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Item 7. Management’s Discussion and Analysis

2025-03-17 compared with 2024-03-15 · 109 added, 114 removed, 210 unchanged (52% of the section changed)

16 unchanged sentences

We primarily operate within the United States of America.

On May 8, 2024, we announced that our Board of Directors has initiated a process to evaluate potential strategic alternatives and engaged financial advisors in an endeavor to maximize shareholder value (“Strategic alternatives review”).

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

9 unchanged sentences

Fiscal Year Ended

2023 January 1,

2024 December 31,

2023 January 1,

(dollars in thousands)

6 unchanged sentences

Depreciation and amortization 7,769 7,774 4,054

Operating (loss) income (7,185) 16,283 14,530

Operating income (loss) 1,213 (7,185) 16,283

Interest expense, net (4,921) (5,976) (1,363)

(Loss) income from continuing operations before income taxes (13,161) 14,920 13,097

(Loss) income before income taxes from continuing operations (3,708) (13,161) 14,920

Income tax benefit (expense) from continuing operations 370 2,938 (3,659)

6 unchanged sentences

Fiscal Year Ended

2023 January 1,

2024 December 31,

2023 January 1,

Revenues 100.0 % 100.0 % 100.0 %

5 unchanged sentences

Depreciation and amortization 2.9 2.5 1.4

Operating (loss) income (2.3) 5.5 6.1

Operating income (loss) 0.4 (2.3) 5.5

Interest expense, net (1.8) (1.9) (0.5)

(Loss) income from continuing operations before income taxes (4.2) 5.0 5.5

(Loss) income before income taxes from continuing operations (1.4) (4.2) 5.0

Income tax benefit (expense) from continuing operations 0.2 0.9 (1.2)

(Loss) income from continuing operations (1.2) % (3.3) % 3.8 %

Fifty-two Week Fiscal Year Ended December 31, 2023 (Fiscal 2023) Compared with Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022)

Fifty-two Week Fiscal Year Ended December 29, 2024 (Fiscal 2024) Compared with Fifty-two Week Fiscal Year Ended December 31, 2023 (Fiscal 2023)

Fiscal Year Ended

2023 January 1,

2024 December 31,

(dollars in thousands)

4 unchanged sentences

Property Management Revenues :

Property Management revenues increased approximately $4.0 million (3.3%), primarily due to an 8.5% increase in average bill rate.

Property Management revenues decreased approximately $20.7 million (16.5%).

The decrease was primarily due to a reduction in billed hours, which was driven by a combination of increased competition in certain markets and lower demand from cost pressures at the property management companies.

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.

Professional revenues decreased approximately $20.0 million (10.6%).

The April 2023 Arroyo Consulting acquisition contributed $5.6 million of incremental revenues with thirty-six weeks in prior period compared to fifty-two weeks in current period.

The remaining Professional segment decrease of $25.6 million (13.6%) is primarily due to a decline in billed hours in the Finance and Accounting division, as clients continued to delay projects or expand project timelines using less field talent in the IT division.

The Professional segment decrease was partially offset by growth in the Managed Solutions division.

Gross Profit:

1 unchanged sentence

Fiscal Year Ended

2023 January 1,

2024 December 31,

(dollars in thousands)

4 unchanged sentences

Fiscal Year Ended

2023 January 1,

2024 December 31,

Gross Profit Percentage by Segment:

2 unchanged sentences

Company Gross Profit Percentage 34.1 % 35.7 %

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.

Total Company gross profit decreased approximately $18.9 million (16.9%) due to reduced customer demand in both segments.

As a percentage of revenue, gross profit has decreased to 34.1% from 35.7%, primarily due to the margin decline in Property Management.

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.

Property Management gross profit decreased approximately $11.4 million (22.9%).

The decrease was primarily due to to a reduction in revenue, which was driven by a combination of increased competition in

certain markets, lower demand from cost pressures at the property management companies and lower permanent placement business, which has no cost of service.

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.

Professional gross profit decreased approximately $7.5 million (12.1%).

The April 2023 Arroyo Consulting acquisition contributed $1.8 million of incremental gross profit with thirty-six weeks in prior period compared to fifty-two weeks in current period.

The remaining Professional segment declined $9.3 million (15.0%) primarily due to lower revenue, which was partially offset by growth in the Managed Solutions division.

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.

Selling, general and administrative (“SGA”) expenses decreased $3.3 million (3.7%) primarily due to expense reduction and cost control efforts in response to the decline in revenues.

The components of SGA expense are detailed in the following table:

Fiscal Year Ended

2023 January 1,

2024 December 31,

Amount % of Revenue Amount % of Revenue $

10 unchanged sentences

Share-based compensation 989 — 1,029 — (40) (4)

Strategic alternatives review 962 — — — 962 100

Cost restructuring plan 230 — — — 230 100

Transaction fees 48 — 974 — (926) (95)

2 unchanged sentences

Total $ 85,333 31 % $ 88,650 28 % $ (3,317) (4) %

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.

Gain on contingent consideration:

As a result of the certain business developments in Fiscal 2024, the Company recognized a $1.5 million gain on contingent consideration related to the 2023 Arroyo Consulting acquisition.

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.

Depreciation and amortization charges were flat due to the increase in software amortization that was partially offset by the decrease in client partner lists amortization.

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.

Interest expense, net decreased $1.1 million (17.7%) primarily due to reduced accretion in 2024 on contingent consideration associated with Arroyo Consulting and the lower average balance on the Revolving Facility, which was partially offset by the increase in debt issuance costs.

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.

Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022) Compared with Fifty-two Week Fiscal Year Ended December 26, 2021 (Fiscal 2021)

Income tax benefit decreased $2.6 million (87.4%) primarily due to a higher taxable loss in 2023 related to the trade name impairment.

Fifty-two Week Fiscal Year Ended December 31, 2023 (Fiscal 2023) Compared with Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022)

Fiscal Year Ended

2023 December 26,

2023 January 1,

(dollars in thousands)

4 unchanged sentences

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.

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 $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.

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:

1 unchanged sentence

Fiscal Year Ended

2023 December 26,

2023 January 1,

(dollars in thousands)

4 unchanged sentences

Fiscal Year Ended

2023 December 26,

2023 January 1,

Gross Profit Percentage by Segment:

2 unchanged sentences

Company Gross Profit Percentage 35.7 % 34.7 %

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.

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 $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.

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 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.

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

2023 December 26,

2023 January 1,

Amount % of Revenue Amount % of Revenue $

12 unchanged sentences

Workers’ compensation loss retention return (491) — (117) — (374) 320

CARES Act credit — — % (2,083) (0.9) % 2,083 — %

Other 2,291 1 1,948 1 343 18

Total $ 88,650 28 % $ 83,211 28 % $ 5,439 7 %

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.

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 $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.

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 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.

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.

Liquidity and Capital Resources

1 unchanged sentence

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.

Our primary sources of liquidity are cash generated from operations and borrowings under our first amendment under our amended and restated credit agreement with BMO, that provides for a revolving credit facility maturing December 31, 2026 (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, 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

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.

If our future cash flow from operations and 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.

2 unchanged sentences

Fiscal Year Ended

2023 January 1,

2024 December 31,

2023 January 1,

(dollars in thousands)

8 unchanged sentences

(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.

(“BMO”) which would have matured on 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.

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, provision for credit losses, impairment losses, contingent consideration adjustment, and the effect of working capital changes.

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

During Fiscal 2024, net cash provided by continuing operating activities was $24.4 million, an increase of $4.0 million compared with $20.4 million net cash provided by continuing operating activities for Fiscal 2023.

This increase is primarily attributable to increased payments on accounts receivable, decreased payments on accrued payroll and expenses, and within prepaid expenses and other current assets there were payments made in 2024 related to the 2023 Arroyo Consulting acquisition which were partially offset by payments received in 2023 related to sale of the Light Industrial segment.

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.

2 unchanged sentences

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.

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.

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

In Fiscal 2024, we made capital expenditures of $1.6 million mainly related to continued IT improvements.

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 IT 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 IT 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.

Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends, payment of issuance costs, and contingent consideration paid.

For Fiscal 2024, we reduced our Revolving Facility by $18.5 million, we made a payment of $4.3 million of contingent consideration related to the Arroyo Consulting Acquisition using the funds borrowed on our Term Loan, we paid down $1.7 million on the Term Loan, we disbursed $1.6 million in cash dividends on our common stock, and we paid $1.3 million in debt issuance costs.

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”).

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.

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

We entered into four amendments from August 18, 2022 through May 19, 2023, which changed the interest rate component from LIBOR to the Secured Overnight Financing Rate (“SOFR”), exercised the option to borrow $40 million, required 2.5% of the original principal balance of the new term loan, permitted a foreign entity acquisition, modified the distributions terms, and increased a revolving credit facility (the "Revolving Facility") by $6.0 million.

On March 13, 2024, the Credit Agreement was amended and restated through our entry into an Amended and Restated Credit Agreement, which would have matured on March 13, 2028, led by BMO as administrative agent, letter of credit issuer, and swing line lender (the “Restated Agreement”).

The Restated Agreement provided for a Revolving Facility which permitted

us to borrow funds in an aggregate amount up to $40 million.

The Restated Agreement also provided for a term loan commitment, which permitted us to borrow funds from time to time (the “Term Loan”).

In July 2024, we exercised the option to borrow on a delayed draw term loan of $4.3 million related to payments on the Arroyo Consulting Acquisition's working capital “true up”, hold backs, and year one contingent consideration.

On November 6, 2024, we entered into the First Amendment to Amended and Restated Credit Agreement, maturing December 31, 2026, led by BMO as administrative agent, letter of credit issuer, and swing line lender (the “First Credit Amendment”).

The availability on the Revolving Facility, which permits us to borrow funds from time to time, was reduced in an aggregate amount up to $20 million.

We are required to repay the Term Loan in quarterly principal installments equal to 2.5% of the aggregate principal balance.

The First Credit Amendment provides for interest either at the Base Rate plus the Applicable Margin, or the Adjusted Term SOFR plus the Applicable Margin (as defined in the First Credit Amendment).

Our obligations are secured by a first priority security interest in substantially all our tangible and intangible property.

The First Credit Amendment provides for amended financial covenants with a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum EBITDA (as such terms are defined in the First Credit Amendment).

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

We were not in compliance with the foregoing financial covenants as of the fiscal quarter ended December 29, 2024.

We were also not in compliance with certain affirmative covenants, and we anticipated that we would not be in compliance with the foregoing financial covenants as of the fiscal quarter ended March 31, 2025.

On March 13, 2025, we entered into a Waiver and Second Amendment to Amended and Restated Credit Agreement (the “Second Amendment”) pursuant to which, among other things, the lenders unanimously waived noncompliance with the foregoing covenants as of December 29, 2024 and March 31, 2025, and certain amendments were made to the Amended and Restated Credit Agreement including, but not limited to, a new definition of Applicable Margin, a reduction of the swing line sublimit to zero, and limiting the aggregate revolving credit borrowings to $8 million.

The amendments described in the Second Amendment are effective as of March 13, 2025, subject to the satisfaction or waiver of certain conditions described therein relating to, among other things, debt financing and refinancing and our previously announced strategic alternatives review.

Contractual Obligations

22 unchanged sentences

We recognize revenue through the following types of services:

workforce solutions, contingent placements, retained search placements, and managed services.

workforce solutions, contingent placements, and managed services.

Intangible Assets

We hold intangible assets with indefinite and finite lives.

Intangible assets with indefinite useful lives are not amortized.

We hold intangible assets with finite lives.

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 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 develop and implement software modifications to our IT infrastructure with direct internal payroll costs and external costs capitalized.

Minor upgrades and enhancements to software systems are are expensed in the period incurred as software maintenance and training costs.

Goodwill represents the difference between the enterprise value or consideration exchanged 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.

8 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis