Company Quick10K Filing
Select Interior Concepts
Price13.36 EPS0
Shares25 P/E178
MCap340 P/FCF17
Net Debt147 EBIT21
TEV487 TEV/EBIT23
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-21
10-K 2019-12-31 Filed 2020-03-12
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-13
S-1 2018-07-09 Public Filing
10-Q 2018-06-30 Filed 2018-09-06
8-K 2020-07-27 Officers, Exhibits
8-K 2020-06-30 Officers
8-K 2020-06-16
8-K 2020-06-09
8-K 2020-05-21
8-K 2020-05-05
8-K 2020-04-08
8-K 2020-03-16
8-K 2020-03-13
8-K 2020-03-12
8-K 2019-12-12
8-K 2019-11-21
8-K 2019-11-05
8-K 2019-08-19
8-K 2019-08-08
8-K 2019-07-12
8-K 2019-05-15
8-K 2019-05-13
8-K 2019-05-10
8-K 2019-03-20
8-K 2019-03-15
8-K 2019-03-01
8-K 2019-02-06
8-K 2018-12-31
8-K 2018-11-13
8-K 2018-11-13
8-K 2018-09-06
8-K 2018-08-31
8-K 2018-08-13

SIC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Note 1. Organization and Business Description
Note 2. Summary of Significant Accounting Policies
Note 3. Revenue
Note 4. Concentrations, Risks and Uncertainties
Note 5. Acquisitions
Note 6. Inventories
Note 7. Property and Equipment
Note 8. Goodwill and Intangible Assets
Note 9. Lines of Credit
Note 10. Long - Term Debt
Note 11. Commitments and Contingencies
Note 12. Stock Compensation
Note 13. Provision for Income Taxes
Note 14. Related Party Transactions
Note 15. Segment Information
Note 16. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 ck1723866-ex101_18.htm
EX-10.2 ck1723866-ex102_17.htm
EX-10.3 ck1723866-ex103_15.htm
EX-10.4 ck1723866-ex104_16.htm
EX-31.1 ck1723866-ex311_11.htm
EX-31.2 ck1723866-ex312_8.htm
EX-32.1 ck1723866-ex321_9.htm
EX-32.2 ck1723866-ex322_6.htm

Select Interior Concepts Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
4353482611748702016201720182020
Assets, Equity
160127956230-12016201720182020
Rev, G Profit, Net Income
20112-7-16-252016201720182020
Ops, Inv, Fin

10-Q 1 ck1723866-10q_20200331.htm 10-Q ck1723866-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 001-38632

 

SELECT INTERIOR CONCEPTS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-4640296

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

400 Galleria Parkway, Suite 1760

Atlanta, Georgia

30339

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (888) 701-4737

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share

 

SIC

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of May 13, 2020, the registrant had 25,322,974 shares of Class A common stock, par value $0.01 per share, outstanding.

 

 

 


SELECT INTERIOR CONCEPTS, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2020

 

 

Table of Contents

 

 

 

Page No.

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets (Unaudited)

1

 

Condensed Consolidated Statements of Operations (Unaudited)

2

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

3

 

Consolidated Statements of Changes in Equity (Unaudited)

4

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Select Interior Concepts, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

(in thousands, except share data)

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

36,929

 

 

$

5,002

 

Accounts receivable, net of allowance for doubtful accounts of $1,092 and $849 at

   March 31, 2020 and December 31, 2019, respectively

 

 

59,958

 

 

 

63,419

 

Inventories

 

 

106,895

 

 

 

104,741

 

Prepaid expenses and other current assets

 

 

10,381

 

 

 

11,083

 

Income taxes receivable

 

 

4,437

 

 

 

2,184

 

Total current assets

 

 

218,600

 

 

 

186,429

 

Property and equipment, net of accumulated depreciation of $23,326 and $21,020 at

   March 31, 2020 and December 31, 2019, respectively

 

 

26,485

 

 

 

26,494

 

Deferred tax assets, net

 

 

10,222

 

 

 

10,550

 

Goodwill

 

 

99,789

 

 

 

99,789

 

Customer relationships, net of accumulated amortization of $50,573 and $48,251 at

   March 31, 2020 and December 31, 2019, respectively

 

 

69,667

 

 

 

71,989

 

Intangible assets, net of accumulated amortization of $8,332 and $7,471 at

   March 31, 2020 and December 31, 2019, respectively

 

 

17,898

 

 

 

18,759

 

Other assets

 

 

5,328

 

 

 

6,265

 

Total assets

 

$

447,989

 

 

$

420,275

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

46,904

 

 

$

42,734

 

Accrued expenses and other current liabilities

 

 

19,115

 

 

 

16,661

 

Customer deposits

 

 

9,101

 

 

 

8,627

 

Current portion of long-term debt, net of financing fees of $586 and $511 at

   March 31, 2020 and December 31, 2019, respectively

 

 

954

 

 

 

11,749

 

Current portion of capital lease obligations

 

 

2,639

 

 

 

2,395

 

Total current liabilities

 

 

78,713

 

 

 

82,166

 

Line of credit

 

 

48,830

 

 

 

21,871

 

Long-term debt, net of current portion and financing fees of $1,123 and $1,107 at

   March 31, 2020 and December 31, 2019, respectively

 

 

151,559

 

 

 

141,299

 

Long-term capital lease obligations

 

 

6,720

 

 

 

6,907

 

Other long-term liabilities

 

 

5,352

 

 

 

6,757

 

Total liabilities

 

$

291,174

 

 

$

259,000

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share; 100,000,000 shares authorized;

   25,422,258 shares issued and 25,305,505 outstanding at March 31, 2020 and

   25,139,542 shares issued and 25,106,402 outstanding at December 31, 2019

 

 

254

 

 

 

251

 

Treasury stock, 116,753 shares at March 31, 2020 and 33,140 shares at

   December 31, 2019, at cost

 

 

(1,046

)

 

 

(391

)

Additional paid-in capital

 

 

161,590

 

 

 

161,396

 

Retained earnings (accumulated deficit)

 

 

(3,983

)

 

 

19

 

Total stockholders' equity

 

$

156,815

 

 

$

161,275

 

Total liabilities and stockholders' equity

 

$

447,989

 

 

$

420,275

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


Select Interior Concepts, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

For the Three Months Ended March 31,

 

(in thousands, except share data)

 

2020

 

 

2019

 

Revenues, net

 

$

134,378

 

 

$

136,920

 

Cost of revenues

 

 

103,684

 

 

 

98,187

 

Gross profit

 

 

30,694

 

 

 

38,733

 

Selling, general and administrative expenses

 

 

32,667

 

 

 

35,467

 

Income (loss) from operations

 

 

(1,973

)

 

 

3,266

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

3,895

 

 

 

4,329

 

Other (income) expense, net

 

 

1,377

 

 

 

(1,715

)

Total other expense, net

 

 

5,272

 

 

 

2,614

 

Income (loss) before provision (benefit) for income taxes

 

 

(7,245

)

 

 

652

 

Provision (benefit) for income taxes

 

 

(3,243

)

 

 

525

 

Net income (loss)

 

$

(4,002

)

 

$

127

 

Earnings (loss) per share of common stock

 

 

 

 

 

 

 

 

Basic common stock

 

$

(0.16

)

 

$

0.00

 

Diluted common stock

 

$

(0.16

)

 

$

0.00

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic common stock

 

 

25,192,201

 

 

 

25,766,260

 

Diluted common stock

 

 

25,192,201

 

 

 

25,826,120

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


Select Interior Concepts, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Cash flows provided by operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(4,002

)

 

$

127

 

Adjustments to reconcile net income (loss) to net cash provided by operating

activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,644

 

 

 

6,249

 

Change in fair value of earn-out liabilities

 

 

 

 

 

(1,522

)

Equity-based compensation

 

 

(669

)

 

 

558

 

Deferred expense from income taxes

 

 

328

 

 

 

 

Amortized interest on deferred debt issuance costs

 

 

164

 

 

 

178

 

Increase in allowance for doubtful accounts

 

 

243

 

 

 

21

 

Gain on disposal of property and equipment, net

 

 

(5

)

 

 

(11

)

Other

 

 

(65

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,219

 

 

 

2,335

 

Inventories

 

 

(2,154

)

 

 

235

 

Prepaid expenses and other current assets

 

 

68

 

 

 

(887

)

Other assets

 

 

(441

)

 

 

73

 

Accounts payable

 

 

3,983

 

 

 

2,282

 

Accrued expenses and other current liabilities

 

 

3,292

 

 

 

897

 

Income taxes receivable

 

 

(2,252

)

 

 

428

 

Customer deposit

 

 

474

 

 

 

(530

)

Other long-term liabilities

 

 

 

 

 

118

 

Net cash provided by operating activities

 

 

7,827

 

 

 

10,551

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,371

)

 

 

(1,880

)

Proceeds from disposal of property and equipment

 

 

15

 

 

 

9

 

Acquisition of Intown Design, Inc.

 

 

 

 

 

(10,662

)

Escrow release payment related to acquisition of Greencraft Holdings, LLC

 

 

 

 

 

(3,000

)

Acquisition of Elegant Home Design, LLC (Indemnity payment in 2019)

 

 

 

 

 

(1,000

)

Net cash used in investing activities

 

 

(1,356

)

 

 

(16,533

)

Cash flows provided by financing activities

 

 

 

 

 

 

 

 

Proceeds from ERP financing

 

 

376

 

 

 

 

Proceeds from (payments on) line of credit, net

 

 

26,934

 

 

 

(7,119

)

Proceeds from term loan

 

 

 

 

 

11,500

 

Term loan deferred issuance costs

 

 

(230

)

 

 

 

Purchase of treasury stock

 

 

(655

)

 

 

 

Payments on notes payable and capital leases

 

 

(705

)

 

 

(388

)

Principal payments on long-term debt

 

 

(264

)

 

 

(263

)

Net cash provided by financing activities

 

 

25,456

 

 

 

3,730

 

Net increase (decrease) in cash

 

$

31,927

 

 

$

(2,252

)

Cash (and restricted cash in 2019), beginning of period

 

 

5,002

 

 

 

9,362

 

Cash, end of period

 

$

36,929

 

 

$

7,110

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,585

 

 

$

3,916

 

Cash paid for income taxes

 

$

59

 

 

$

1

 

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

 

 

 

Acquisition of equipment and vehicles with long-term debt and capital leases

 

$

581

 

 

$

1,003

 

Earn-out estimate for Intown Design, Inc.

 

$

 

 

$

2,468

 

Accrued purchase price true-up liability related to Intown Design, Inc.

 

$

 

 

$

844

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

Select Interior Concepts, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity (Unaudited)

 

(in thousands, except share data)

 

Class A

Common

Stock Shares

 

 

Class A

Common

Stock

 

 

Treasury

Stock,

at Cost

 

 

Total

Additional

Paid-in

Capital

 

 

Total

Retained Earnings

(Accumulated Deficit)

 

 

Total

 

Balance as of December 31, 2018

 

 

25,682,669

 

 

 

257

 

 

 

 

 

 

156,601

 

 

 

(8,164

)

 

 

148,694

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

558

 

 

 

 

 

 

558

 

Issuance of Class A common stock due to restricted

   stock vesting

 

 

138,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

127

 

 

 

127

 

Balance as of March 31, 2019

 

 

25,821,224

 

 

$

257

 

 

$

 

 

$

157,159

 

 

$

(8,037

)

 

$

149,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

25,139,542

 

 

 

251

 

 

 

(391

)

 

 

161,396

 

 

 

19

 

 

 

161,275

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

(669

)

 

 

 

 

 

(669

)

Issuance of Class A common stock awards

 

 

69,377

 

 

 

1

 

 

 

 

 

 

863

 

 

 

 

 

 

864

 

Issuance of Class A common stock due to restricted

   stock vesting

 

 

213,339

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Repurchase of Class A common stock

 

 

 

 

 

 

 

 

(655

)

 

 

 

 

 

 

 

 

(655

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,002

)

 

 

(4,002

)

Balance as of March 31, 2020

 

 

25,422,258

 

 

 

254

 

 

$

(1,046

)

 

$

161,590

 

 

$

(3,983

)

 

$

156,815

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Select Interior Concepts, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Organization and Business Description

These financial statements reflect the consolidated operations of Select Interior Concepts, Inc. (“SIC” or the “Company”).

SIC is a Delaware corporation that was restructured in November 2017 to be a holding company through which to consolidate diversified building products and services companies.  Through its two primary operating subsidiaries and segments, Residential Design Services (“RDS”) and Architectural Surfaces Group (“ASG”), the Company imports and distributes natural and engineered stone slabs for kitchen and bathroom countertops, operates design centers that merchandise interior products, and provides installation services. RDS interior product offerings include flooring, cabinets, countertops and wall tile.  RDS operates throughout the United States, including in California, Nevada, Arizona, Texas, Virginia, Maryland, North Carolina, and Georgia.  ASG has operations in the Northeast, Southeast, Southwest, Midwest, Mountain West, and West Coast regions of the United States.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting.  Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  As such, the information included in these unaudited interim financial statements and condensed notes should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The condensed consolidated balance sheet as of December 31, 2019 included herein has been derived from the Company’s audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The condensed consolidated financial statements include the accounts of SIC, its wholly owned subsidiaries, RDS and ASG, and their respective wholly-owned subsidiaries, and are presented in accordance with GAAP.  All significant intercompany accounts and transactions have been eliminated in combination.  References to the “ASC” hereafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2020.

There have been no changes to our significant accounting policies described in our consolidated financial statements and related disclosures as of December 31, 2019 that have had a material impact on our condensed consolidated financial statements and related notes.

Earnings (Loss) per Share of Common Stock

Basic earnings (loss) per share for the three months ended March 31, 2020 and 2019 are computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings per share for common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the dilutive effect of restricted stock-based awards using the treasury stock method. The following table sets forth the computation of basic and diluted earnings/(loss) per share for the three months ended March 31, 2020 and 2019:

 

 

Three Months Ended

 

 

Three Months Ended

 

(in thousands, except share data)

 

March 31, 2020

 

 

March 31, 2019

 

Net (loss) income

 

$

(4,002

)

 

$

127

 

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

Basic common stock outstanding

 

 

25,192,201

 

 

 

25,766,260

 

Diluted common stock outstanding

 

 

25,192,201

 

 

 

25,826,120

 

(Loss) earnings per share of common stock:

 

 

 

 

 

 

 

 

Basic common stock outstanding

 

$

(0.16

)

 

$

0.00

 

Diluted common stock outstanding

 

$

(0.16

)

 

$

0.00

 

5


 

All restricted stock awards outstanding consisting of 1,478,251 shares of restricted stock at March 31, 2020 were excluded from the computation of diluted earnings per share in the three months ended March 31, 2020 because the Company reported a net loss and the effect of inclusion would have been antidilutive.  

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingencies, and reported revenues and expenses as of and for periods ended on the date of the consolidated financial statements. Actual results may vary materially from the estimates that were used. The Company’s significant accounting estimates include the determination of allowances for doubtful accounts, the lives and methods for recording depreciation and amortization on property and equipment, the fair value of reporting units and indefinite life intangible assets, deferred income taxes and the purchase price allocations used in the Company’s acquisitions.

Fair Value Measurement

ASC 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.

The three levels of the fair value hierarchy are as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2—Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3—Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The level of the fair value hierarchy in which the fair value measurement falls is determined by the lowest level input that is significant to the fair value measurement.

The Company records contingent consideration, or earn-outs, associated with certain acquisitions.  These earn-outs are adjusted to fair value at each reporting period and any change to fair value based on a change in certain factors, such as the discount rate or estimates for the outcome of specified milestone goals, will result in an adjustment to the fair value of the liability. These adjustments will be recorded to income/expense as a measurement period adjustment.  

The earn-out liability associated with the acquisition of Summit Stoneworks, LLC (“Summit”) in August 2018 was reduced to zero as of December 31, 2019 and is no longer a Level 3 fair value estimate as the underlying inputs are now known and the earn-out target criteria were not met. An adjustment reducing the fair value of the earn-out by $1.4 million was recorded as other income for the three months ended March 31, 2019.

The earn-out liability associated with the acquisition of T.A.C. Ceramic Tile Co, LLC (“TAC”) in December 2018 was reduced to zero as of December 31, 2019 and is no longer a Level 3 fair value estimate as the underlying inputs are now known and the earn-out target criteria were not met. An adjustment reducing the fair value of the earn-out by $0.3 million was recorded as other income for the three months ended March 31, 2019.

The earn-out liability associated with the acquisition of Intown Design, Inc., Intown Granite of Charlotte, Inc., and Granitec, LLC, (collectively, “Intown”) in March 2019 had a recorded fair value of zero at March 31, 2020 and December 31, 2019.  The earn-out liability is no longer a Level 3 fair value estimate as of March 31, 2020, as the underlying inputs are now known and the earn-out target criteria were not met.  No adjustments to fair value were recorded in other income/expense for the three months ending March 31, 2020 or 2019.

At March 31, 2020 and December 31, 2019, the carrying value of the Company’s cash, accounts receivable, accounts payable, and short-term obligations approximate their respective fair values because of the short maturities of these instruments. The recorded values of the line of credit, term loans, and notes payable approximate their fair values, as interest rates approximate market rates.

6


 

There were no transfers during the three months ended March 31, 2020, other than the Intown earn-out liability out of Level 3 due to the availability of observable and known inputs to calculate the fair value of the liability as of March 31, 2020.

Intangible Assets

Intangible assets consist of customer relationships, trade names and non-compete agreements. The Company considers all its intangible assets to have definite lives, and such intangible assets are being amortized on the straight-line method over the estimated useful lives of the respective assets or on an accelerated basis based on the expected cash flows generated by the existing customers as follows:

 

 

Range of estimated

useful lives

 

Weighted average

useful life

Customer relationships

 

2 years – 15 years

 

10 years

Trade names

 

3 years – 11 years

 

8 years

Non-compete agreements

 

Life of agreement

 

4 years

Business Combinations

The Company records business combinations using the acquisition method of accounting. Under the acquisition method of accounting, identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities.  Measurement period adjustments are reflected in the period in which they occur.

Impairment of Long-Lived Assets

The Company reviews the recoverability of its long-lived assets, such as property and equipment and intangible assets, whenever events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable, or at least annually. The assessment for possible impairment is based on the Company’s ability to recover the carrying value of the asset or asset group from the expected future undiscounted cash flows of the related operations. If the aggregate of these cash flows is less than the carrying value of such assets, an impairment loss is recognized for the difference between the estimated fair value and the carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. There were no impairment losses on long-lived assets for the periods ended March 31, 2020 or December 31, 2019.

Goodwill

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets, including intangible assets. Goodwill is tested annually for impairment on December 31.  Impairment indicators existed as of March 31, 2020 surrounding the decrease in the Company’s stock price, significant adverse changes in the business climate and other macroeconomic conditions. The Company performed a goodwill impairment test as of March 31, 2020. The Company identified RDS and ASG as reporting units and determined each reporting unit’s fair value exceeded such reporting unit’s carrying value. There were no impairment charges related to goodwill for the three months ended March 31, 2020.  

The Company estimates the fair value for each reporting unit based on discounted cash flow projections and market values for comparable businesses.  Estimating fair value utilizing discounted expected future cash flows includes uncertainties which require significant judgment when making assumptions of expected revenues, cost of revenues, operating expenses, capital expenditures, rationalization activities and working capital changes, among other factors. The principal assumptions used by the Company in the discounted cash flow model are the projected operating results and the estimated weighted-average cost of capital.  Under the market value approach, market multiples are derived from market prices of stocks of other comparable companies to apply to annual earnings estimates to obtain an estimated fair value.  As of March 31, 2020, the ASG and RDS reporting unit had allocated goodwill of $45.6 million and $54.2 million, respectively.  The estimated fair value exceeded the carrying value of the ASG and RDS reporting units by approximately 2% and 8%, respectively.  As such, if future cash flows for these reporting units do not achieve expected results or market conditions continue to decline, an adjustment to fair value estimates of the reporting units may result in carrying value exceeding fair value and the need to further evaluate for a potential goodwill impairment charge.

Revenue Recognition

The Company’s revenue derived from the sale of imported granite, marble, and related items, primarily in our ASG operating segment, is recognized at a point in time when control over a product is transferred to a customer. This transfer occurs primarily when goods are picked up by a customer at the branch or when goods are delivered to a customer location.

7


 

The Company’s contracts with its home builder customers within our RDS operating segment are usually short-term in nature and will generally range in length from several days to several weeks. The Company’s contracts related to multi-family and commercial projects are generally long-term in nature.  We recognize revenue from both short-term and long-term contracts for each distinct performance obligation identified over time on a percentage-of-completion basis of accounting, utilizing the output method as a measure of progress, as we believe this represents the best measure of when goods and services are transferred to the customer.  

Revenue is measured at the transaction price, which is based on the amount of consideration the Company expects to receive in exchange for transferring the promised goods or services to the customer. The transaction price includes estimates of variable consideration, such as any returns and sales incentives. Applicable customer sales taxes, when remitted, are recorded as a liability and excluded from revenue on a net basis. Customer payments may be due in advance of contract work performed, at the time the performance obligation is completed, or with payment terms following performance completion of generally 30-60 days.

In the fourth quarter of 2019, the Company adopted ASU 2014-09, the new accounting standard under ASC Topic 606, using the modified retrospective method as of January 1, 2019.  The results for the three months ended March 31, 2019 have not been adjusted to reflect the adoption of ASU 2014-09.  (See Note 3).  

Shipping and Handling Charges

Fees charged to customers for shipping and handling of product are included in revenues. The costs for shipping and handling of product are recorded as a component of cost of revenue.  Additionally, we consider shipping and handling costs charged to a customer as a fulfillment cost rather than a promised service and expense as incurred.

Equity-based Compensation

The Company accounts for equity-based awards by measuring the awards at the date of grant and recognizing the grant-date fair value as an expense using either straight-line or accelerated attribution, depending on the specific terms of the award agreements over the requisite service period, which is usually equivalent to the vesting period. See Note 12 for further discussion.

Segment Reporting

In accordance with ASC 280-10-50-1, an operating segment is a component of an entity that has all of the following characteristics:

 

a.

It engages in business activities from which it may earn revenues and incur expenses;

 

b.

Its discrete financial information is available; and

 

c.

Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

The Company has identified two operating segments that meet all three of the above criteria, RDS and ASG. Each of these operating segments provides products and services that generate revenue and incur expenses as it engages in business activities, and each maintains discrete financial information. Additionally, the Company’s chief operating decision maker, its Chief Executive Officer, reviews financial performance, approves budgets and allocates resources at each of the RDS and ASG operating segment levels.

Recently Issued and Adopted Accounting Pronouncements

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”). The JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 107 of the JOBS Act. This election allows the Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance, such as the real estate, construction, and software industries. The ASU core principal is to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. During 2014-2016, the FASB issued various amendments to this topic and the amendments clarified certain positions and extended the implementation date until annual periods beginning after December 15, 2018.  During the quarter ended December 31, 2019, the Company adopted this guidance on a modified

8


 

retrospective basis. For contracts which were not completed as of January 1, 2019, revenue related to our short-term contracts with homebuilder customers, primarily in our RDS operating segment, are now recognized over time based on the extent of progress towards completion of the individual performance obligations, instead of under the completed contract method, because of continuous transfer of control to the customer.  There was no material impact on our revenue recognition for our multi-family contracts that are currently recognized under the existing percentage-of-completion method of accounting, due to the comparable methodology of revenue recognition under the updated guidance. There was also no material impact from adoption related to our sales of imported granite, marble, and related items of our ASG operating segment, as the Company has concluded that it has substantially similar performance obligations and recognition timing under the amended guidance.  We recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings on January 1, 2019 of approximately $1.2 million. (See Note 3).  

In January 2017, the FASB issued ASU 2017-01, Business Combination (Topic 805)—Clarifying the Definition of a Business. This ASU provides additional guidance in regards to evaluating whether a transaction should be treated as an asset acquisition (or disposal) or a business combination. Particularly, the amendments to this ASU provide that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This clarification reduces the number of transactions that need further evaluation for business combination. The Company adopted this standard on January 1, 2019 in evaluating acquisitions.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework (ASU 2018-13). The updated guidance improves the disclosure requirements for fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous standards. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of asset not to recognize lease assets and lease liabilities. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates which delays the effective date of ASU 2016-02 until fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.  The Company is currently evaluating the impact of the provisions of ASU 2016-02 on the presentation of its consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” (ASU 2016-03) which amends ASC 326 “Financial Instruments—Credit Losses.”  Subsequent to the issuance of ASU 2016-13, ASC 326 was amended by various updates that amend and clarify the impact and implementation of the aforementioned update.  The new guidance introduces the current expected credit loss (CECL) model, which will require an entity to record an allowance for credit losses for certain financial instruments and financial assets, including trade receivables, based on expected losses rather than incurred losses.  Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates which delays the effective date of ASU 2016-13 until fiscal years beginning after December 15, 2021.  The Company is currently evaluating the impact of the provisions of ASU 2016-13 on the presentation of its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the goodwill impairment test by eliminating the step 2 requirement to determine the fair value of its assets and liabilities at the impairment testing date. ASU 2017-04 is effective for annual periods beginning after December 15, 2021. The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) No. 2018-15 Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). ASU 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. ASU 2018-15 is effective for fiscal years beginning after December 15, 2020.  Early adoption of the amendments in ASU 2018-15 is permitted, including adoption in any interim period, for all entities. The amendments in ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the effect this guidance may have on its consolidated financial statements.

9


 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” which amends ASC 740 “Income Taxes” (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021.  The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted.  The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.

 

Note 3. Revenue

The Company’s revenue derived from the sale of imported granite, marble, and related items, primarily in our ASG operating segment, is recognized at a point in time when control over a product is transferred to a customer. This transfer occurs primarily when goods are picked up by a customer at the branch or when goods are delivered to a customer location.

The Company’s contracts with its home builder customers within our RDS operating segment are usually short-term in nature and will generally range in length from several days to several weeks.  The Company’s contracts related to multi-family and commercial projects are generally long-term in nature. We recognize revenue from both short-term and long-term contracts for each distinct performance obligation identified over time on a percentage-of-completion basis of accounting, utilizing the output method as a measure of progress, as we believe this represents the best measure of when goods and services are transferred to the customer.  

In the fourth quarter of 2019, the Company adopted ASU 2014-09, the new accounting standard under ASC Topic 606, using the modified retrospective method as of January 1, 2019.  The results for the three months ended March 31, 2019 have not been adjusted to reflect the adoption of ASU 2014-09.  The impact of adoption of ASU 2014-09 was less than $0.1 million and not material to net revenue for the three months ended March 31, 2020.  

Contract Balances

The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, revenue in excess of billings, customer deposits, and billings in excess of revenue recognized in the Company’s Consolidated Balance Sheets.

Contract assets

The Company’s contract assets consist of unbilled amounts typically resulting from sales under contracts when the revenue recognized exceeds the amount billed to the customer, generally in the RDS operating segment revenues derived from homebuilders and commercial and multifamily projects. Contract assets are recorded in other current assets in the Company’s Consolidated Balance Sheets.  The Company had contract assets of $5.8 million and $5.7 million as of March 31, 2020 and December 31, 2019, respectively.  The Company’s contract assets generally become unconditional and are reclassified to receivables in the quarter subsequent to each balance sheet date.

Contract liabilities

The Company records contract liabilities when it receives payment prior to fulfilling a performance obligation or has billings in excess of revenue recognized. Contract liabilities related to revenues are recorded in customer deposits in the Company’s Consolidated Balance Sheets. The Company had total contract liabilities of $9.1 million and $8.6 million as of March 31, 2020 and December 31, 2019, respectively.  Contract liabilities are normally recognized to net sales within three to six months subsequent to each balance sheet date.

Remaining Performance Obligations

Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period, and relate primarily to multi-family or commercial revenue.  For the three-months ended March 31, 2020 and 2019, multi-family and commercial projects accounted for approximately 2.8% and 1.8% of the Company’s combined revenues, respectively.  As of March 31, 2020 and December 31, 2019, the aggregate amount of the transaction price allocated to remaining uncompleted contracts was $3.8 and $4.5 million, respectively. The Company expects to satisfy remaining performance obligations and recognize revenue on substantially all of these uncompleted contracts over the next 12 months.  The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Revenue from contracts with customers is disaggregated differently for each reporting segment as this is how management evaluates the nature, amount, timing and uncertainty of revenue and cash flows as affected by economic factors.  RDS operating segment revenues are disaggregated by geographic area within the United States. ASG operating segment revenues are disaggregated by product category.

10


 

The following table presents net revenue for the RDS operating segment disaggregated by geographical area for the three months ended March 31, 2020:

 

RDS

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

%

 

East

 

$

19,100

 

 

 

24

%

Central

 

 

4,900

 

 

 

6

%

West

 

 

55,350

 

 

 

70

%

 

 

$

79,350

 

 

 

100

%

 

The East consists of Virginia, Maryland, North Carolina and Georgia; the Central consists of Texas, and the West consists of California, Nevada and Arizona.

The following table presents net revenue for the ASG operating segment disaggregated by product category for the three months ended March 31, 2020:

 

ASG

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

%

 

Quartz

 

$

32,636

 

 

 

59

%

Stone

 

 

17,037

 

 

 

30

%

Tile

 

 

3,762

 

 

 

7

%

Other

 

 

2,108

 

 

 

4

%

 

 

$

55,543

 

 

 

100

%

 

 

Note 4. Concentrations, Risks and Uncertainties

The Company maintains cash balances primarily at one commercial bank. The accounts are insured by the Federal Deposit Insurance Corporation up to $0.25 million. The amounts held in financial institutions periodically exceed the federally insured limit. Management believes that the financial institutions are financially sound and the risk of loss is minimal.

Credit is extended for some customers and is based on financial condition, and generally, collateral is not required. Credit losses are included in the consolidated financial statements and consistently have been within management’s expectations.

For the three months ended March 31, 2020, there were no customers which accounted for 10.0% or more of the Company’s total revenues.  For the three months ended March 31, 2019, the Company recognized revenues from one customer which accounted for 10.0% of the Company’s total revenues. There were no customers which accounted for 10.0% or more of total accounts receivable as of March 31, 2020 or December 31, 2019.

Note 5. Acquisitions

Intown Acquisition

On March 1, 2019, RDS acquired the assets of Intown Design, Inc., Intown Granite of Charlotte, Inc., and Granitec, LLC, (collectively, “Intown”), an installer of residential and light commercial countertops and cabinets, for total cash consideration of $10.7 million at closing and an additional $0.8 million of purchase price adjustments that were funded in June 2019.  The purchase agreement also provides for potential earn-out consideration to the former shareholders of Intown in connection with the achievement of certain 2019 and 2020 financial milestones. The final earn-out payment has no maximum limit, but if certain targets are not met, there may be no earn-out payment. The contingent earn-out consideration had an estimated purchase price fair value of $2.0 million as of March 31, 2019.  As of December 31, 2019, the fair value of the earn-out was reduced to zero.  The earn-out targets were not met during the earn-out period which concluded during the three months ended March 31, 2020, and no consideration was paid for the earn-out.  

11


 

The upfront cash paid for the Intown acquisition was financed with additional borrowings from the Company’s third-party financing agreement described in Note 10. The Intown acquisition was accounted for under the acquisition method of accounting, and the assets acquired and liabilities assumed, including identifiable intangible assets, were recorded based on their respective fair values as of the acquisition date.  The total purchase price consisted of the following:

 

(in thousands)

 

Amount

 

Cash consideration

 

$

11,537

 

Fair value of earn-out

 

 

2,010

 

 

 

$

13,547

 

 

RDS acquired Intown to further diversify RDS’ geographic mix and channel strength.  The goodwill recorded reflects the strategic value of the acquisition beyond the net value of its assets acquired less liabilities assumed. Goodwill of $0.1 million is deductible for tax purposes.

The Company incurred approximately $0.4 million in direct acquisition costs, all of which were expensed as incurred, and are included in general and administrative expenses in the consolidated statements of operations.  The Company has performed a valuation of the acquired assets and assumed liabilities of Intown. Using the total consideration for the acquisition, the Company has performed an allocation of such assets and liabilities. The following table summarizes the allocation of the purchase price as of the transaction’s closing date.

 

(in thousands)

 

Amount

 

Accounts receivable

 

$

1,392

 

Inventory

 

 

1,155

 

Property and equipment

 

 

1,092

 

Goodwill

 

 

4,698

 

Other intangible assets

 

 

5,310

 

Total assets acquired

 

$

13,647

 

Total liabilities

 

 

100

 

Total consideration

 

$

13,547

 

 

From the date of acquisition to March 31, 2019, Intown generated revenue of $1.7 million and net loss of $0.2 million, which are included in the Company’s Condensed Consolidated Statements of Operations.  For the three months ended March 31, 2020, Intown generated revenue of $3.8 million and a net loss of $0.5 million.  

 

Pro Forma Results

The following unaudited pro forma information for the three months ended March 31, 2019 has been prepared to give effect to the acquisition of Intown as if the acquisition had occurred on January 1, 2019. The pro forma information takes into account the preliminary purchase price allocation. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the Intown acquisition occurred on such date, nor does it purport to predict the results of operations for future periods.

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

(in thousands)

 

(unaudited)

 

Pro Forma:

 

 

 

 

Total revenue

 

$

139,772

 

Net loss

 

$

(37

)

 

Our pro forma assumptions are as follows:

 

Revenues and costs of sales were based on actual results for the three months ended March 31, 2019.

 

General and administrative expenses were based on actual results adjusted by $0.1 million for the three months ended March 31, 2019 for the impact of the amortization expense of the intangible assets acquired with the acquisition.

12


 

 

Actual interest expense was adjusted by $0.2 million for the three months ended March 31, 2019 for the imputed interest on the acquired debt issued to fund the acquisition.

 

Income taxes were adjusted to impute the Company’s corporate rate during the period on the pro forma income before taxes.

Note 6. Inventories

Inventories are valued at the lower of cost (using specific identification and first-in first-out methods) or net realizable value. The significant components of inventory were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Raw materials

 

$

103,840

 

 

$

102,438

 

Installations in process

 

 

3,055

 

 

 

2,303

 

 

 

$

106,895

 

 

$

104,741

 

 

Note 7. Property and Equipment

Property and equipment consisted of the following:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Vehicles

 

$

10,893

 

 

$

10,759

 

Machinery and equipment

 

 

9,756

 

 

 

9,672

 

Leasehold improvements

 

 

8,982

 

 

 

8,962

 

Furniture and fixtures

 

 

7,101

 

 

 

6,906

 

Computer equipment and internal-use software

 

 

10,932

 

 

 

10,167

 

Other

 

 

2,147

 

 

 

1,048

 

 

 

 

49,811

 

 

 

47,514

 

Less: accumulated depreciation and amortization

 

 

(23,326

)

 

 

(21,020

)

Property and equipment, net

 

$

26,485

 

 

$

26,494

 

 

Depreciation and amortization expense of property and equipment totaled $2.5 million and $2.0 million for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020, $1.0 million and $1.5 million of depreciation expense was included in cost of goods sold and general and administrative expense, respectively. For the three months ended March 31, 2019, $0.9 million and $1.1 million of depreciation expense was included in cost of goods sold and general and administrative expense, respectively.

Note 8. Goodwill and Intangible Assets

Goodwill

The carrying amount of goodwill by reportable segment is as follows:

 

(in thousands)

 

ASG

 

 

RDS

 

 

Total

Goodwill

 

March 31, 2020

 

$

45,564

 

 

$

54,225

 

 

$

99,789

 

 

13


 

Intangible Assets

The following table provides the gross carrying amount, accumulated amortization and net book value by reportable segment for each class of intangible assets as of March 31, 2020:

 

(in thousands)

 

ASG

 

 

RDS

 

 

Total Gross

Carrying

Amount

 

Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

60,180

 

 

$

60,060

 

 

$

120,240

 

Trade names

 

 

7,740

 

 

 

18,090

 

 

 

25,830

 

Non-compete agreements

 

 

50

 

 

 

350

 

 

 

400

 

 

 

$

67,970

 

 

$

78,500

 

 

$

146,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

ASG

 

 

RDS

 

 

Total

Accumulated

Amortization

 

Accumulated Amortization

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

(20,944

)

 

$

(29,629

)

 

$

(50,573

)

Trade names

 

 

(2,510

)

 

 

(5,642

)

 

 

(8,152

)

Non-compete agreements

 

 

(24

)

 

 

(156

)

 

 

(180

)

 

 

$

(23,478

)

 

$

(35,427

)

 

$

(58,905

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

ASG

 

 

RDS

 

 

Total Net

Book

Value

 

Net Book Value

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

39,236

 

 

$

30,431

 

 

$

69,667

 

Trade names

 

 

5,230

 

 

 

12,448

 

 

 

17,678

 

Non-compete agreements

 

 

26

 

 

 

194

 

 

 

220

 

 

 

$

44,492

 

 

$

43,073

 

 

$

87,565

 

 

14


 

The following table provides the gross carrying amount, accumulated amortization and net book value by reportable segment for each class of intangible assets as of December 31, 2019:

 

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