Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations from continuing operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. See “Forward-Looking Statements” in this Annual Report on Form 10-K. These forward-looking statements are subject to risks, uncertainties and other factors including those described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Our actual results of operations may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K. Financial information provided is based on the results of our continuing operations. Please refer to “Note 4 — Discontinued Operations” of our audited consolidated financial statements for information regarding our discontinued operations.
Our historical financial information may not be indicative of our future performance.
Company Overview
We provide workforce solutions to our client partners in a variety of industries through our various divisions in IT, Finance & Accounting, Managed Solutions, and Property Management (apartment communities and commercial buildings) and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff in June 2013, D&W in March 2015, VTS in October 2015, Zycron in April 2017, Smart in September 2017, and LJK in December 2019, 100% of the equity of EdgeRock in February 2020, Momentum Solutionz in February 2021, Horn Solutions in 2022, and Arroyo Consulting in 2023. We have continuing operations in two industry segments Property Management and Professional, and had discontinued operations in the Light Industrial segment. We primarily operate within the United States of America.
On March 21, 2022, we sold substantially all of the assets and certain liabilities of InStaff to Sentech Engineering Services, Inc. The Light Industrial segment provided field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce. The InStaff financial results for periods prior to the sale have been reflected in our Consolidated Statements of Operations and Comprehensive (Loss) Income and Consolidated Statements of Cash Flows as discontinued operations. See “Note 4 — Discontinued Operations” of our audited consolidated financial statements for information regarding our discontinued operations.
The Property Management segment provides office and maintenance talent in 38 states and D.C., to property management companies responsible for the apartment communities’ and commercial buildings’ day-to-day operations.
The Professional segment provides specialized talent and business consultants for information technology (“IT”), managed services, finance, accounting, legal and human resource. The segment operates across the U.S. in three divisions, IT, Managed Solutions, and Finance & Accounting, with the IT division providing additional nearshore and offshore solutions in Colombia and India.
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Results of Operations
The following tables summarize key components of our results from continuing operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our consolidated financial statements.
Fiscal Year Ended
December 31,
2023 January 1,
2023 December 26,
2021
(dollars in thousands)
Revenues $ 313,167 $ 298,422 $ 239,027
Cost of services 201,383 194,874 158,086
Gross Profit 111,784 103,548 80,941
Selling, general and administrative expenses 88,650 83,211 65,116
Gain on contingent consideration — — (2,403)
Impairment losses 22,545 — —
Depreciation and amortization 7,774 4,054 3,698
Operating (loss) income (7,185) 16,283 14,530
Interest expense, net 5,976 1,363 1,433
(Loss) income from continuing operations before income taxes (13,161) 14,920 13,097
Income tax benefit (expense) from continuing operations 2,938 (3,659) (2,639)
(Loss) income from continuing operations (10,223) 11,261 10,458
Income from discontinued operations:
Income — 1,235 4,570
Gain on sale — 17,675 —
Income tax expense — (4,810) (919)
Net (loss) income $ (10,223) $ 25,361 $ 14,109
Fiscal Year Ended
December 31,
2023 January 1,
2023 December 26,
2021
Revenues 100.0 % 100.0 % 100.0 %
Cost of services 64.3 65.3 66.1
Gross Profit 35.7 34.7 33.9
Selling, general and administrative expenses 28.3 27.8 27.2
Gain on contingent consideration — — (1.0)
Impairment losses 7.2 — —
Depreciation and amortization 2.5 1.4 1.5
Operating (loss) income (2.3) 5.5 6.1
Interest expense, net 1.9 0.5 0.6
(Loss) income from continuing operations before income taxes (4.2) 5.0 5.5
Income tax benefit (expense) from continuing operations 0.9 (1.2) (1.1)
(Loss) income from continuing operations (3.3) % 3.8 % 4.4 %
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Fifty-two Week Fiscal Year Ended December 31, 2023 (Fiscal 2023) Compared with Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022)
Revenues:
Fiscal Year Ended
December 31,
2023 January 1,
2023
(dollars in thousands)
Revenues by Segment:
Property Management $ 125,077 39.9 % $ 121,093 40.6 %
Professional 188,090 60.1 % 177,329 59.4 %
Total Revenues $ 313,167 100.0 % $ 298,422 100.0 %
Property Management Revenues : Property Management revenues increased approximately $4.0 million (3.3%), primarily due to an 8.5% increase in average bill rate.
Professional Revenues : Professional revenues increased approximately $10.8 million (6.1%). The 2023 Arroyo Consulting acquisition contributed $14.8 million of new revenues. The Horn Solutions acquisition, which was integrated with the organic business, added revenue that was not enough to offset the decline in the existing professional business. Horn Solutions and the existing professional business declined $4.1 million (2.3%), primarily due to fewer hours billed and lower permanent placement revenue.
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.
Fiscal Year Ended
December 31,
2023 January 1,
2023
(dollars in thousands)
Gross Profit by Segment:
Property Management $ 49,785 44.5 % $ 47,695 46.1 %
Professional 61,999 55.5 % 55,853 53.9 %
Total Gross Profit $ 111,784 100.0 % $ 103,548 100.0 %
Fiscal Year Ended
December 31,
2023 January 1,
2023
Gross Profit Percentage by Segment:
Property Management 39.8 % 39.4 %
Professional 33.0 % 31.5 %
Company Gross Profit Percentage 35.7 % 34.7 %
Total gross profit increased approximately $8.2 million (8.0%). As a percentage of revenue, gross profit has increased to 35.7% from 34.7%, with both segments contributing to the increase.
Property Management Gross Profit: Property Management gross profit increased approximately $2.1 million (4.4%), consistent with a 3.3% increase in revenues, partially offset by lower permanent placement revenue, which has no cost of services.
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Professional Gross Profit: Professional gross profit increased approximately $6.1 million (11.0%). The Arroyo Consulting acquisition contributed $5.1 million in gross profit. The Horn Solutions acquisition, which was integrated with the organic business, added growth to offset the decline experienced in the existing professional business.
Selling, General and Administrative Expenses: Selling, general and administrative (“SGA”) expenses increased $5.4 million (6.5%) versus prior year. The overall increase slightly outpaced revenue growth adding 40 bps to total SGA expense as a percent of revenue. Acquisition transaction fees increased $0.7 million over the prior year.
Fiscal Year Ended
December 31,
2023 January 1,
2023
Amount % of Revenue Amount % of Revenue $
Change %
Change
(dollars in thousands)
Compensation and related $ 68,536 21.9 % $ 64,782 21.7 % $ 3,754 5.8 %
Advertising and recruitment 2,111 0.7 % 1,987 0.7 % 124 6.2 %
Occupancy and office operations 3,310 1.1 % 2,773 0.9 % 537 19.4 %
Travel, meals and entertainment 1,349 0.4 % 1,044 0.3 % 305 29.2 %
Software 5,339 1.7 % 5,751 1.9 % (412) (7.2) %
Liability insurance 1,140 0.4 % 991 0.3 % 149 15.0 %
Professional fees 1,413 0.5 % 1,647 0.6 % (234) (14.2) %
Public company related costs 851 0.3 % 734 0.2 % 117 15.9 %
Bad debt 798 0.3 % 315 0.1 % 483 153.3 %
Share-based compensation 1,029 0.3 % 1,085 0.4 % (56) (5.2) %
Transaction fees 974 0.3 % 271 0.1 % 703 259.4 %
Workers’ compensation loss retention return (491) (0.2) % (117) — % (374) 319.7 %
Other 2,291 0.7 % 1,948 0.7 % 343 17.6 %
Total $ 88,650 28.3 % $ 83,211 27.9 % $ 5,439 6.5 %
Impairment losses: In Fiscal 2023, managements’s plan to eliminate the use of various trade names was approved by the Board of Directors. The decision to rebrand as BGSF created a $22.5 million write-off in trade names.
Depreciation and Amortization: Depreciation and amortization charges increased $3.7 million (91.8%). The increase in deprecation and amortization is primarily due to the amortization of intangible assets related to the 2022 Horn Solutions acquisition and the 2023 Arroyo Consulting acquisition.
Interest Expense, net: Interest expense, net increased $4.6 million primarily due to the increased debt balances related to the 2022 Horn Solutions acquisition, the 2023 Arroyo Consulting acquisition, and higher interest rates.
Income Taxes: We recorded a tax benefit of approximately $2.9 million primarily due impairment losses on the trade names in the first quarter versus a tax expense of $3.7 million in 2022.
Non-GAAP Same Day Revenues: Same Day Revenues are defined as a fifty-three week fiscal year ended January 1, 2023 (Fiscal 2022) revenues less five revenue days. The Fiscal 2022 revenues of $298.4 million would be less $5.9 million for five revenue days resulting in Same Day Revenues of $292.5 million. Same Day Revenues increased $20.7 million (7.1%) to $313.2 million in Fiscal 2023. Same Day Revenues and GAAP revenues were equal for Fiscal 2023.
Non-GAAP Same Day Gross Profit: Same Day Gross Profit is defined as a fifty-three week fiscal year ended January 1, 2023 (Fiscal 2022) gross profit less five gross profit days. The Fiscal 2022 gross profit of $103.5 million would be less $2.1 million for five gross profit days resulting in Same Day Gross Profit of $101.5 million. Same Day Gross Profit increased $10.3 million (10.2%) to $111.8 million in Fiscal 2023. Same Day Gross Profit and GAAP gross profit were equal for Fiscal 2023.
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Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022) Compared with Fifty-two Week Fiscal Year Ended December 26, 2021 (Fiscal 2021)
Revenues:
Fiscal Year Ended
January 1,
2023 December 26,
2021
(dollars in thousands)
Revenues by Segment:
Property Management $ 121,093 40.6 % $ 92,018 38.5 %
Professional 177,329 59.4 % 147,009 61.5 %
Total Revenues $ 298,422 100.0 % $ 239,027 100.0 %
Property Management Revenues : Property Management revenues increased approximately $29.1 million (31.6%). The increase was primarily due to an 11.0% increase in average bill rate.
Professional Revenues : Professional revenues increased approximately $30.3 million (20.6%), primarily due to growth in the IT division of $27.6 million, the 2022 Horn Solutions acquisition which contributed $1.4 million of new revenues, and an increase of 11.8% in the average bill rate.
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.
Fiscal Year Ended
January 1,
2023 December 26,
2021
(dollars in thousands)
Gross Profit by Segment:
Property Management $ 47,695 46.1 % $ 34,969 43.2 %
Professional 55,853 53.9 % 45,972 56.8 %
Total Gross Profit $ 103,548 100.0 % $ 80,941 100.0 %
Fiscal Year Ended
January 1,
2023 December 26,
2021
Gross Profit Percentage by Segment:
Property Management 39.4 % 38.0 %
Professional 31.5 % 31.3 %
Company Gross Profit Percentage 34.7 % 33.9 %
Overall, our gross profit increased approximately $22.6 million (27.9%). As a percentage of revenue, gross profit has increased to 34.7% from 33.9%, primarily due to higher gross profits across all our segments.
Property Management Gross Profit: Property Management gross profit increased approximately $12.7 million (36.4%) consistent with the increase in revenue.
Professional Gross Profit: Professional gross profit increased approximately $9.9 million (21.5%) consistent with an increase in revenue, and an increase of $0.6 million from the 2022 Horn Solutions acquisition.
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Selling, General and Administrative Expenses: Selling, General and Administrative expenses increased $18.1 million (27.8%). Expenses in 2021 benefited from the CARES Act credit. Adjusting for the impact of the credit, total SGA expenses as a percentage of revenue improved by 20 basis points.
Fiscal Year Ended
January 1,
2023 December 26,
2021
Amount % of Revenue Amount % of Revenue $
Change %
Change
(dollars in thousands)
Compensation and related $ 64,782 21.7 % $ 53,332 22.5 % $ 11,450 21.5 %
Advertising and recruitment 1,987 0.7 % 1,379 0.6 % 608 44.1 %
Occupancy and office operations 2,773 0.9 % 3,128 1.3 % (355) (11.3) %
Travel, meals and entertainment 1,044 0.3 % 389 0.2 % 655 168.4 %
Software 5,751 1.9 % 2,538 1.2 % 3,213 126.6 %
Liability insurance 991 0.3 % 740 0.3 % 251 33.9 %
Professional fees 1,647 0.6 % 1,111 0.8 % 536 48.2 %
Public company related costs 734 0.2 % 727 0.3 % 7 1.0 %
Bad debt 315 0.1 % 145 0.1 % 170 117.2 %
Share-based compensation 1,085 0.4 % 1,058 0.4 % 27 2.6 %
Transaction fees 271 0.1 % 170 0.1 % 101 59.4 %
Workers’ compensation loss retention return (117) — % (348) (0.1) % 231 (66.4) %
CARES Act credit — — % (2,083) (0.9) % 2,083 — %
Other 1,948 0.7 % 2,830 0.5 % (882) (31.2) %
Total $ 83,211 27.9 % $ 65,116 27.2 % $ 18,095 27.8 %
Gain on contingent consideration: There were no contingent gains in Fiscal 2022. As a result of the certain business developments in Fiscal 2021, the Company recognized a $2.4 million gain on contingent consideration related to the 2019 LJK acquisition.
Depreciation and Amortization: Depreciation and amortization charges increased $0.4 million (9.6%) primarily due to increases from the information technology improvement project and the Horn Solutions acquisition, which were offset by lower amortization related to the 2020 Edgerock and the 2019 LJK acquisitions.
Interest Expense, net: Interest expense, net decreased $0.1 million (4.9%) primarily due to the pay down of the balance on the Term Loan in March 2022, which was partially offset by the New Term Loan starting in December 2022 and the higher average balance on the Revolving Facility.
Income Taxes: Income tax expense increased $1.0 million primarily due to higher pre-tax 2022 income and a higher effective tax rate in Fiscal 2022, offset by a higher Work Opportunity Tax Credit in 2021.
Liquidity and Capital Resources
Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth.
Our primary sources of liquidity are cash generated from operations and borrowings under our amended credit agreement with BMO, that provides for a revolving credit facility maturing March 12, 2028 (the “Revolving Facility”). 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. 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. If our future cash flow from operations and
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other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
A summary of our working capital, operating, investing and financing activities are shown in the following table:
Fiscal Year Ended
December 31,
2023 January 1,
2023 December 26,
2021
(dollars in thousands)
Working capital from continuing operations (1)
$ (18,144) $ 47,955 $ 25,851
Net cash provided by (used in) continuing operations:
Operating activities $ 20,386 $ (3,300) $ 1,358
Investing activities (9,514) (8,898) (6,990)
Financing activities (10,872) 15,934 473
Net change in cash and cash equivalents discontinued operations — (3,848) 5,271
Net change in cash and cash equivalents $ — $ (112) $ 112
(1) The 2023 working capital amount includes the movement of the balances from long-term to current liabilities related to the amended credit agreement with BMO Harris Bank, N.A. (“BMO”) maturing July 16, 2024.
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 other current liabilities.
During Fiscal 2023, net cash provided by continuing operating activities was $20.4 million, an increase of $23.7 million compared with $3.3 million net cash used in continuing operating activities for Fiscal 2022. This increase is primarily attributable to payments on accounts receivable, payments on accrued payroll and expenses, and payments of deferred employer FICA for the CARES Act in other current liabilities in Fiscal 2022.
During Fiscal 2022, net cash used in continuing operating activities was $3.3 million, a decrease of $4.7 million compared with $1.4 million net cash provided by continuing operating activities for Fiscal 2021. This decrease is primarily attributable to field talent and team member compensation disbursements including bonuses, commissions, and related taxes for services rendered in accrued payroll and expenses, an increase in accounts receivable, and payments of deferred employer FICA for the CARES Act in other current liabilities.
During Fiscal 2021, net cash provided by continuing operating activities was $1.4 million, a decrease of $18.3 million compared with $19.7 million for Fiscal 2020. This decrease is primarily attributable to increased accounts receivable and payments on accrued payroll and expenses, which were partially offset by an increase in the accrual in other long-term liabilities from deferred employer FICA for the CARES Act in Fiscal 2020.
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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 paid $6.8 million in connection with the Arroyo Consulting acquisition, funded a working capital payment of $0.1 million in connection with the Horn Solutions acquisition, and made capital expenditures of $2.6 million mainly related to continued information technology improvements and for software and computer equipment purchased in the ordinary course of business.
In Fiscal 2022, we received $30.7 million in connection with the sale of InStaff, we paid $33.9 million in connection with the Horn Solutions acquisition, and we made capital expenditures of $5.7 million mainly related to the the information technology improvement project and for software and computer equipment purchased in the ordinary course of business.
In Fiscal 2021, we paid $3.8 million in connection with the Momentum acquisition and we made capital expenditures of $3.2 million mainly related to the information technology improvement project and for software and computer equipment purchased in the ordinary course of business.
Financing Activities
Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends, and contingent consideration paid.
For Fiscal 2023, we disbursed $6.5 million in cash dividends on our common stock, we paid down $6.0 million on the Term Loan, we paid $1.1 million of contingent consideration related to the Momentum acquisition, and borrowed $2.3 million on our Revolving Facility for increased working capital needs.
For Fiscal 2022, we received $40.0 million on the issuance of the New Term Loan, we paid down $26.9 million on the Term Loan, as discussed below, we disbursed $6.3 million in cash dividends on our common stock, we paid $1.1 million of contingent consideration related to the Momentum acquisition, and borrowed $9.8 million on our Revolving Facility for increased working capital needs.
For Fiscal 2021, we borrowed $6.8 million on our Revolving Facility for increased working capital needs and to fund the Momentum acquisition, disbursed $4.6 million in cash dividends on our common stock, and paid down $2.1 million on the Term Loan, as defined below.
Credit Agreements
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 the aggregate Term Loan by $40 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 February 8, 2021, the Company borrowed $3.8 million on the Revolving Facility in conjunction with the closing of the Momentum acquisition.
On March 21, 2022, the Company paid down the balance on the existing Term Loan and a portion of the Revolving Facility using the proceeds from the sale of InStaff (See “Note 4 - Discontinued Operations”).
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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 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 December 31, 2023.
The indebtedness under the Credit Agreement had a maturity date of July 16, 2024 and has therefore been classified within current liabilities on the Company's consolidated balance sheets as of December 31, 2023. On March 12, 2024, the Credit Agreement was amended and restated through the Company’s entry into an Amended and Restated Credit Agreement with certain lenders, BMO Bank, N.A., as administrative agent, letter of credit Issuer, and swing line lender, and BMO Capital Markets Corp., as sole lead arranger and sole book runner. The Amended and Restated Credit Agreement has a maturity date of March 12, 2028. The Amended and Restated Credit Agreement provides for a revolving credit facility permitting us to borrow funds from time to time in an aggregate amount up to $40 million. Term loans with an outstanding principal balance of $34 million were outstanding under the Credit Agreement remain outstanding under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement further provides for a delayed draw term loan commitment of $4.3 million. The Company is required to repay the term loans in quarterly principal installments in an amount equal to 2.5% of the aggregate principal balance thereof. The Amended and Restated Credit Agreement provides for interest either at the Base Rate plus the Applicable Margin, or the Adjusted Term SOFR plus the Applicable Margin (in each case, as such terms are defined in the Amended and Restated Credit Agreement). The Amended and Restated Credit Agreement also provides for letter of credit fees and commitment fees as further described therein. The Company’s obligations under the Amended and Restated Credit Amendment are secured by a first priority security interest in substantially all of the Company’s and its subsidiaries’ tangible and intangible property. The Amended and Restated Credit Agreement provides for a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the Amended and Restated Credit Amendment), and also provides for, among other items, representations and warranties, affirmative and negative covenants, as described therein.
Contractual Obligations
The following table summarizes our cash contractual obligations as of December 31, 2023.
Payments due by period
Total Less than 1
year 1–3 years 3–5 years More than 5
years
(dollars in thousands)
Long-term debt obligations
$ 58,874 $ 58,874 $ — $ — $ —
Contingent consideration 8,500 4,250 4,250 — —
Convertible note 4,368 4,368 — — —
Operating lease obligations 6,546 2,306 2,802 1,364 74
Contractual cash obligations $ 78,288 $ 69,798 $ 7,052 $ 1,364 $ 74
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Off-Balance Sheet Arrangements
Letter of Credit
In March 2020, in conjunction with the 2020 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 December 31, 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
We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Revenue Recognition
We derive our revenues from continuing operations in our Property Management and Professional segments. We provide workforce solutions, placement services, and managed services. Revenues are recognized when promised workforce solutions are delivered to client partners, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We recognize revenue through the following types of services: workforce solutions, contingent placements, retained search placements, and managed services.
Intangible Assets
We hold intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years , based on a pattern in which the economic benefit of the respective intangible asset is realized. We capitalize purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.
Goodwill
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. We review goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.
Income Taxes
The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. We recognizes any penalties when necessary as part of selling, general and administrative expenses. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified net as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. When appropriate, we will record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. We follow the guidance of Accounting Standards Codification (“ASC”) Topic 740, Accounting for Uncertainty in Income Taxes.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.