What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-11 · 145 added, 81 removed, 181 unchanged (56% of the section changed)

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Our historical financial information may not be indicative of our future performance.

We provide consulting, managed services, and professional workforce solutions to our client partners in a variety of industries through our various divisions in IT, Cyber, Finance & Accounting, Managed Services, and Real Estate (apartment communities and commercial buildings).

We have continuing operations in two industry segments:

Real Estate and Professional.

We currently operate primarily within the United States of America, across 46 states and D.C., and within Colombia and India.

We provide consulting, managed services, and professional workforce solutions to a variety of industries through our various divisions in information technology (“IT”) , Finance & Accounting, Managed Services, and Real Estate (apartment communities and commercial buildings).

On March 21, 2022, we sold substantially all of the assets and certain liabilities of InStaff to Sentech Engineering Services, Inc.

(“Sentech”) for a sale price of approximately $30.3 million cash at closing and an additional $2 million one year following the date of the acquisition.

for a sale price of approximately $30.3 million cash at closing and an additional $2 million one year following the date of the acquisition.

See “Note 4 — Discontinued Operations” of our unaudited consolidated financial statements.

On December 12, 2022, we acquired substantially all of the assets, and assumed certain of the liabilities of Horn Solutions, Inc.

and Horn Solutions Dallas, LLC (collectively “Horn Solutions”).

and Horn Solutions Dallas, LLC (collectively “Horn Solutions”), which offers consulting, project loan staff, interim staff, direct hire, and managed services.

At closing, we exercised the option to borrow $40 million in a second amendment to the Credit Agreement with BMO Harris Bank, N.A.

See “Note 3 — Acquisitions” of our our unaudited consolidated financial statements.

In connection with the Horn Solutions acquisition on December 12, 2022, we borrowed $40 million in a second amendment to the Credit Agreement with BMO Harris Bank, N.A.

(“BMO”), that bears interest either at the Base Rate plus the Applicable Margin or Adjusted Term Secured Overnight Financing Rate ("SOFR") plus the Applicable Margin.

See “Note 9 — Debt” of our our unaudited consolidated financial statements.

On April 24, 2023, we acquired substantially all of the assets and assumed certain of the liabilities of Arroyo Consulting, LLC ("Arroyo Consulting"), which is a nearshore/offshore workforce solutions firm that specializes in IT and software development with operations in the United States, Columbia, and India.

See “Note 16 — Subsequent Events” of our our unaudited consolidated financial statements.

At closing, $6.8 million of the closing price was paid from available funds under our credit agreement with BMO.

On April 24, 2023, we acquired substantially all of the assets and assumed certain of the liabilities of Arroyo Consulting, LLC (“Arroyo Consulting ” ), which is a nearshore and offshore workforce solutions firm that specializes in IT and software development with operations in the United States, Colombia, and India.

At closing, $6.8 million of the closing price was paid with proceeds from our Credit Agreement with BMO.

See “Note 3 — Acquisitions” of our our unaudited consolidated financial statements.

We currently operate primarily within the United States of America in our Real Estate and Professional segments.

Our Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 37 states and D.C., via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.

Our Professional segment provides specialized talent and business consultants on a nationwide basis for IT, finance, accounting, legal, and human resources.

The Professional segment operates through three divisions, Information Technology, Managed Services, and Finance and Accounting.

Our Professional segment provides specialized talent and business consultants on a nationwide basis for IT, managed services, finance, accounting, legal, and human resources.

The Professional segment operates through three divisions, IT, Managed Services, and Finance & Accounting.

Our business normally experiences seasonal fluctuations.

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The following tables summarize key components of our results for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our unaudited consolidated financial statements.

Thirteen Weeks Ended

2023 March 27,

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

(dollars in thousands)

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Depreciation and amortization 1,940 922 3,696 1,821

Operating (loss) income (20,730) 2,815

Operating income (loss) 5,050 4,239 (15,679) 7,055

Interest expense, net (1,502) (69) (2,703) (343)

(Loss) income from continuing operations before income taxes (21,930) 2,542

Income tax benefit (expense) from continuing operations 5,464 (534)

(Loss) income from continuing operations (16,466) 2,008

Income (loss) from continuing operations before income taxes 3,548 4,170 (18,382) 6,712

Income tax (expense) benefit from continuing operations (944) (986) 4,520 (1,521)

Income (loss) from continuing operations 2,604 3,184 (13,862) 5,191

Income from discontinued operations:

Income — — — 1,235

Gain on sale — 17,273

(Loss) gain on sale — (8) — 17,266

Income tax expense — — — (4,716)

Net (loss) income $ (16,466) $ 15,800

Thirteen Weeks Ended

2023 March 27,

Net income (loss) $ 2,604 $ 3,176 $ (13,862) $ 18,976

Thirteen Weeks Ended Twenty-six Weeks Ended

2023 June 26,

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

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Depreciation and amortization 2.4 % 1.2 % 2.4 % 1.3 %

Operating (loss) income (27.5) % 4.1 %

Operating income (loss) 6.3 % 5.7 % (10.0) % 4.9 %

Interest expense, net (1.9) % (0.1) % (1.7) % (0.2) %

(Loss) income from continuing operations before income taxes (29.1) % 3.7 %

Income tax benefit (expense) from continuing operations 7.3 % (0.8) %

(Loss) income from continuing operations (21.9) % 2.9 %

Thirteen Week Fiscal Period Ended April 2, 2023 (“Fiscal 2023”) Compared with Thirteen Week Fiscal Period Ended March 27, 2022 (“Fiscal 2022”)

Income (loss) from continuing operations before income taxes 4.4 % 5.6 % (11.8) % 4.7 %

Income tax (expense) benefit from continuing operations (1.2) % (1.3) % 2.9 % (1.1) %

Income (loss) from continuing operations 3.2 % 4.3 % (8.9) % 3.6 %

Thirteen Week Fiscal Period Ended July 2, 2023 (“Fiscal 2023”) Compared with Thirteen Week Fiscal Period Ended June 26, 2022 (“Fiscal 2022”)

Thirteen Weeks Ended

2023 March 27,

2023 June 26,

(dollars in thousands)

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Real Estate revenues increased approximately $1.1 million (3.6%).

The increase was driven by a 13.0% increase in average bill rate, offset by 3.0% decrease in billed hours.

The increase was primarily driven by an increase in average billing rates.

Professional Revenues :

Professional revenues were up $5.6 million (12.7%).

Horn Solutions contributed $6.8 million in revenue while the remaining Professional business declined $2.5 million (5.9%) versus the prior year.

Horn Solutions and Arroyo Consulting contributed a total of $10.5 million, while the remaining Professional business declined $4.9 million (11.0%) versus the prior year.

Gross Profit:

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Thirteen Weeks Ended

2023 March 27,

2023 June 26,

(dollars in thousands)

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Thirteen Weeks Ended

2023 March 27,

2023 June 26,

Gross Profit Percentage by segment:

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Real Estate Gross Profit:

Real Estate gross profit increased approximately $1.4 million (13.8%) in line with the increase in revenue, and a 17.3% increase in average spread.

Real Estate gross profit increased approximately $1.1 million (9.3%) driven by a 3.6% increase in revenue and gross profit margin expansion of 210 bps.

Professional Gross Profit:

Professional gross profit increased approximately $3.4 million (25.5%).

Horn Solutions contributed $3.0 million in gross profit while the remaining Professional business declined $1.0 million (7.3%).

Horn Solutions and Arroyo Consulting contributed a total of $4.5 million in gross profit, while the remaining Professional business decreased approximately $1.0 million (7.5%).

Selling, General and Administrative Expenses:

Selling, general and administrative expenses ("SGA") increased $3.5 million versus the prior year.

Selling, general and administrative expenses increased $2.7 million versus the prior year.

While selling expenses are not separated from general and administrative expenses in the expense categories below, total selling expenses increased $2.6 million (approximately 96% of the $2.7 million increase) versus the prior year.

Total selling expenses included $2.2 million related to Horn Solutions.

Acquisition transaction fees increased $0.3 million versus the prior year.

Total selling expenses included $2.6 million related to Horn Solutions and Arroyo Consulting.

Acquisition transaction fees increased $0.4 million and workers’ compensation loss retention return increased $0.4 million over the prior year quarter.

Thirteen Weeks Ended

2023 March 27,

2023 June 26,

Amount % of Revenue Amount % of Revenue $

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Transaction fees 435 1 % 10 — % 425 — %

Workers' compensation loss retention return (491) (1) % (117) — % (374) — %

Other 619 1 % 611 1 % 8 1 %

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Depreciation and Amortization:

Depreciation and amortization charges increased $0.9 million primarily due to amortization of intangible assets created by the Horn Solutions acquisition.

Depreciation and amortization charges increased $1.0 million primarily due to amortization of intangible assets created by the Horn Solutions and Arroyo Consulting acquisitions.

Interest Expense, net:

Interest expense, net increased $1.4 million primarily due to higher debt related to the Horn Solutions and Arroyo Consulting acquisitions and higher interest rates.

Income tax was consistent with prior year quarter primarily due to higher effective tax rates from greater state taxes which were offset by lower pre-tax income in Fiscal 2023.

Twenty-six Week Fiscal Period Ended July 2, 2023 (“Fiscal 2023”) Compared with Twenty-six Week Fiscal Period Ended June 26, 2022 (“Fiscal 2022”)

Twenty-six Weeks Ended

2023 June 26,

(dollars in thousands)

Revenues by segment:

Real Estate $ 59,477 38.1 % $ 55,896 39.2 %

Professional 96,639 61.9 % 86,735 60.8 %

Total Revenues $ 156,116 100.0 % $ 142,631 100.0 %

Real Estate Revenues :

Real Estate revenues increased approximately $3.6 million (6.4%).

The increase was primarily driven by an increase in average billing rates.

Professional Revenues :

Professional revenues increased approximately $9.9 million (11.4%), as new revenue from Horn Solutions and Arroyo Consulting contributed $17.3 million of new revenues offset by a $7.4 million decline in the core Professional segment.

Gross Profit:

Gross profit represents revenues from workforce solutions less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.

Twenty-six Weeks Ended

2023 June 26,

(dollars in thousands)

Gross Profit by segment:

Real Estate $ 23,999 42.6 % $ 21,545 44.4 %

Professional 32,359 57.4 % 26,945 55.6 %

Total Gross Profit $ 56,358 100.0 % $ 48,490 100.0 %

Twenty-six Weeks Ended

2023 June 26,

Gross Profit Percentage by segment:

Real Estate 40.3 % 38.5 %

Professional 33.5 % 31.1 %

Company Gross Profit 36.1 % 34.0 %

Overall, our gross profit increased approximately $7.9 million (16.2%).

As a percentage of revenue, gross profit has increased to 36.1% from 34.0%, with both segments contributing to the increase.

We determine spread as the difference between bill rate and pay rate.

Real Estate Gross Profit:

Real Estate gross profit increased approximately $2.5 million (11.4%) driven by 6.4% increase in revenue and gross profit margin expansion of 190 bps.

Professional Gross Profit:

Professional gross profit increased approximately $5.4 million (20.1%).

Horn Solutions and Arroyo Consulting contributed a total of $7.4 million in gross profit offset by a $2.0 million (7.5%) decline in the core Professional segment.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased $6.2 million versus the prior year.

While selling expenses are not separated from general and administrative expenses in the expense categories below, total selling expenses increased $5.4 million (approximately 87% of the $6.2 million increase) versus the prior year.

Total selling expense increase included $4.9 million related to Horn Solutions and Arroyo Consulting.

Acquisition transaction fees increased $0.8 million and workers’ compensation loss retention return increased $0.4 million over the prior year quarter.

Twenty-six Weeks Ended

2023 June 26,

Amount % of Revenue Amount % of Revenue $

(dollars in thousands)

Compensation and related $ 35,692 23 % $ 30,839 22 % $ 4,853 16 %

Advertising and recruitment 1,198 1 % 971 1 % 228 23 %

Occupancy and office operations 1,582 1 % 1,387 1 % 196 14 %

Travel, meals and entertainment 729 1 % 427 — % 302 71 %

Software 2,718 2 % 2,636 2 % 82 3 %

Liability insurance 538 — % 486 — % 52 11 %

Professional fees 898 1 % 979 1 % (82) (8) %

Public company related costs 408 — % 360 — % 48 13 %

Bad debt 321 — % 133 — % 188 141 %

Share-based compensation 436 — % 454 — % (18) (4) %

Transaction Fees 753 1 % — — % 753 — %

Workers’ compensation loss retention return

(491) — % (117) — % (374) 320 %

Other 1,014 1 % 1,059 1 % (46) (4) %

Total $ 45,796 29 % $ 39,614 28 % $ 6,182 16 %

Impairment losses:

At the February 2023 Board of Directors meeting, managements's plan to rebrand as BGSF was approved, which will eliminate the use of various trade names.

The decision to rebrand created an impairment of $22.5 million in trade names, which was written-off during Fiscal 2023.

At the February 2023 Board of Directors meeting, managements's plan to rebrand as BGSF was approved, which eliminated the use of various trade names.

The decision to rebrand created an impairment of $22.5 million in trade names, which were written-off during Fiscal 2023.

Depreciation and Amortization:

Depreciation and amortization charges increased approximately $1.9 million (103.0%).

The increase in depreciation and amortization is primarily due to the amortization of intangible assets related to the Horn Solutions and Arroyo Consulting acquisitions.

Interest Expense, net:

Interest expense, net increased $0.9 million primarily due to debt related to the Horn Solutions acquisition, higher interest rates, and a higher average balance on the Revolving Facility (as defined below).

We recorded a tax benefit of approximately $5.5 million, primarily due to impairment losses on trade names versus a tax expense of approximately 0.5% million in 2022.

Interest expense, net increased approximately $2.4 million primarily due to the increased debt balances related to the Horn Solutions and Arroyo Consulting acquisitions and higher interest rates.

Income Tax Expense:

We recorded a tax benefit of approximately $4.5 million primarily due to impairments losses on the trade names in the first quarter versus a tax expense of $1.5 million in 2022.

Use of Non-GAAP Financial Measures

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Omitting interest, taxes, and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures.

Since the levels of indebtedness and tax structures that other companies

have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons.

Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons.

Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets.

We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry.

Adjusted EBITDA should not be considered as an alternative to net (loss) income from continuing operations for the periods indicated as a measure of our performance.

Adjusted EBITDA should not be considered as an alternative to net income (loss) from continuing operations for the periods indicated as a measure of our performance.

Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net (loss) income.

Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities.

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and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.

To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net (loss) income from continuing operations the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table.

All of the items included in the reconciliation from net (loss) income from continuing operations to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance.

To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income (loss) from continuing operations the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table.

All of the items included in the reconciliation from net income (loss) from continuing operations to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance.

In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance.

In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect ongoing operating performance.

Thirteen Weeks Ended Trailing Twelve Months Ended

2023 March 27,

2022 April 2,

Thirteen Weeks Ended Twenty-six Weeks Ended Trailing Twelve Months Ended

2023 June 26,

(dollars in thousands)

(Loss) Income from continuing operations $ (16,466) $ 2,008 $ (7,002)

Income tax (benefit) expense from continuing operations (5,464) 534 (2,553)

Income (loss) from continuing operations $ 2,604 $ 3,184 $ (13,862) $ 5,191 $ (7,481)

Income tax expense (benefit) from continuing operations 944 986 (4,520) 1,521 (2,286)

Interest expense, net 1,502 69 2,703 343 3,772

Operating (loss) income (20,730) 2,815 (7,266)

Operating income (loss) 5,050 4,239 (15,679) 7,055 (5,995)

Depreciation and amortization 1,940 922 3,696 1,821 5,929

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Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends, and contingent consideration and debt payments.

We believe that the cash generated from

operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new markets throughout the next year.

We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new markets throughout the next year.

Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control.

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Working capital $ 40,753 $ 47,955

Thirteen Weeks Ended

2023 March 27,

Twenty-six Weeks Ended

2023 June 26,

(dollars in thousands)

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Operating Activities

Cash provided by operating activities consists of net (loss) income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense, impairment losses, and the effect of working capital changes.

The primary drivers of cash inflows and outflows are accounts receivable, accrued payroll and expenses, and income taxes payable.

During Fiscal 2023, net cash provided by continuing operating activities was $3.9 million an increase of $5.0 million compared with net cash used in continuing operating activities of $1.1 million for Fiscal 2022.

This increase is primarily attributable to payments received on account receivable, and prior year payments of deferred employer FICA for the CARES Act in other current liabilities, partially offset by a decrease in income taxes payable.

Cash provided by operating activities consists of net income (loss)adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense, impairment losses, and the effect of working capital changes.

The primary drivers of cash inflows and outflows are accounts receivable, accrued payroll and expenses, and other current assets.

During Fiscal 2023, net cash provided by continuing operating activities was $12.5 million, an increase of $11.3 million compared with net cash provided by continuing operating activities of $1.2 million for Fiscal 2022.

This increase is primarily attributable to payments received on account receivable, Sentech deferred consideration received on other current assets, partially offset by decreased payments in accrued payroll and expenses.

Investing Activities

Cash used in investing activities consists primarily of cash paid for businesses acquired, cash received for businesses sold, and capital expenditures.

In Fiscal 2023, we made capital expenditures of $0.7 primarily related to continued information technology improvements.

In Fiscal 2022, we received $30.3 million in connection to the sale of InStaff and made capital expenditures of $2.1 related to the information technology improvement project.

In Fiscal 2023, we paid $6.8 million for the acquisition of Arroyo Consulting and we made capital expenditures of $1.5 million primarily related to continued information technology improvements.

In Fiscal 2022, we received $30.3 million in connection to the sale of InStaff and we made capital expenditures of $3.5 million mainly related to the information technology improvement project.

Financing Activities

Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement and payment of dividends.

For Fiscal 2023, we disbursed $1.6 million in cash dividends on our common stock, we paid down $1.0 million on the Term Loan, and reduced our Revolving Facility $0.6 million.

For Fiscal 2022, we paid down $26.9 million on the Term Loan, disbursed $1.6 million in cash dividends on our common stock, and made payments of $1.1 million of contingent consideration related to the Momentum acquisition.

We borrowed $1.4 million on our Revolving Facility for increased working capital needs.

For Fiscal 2023, we disbursed $3.2 million in cash dividends on our common stock, we paid down $2.0 million on the Term Loan, we made payments of $1.1 million of contingent consideration related to the Momentum acquisition, and borrowed our Revolving Facility $2.4 million for increased operating needs.

For Fiscal 2022, we paid down $26.9 million on the Term Loan, we disbursed $3.1 million in cash dividends on our common stock, we made payments of $1.1 million of contingent consideration related to the Momentum acquisition, and borrowed $4.9 million on our Revolving Facility for increased working capital needs.

Credit Agreements

On July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, led by BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender.

On July 16, 2019, we entered into a Credit Agreement, as amended (the “Credit Agreement”), maturing July 16, 2024, led by BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender.

The Credit Agreement provides for the Revolving Facility permitting us to borrow funds from time to time in an aggregate amount up to $35.0 million.

The Credit Agreement also provided for a term loan commitment (the “Term Loan”) permitting us to borrow funds from time to time in an aggregate amount not to exceed $30.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded and repaid.

We also had the option to request an increase in in the aggregate Term Loan by $40 million, which was done in connection with the Horn Solutions acquisition.

We also had the option to request an increase in the aggregate Term Loan by $40.0 million, which was done in connection with the Horn Solutions acquisition.

Our obligations under the Second Credit Amendment are secured by a first priority security interest in substantially all our tangible and intangible property.

The Credit Agreement bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin through August 17, 2022 (as such terms are defined in the Credit Agreement).

We pay an unused commitment fee on the daily average unused amount of Revolving Facility.

On August 18, 2022, we entered into an amendment to the Credit Agreement (as amended, the “Amended Credit Agreement”) which changed the interest rate component from LIBOR to the SOFR, plus the Applicable Margin.

In connection with the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions” of our unaudited consolidated financial statements), we borrowed $40 million, as noted above, pursuant to a second amendment to the credit agreement (“Second Credit Amendment”).

Our obligations under the Second Credit Amendment are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.

The Second Credit Amendment bears interest either at the Base Rate plus the Applicable Margin or Adjusted Term SOFR plus the Applicable Margin (as such terms are defined in the Second Credit Amendment), with 2.5% of the original principal balance of the New Term Loan payable on the last business day of each quarter, beginning on March 31, 2023.

At closing of the Arroyo Consulting acquisition, $6.8 million of the closing price was paid from available funds under our credit agreement with BMO.

The Second Credit Amendment contains customary affirmative and negative covenants.

We are subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Second Credit Amendment.

We were in compliance with these covenants as of April 2, 2023.

On August 18, 2022, we entered into an amendment to the Credit Agreement with BMO, which changed the interest rate component from LIBOR to the Secured Overnight Financing Rate (“SOFR”), plus the Applicable Margin (as such terms are defined in the amended credit agreement).

In connection with the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”), we exercised the option to borrow $40.0 million, as noted above, pursuant to a second amendment to the Credit Agreement (“Second Credit Amendment”).

The Second Credit Amendment requires 2.5% of the original principal balance of the New Term Loan payable on the last business day of each quarter, beginning on March 31, 2023.

We are subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the amended Second Credit Amendment).

On April 24, 2023, in connection with the acquisition of Arroyo Consulting, we entered into a Third Amendment to the Credit Agreement (“Third Credit Amendment”) with BMO.

The Third Credit Amendment revised language to permit an acquisition of a foreign entity under certain circumstances and modified the terms of permitted distributions and guarantors.

On May 19, 2023, we entered into a Fourth Amendment to the Credit Agreement (“Fourth Credit Amendment”) and increased the Revolving Facility by $6.0 million to an aggregate amount up to $41.0 million.

We were in compliance with the customary affirmative and negative covenants as of July 2, 2023.

Off-Balance Sheet Arrangements

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In March 2020, in conjunction with the EdgeRock acquisition, we entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments.

As of April 2, 2023, we had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against our Revolving Facility.

As of July 2, 2023, we had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against our Revolving Facility.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis