 31, 2020 and 2019.
Goodwill
Goodwill represents the excess of the
cost of net assets acquired over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed
in a business combination. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other, we evaluate goodwill annually for
impairment on October 1, or whenever events or changes in circumstances indicate the asset may be impaired, using the quantitative
method. 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 we determine that this threshold is met, then performing the two-step quantitative impairment
test is unnecessary. We may elect to bypass the qualitative assessment and proceed directly to the quantitative test for any reporting
unit. 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. We determine fair value through multiple valuation
techniques, and weight the results accordingly. We 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 our reporting
units. If the carrying value of our reporting unit exceeds the fair value of our reporting unit, we would calculate the implied
fair value as compared to the carrying value to determine the appropriate impairment charge, if any. There were no impairment
charges for the quarters ended March 31, 2020 and 2019.
Revenue Recognition
During the fourth quarter of 2019, we adopted
ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective approach to all
contracts that were not completed as of the beginning of fiscal year 2019. We utilize the portfolio method practical expedient,
which allows companies to account for multiple contracts as a portfolio, instead of accounting for them on a contract by contract
basis (commonly known as the contract method). For our time and materials contracts, we apply the as-invoiced practical expedient,
which permits us to recognize revenue as the right to invoice for services performed. The new standard did not materially affect
our consolidated net income, financial position, or cash flows.
Below is a description of the basic types
of contracts from which the Company may earn revenue:
Time and Materials Contracts
Under the time and
materials (“T&M”) arrangements, contract fees are based upon time and materials incurred. The contracts may be
structured as basic time and materials, cost plus a margin or time and materials subject to a maximum contract value (the “ceiling”).
Due to the potential limitation of the contract’s ceiling, the economic factors of the contracts subject to a ceiling differ
from the economic factors of basic T&M and cost plus contracts.
The majority of the
Company’s contracts are for projects where it bills the client monthly at hourly billing or unit rates. The billing rates
are determined by contract terms. Under cost plus contracts, the Company charges its clients for contract related costs at cost,
an agreed upon overhead rate plus a fixed fee or rate.
Under time and materials
contracts with a ceiling, the Company charges the clients for time and materials based upon the work performed however there is
a ceiling or a not to exceed value. There are often instances that a contract is modified to extend the contract value past the
original or amended ceiling. As the consideration is variable depending on the outcome of the contract renegotiation, the Company
will estimate the total contract price in accordance with the variable consideration guidelines and will only include consideration
that it expects to receive from the customer. When the Company is reaching the ceiling, the contract will be renegotiated, or
we cease work when the maximum contract value is reached. The Company will continue to work if it is probable that the contract
will be extended. The Company is only entitled to consideration for the work it has performed, and the ceiling amount is not a
guaranteed contract value.
The Company earned approximately 95% of
its revenues under T&M contracts during the quarters ended March 31, 2020 and 2019.
Fixed Price Contracts
Under fixed price
contracts, the Company’s clients pay an agreed amount negotiated in advance for a specified scope of work. The Company is
guaranteed to receive the consideration to the extent that the Company delivers under the contract. The Company recognizes revenue
over a period of time on fixed price contracts using the input method based upon direct costs incurred to date, which are compared
to total projected direct costs. Costs are the most relevant measure to determine the transfer of the service to the customer.
The Company assess contracts quarterly and may recognize any expected future loss before actually incurring the loss. When the
Company is expecting to reach the total consideration under the contract, the Company will begin to negotiate a change order.
Change Orders and Claims
Change orders are
modifications of an original contract that effectively change the provisions of the contract without adding new provisions. Either
the Company or its client may initiate change orders. They may include changes in specifications or design, manner of performance,
facilities, equipment, materials, sites and period of completion of the work. Management evaluates when a change order is probable
based upon its experience in negotiating change orders, the customer’s written approval of such changes or separate documentation
of change order costs that are identifiable. Change orders may take time to be formally documented and terms of such change orders
are agreed with the client before the work is performed. Sometimes circumstances require that work progresses before an agreement
is reached with the client. If the Company is having difficulties in renegotiating the change order, the Company will stop work
if possible, record all costs incurred to date, and determine, on a project by project basis, the appropriate final revenue recognition.
Claims are amounts
in excess of the agreed contract price that the Company seeks to collect from its clients or others for client-caused delays,
errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to
both scope and price, or other causes of unanticipated additional contract costs. Costs related to change orders and claims are
recognized when they are incurred. The Company evaluates claims on an individual basis and recognizes revenue it believes is probable
to collect.
Performance Obligations
The majority of our contracts have a single
performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises
in the contracts and therefore, is not distinct. However, in some instances, we may also promise to provide distinct goods or
services within a contract, resulting in multiple performance obligations. For contracts with multiple performance obligations,
we allocate the contract transaction price to each performance obligation using the best estimate of the standalone selling price
of each distinct good or service in the contract. Typically, we sell a customer a specific service and use the expected cost plus
a margin approach to estimate the standalone selling price of each performance obligation.
The Company’s performance obligations
are satisfied as work progresses or at a point in time. Revenue on our cost-reimbursable contracts is recognized over time using
direct costs incurred or direct costs incurred to date as compared to the estimated total direct costs for performance obligations
because it best depicts the transfer of control to the customer. Contract costs include labor, subcontractors’ costs and
other direct costs.
Gross revenue from services transferred
to customers at a point in time is recognized when the customer obtains control of the asset, which is generally upon delivery
and acceptance by the customer of the reports and/or analysis performed.
As of March 31, 2020 and December 31, 2019,
we had $607 and $601 million of remaining performance obligations, or backlog, respectively of which $364 million and $361 million,
respectively or 60% is expected to be recognized over the next 12 months and the majority of the balance over the next 24 months.
Contracts for which work authorizations have been received are included in backlog. Project cancellations or scope adjustments
may occur, from time to time, with respect to contracts reflected in backlog. Most of our government contracts are multi-year
contracts for which funding is appropriated on an annual basis, therefore backlog includes only those amounts that have been funded
and authorized and does not reflect the full amounts we may receive over the term of such contracts. In the case of non-government
contracts, backlog includes future revenue at contract rates, excluding contract renewals or extensions that are at the discretion
of the client. For contracts with a not-to-exceed maximum amount, we include revenue from such contracts in backlog to the extent
of the remaining estimated amount. Our backlog for the period beyond 12 months may be subject to variation from year-to-year as
existing contracts are completed, delayed, or renewed or new contracts are awarded, delayed, or cancelled. As a result, we believe
that year-to-year comparisons of the portion of backlog expected to be performed more than one year in the future are difficult
to assess and not necessarily indicative of future revenues or profitability.
Contract Assets and Liabilities
The timing of revenue recognition, billings
and cash collections results in billed receivables, unbilled receivables (contract assets), and billings in excess of costs and
estimated earnings on uncompleted contracts (contract liabilities). Billed and unbilled receivables are reflected on the face
of the Consolidated Balance Sheet. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts”
represents billings in excess of revenues recognized on these contracts as of the reporting date and is reported within “other
current liabilities” on the Consolidated Balance Sheet. This liability was $311 thousand and $343 thousand as of March 31,
2020 and December 31, 2019, respectively. Revenue recognized that was included in the contract liability balance at the beginning
of the fiscal year was $32 thousand and $32 thousand for the quarters ended March 31, 2020 and 2019, respectively.
U.S. Federal Acquisition Regulations
The Company has contracts
with the U.S. federal, state and local governments that contain provisions requiring compliance with the U.S. Federal Acquisition
Regulations (“FAR”). These regulations are generally applicable to all of its contracts that are directly funded or
partially funded by pass through funds from the U.S. federal government. These provisions limit the recovery of certain specified
indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments
if actual recoverable costs differ from the estimate billed under forward pricing arrangements. Most of the Company’s government
contracts are subject to termination at the convenience of the government. Contracts typically provide for reimbursement of costs
incurred and payment of fees earned through the date of such termination.
Government contracts that are subject to the
FAR are subject to audits performed by the Defense Contract Audit Agency (“DCAA”) and many other state governmental
agencies. As such, the Company’s overhead rates, cost proposals, incurred government contract costs and internal control
systems are subject to review. During the course of its audits, the DCAA or a state agency may question incurred costs if it believes
the Company has accounted for such costs in a manner inconsistent with the requirements of the FAR or Cost Accounting Standards
and recommend that the applicable contracting officer disallow such costs. Historically, the Company has not incurred significant
disallowed costs because of such audits. However, the Company can provide no assurance that the rate audits will not result in
material disallowances of incurred costs in the future. The Company provides for a refund liability to the extent that it expects
to refund some of the consideration received from a customer. The liability at March 31, 2020 and December 31, 2019 was $813 thousand.
Disaggregation of Revenues
As described further in Note 2 –
Summary of Significant Accounting Policies, the Company has one operating segment, Engineering, Testing, Inspection
and Other Consultative Services, which reflects how the Company is being managed. The Company provides public and private sector
clients with comprehensive support in managing large-scale infrastructure improvement programs including engineering, design,
program development/management, compliance services acquisition and project control services, as well as construction engineering
& inspection and materials testing. Public sector clients approximate one-third of the Company’s revenues in each reporting
period presented.
All services performed by the Company are
rendered in the United States and its territories via two contract types, time and materials or fixed price contracts. The Company
derives 95% of its revenues from T&M contracts.
Cash Flows
The Company has presented its cash flows
using the indirect method and considers all highly liquid investments with a maturity of three months or less at acquisition to
be cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit
Insurance limit.
Comprehensive Income
There are no other components of comprehensive
income other than net income and the provision for non-controlling interest associated with Holding Units.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates.
Concentration of Credit Risk
Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of trade accounts receivable. These risks primarily
relate to the concentration of customers who are large, governmental customers and regional governmental customers. The Company
performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements
(“ASC 820”), establishes a framework for measuring fair value. That framework provides a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable
inputs (level 3 measurements).
The three levels of the fair value hierarchy under ASC 820
are described as follows:
Level 1 — Inputs utilize quoted prices (unadjusted)
in active markets for identical assets or liabilities that management has the ability to access.
Level 2 — Inputs utilize data points that are
observable such as quoted prices, interest rates and yield curves.
Level 3 — Inputs are unobservable data points
for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The asset or liability’s fair value
measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company has various financial instruments,
including cash and cash equivalents, accounts receivable and payable, accrued liabilities, and long-term debt. The carrying value
of the Company’s cash and cash equivalents, accounts receivable, and payable and accrued liabilities approximate their fair
value due to their short-term nature. The Company believes that the aggregate fair values of its long-term debt approximates their
carrying amounts as the interest rates on the debt are either reset on a frequent basis or reflect current market rates.
The Company applies the provisions of 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 is based on valuations
performed to determine the fair values of such assets as of the acquisition dates. Generally, the Company engages a third-party
independent valuation specialist to assist in management’s determination of fair values of tangible and intangible assets
acquired and liabilities assumed. 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 earnout payments are included in operating expenses in the accompanying
combined statements of operations.
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.
The Company reviews and re-assesses the
estimated fair value of contingent consideration liabilities on a quarterly basis, and the updated fair value could differ materially
from the initial estimates. The Company measures contingent consideration recognized in connection with business combinations
at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. 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.
The following table summarizes the changes
in the fair value of estimated contingent consideration:
Contingent consideration, as of December 31, 2019
|
|
$
|
1,060
|
|
Additions for acquisitions
|
|
|
5,625
|
|
Reduction of liability for payment made
|
|
|
(1,060
|
)
|
Decrease of liability related to re-measurement of fair value
|
|
|
|
|
Total contingent consideration, as of March 31, 2020
|
|
|
5,625
|
|
Current portion of contingent consideration
|
|
|
-
|
|
Contingent consideration, less current portion
|
|
$
|
5,625
|
|
Equity-Based Compensation
The Company recognizes the cost of services
received in an equity-based payment transaction with an employee as services are received and record either a corresponding increase
in equity or a liability, depending on whether the instruments granted satisfy the equity or liability classification criteria.
The measurement objective for these equity
awards is the estimated fair value at the grant date of the equity instruments that the Company is obligated to issue when employees
have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments.
The compensation cost for an award classified as an equity instrument is recognized ratably over the requisite service period,
including an estimate of forfeitures. The requisite service period is the period during which an employee is required to provide
service in exchange for an award.
Equity compensation was $9,845 thousand and
$56 thousand for the quarters ended March 31, 2020 and 2019, respectively. Consistent with the change in control provisions within
the agreements, the Company fully expensed the remaining unamortized value of the stock awards that vested upon the completion
of the Atlas Business Combination.
Income Taxes
Following the consummation of the Atlas Business
Combination, the Company is organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries
is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which the Company’s
only direct assets will consist of common units of Holdings Units. The Company is the sole manager of Holdings in accordance with
the terms of the Holdings LLC Agreement entered into in connection with the consummation of the Atlas Business Combination.
Previously, Atlas Intermediate was treated as
a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed
through to the partners and members. As such, no recognition of federal or state income taxes for the Company or its subsidiaries
have been provided for in the accompanying consolidated financial statements except as disclosed below.
The State of Texas imposes a margin tax, with
an effective rate of 0.7%, based on the prior year’s Texas-sourced gross receipts. This tax is treated as an income tax and
accrued in the accounting period in which the taxable gross receipts are recognized. The State of Texas margin tax was insignificant
in the quarters ended March 31, 2020 and 2019.
In addition, there are two C-Corporations (“C-Corp”)
subsidiaries for which we account for income taxes under the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.
Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement
and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.
The results of operations prior to the Atlas
Business Combination were treated consistently in this manner.
Subsequent to the Atlas Business Combination,
the Up-C structure allowed the holders of our Class B common stock, par value $0.0001 per share (the “Class B common stock”)
to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass
through” entity, for U.S. federal income (and certain state and local) tax purposes following the business combination. One
of these benefits is that, for U.S. federal income (and certain state and local) purposes, future taxable income of Atlas that
is allocated to the Seller and its limited partners will be taxed on a flow-through basis and therefore will not be subject to
corporate taxes at the entity level.
Income tax relating to the C-Corps is not considered
in the provision for non-controlling interest calculation as it is solely the responsibility of the holders of our Class A common
stock, par value $0.0001 per share (the “Class A common stock”). The Texas margin tax is considered within the provision
of non-controlling interest as it generated through the results of Atlas Intermediate and its subsidiaries.
We recognize deferred tax assets to the
extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider
all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize
our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax
asset valuation allowance, which would reduce the provision for income taxes.
Deferred taxes consisted of the following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Asset:
|
|
|
|
|
|
|
Current
|
|
$
|
0.7
|
|
|
$
|
-
|
|
Noncurrent
|
|
|
13.0
|
|
|
|
-
|
|
Deferred tax asset, gross
|
|
|
13.7
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(13.7
|
)
|
|
|
-
|
|
Deferred tax asset, net
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Liability:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Noncurrent
|
|
|
0.6
|
|
|
|
0.6
|
|
Deferred tax liability, gross
|
|
|
0.6
|
|
|
|
0.6
|
|
Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Deferred tax liability, net
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
There are no net operating loss carryforwards. The Company
records its deferred tax liabilities in other long-term liabilities within its Consolidated Balance Sheet.
Income tax expense was $0.0 million and $0.0 million for the
quarters ended March 31, 2020 and 2019, respectively. Income tax expense for the quarter ended March 31, 2019 and the period
beginning January 1, 2020 through the Closing Date differs from the 21% statutory federal tax rate and various state tax rates
applied to the Company’s pre-tax income due to only certain C-Corp subsidiaries being subject to recognition of federal
or state income taxes in the Company’s Consolidated Statement of Operations.
The rate reconciliation for the period from the Atlas Business
Combination through March 31, 2020 is as follows:
Pre-tax loss
|
|
$
|
2,522
|
|
Statutory tax rate
|
|
|
26
|
%
|
Tax benefit
|
|
|
656
|
|
Deferred tax asset valuation reserve
|
|
|
(656
|
)
|
Income tax expense, net
|
|
$
|
-
|
|
Redeemable Preferred Stock
On February 14, 2020, in connection with the
consummation of the Atlas Business Combination, Holdings and GSO COF III AIX-2 LP (“GSO AIV-2”) entered into a subscription
agreement, dated February 14, 2020 (the “Subscription Agreement”) pursuant to which, GSO AIV-2 purchased 145,000 units
of a new class of Series A Senior Preferred Units of Holdings (the “Preferred Units”) at a price per Preferred Unit
of $978.21 for an aggregate cash purchase price of $141,840,450, which represents a 2.179% original issue discount on the Preferred
Units (such purchase, the “GSO Placement”).
The GSO Placement was made pursuant to
the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and/or Regulation D promulgated thereunder.
The Preferred Units rank senior in priority
to all other existing and future equity securities of Holdings with respect to liquidation preference and distribution rights.
The Preferred Units have a liquidation
preference of $1,000 per Preferred Unit (the “Liquidation Preference”).
Subject to any limitations set forth in
the Atlas Credit Agreement (as defined in Note 7), the Preferred Units pay a dividend of 5% per annum, plus either an additional
6.25% per annum in cash or 7.25% per annum in additional Preferred Units, at Holdings’ option, payable quarterly in arrears.
If a cash dividend is not able to be made
because of a limitation under the Atlas Credit Agreement, then the Liquidation Preference with respect to any Unit shall increase
to 3.5625% in any quarter until a cash dividend can be made.
The Preferred Units do not possess voting
rights and are not convertible into any other security of Holdings.
Holdings may redeem the Preferred Units beginning
on the second anniversary of the Closing Date at a price of 103% of the Liquidation Preference (the “Redemption Premium”),
and on the third anniversary of their issuance at the Liquidation Preference, in each case plus accrued and unpaid dividends. The
Preferred Units may only be redeemed by Holdings within the first two years of the Closing Date upon a change of control as described
below, in which case such Preferred Units will be redeemed at a customary make-whole amount as if the Preferred Units were redeemed
on the second anniversary.
Subject to the terms of Holdings’ and
its subsidiaries’ senior credit agreements, Holdings will be required to redeem the Preferred Units at the Redemption Premium,
plus accrued and unpaid dividends, in the event of (i) a change of control, (ii) sales or other dispositions of all or substantially
all of Holdings’ assets and (iii) the insolvency or bankruptcy of Holdings or any of its material subsidiaries.
Finally, holders of the Preferred Units may
require Holdings to redeem their Preferred Units at the Liquidation Preference, plus accrued and unpaid dividends, beginning on
the eighth anniversary of the Closing Date, subject to certain customary limitations.
Redeemable preferred stock, as of December 31, 2019
|
|
$
|
-
|
|
Additions
|
|
|
141,840
|
|
Accrued paid in kind dividends
|
|
|
1,321
|
|
Accretion of discount
|
|
|
11
|
|
Redeemable preferred stock, as of March 31, 2020
|
|
$
|
143,172
|
|
Segment
The Company has one operating and reporting segment, Engineering,
Testing, Inspection and Other Consultative Services. This financial information is reviewed regularly by our chief operating decision
maker to assess performance and make decisions regarding the allocation of resources and is equivalent to our consolidated information.
Our chief operating decision maker does not review below the consolidated level. Our chief operating decision maker is our Chief
Executive Officer.
Recent Accounting Pronouncements
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, 2020. The Company is currently
evaluating the requirements of ASU 2016-02 and its impact on the consolidated and combined financial statements.
In June 2016, the FASB issued ASU
2016-13, Financial Instruments (Topic 326) - Credit Losses: Measurement
of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial
instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
determine credit loss estimates. This ASU will be effective for the Company commencing after December 15, 2022. The Company
is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.
NOTE
3 – ATLAS BUSINESS COMBINATION
On the Closing Date, the Company completed the
acquisition of Atlas Intermediate and its subsidiaries and in return the Atlas Intermediate members: (i) received 24.0 million
shares of Class B common stock in the Company, (ii) repaid the $171.5 million of outstanding debt and interest accrued and due
lender, (iii) payment of $10.9 million of seller incurred acquisition-related costs, (iv) settlement $1.1 million of contingent
consideration associated with the SCST, Inc. acquisition and (v) paid $2.2 million of change in control payments due certain executives.
This was paid for with: (i) $20.7 million of cash raised from SPAC shareholders and the private placement discussed herein, (ii)
the issuance of redeemable preferred stock in the amount of $141.8 million and (iii) the issuance of new debt in the amount of
$271.0 million discussed in Note 7.
The shares of non-economic Class B common stock
of the Company, which entitles each holder to one vote per share, are redeemable on a one-for-one basis for shares of Class A common
stock at the option of the Unit Holders (formerly members) as their lock-up period expire. Upon the redemption by any Class B common
stock shares for Class A common stock, a corresponding number of shares of Class B common stock will be cancelled.
In connection with the Company’s entry
into the Atlas Business Combination, the Company agreed to issue and sell in a private placement an aggregate of 1,000,0000 shares
of Class A common stock for a purchase price of $10.23 per share, and aggregate consideration of $10.2 million (the “Private
Placement”). The Private Placement was consummated concurrently with the Closing Date and the proceeds of the Private Placement
were used to fund a portion of the consideration paid to the Atlas Intermediate members.
Because the holders of our Class B common stock
have effective control of the combined company after the Closing Date through its majority voting interests in both the Company
and, accordingly, Atlas Intermediate, the Atlas Business Combination was accounted for as a reverse recapitalization. Although
the Company was the legal acquirer, Atlas Intermediate was the accounting acquirer. As a result, the reports filed by the Company
subsequent to the Atlas Business Combination are prepared “as if” Atlas Intermediate is the predecessor and legal successor
to the Company. The historical operations of Atlas Intermediate are deemed to be those of the Company. Thus, the financial statements
included in this report reflect (i) the historical operating results of Atlas Intermediate prior to the Atlas Business Combination;
(ii) the combined results of the Company and Atlas Intermediate following the Atlas Business Combination; (iii) the assets, liabilities
and members’ capital of Atlas Intermediate at their historical cost; and (iv) the Company’s equity and earnings per
share for the period from the Closing Date.
NOTE
4 – BUSINESS ACQUISITIONS
In February 2020, the Company acquired Long Engineering (“LONG”),
a land surveying and engineering company headquartered in Atlanta, Georgia. The aggregate purchase price consideration paid in
connection with the acquisition was $10.5 million in cash, subject to customary closing working capital adjustments plus an earnout
of up to $12 million upon the achievement of certain financial targets to be paid upon the first, second and third anniversaries
of the closing.
The Company did not acquire any entities during 2019.
Acquisition costs of approximately $0.3 million have been expensed
in 2020 in the Consolidated Statement of Operations within operating expenses.
The following table summarizes the preliminary fair values
of the assets acquired and liabilities assumed as of the acquisition:
Cash
|
|
$
|
-
|
|
Accounts receivable
|
|
|
5,094
|
|
Property and equipment
|
|
|
1,423
|
|
Other long-term assets
|
|
|
14
|
|
Intangible assets
|
|
|
3,491
|
|
Liabilities
|
|
|
(778
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
9,244
|
|
|
|
|
|
|
Consideration paid (cash and rollover equity)
|
|
$
|
10,500
|
|
Contingent earnout liability
at fair value (cash)
|
|
|
5,625
|
|
|
|
|
|
|
Total consideration
|
|
|
16,125
|
|
|
|
|
|
|
Excess consideration over
the preliminary amounts assigned to the net assets acquired (goodwill)
|
|
$
|
6,881
|
|
NOTE 5 – PROPERTY AND EQUIPMENT, NET
The Company depreciates its assets on a straight-line basis
over the assets’ useful lives, which range from 3 to 10 years. Property and equipment consist of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
Average
|
|
|
2020
|
|
|
2019
|
|
|
life
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
3,000
|
|
|
$
|
2,793
|
|
|
3-5 years
|
Equipment and vehicles
|
|
|
31,668
|
|
|
|
29,504
|
|
|
3-10 years
|
Computers
|
|
|
18,902
|
|
|
|
15,122
|
|
|
3 years
|
Leasehold improvements
|
|
|
5,047
|
|
|
|
4,936
|
|
|
3-5 years
|
Construction in Progress
|
|
|
79
|
|
|
|
2,503
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(42,750
|
)
|
|
|
(40,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,946
|
|
|
$
|
14,824
|
|
|
|
Property and equipment under capital leases:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
1,450
|
|
|
$
|
1,241
|
|
Less accumulated depreciation
|
|
|
(664
|
)
|
|
|
(557
|
)
|
|
|
$
|
786
|
|
|
$
|
684
|
|
Capital leases for computer equipment have an average lease
term of five years with minimum lease payments as follows:
2020 (nine months remaining)
|
|
$
|
329
|
|
2021
|
|
|
335
|
|
2022
|
|
|
334
|
|
2023
|
|
|
250
|
|
2024
|
|
|
73
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
1,321
|
|
Depreciation expense was approximately $1.4 million and $1.3
million for the quarters ended March 31, 2020 and 2019, respectively.
NOTE 6 – GOODWILL AND INTANGIBLES
The carrying amount, including changes therein,
of goodwill was as follows:
Balance as of December 31, 2019
|
|
$
|
85,125
|
|
Acquisitions
|
|
|
6,881
|
|
Disposals
|
|
|
-
|
|
Measurement period adjustments
|
|
|
-
|
|
Balance as of March 31, 2020
|
|
$
|
92,006
|
|
The Company did not recognize any impairments
of goodwill in the quarters ended March 31, 2020 or 2019.
Intangible assets as of March 31, 2020 and December
31, 2019 consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net book
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net book
|
|
|
useful life
|
|
|
|
amount
|
|
|
amortization
|
|
|
value
|
|
|
amount
|
|
|
amortization
|
|
|
value
|
|
|
(in years)
|
|
Definite life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
109,130
|
|
|
|
(26,300
|
)
|
|
$
|
82,830
|
|
|
$
|
106,620
|
|
|
|
(23,759
|
)
|
|
$
|
82,861
|
|
|
|
19.0
|
|
Tradenames
|
|
|
19,601
|
|
|
|
(10,326
|
)
|
|
|
9,275
|
|
|
|
18,620
|
|
|
|
(9,282
|
)
|
|
|
9,338
|
|
|
|
10.0
|
|
Non-competes
|
|
|
600
|
|
|
|
(457
|
)
|
|
|
143
|
|
|
|
600
|
|
|
|
(410
|
)
|
|
|
190
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
129,331
|
|
|
$
|
(37,083
|
)
|
|
$
|
92,248
|
|
|
$
|
125,840
|
|
|
$
|
(33,451
|
)
|
|
$
|
92,389
|
|
|
|
|
|
Amortization expense for the quarters ended March 31, 2020
and 2019 was $3.6 million and $3.9 million, respectively. Amortization of intangible assets for the next five years and thereafter
is expected to be as follows:
2020 (nine months remaining)
|
|
$
|
10,831
|
|
2021
|
|
|
11,860
|
|
2022
|
|
|
11,267
|
|
2023
|
|
|
10,978
|
|
2024
|
|
|
10,924
|
|
Thereafter
|
|
|
36,388
|
|
|
|
$
|
92,248
|
|
NOTE 7 – LONG-TERM DEBT
In October 2017, concurrent with the closing of the acquisition
of Moreland Altobelli Associates, LLC (“Moreland”), Atlas Intermediate obtained a bridge loan from Regions Bank in
the amount of $42.0 million. In November 2017, concurrent with the closing of the Consolidated Engineering Laboratories (“ETS”)
acquisition, Atlas Intermediate entered into a credit agreement with a group led by Regions Bank providing a term loan of $95.0
million and a revolving credit facility of $30.0 million secured by the assets owned by Atlas Intermediate. Proceeds from
the credit agreement were used to fund the acquisition of ETS, repayment of the bridge loan, and for a redemption of $15.2 million
of initial equity contributions made by the initial members once overall leverage amounts were determined. The credit agreement
is scheduled to mature in November 2022 with quarterly principal payments required beginning December 2017. Interest is compounded
based on the variable rate in effect.
ATC Group Partners (“ATC”) had
a business loan agreement (the “Loan Agreement”) maturing on January 29, 2020. The Loan Agreement included a revolving
credit facility that shall not exceed $45 million. Security for the loan was provided by a first-priority interest in substantially
all of ATC’s assets and a promissory note. Borrowings under the Loan Agreement bear interest at the one-month London Interbank
Offered Rate (LIBOR) plus a margin based on the total leverage ratio as defined in the Loan Agreement.
In March 2019, subsequent to the merger with ATC, the outstanding
balance on the Loan Agreement was paid in full and terminated, and the existing Atlas credit facility was amended to provide a
term loan of $145.0 million and a revolving credit facility of $50.0 million, in which $31.8 million was funded at closing (“Atlas
Credit Facility”). Proceeds of the Atlas Credit Facility were used to repay existing debt of $123.9 million and fund a shareholder
distribution of $52.8 million made in April 2019. The Atlas Credit Facility was secured by assets of Atlas Intermediate. The Atlas
Credit Facility requires quarterly principal payments of $2.719 million through March 31, 2023, and then $3.625 million until
the final maturity in March 2024, and bears interest at an annual rate of LIBOR plus a margin ranging from 275 to 425 basis points
determined by the Company’s Consolidated Leverage Ratio, as defined. For the interest payment made in the in the quarter
ended December 31, 2019, the applicable margin was 375 basis points and the total interest rate was 5.500%.
The Atlas Credit Facility was scheduled to
mature in March 2024. However, in connection with the consummation of the Atlas Business Combination, the Atlas Credit
Facility was repaid and a new credit arrangement (the “Atlas Credit Agreement”) was entered into with Macquarie
Capital (the “Lender” or “Lead Arranger”). The Atlas Credit Agreement called for a term loan (the
“Term Loan”) in the amount of $281.0 million and revolving letter of credit (the “Revolver”) in the
amount of $40.0 million of which $21.0 million was drawn upon through March 31, 2020. The term loan proceeds were used to
repay the existing Atlas Credit Facility in the amount of $171.0 million and partially fund the Atlas Business Combination
and the LONG acquisition.
Under the terms of the Atlas Credit Agreement, the Term Loan
and Revolver are set to expire on February 14, 2027 and February 14, 2025, respectively. Interest is payable monthly or at the
end of the applicable interest period in arrears on any outstanding borrowings. The interest rates under the Atlas Credit Facility
will be equal to either (i) Adjusted LIBOR as defined in the Credit Agreement, plus 4.75%, or (ii) an Alternate Base Rate as defined
in the Credit Agreement, plus 3.75%.
The Atlas Credit Agreement is guaranteed by Holdings and secured
by (i) a first priority pledge of the equity interests of subsidiaries of Holdings and Atlas Intermediate and (ii) a first priority
lien on substantially all other assets of Holdings, Atlas Intermediate and all of their direct and indirect subsidiaries.
On March 31, 2020, the terms of the Atlas
Credit Agreement were modified to reduce the maturity of the Term Loan by one year to February 14, 2026 from February 14, 2027.
The interest rate for the Term Loan was increased to (i) Adjusted LIBOR as defined in the Atlas Credit Agreement, plus 6.25%,
or (ii) an Alternate Base Rate as defined in the Atlas Credit Agreement, plus 5.25%. The interest rate for the Revolver was increased
to (i) Adjusted LIBOR as defined in the Atlas Credit Agreement, plus 5.0%, or (ii) an Alternate Base Rate as defined in the Credit
Agreement, plus 4.0%. The modification also increased rate of amortization applicable to the Term Loan to 5.0% per annum (commencing
on June 30, 2020).
The modifications to the Atlas Credit
Agreement resulted from the exercise of the market-flex rights by the lead arranger in connection with the syndication process,
which, in addition, required the payment of an upfront fee in an amount equal to 2% of the currently outstanding Term Loans, which
was paid subsequent to the balance sheet date. The market-flex rights were included in the Atlas Credit Agreement and were exercised
by the lead arranger upon completion of the time period allowed to complete a syndication process.
The Company has been in compliance with
the terms of the Atlas Credit Facility and Atlas Credit Agreement as of March 31, 2020 and December 31, 2019, respectively.
Long-term debt consisted of the following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlas credit facility - term loan
|
|
$
|
-
|
|
|
$
|
136,844
|
|
Atlas credit agreement - term loan
|
|
|
281,000
|
|
|
|
-
|
|
Atlas credit facility - revolving loan
|
|
|
|
|
|
|
34,300
|
|
Atlas credit agreement - revolving
|
|
|
21,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
302,000
|
|
|
|
171,144
|
|
|
|
|
|
|
|
|
|
|
Less: Loan costs, net
|
|
|
(11,637
|
)
|
|
|
(1,712
|
)
|
|
|
|
|
|
|
|
|
|
Less current maturities of long-term debt
|
|
|
(14,050
|
)
|
|
|
(10,875
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
276,313
|
|
|
$
|
158,557
|
|
Aggregate long-term
principal payments subsequent to March 31, 2020, are as follows (amounts in thousands):
2020 (nine months remaining)
|
|
$
|
10,538
|
|
2021
|
|
|
14,050
|
|
2022
|
|
|
14,050
|
|
2023
|
|
|
14,050
|
|
2024
|
|
|
14,050
|
|
Thereafter
|
|
|
235,262
|
|
|
|
$
|
302,000
|
|
NOTE 8- SHAREHOLDERS’ EQUITY
Shares Outstanding
Prior to the Atlas Business Combination, the
Company was a special purpose acquisition company with no operations, formed as a vehicle to affect a business combination with
one or more operating businesses. After the consummation of the Atlas Business Combination, the Company became a holding company
whose sole material operating asset consists of its interest in Atlas Intermediate.
The following table summarizes the changes in
the outstanding stock and warrants from the Closing Date through March 31, 2020:
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Warrants
|
|
|
Private
Placement
Warrants
|
|
Beginning Balance, as of Closing Date
|
|
|
5,767,342
|
|
|
|
23,974,368
|
|
|
|
20,000,000
|
|
|
|
3,750,000
|
|
Issuances
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Transfers to Class A from Class B
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares Outstanding at March 31, 2020
|
|
|
5,767,342
|
|
|
|
23,974,368
|
|
|
|
20,000,000
|
|
|
|
3,750,000
|
|
Class A Common Stock – At
March 31, 2020, there were 5,767,342 shares of Class A common stock issued and outstanding. Holders of the Company’s Class
A common stock are entitled to one vote for each share. The Company is authorized to issue 400,000,000 shares of Class A common
stock with a par value of $0.0001 per share.
Class B Common Stock – At
March 31, 2020, there were 23,974,368 shares of Class B common stock issued and outstanding. Class B common stock was issued to
the holders of Holding Units in Atlas Intermediate in connection with the Atlas Business Combination and are non-economic but entitle
the holder to one vote per share. The Company is not authorized to issue any additional shares of Class B common stock with a par
value of $0.0001 per share.
Public Warrants – In November
2018, the Company consummated its initial public offering of units, each consisting of one share of Class A common stock and one-half
of one warrant (“Public Warrant”). At March 31, 2020, there were 20,000,000 Public Warrants outstanding. Each Public
Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share. The Public Warrants will
expire five years after the closing of the Atlas Business Combination or earlier upon redemption or liquidation. The Company may
call the Public Warrants for redemption, in whole and not in part, at a price of $0.01 per warrant with not less than 30 days’
notice provided to the Public Warrant holders. However, this redemption right can only be exercised if the last sale price of the
Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-day trading period ending three business
days before we send the notice of redemption to the Public Warrant holders.
Private Placement Warrants –
Upon closing of the Boxwood initial public offering, the Sponsor purchased an aggregate of 3,750,000 warrants at a price of $1.00
per warrant (the “Private Placement Warrants”). Each Private Placement Warrant is exercisable for one share of Class
A common stock at a price of $11.50. The Private Placement Warrants are identical to the Public Warrants discussed above, except
(i) they will not be redeemable by the Company so long as they are held by the Sponsor and (ii) they may be exercisable by the
holders on a cashless basis. At March 31, 2020, there were 3,750,000 Private Placement Warrants outstanding.
Private Placement
In connection with the Company’s entry
into the Contribution Agreement, the Company agreed to issue and sell in a private placement an aggregate of 1,000,000 shares of
Class A common stock for a purchase price of $10.23 per share, and aggregate consideration of $10.2 million (the “Private
Placement”). The Private Placement was consummated concurrently with the Closing Date and the proceeds of the Private Placement
were used to fund a portion of the cash consideration paid to the Unit Holders.
Non-controlling Interest
The Company ownership and voting structure is
comprised of holders of our Class A common stock that participate 100% in the results of Atlas Technical Consultants, Inc. and
19.4% in Atlas Intermediate and its subsidiaries and holders of our Class B common stock that participate in the results of Atlas
Intermediate and its subsidiaries until their Class B common stock is converted to Class A common stock. The holders of our Class
B common stock participate in 80.6% of Atlas Intermediate and its subsidiaries. In connection with the Atlas Business Combination,
it was determined that the results of Atlas Intermediate and its subsidiaries would be fully consolidated within the results of
the Company.
Due to the participation of the holders of our
Class B common stock in the results of Atlas Intermediate and subsidiaries, a non-controlling interest was deemed to exist. Non-controlling
ownership interests in Atlas Intermediate and its subsidiaries are presented in the Consolidated Balance Sheet within shareholders’
equity as a separate component. In addition, consolidated net income includes earnings attributable to both the shareholders and
the non-controlling interests.
NOTE 9 – LOSS PER SHARE
The Atlas Business Combination was structured
as a reverse capitalization by which the Company issued stock for the net assets of Atlas Intermediate accompanied by a recapitalization.
Earnings per share is calculated for the Company only for periods after the Atlas Business Combination due to the reverse recapitalization.
(Loss) per share was calculated as follows:
|
|
Closing
Date
Through
March 31,
2020
|
|
Numerator:
|
|
|
|
Net (loss) post Atlas Business Combination
|
|
$
|
(2,522
|
)
|
Provision for non-controlling interest
|
|
|
3,260
|
|
Redeemable preferred stock dividends
|
|
|
(2,244
|
)
|
Net (loss) attributable to Class A common shares - basic and diluted
|
|
$
|
(1,506
|
)
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
5,767,342
|
|
|
|
|
|
|
Net (loss) per Class A common share, basic and diluted
|
|
$
|
(0.26
|
)
|
The Company had the following shares that were excluded from
the computation of diluted earnings per share because their inclusion would have been anti-dilutive for the periods presented
but could potentially dilute basic earnings per share in future periods:
|
|
Closing
Date
Through
March 31,
2020
|
|
Warrants
|
|
|
20,000,000
|
|
Private placement warrants
|
|
|
3,750,000
|
|
Total
|
|
|
23,750,000
|
|
The Class B common shares are excluded as these shareholders
do not share in the income of Atlas Technical Consultants, Inc. and represent a non-controlling interest in the results of Atlas
Intermediate and its subsidiaries.
NOTE 10 – EQUITY BASED COMPENSATION
In December 2017, Atlas Intermediate’s Parent granted
service-based Class A units to certain members of Atlas’ management. As of December 31, 2017, 1,000 units were authorized
and reserved for issuance with 504 granted in December 2017. The Class A units granted provide for service-based vesting annually
over 4 years from the grant date.
In April 2019, Atlas Intermediate’s Parent granted service-based
Class A units to certain members of Atlas’ management. As of January 1, 2019, 1,666 units were authorized and reserved for
issuance with 973.65 units granted as of December 31, 2019. The Class A units granted provide for service-based vesting annually
over 4 years from the grant date. The grant date fair value was determined using assumptions about the current waterfall expected
payout.
In connection with the Atlas Business Combination,
the outstanding shares were vested under the change of control provisions within the agreements. The shares are currently reflected
as Class B Common Shares and may be converted to Class A Common Shares as the lock-up agreements expire.
The following summarizes the activity of Class
A unit awards during the period ended December March 31, 2020:
|
|
Number of
unvested
Class A
units
|
|
|
Grant
date fair
value
|
|
Unvested Class A units as of December 31, 2019
|
|
|
1,226
|
|
|
$
|
12,117
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested and converted to Class B common stock
|
|
|
(1,226
|
)
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Unvested Class A units as of March 31, 2020
|
|
|
-
|
|
|
$
|
12,117
|
|
Equity compensation was $9,845 thousand and
$56 thousand for the quarters ended March 31, 2020 and 2019, respectively.
NOTE 11 – RELATED-PARTY TRANSACTIONS
During the quarters ended March 31, 2020 and
2019, the Company leased office space from former owners of acquired companies that became shareholders and/or officers of the
Company. The Company recognized lease expenses under these leases within the Statement of Operations in the amount of $160 thousand
and $161 thousand for the quarters ended March 31, 2020 and 2010, respectively.
During the quarter’s ended March 31, 2020
and 2019, the Company performed certain environmental consulting work for an affiliate of one of its principal shareholders or
members and collected fees related to these services in the amount of $53 thousand and $33 thousand, respectively.
On February 3, 2020, the Company entered into
a subscription agreement with SCST, Inc., a California corporation, pursuant to which it agreed to acquire 105,977 shares of Class
A common stock (the “SCST Stock”), for an aggregate purchase price of $1.1 million, in a private placement not registered
under the Securities Act, in reliance on the exemption from Registration provided by Section 4(a)(2) of the Securities Act and/or
Regulation D promulgated thereunder. The issuance of the SCST Stock was completed in connection with the Atlas Business Combination
and served to settle the contingent consideration to them as of December 31, 2019.
On February 14, 2020, the Company entered into
a non-interest bearing short-term loan with the former owners of Atlas Intermediate to purchase insurance contracts in the amount
of $1.4 million. The loan has not been repaid as of the date of these financial statements and is accounted for in Accrued Liabilities
within the Consolidated Balance Sheet.
NOTE 12 — EMPLOYEE BENEFIT PLANS
The Company maintains employee savings plans which allow for
voluntary contributions into designated investment funds by eligible employees. The Company may, at the discretion of its Board
of Managers, make additional contributions to these plans. Total contributions related to these plans made by the Company in 2019
and 2018 were $1.3 and $0.9 million, respectively.
NOTE 13 – DISCONTINUED OPERATIONS
In June 2017, ATC decided that it would wind down the operations
of its Power and Industrial (P&I) operation by the end of 2017 due to the loss of one of P&I’s major customers.
On December 27, 2017, ATC entered into an asset purchase agreement with a third party, which was the final step in finalizing
the terms of the shutdown of the P&I service line. ATC completed the sale during 2018 which resulted in an immaterial gain.
No other operations were discontinued from January 1, 2019 through December 31, 2019.
The P&I service line’s activity in the combined balance
sheet and combined statement of cash flows were not material. The loss from discontinued operations presented in the combined
statement of operations for the quarter ended March 31, 2020 and 2019 consisted of the following:
|
|
For the
quarter ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenues
|
|
|
-
|
|
|
|
-
|
|
Operating expenses
|
|
|
-
|
|
|
|
(149
|
)
|
Operating loss
|
|
|
-
|
|
|
|
(149
|
)
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
Other Income/(Expense)
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations
|
|
$
|
-
|
|
|
$
|
(149
|
)
|
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Company is subject to certain claims and lawsuits typically
filed against engineering companies, alleging primarily professional errors or omissions. The Company carries professional liability
insurance, subject to certain deductibles and policy limits, against such claims. 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 leases office space, laboratory facilities, and
automobiles under operating lease agreements and has options to renew most leases. These leases expire at varying dates through
2025. The Company also rents equipment on a job-by-job basis.
Future minimum payments under non-cancelable operating leases
as of March 31, 2020 are as follows:
2020 (nine months remaining)
|
|
$
|
8,709
|
|
2021
|
|
|
8,974
|
|
2022
|
|
|
6,478
|
|
2023
|
|
|
6,049
|
|
2024
|
|
|
3,031
|
|
Thereafter
|
|
|
3,860
|
|
|
|
$
|
37,101
|
|
Rental expense associated with facility and equipment operating
leases for the quarters ended March 31, 2020 and 2019 was $3.1 million and $2.7 million, respectively.
NOTE 15 – SUBSEQUENT EVENTS
In late 2019, a pneumonia like virus within
the Wuhan Province of China was reported to the World Health Organization (“WHO”). By January 30, 2020,
the outbreak was declared a “public health emergency of international concern” by the WHO and on February 11, 2020,
the WHO announced a name for this strain of coronavirus as COVID-19. On March 11, 2020, the WHO characterized the spread
of the virus as a pandemic. A U.S. National Emergency was declared on March 13, 2020 and a task force was assembled to deal
with the pandemic within the U.S.
There have been three financial responses from
the U.S. Government in addition to interest rate cuts by the U.S. Federal Reserve Board which were initially done to stabilize
the U.S. stock markets. They include: the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020,
the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief and Economic Security (CARES) Act of
2020.
The outbreak of communicable diseases, or the
perception that such an outbreak could occur, could result in a widespread public health crisis that could adversely affect the
U.S. economy and its financial markets, resulting in an economic downturn that could negatively impact the demand for our services.
Furthermore, uncertainty regarding the impact of any outbreak of pandemic or contagious disease, including COVID-19, could lead
to increased volatility in the markets in which we operate. The occurrence or continuation of any of these events could lead to
decreased revenues and limit our ability to execute on our business plan, which could adversely affect our business, financial
condition and results of operations.
Subsequent to the issuance of the date of the financial statements,
we reduced our workforce through various actions. As a safety focused organization, we have encouraged our employees to
work from home wherever possible and to honor all shelter in place rules put forth by their State or local governments.
We continue to monitor the credit quality and access to capital
for our non-governmental clients as this can be an indication of their ability to go forth with future projects and continue to
pay for contracted services. As an infrastructure company, the work we do is currently deemed essential by Federal, State
and local governments but any change from that designation could have a negative result on our business as well as our peers.
We are in compliance with our debt covenants as of March 31,
2020 and our models indicate that we will continue to be for the foreseeable.