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 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. 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 40 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 29,
2024 December 31,
2023 January 1,
2023
(dollars in thousands)
Revenues $ 272,499 $ 313,167 $ 298,422
Cost of services 179,636 201,383 194,874
Gross Profit 92,863 111,784 103,548
Selling, general, and administrative expenses 85,333 88,650 83,211
Gain on contingent consideration (1,452) — —
Impairment losses — 22,545 —
Depreciation and amortization 7,769 7,774 4,054
Operating income (loss) 1,213 (7,185) 16,283
Interest expense, net (4,921) (5,976) (1,363)
(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)
(Loss) income from continuing operations (3,338) (10,223) 11,261
Income from discontinued operations:
Income — — 1,235
Gain on sale — — 17,675
Income tax expense — — (4,810)
Net (loss) income $ (3,338) $ (10,223) $ 25,361
Fiscal Year Ended
December 29,
2024 December 31,
2023 January 1,
2023
Revenues 100.0 % 100.0 % 100.0 %
Cost of services 65.9 64.3 65.3
Gross Profit 34.1 35.7 34.7
Selling, general, and administrative expenses 31.3 28.3 27.8
Gain on contingent consideration (0.5) — —
Impairment losses — 7.2 —
Depreciation and amortization 2.9 2.5 1.4
Operating income (loss) 0.4 (2.3) 5.5
Interest expense, net (1.8) (1.9) (0.5)
(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 %
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Fifty-two Week Fiscal Year Ended December 29, 2024 (Fiscal 2024) Compared with Fifty-two Week Fiscal Year Ended December 31, 2023 (Fiscal 2023)
Revenues:
Fiscal Year Ended
December 29,
2024 December 31,
2023
(dollars in thousands)
Revenues by Segment:
Property Management $ 104,402 38.3 % $ 125,077 39.9 %
Professional 168,098 61.7 % 188,090 60.1 %
Total Revenues $ 272,500 100.0 % $ 313,167 100.0 %
Property Management Revenues : 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 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:
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 29,
2024 December 31,
2023
(dollars in thousands)
Gross Profit by Segment:
Property Management $ 38,369 41.3 % $ 49,785 44.5 %
Professional 54,494 58.7 % 61,999 55.5 %
Total Gross Profit $ 92,863 100.0 % $ 111,784 100.0 %
Fiscal Year Ended
December 29,
2024 December 31,
2023
Gross Profit Percentage by Segment:
Property Management 36.8 % 39.8 %
Professional 32.4 % 33.0 %
Company Gross Profit Percentage 34.1 % 35.7 %
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 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
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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 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 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
December 29,
2024 December 31,
2023
Amount % of Revenue Amount % of Revenue $
Change %
Change
(dollars in thousands)
Compensation and related $ 62,954 23 % $ 68,536 22 % $ (5,582) (8) %
Advertising and recruitment 2,099 1 2,111 1 (12) (1)
Occupancy and office operations 3,200 1 3,310 1 (110) (3)
Travel, meals and entertainment 1,215 — 1,349 — (134) (10)
Software 5,445 2 5,339 2 106 2
Liability insurance 1,136 — 1,140 — (4) —
Professional fees 2,113 1 1,413 — 700 50
Public company related costs 1,056 — 851 — 205 24
Bad debt 2,066 1 798 — 1,268 159
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)
Workers’ compensation loss retention return (95) — (491) — 396 (81)
Other 1,915 1 2,291 1 (376) (16)
Total $ 85,333 31 % $ 88,650 28 % $ (3,317) (4) %
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 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 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: Income tax benefit decreased $2.6 million (87.4%) primarily due to a higher taxable loss in 2023 related to the trade name impairment.
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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: 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 22 % $ 64,782 22 % $ 3,754 6 %
Advertising and recruitment 2,111 1 1,987 1 124 6
Occupancy and office operations 3,310 1 2,773 1 537 19
Travel, meals and entertainment 1,349 — 1,044 — 305 29
Software 5,339 2 5,751 2 (412) (7)
Liability insurance 1,140 — 991 — 149 15
Professional fees 1,413 — 1,647 1 (234) (14)
Public company related costs 851 — 734 — 117 16
Bad debt 798 — 315 — 483 153
Share-based compensation 1,029 — 1,085 — (56) (5)
Transaction fees 974 — 271 — 703 259
Workers’ compensation loss retention return (491) — (117) — (374) 320
Other 2,291 1 1,948 1 343 18
Total $ 88,650 28 % $ 83,211 28 % $ 5,439 7 %
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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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 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.
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 29,
2024 December 31,
2023 January 1,
2023
(dollars in thousands)
Working capital from continuing operations (1)
$ 19,427 $ (18,144) $ 47,955
Net cash provided by (used in) continuing operations:
Operating activities $ 24,379 $ 20,386 $ (3,300)
Investing activities (1,640) (9,514) (8,898)
Financing activities (22,386) (10,872) 15,934
Net change in cash and cash equivalents discontinued operations — — (3,848)
Net change in cash and cash equivalents $ 353 $ — $ (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”) 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, 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.
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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.
Investing Activities
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, 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.
Credit Agreements
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
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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
The following table summarizes our cash contractual obligations as of December 29, 2024.
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
$ 42,945 $ 3,825 $ 39,120 $ — $ —
Contingent consideration 2,750 2,750 — — —
Convertible note 4,368 4,368 — — —
Operating lease obligations 6,165 1,880 2,849 1,317 119
Contractual cash obligations $ 56,228 $ 12,823 $ 41,969 $ 1,317 $ 119
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 29, 2024, 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.
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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, and managed services.
Intangible Assets
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 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
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.
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.