What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-03-14 compared with 2023-03-16 · 264 added, 302 removed, 314 unchanged (64% of the section changed)

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (CONT ’

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (CONT ’ D)

Stock Repurchase by Issuer (Continued)

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Purchased Under

October 2, 2022 –

October 1, 2023 –

November 1, 2022 –

October 31, 2023

November 1, 2023 –

December 1, 2022 –

November 30, 2023

December 1, 2023 –

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

COVID-19 Considerations

The Company’s priorities during the COVID-19 pandemic and endemic are protecting the health and safety of our employees and, especially in the healthcare segment, deploying our resources, including the talents of our employees, to help the communities we serve meet and overcome the current challenges.

In the future, the pandemic and endemic may cause reduced demand for our services if, for example, the pandemic and endemic results in a prolonged recessionary economic environment affecting industries in which we serve;

however, since certain services that we offer are essential to the daily lives of our customers, we believe that over the long term, there will continue to be demand for our services. 

Our ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic and endemic will in part depend on our ability to protect our employees and our supply chain.

The Company has endeavored to follow the recommended actions of government and health authorities to protect our employees, with particular measures in place for those working in our customer facilities.

While our revenue, gross profit and operating income were negatively impacted in fiscal 2020 on a consolidated basis and in fiscal 2021 for certain business lines, we have maintained the consistency of our operations, to a substantial degree, from the onset of the COVID-19 pandemic and endemic.

We intend to continue to adhere to our employee safety measures as we seek to ensure that any disruptions to our operations remain as limited as possible during the pandemic and endemic.

However, the uncertainty resulting from the pandemic and endemic could result in an unforeseen disruption to our workforce and supply chain (for example, an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations.

Any material changes to labor rates for the Company’s workforce may have a material negative impact to revenue, gross profit and operating income.

For additional information on risk factors related to the pandemic and endemic or other risks that could impact our results, please refer to “Risk Factors”

in Part II, Item 1A of this Form 10-K.

For additional information on how COVID-19 has impacted operations and our financial position, please refer to the Segment Discussion and Liquidity and Capital Resources sections in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

December 30, 2023

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources.

Such forward-looking statements should be read in conjunction with our disclosures under “

Risk Factors ”

of this Form 10-K.

This section of the Form 10-K generally discusses matters relating to the fiscal years ended December 31, 2022 and January 1, 2022 and year-to-year comparisons between such fiscal years.

Discussions of matters relating to the fiscal year ended January 2, 2021 and year-to-year comparison between that year and the year ended January 1, 2022 that are not included in this Form 10-K can be found in “

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations ”

in Part II, Item 7 of RCM ’

s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

RCM participates in a market that is cyclical in nature and sensitive to economic changes.

As a result, the impact of economic changes on revenue and operations can be substantial, resulting in significant volatility in the Company’s financial performance.

Such forward-looking statements should be read in conjunction with our disclosures under “ Item 1A.

Risk Factors ” of this Form 10-K.

This section of the Form 10-K generally discusses matters relating to the fiscal years ended December 30, 2023 and December 31, 2022 and year-to-year comparisons between such fiscal years.

Discussions of matters relating to the fiscal year ended January 1, 2022 and year-to-year comparison between that year and the year ended December 31, 2022 that are not included in this Form 10-K can be found in “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations ” in Part II, Item 7 of the Company ’ s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The Company participates in a market that is cyclical in nature and sensitive to economic changes.

As a result, the impact of economic changes on revenue and operations can be substantial, resulting in significant volatility in the Company’s financial performance.

The Company believes it has developed and assembled an attractive portfolio of capabilities, established a proven record of performance and credibility and built an efficient pricing structure.

The Company is committed to optimizing its business model as a single-source premier provider of business and technology solutions with a strong vertical focus offering an integrated suite of services through a global delivery platform.

The Company believes that most companies recognize the importance of advanced technologies and business processes to compete in today’s business climate.

However, the process of designing, developing and implementing business and technology solutions is becoming increasingly complex.

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The Company also realizes revenue from client engagements that range from the placement of contract and temporary technical consultants to project assignments that entail the delivery of end-to-end solutions.

These services are primarily provided to the client at hourly rates that are established for each of the Company’s consultants based upon their skill level, experience and the type of work performed.

The majority of the Company’s services are provided under purchase orders.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Overview (Continued)

The majority of the Company’s services are provided under purchase orders.

Contracts are utilized on certain of the more complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary.

Although contracts normally relate to longer-term and more complex engagements, they do not obligate the customer to purchase a minimum level of services and are generally terminable by the customer on 60 to 90 days’

The Company, from time to time, enters into contracts requiring the completion of specific deliverables.

Typically, these contracts are for less than one year. 

The Company recognizes revenue on these deliverables at the time the client accepts and approves the deliverables.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Overview (Continued)

Costs of services consist primarily of salaries and compensation-related expenses for billable consultants and employees, including payroll taxes, employee benefits and insurance.

Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for business development, recruiting, operating activities, and training, and include corporate overhead expenses.

Corporate overhead expenses relate to salaries and benefits of personnel responsible for corporate activities, including the Company’s corporate marketing, administrative and financial reporting responsibilities and acquisition program.

The Company records these expenses when incurred.

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Critical Accounting Policies and Use of Estimates

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

The preparation of financial statements in conformity with U.S.

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Revenue Recognition

The Company records revenue under Accounting Standards Codification (“ASC”) Topic 606, 

Revenue from Contracts with Customers .

The Company records revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers .

Revenue is recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services.

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The Company derives its revenue from several sources.

The Company’s Engineering Services, Life Sciences and Information Technology segments perform consulting and project solution services.

The Company’s Engineering Services and Life Sciences and Information Technology segments perform consulting and project solution services.

The Healthcare segment specializes in long-term and short-term staffing and placement services to hospitals, schools and long-term care facilities amongst others.

All of the Company’s segments perform staff augmentation services and derive revenue from permanent placement fees.

The majority of the Company’s revenue is invoiced on a time and materials basis.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

All of the Company’s segments perform staff augmentation services and derive revenue from permanent placement fees.

The majority of the Company’s revenue is invoiced on a time and materials basis.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Revenue Recognition (Continued)

The following table presents our revenue disaggregated by revenue source for the fiscal years ended December 31, 2022 and January 1, 2022:

The following table presents our revenue disaggregated by revenue source for the fiscal years ended December 30, 2023 and December 31, 2022:

Specialty Health Care:

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Time and Material

The Company’s Life Sciences and Information Technology and Healthcare segments predominantly recognize revenue through time and material work while its Engineering segment recognizes revenue through both time and material and fixed fee work.

The Company’s time and material contracts are typically based on the number of hours worked at contractually agreed upon rates, therefore revenue associated with these time and materials contracts are recognized based on hours worked at contracted rates. 

From time to time and predominantly in our Engineering segment, the Company will enter into contracts requiring the completion of specific deliverables. 

The Company’s Health Care segment predominantly recognizes revenue through time and material work while its Engineering and Life Sciences and Information Technology segments recognize revenue through both time and material and fixed fee work.

From time to time and predominantly in our Engineering segment, the Company will enter into contracts requiring the completion of specific deliverables.

The Company has master services agreements with many of its customers that broadly define terms and conditions.

Actual services performed under fixed fee arrangements are typically delivered under purchase orders that more specifically define terms and conditions related to that fixed fee project.

While these master services agreements can often span several years, the Company’s fixed fee purchase orders are typically performed over six to nine month periods. 

In instances where project services are provided on a fixed-price basis, revenue is recorded in accordance with the terms of each contract. 

In certain instances, revenue is invoiced at the time certain milestones are reached, as defined in the contract. 

Revenue under these arrangements are recognized as the costs on these contracts are incurred. 

From time-to-time, amounts paid in excess of revenue earned and recognized are recorded as deferred revenue, included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. 

Additionally, some contracts contain “Performance Fees”

(bonuses) for completing a contract under budget. 

Performance Fees, if any, are recorded when earned. 

Some contracts also limit revenue and billings to specified maximum amounts. 

Provisions for contract losses, if any, are made in the period such losses are determined. 

For contracts where there is a specific deliverable and the work is not complete and the revenue is not recognized, the costs incurred are deferred as a prepaid asset. 

While these master services agreements can often span several years, the Company’s fixed fee purchase orders are typically performed over six to nine month periods.

In instances where project services are provided on a fixed-price basis, revenue is recorded in accordance with the terms of each contract.

In certain instances, revenue is invoiced at the time certain milestones are reached, as defined in the contract.

Revenue under these arrangements are recognized as the costs on these contracts are incurred.

Additionally, some contracts contain “Performance Fees” (bonuses) for completing a contract under budget.

Performance Fees, if any, are recorded when earned.

Some contracts also limit revenue and billings to specified maximum amounts.

Provisions for contract losses, if any, are made in the period such losses are determined.

For contracts where there is a specific deliverable and the work is not complete and the revenue is not recognized, the costs incurred are deferred as a prepaid asset.

The associated costs are expensed when the related revenue is recognized.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

2 unchanged sentences

The Company earns permanent placement fees from providing permanent placement services.

These fees are typically based on a percentage of the compensation paid to the person placed with the Company’s client.

The Company guarantees its permanent placements on a prorated basis for 90 days.

In the event a candidate is not retained for the 90-day period, the Company will provide a suitable replacement candidate.

In the event a replacement candidate cannot be located, the Company will provide a prorated refund to the client.

An allowance for refunds, based upon the Company’s historical experience, is recorded in the financial statements.

Deferred Revenue

There was $1.9 million of deferred revenue as of December 30, 2023.

Deferred revenue was $3.4 million as of January 1, 2022.

Deferred revenue was $1.1 million as of December 31, 2022.

Revenue is recognized when the service has been performed.

Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet.

In the fiscal years ended December 31, 2022 and January 1, 2022, the Company recognized revenue of $3.4 million and $0.4 million, respectively, that was included in deferred revenue at the beginning of the reporting period.

Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet, although this is an infrequent occurrence.

In the fiscal years ended December 30, 2023 and December 31, 2022, the Company recognized revenue of $1.1 million and $3.4 million, respectively, that was included in deferred revenue at the beginning of the reporting period.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable are primarily due from trade customers.

Credit is extended based on evaluation of customers’

financial condition and, generally, collateral is not required.

The Company’s accounts receivable are primarily due from trade customers.

Credit is extended based on evaluation of customers’ financial condition and, generally, collateral is not required.

Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts.

Accounts outstanding longer than the payment terms are considered past due.

The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole.

The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables previously written off are credited to bad debt expense.

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “

Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment ”

(“ASC Topic 350”).

The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount.

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “ Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment ” (“ASC Topic 350”).

The Company has three reporting units.

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This approach uses earnings/revenue multiples of similar companies recently completing acquisitions and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.

The Company adopted Accounting Standards Update (“ASU”) 2017-04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment”

effective December 29, 2018 which has eliminated Step 2 from the goodwill impairment test.

The Company adopted Accounting Standards Update (“ASU”) 2017-04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment” effective December 29, 2018 which has eliminated Step 2 from the goodwill impairment test.

Under this update, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

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There can be no assurance that future indicators of impairment and tests of goodwill impairment will not result in impairment charges for both its Engineering and Specialty Healthcare segments.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Long-Lived and Intangible Assets

The Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

When the Company determines that it is probable that undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value.

Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Accounting for Restricted Stock Awards

The Company uses restricted stock awards to attract, retain and reward employees for long-term service.

The Company follows Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Topic 718 “Compensation –

Stock Compensation”

which requires that the compensation cost relating to stock-based payment transactions be recognized in the financial statements.

The Company follows Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Topic 718 “Compensation – Stock Compensation” which requires that the compensation cost relating to stock-based payment transactions be recognized in the financial statements.

This compensation cost is measured based on the fair value of the equity or liability instruments issued.

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The Company establishes loss provisions based on historical experience and in the case of expected losses from workers compensation, considers input from third parties.

The amounts included in the Company’s costs related to this risk participation are estimated and can vary based on changes in assumptions, the Company’s claims experience or the providers included in the associated insurance programs.

Accounting for Income Taxes

In establishing the provision for income taxes and deferred income tax assets and liabilities and valuation allowances against deferred tax assets, the Company makes judgments and interpretations based on enacted tax laws, published tax guidance and estimates of future earnings. 

As of December 31, 2022, the Company had both domestic and foreign net deferred tax liabilities of $1.7 million.  The domestic long term net deferred tax liability of $1.5 million includes $4.0 million in deferred liabilities offset by $2.5 million in deferred tax assets.

The deferred tax liabilities consist of acquisition amortization of $1.7 million, prepaid expenses of $0.9 million and advance depreciation deductions of $0.4 million. 

The domestic deferred tax assets consist of lease liabilities of $1.1 million and various deferred expense accruals and reserves of $0.9 million.

The realization of deferred tax assets is dependent upon the likelihood that future taxable income will be sufficient to realize these benefits over time, and the effectiveness of tax planning strategies in the relevant tax jurisdictions. 

If actual results differ from these estimates and assessments, valuation allowances may be required. 

The Company also had $0.2 million in foreign net deferred tax liabilities as of December 31, 2022.

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Puerto Rico and Serbia.

The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states. 

As of December 30, 2023, the Company had both domestic and foreign net deferred tax liabilities of $1.7 million.

The domestic long term net deferred tax liability of $1.6 million includes $4.3 million in deferred liabilities offset by $2.7 million in deferred tax assets.

The deferred tax liabilities consist of acquisition amortization of $1.8 million, prepaid expenses of $1.0 million, advance depreciation deductions of $0.7 million and right of use assets of $0.7 million.

The domestic deferred tax assets consist of lease liabilities of $0.8 million, reserves and accruals of $0.8 million, compensation of $0.7 million and allowance for doubtful accounts of $0.4 million.

If actual results differ from these estimates and assessments, valuation allowances may be required.

As of December 30, 2023, the Company had $0.1 million in foreign net deferred tax liabilities associated with its Canadian operations and a small deferred tax asset associated with its German operations.

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Germany, Puerto Rico and Serbia.

The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states.

The Company has no open Federal audits as of December 30, 2023.

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The Company is no longer subject to audit in Puerto Rico for the tax years prior to tax year 2018.

The Company’s future effective tax rates could be adversely affected by changes in the valuation of its deferred tax assets or liabilities or changes in tax laws or interpretations thereof.

In addition, the Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities.

The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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Accordingly, the actual earned bonuses may be materially different from the estimates used to determine the quarterly accruals.

Performance-Based Restricted Stock Awards

From time-to-time the Company issues performance-based restricted stock awards to its executives. 

Performance-based restricted stock awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee.

The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing additional compensation cost if and when achievement of the performance condition becomes probable. 

Performance-Based Restricted Stock and Stock Unit Awards

From time-to-time the Company issues performance-based restricted stock and stock unit awards to its executives.

Performance-based restricted stock and stock unit awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee.

The Company will then recognize the appropriate expense cumulatively in the year performance becomes probable and recognize the remaining compensation cost over the remaining requisite service period.

If at a later measurement date the Company determines that performance-based restricted stock awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed. 

These performance-based restricted stock awards typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period on any stock awards that actually vest, if any. 

Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet. 

Dividends for performance-based restricted stock awards that ultimately do not vest are forfeited.  

If at a later measurement date the Company determines that performance-based restricted stock or stock unit awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed.

These performance-based restricted stock and stock unit awards typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period on any stock and stock unit awards that actually vest, if any.

Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet.

Dividends for performance-based restricted stock and stock unit awards that ultimately do not vest are forfeited.

Forward-looking Information

The Company’s growth prospects are influenced by broad economic trends.

The pace of customer capital spending programs, new product launches and similar activities have a direct impact on the need for engineering, life sciences and information technology services.

When the U.S., Canadian or global economies decline, the Company’s operating performance could be adversely impacted.

In addition, global events such as the ongoing COVID-19 pandemic and endemic also have a substantial impact on our operations and financial results.

When the U.S., Canadian or global economies decline, the Company’s operating performance could be adversely impacted.

In addition, global events such as international conflicts or health pandemics and endemics also have a substantial impact on our operations and financial results.

The Company believes that its fiscal discipline, strategic focus on targeted vertical markets and diversification of service offerings provides some insulation from adverse trends.

However, general economic declines could result in the need for future cost reductions or changes in strategy.

Additionally, changes in government regulations could result in prohibition or restriction of certain types of employment services or the imposition of new or additional employee benefits, licensing or tax requirements with respect to the provision of employment services that may reduce the Company’s future earnings.

There can be no assurance that the Company will be able to increase the fees charged to its clients in a timely manner and in a sufficient amount to cover increased costs as a result of any of the foregoing.

The consulting and employment services market is highly competitive with limited barriers to entry.

The Company competes in global, national, regional and local markets with numerous competitors in all of the Company’s service lines.

Price competition in the industries the Company serves is significant, and pricing pressures from competitors and customers are increasing.

The Company expects that the level of competition will remain high in the future, which could limit the Company’s ability to maintain or increase its market share or profitability.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

The Company expects that the level of competition will remain high in the future, which could limit the Company’s ability to maintain or increase its market share or profitability.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022

A summary of operating results for the fiscal years ended December 31, 2022 and January 1, 2022 is as follows (in thousands):

Fiscal Year Ended December 30, 2023 Compared to Fiscal Year Ended December 31, 2022

A summary of operating results for the fiscal years ended December 30, 2023 and December 31, 2022 is as follows (in thousands):

Fiscal Years Ended

December 30, 2023

January 1, 2022

December 31, 2022

Cost of services

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The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.

The fiscal years ended December 31, 2022 (fiscal 2022) and January 1, 2022 (fiscal 2021) consisted of fifty-two weeks each.

Revenue increased 39.6%, or $80.8 million, for the fiscal year ended December 31, 2022 as compared to January 1, 2022 (the “comparable prior year period”). 

Revenue increased $60.9 million in the Specialty Health Care segment, $19.8 million in the Engineering segment and $0.1 million in the Life Sciences and Information Technology segment. 

The fiscal years ended December 30, 2023 (fiscal 2023) and December 31, 2022 (fiscal 2022) consisted of fifty-two weeks each.

Revenue decreased 7.5%, or $21.4 million, for the fiscal year ended December 30, 2023 as compared to December 31, 2022 (the “comparable prior year period”).

Revenue decreased $23.2 million in the Specialty Health Care segment, decreased $1.2 million in the Engineering segment and increased $3.0 million in the Life Sciences and Information Technology segment.

See Segment Discussion for further information on revenue changes.

Cost of Services and Gross Profit.

Cost of services increased 33.8%, or $51.0 million, for the fiscal year ended December 31, 2022 as compared to the comparable prior year period.

Cost of services increased primarily due to the increase in revenue.

Cost of services as a percentage of revenue for the fiscal years ended December 31, 2022 and the comparable prior year period were 70.9% and 73.9%, respectively.

Cost of services decreased 7.5%, or $15.2 million, for the fiscal year ended December 30, 2023 as compared to the comparable prior year period.

Cost of services decreased primarily due to the decrease in revenue.

Cost of services as a percentage of revenue for the fiscal years ended December 30, 2023 and the comparable prior year period was 70.9%.

See Segment Discussion for further information regarding changes in cost of services and gross profit.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022 (Continued)

Fiscal Year Ended December 30, 2023 Compared to Fiscal Year Ended December 31, 2022 (Continued)

Selling, General and Administrative.

Selling, general and administrative (“SGA”) expenses were $53.4 million for the fiscal year ended December 31, 2022 as compared to $42.0 million for the comparable prior year period.

As a percentage of revenue, SGA expenses were 18.8% for the fiscal year ended December 31, 2022 and 20.6% for the comparable prior year period.  See Segment Discussion for further information on SGA expense changes.

Selling, general and administrative (“SGA”) expenses were $52.2 million for the fiscal year ended December 30, 2023 as compared to $53.4 million for the comparable prior year period.

As a percentage of revenue, SGA expenses were 19.8% for the fiscal year ended December 30, 2023 and 18.8% for the comparable prior year period.

See Segment Discussion for further information on SGA expense changes.

Gain on sale of assets.

On July 30, 2021, the Company sold the principal assets and certain liabilities of its Pickering and Kincardine offices, located in Ontario, Canada.

These two offices were often referred to as Canada Power Systems and principally provided engineering services to two major nuclear power providers in Canada. 

The two Canada Power Systems offices were part of a reporting unit within the Company’s Engineering segment.

The Company recorded a net gain on the sale of these assets and liabilities of $2.4 million for the fiscal year ended January 1, 2022.

For the fiscal year ended December 31, 2022, the Company recorded a gain of $0.2 million, which was due to receiving escrow funds associated with the sale of Canada Power Systems in fiscal 2021.

These two offices were often referred to as Canada Power Systems and principally provided engineering services to two major nuclear power providers in Canada.

The two Canada Power Systems offices were part of a reporting unit within the Company’s Engineering segment.

For the fiscal years ended December 30, 2023 and December 31, 2022, the Company recorded a gain of $0.4 and $0.2 million, respectively, which was due to receiving escrow funds associated with the sale of Canada Power Systems in fiscal 2021.

Remeasurement of acquisition related contingent consideration.

During both periods presented, the Company adjusted the forecasted contingent consideration for active acquisition agreements, which created discreet gains of $0.1 million for the fiscal year ended December 31, 2022 and $1.7 million for the comparable prior year period .

Other Expense (Income).

Other expense (income) consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income and gains and losses on foreign currency transactions. 

Other expense (income) increased by $0.1 million as compared to the comparable prior year period, primarily due to a decrease in gains on foreign currency transactions. 

Income Tax Expense . 

The Company recognized $7.6 million of income tax expense for the fiscal year ended December 31, 2022, as compared to $2.9 million for the comparable prior-year period. 

The consolidated effective income tax rate for the current period was 26.7% as compared to 21.0% for the comparable prior-year period. 

The Company’s tax rates for fiscal 2022 are 27.0% for the United States, 23.3% for Canada, and 16.8% for Serbia. 

The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income versus U.S.

pretax income. 

The Company adjusted the forecasted contingent consideration for active acquisition agreements, which created a discreet gain of $0.1 million for the fiscal year ended December 31, 2022 .

There was no remeasurement in the current fiscal year ended December 30, 2023.

Other Expense, Net.

Other expense, net consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income and gains and losses on foreign currency transactions.

Other expense, net increased by $1.1 million as compared to the comparable prior year period, primarily due to an increase in interest expense, net.

Interest expense increased due to increased borrowing.

Borrowings increased primarily to fund treasury stock purchases.

Income Tax Expense .

The Company recognized $5.4 million of income tax expense for the fiscal year ended December 30, 2023, as compared to $7.6 million for the comparable prior-year period.

The consolidated effective income tax rate for the current period was 24.2% as compared to 26.7% for the comparable prior-year period.

The effective fiscal 2023 income tax rates as of December 30, 2023, were approximately 24.5%, 23.9% and 10.5% in the United States, Canada, and Europe, respectively.

The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and European pretax income versus U.S.

pretax income.

The effective income tax rate can also be impacted by discrete permanent differences affecting any period presented.

The Company considers its 2021 effective income tax rate to be abnormally low, due mainly to permanent differences detailed in footnote 15 in the Company’s financial statements.

The Company estimates its normalized tax rates for fiscal 2021 as 28.5% for the United States, 26.5% for Canada, and 16.5% for Serbia.

Based on the fiscal 2021 pretax income mix, the Company estimates its normalized consolidated tax rate as 27.5%.

The primary reason for the decrease in the consolidated effective rate in the current period was due to a permanent tax difference associated with the tax deduction for equity grants in the United States that vested during the fiscal year ended December 30, 2023.

Differences between the effective tax rate and the applicable U.S.

federal statutory rate may arise, primarily from the effect of state and local income taxes, share-based compensation, and potential tax credits available to the Company.

federal statutory rate may arise, primarily from the effect of state and local income taxes, and share-based compensation.

The actual effective tax rate may vary in future years depending on the actual operating income earned in various jurisdictions, the potential availability of tax credits, and the exercise of stock options and vesting of share-based awards.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022 (Continued)

Fiscal Year Ended December 30, 2023 Compared to Fiscal Year Ended December 31, 2022 (Continued)

Segment Discussion

Specialty Health Care

Specialty Health Care revenue of $159.4 million for the fiscal year ended December 31, 2022 increased 61.9%, or $60.9 million, as compared to the comparable prior-year period. 

The increase in revenue was driven by both the Company’s school and non-school clients.

Revenue from school clients for the fiscal year ended December 31, 2022 was $114.2 million as compared to $66.6 million for the comparable prior-year period.

Specialty Health Care revenue of $136.2 million for the fiscal year ended December 30, 2023 decreased 14.6%, or $23.2 million, as compared to the comparable prior-year period.

The decrease in revenue was driven by both the Company’s school and non-school clients.

Revenue from school clients for the fiscal year ended December 30, 2023 was $103.0 million as compared to $114.2 million for the comparable prior-year period.

Revenue from non-school clients for the fiscal year ended December 30, 2023 was $33.2 million as compared to $45.2 million for the comparable prior-year period.

Revenue increases were due to the reopening of Specialty Health Care school clients and unprecedented demand for health care professionals across all types of clients served.

The Specialty Health Care segment’s gross profit increased by 89.2%, or $22.6 million, to $47.9 million for the fiscal year ended December 31, 2022, as compared to $25.3 million for the prior-year period.

The increase in gross profit was primarily driven by the increase in revenue, but also a higher gross profit margin.

Gross profit margin for the fiscal year ended December 31, 2022 increased to 30.0% as compared to 25.7% for the comparable prior-year period. 

The increase in gross profit margin was primarily due to more normalized revenue and the high demand for certain services. 

Revenue decreases were primarily due to decreased demand associated with COVID-19 transitioning from a high level of activity relating during the fiscal year ended December 31, 2022 to a lesser level of activity associated with the change of COVID-19 to an endemic during the fiscal year ended December 30, 2023.

The Specialty Health Care segment’s gross profit decreased by 16.6%, or $8.0 million, to $39.9 million for the fiscal year ended December 30, 2023, as compared to $47.9 million for the prior-year period.

The decrease in gross profit was primarily driven by the decrease in revenue.

Gross profit margin for the fiscal year ended December 30, 2023 decreased to 29.3% as compared to 30.0% for the comparable prior-year period.

The decrease in gross profit margin was primarily due to a mix shift for certain lower margin services.

Specialty Health Care experienced operating income of $13.5 million for the fiscal year ended December 30, 2023, as compared to $19.8 million for the comparable prior-year period.

The primary reason for the increase in operating income was the increase to gross profit, offset by an increase in SGA expense.

SGA expense increased by $8.2 million to $27.7 million, as compared to $19.5 million in the comparable prior-year period.

The increase in SGA expense was primarily due to increasing our workforce to help meet increased demand.

The Company believes that the impact of the COVID-19 pandemic helped to increase Specialty Health Care revenue and gross margin in the fourth quarter of fiscal 2021 and the first half of fiscal 2022.

The Company also believes the COVID-19 pandemic began to shift to an endemic in the second half of fiscal 2022.

As a result, COVID-19-related revenue has decreased.

However, the Company also believes that the demand for its Healthcare services is greater than it typically had been before the COVID-19 pandemic.

While it is the overall impact of these offsetting dynamics is uncertain, the Company believes that, except for seasonality, it is well positioned for potential growth in revenue.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

The primary reason for the decrease in operating income was the decrease in gross profit, offset by a decrease in SGA expense.

SGA expense decreased by $1.7 million to $26.0 million, as compared to $27.7 million in the comparable prior-year period.

The decrease in SGA expense was primarily due to a decrease in expenses associated with lower revenue and a lower allocation of corporate SGA expenses.

The Company believes that the impact of the COVID-19 pandemic helped to increase Specialty Health Care revenue and gross margin in the first half of fiscal 2022, which impact did not materially affect any portion of fiscal 2023.

However, the Company also believes that the demand for its Healthcare services is greater than it had been before the COVID-19 pandemic.

The Company believes that, except for seasonality, it is well positioned for growth in revenue going forward.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022 (Continued)

Fiscal Year Ended December 30, 2023 Compared to Fiscal Year Ended December 31, 2022 (Continued)

Segment Discussion (Continued)

Engineering revenue of $85.9 million for the fiscal year ended December 31, 2022 increased 29.9%, or $19.8 million, compared to the comparable prior-year period.  The increase in revenue was comprised of the following:

increases in Aerospace revenue of $16.3 million, Industrial Processing revenue of $5.3 million, and Energy Services revenue of $3.1 million, offset by a decrease in revenue of $4.9 million resulting from the sale of the Canadian Power Systems Group. 

The increase in Aerospace revenue was primarily due to a new outsourcing engagement with one of the Company’s long-time customers and the Company’s entrance into the burgeoning rocket industry.

The increase in Industrial Processing revenue was primarily due to spending increases by several major customers seeking to upgrade their ethanol-related production capability.

Gross profit increased by 35.2%, or $5.7 million, as compared to the comparable prior-year period.

Gross profit increased because of the increase in revenue and an increase in gross profit margin.

Gross profit margin of 25.3% for the current period increased from 24.3% for the comparable prior-year period.

The increase in gross profit margin was due to three factors:

1) decreased revenue from the Canadian Power Systems Group, as the prior-year gross profit margin associated with such revenue was dilutive at 21.7%;

2) improved project execution across all three of the Engineering business lines;

and 3) a concerted effort to improve gross profit margin through better managing of utilization and focusing on higher gross profit margin opportunities.

The Engineering segment’s SGA expense of $17.3 million increased by $3.1 million due to investment in new personnel to reposition and generate future growth.

Engineering revenue of $84.7 million for the fiscal year ended December 30, 2023 decreased by 1.5%, or $1.2 million, compared to the comparable prior-year period.

The decrease in revenue comprised the following:

decreases in Aerospace revenue of $4.9 million and Industrial Processing revenue of $4.8 million, offset by an increase to Energy Services revenue of $8.5 million.

The decrease in Aerospace revenue was primarily due to a contract reduction for the Company’s major outsourcing client.

The Company believes the decrease in Industrial Processing revenue was primarily due to the irregular timing of large contracts with its Industrial Processing clients.

Gross profit decreased by 5.1%, or $1.1 million, as compared to the comparable prior-year period.

Gross profit decreased because of the decrease in revenue and a decrease in gross profit margin.

Gross profit margin of 24.3% for the current period decreased from 25.3% for the comparable prior-year period.

The decrease in gross profit margin was primarily due to lower utilization resulting from an increase in staff associated with lower revenue as the Company absorbed fixed salaried costs over lower revenue.

The Engineering segment experienced operating income of $3.5 million for the fiscal year ended December 30, 2023, as compared to $4.3 million for the comparable prior-year period.

The decrease in operating income was due to the decrease in discrete gains in the current period.

Gain on sale of assets and remeasurement of acquisition-related contingent consideration increased operating income by $0.3 million in the current fiscal year as compared to increasing operating income by $4.1 million in the comparable prior fiscal year.

The decrease in operating income was primarily due to the decrease in gross profit, offset by a $0.3 million decrease in SGA expense.

Life Sciences and Information Technology

Life Sciences and Information Technology revenue of $39.3 million for the fiscal year ended December 31, 2022 increased by $0.1 million, as compared to $39.2 million for the comparable prior-year period. Gross profit of $13.3 million for the fiscal year ended December 31, 2022 increased 13.3%, or $1.6 million, as compared to $11.7 million for the comparable prior-year period.

The increase in gross profit was primarily due to an increase in gross profit margin. 

The Life Sciences and Information Technology gross profit margin for the fiscal year ended December 31, 2022 was 33.9% as compared to 30.0% for the comparable prior-year period. 

The Company attributes the gross profit margin increase to higher revenue from its Life Sciences practice and a concerted effort to increase gross profit margin through its managed service offerings.

SGA expense increased to $8.5 million as compared to $8.3 million in the comparable prior-year period.

Life Sciences and Information Technology revenue of $42.3 million for the fiscal year ended December 30, 2023 increased by 7.7%, or $3.0 million, as compared to $39.3 million for the comparable prior-year period.

Gross profit of $16.2 million for the fiscal year ended December 30, 2023 increased 21.5%, or $2.9 million, as compared to $13.3 million for the comparable prior-year period.

The increase in gross profit was due to the increase in revenue and an increase in gross profit margin.

The Life Sciences and Information Technology gross profit margin for the fiscal year ended December 30, 2023 was 38.2% as compared to 33.9% for the comparable prior-year period.

The Company attributes the gross profit margin increase to a concerted effort to increase gross profit margin through its managed service offerings.

The Life Sciences and Information Technology segment experienced operating income of $6.6 million as compared to $4.7 million for the comparable prior-year period.

 The increase in operating income was primarily due to the increase in gross profit.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

The increase in operating income was primarily due to an increase in gross profit, offset by an increase to SGA expense.

SGA expense increased to $9.2 million as compared to $8.5 million in the comparable prior-year period.

The increase in SGA expense was primarily due to the acquisition of TalentHerder in the fourth quarter of fiscal 2022 and a higher allocation of corporate SGA expenses.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Supplemental Operating Results on a Non-GAAP Basis

The following non-GAAP measures, which adjust for the categories of expenses described below, are non-GAAP financial measures. 

Our management believes that these non-GAAP financial measures (“Adjusted operating income”, “EBITDA”, “Adjusted EBITDA”, “Adjusted net income”, and “Adjusted diluted net earnings per share”) are useful information for investors, shareholders and other stakeholders of our company in gauging our results of operations on an ongoing basis and to enhance investors’

overall understanding of our current financial performance and period-to-period comparisons. 

The following non-GAAP measures, which adjust for the categories of expenses described below, are non-GAAP financial measures.

We believe these non-GAAP financial measures are performance measures and not liquidity measures.

These non-GAAP financial measures should not be considered as an alternative to net income or operating income as indicators of performance. 

In addition, neither EBITDA nor Adjusted EBITDA takes into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. 

We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. 

These non-GAAP financial measures should not be considered as an alternative to net income or operating income as indicators of performance.

In addition, neither EBITDA nor Adjusted EBITDA takes into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.

We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

The following unaudited tables present the Company's GAAP net income and GAAP operating income and the corresponding adjustments used to calculate Adjusted operating income, EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted diluted net earnings per share for the fiscal years ended December 31, 2022 and January 1, 2022. 

Fiscal Years Ended

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contingent consideration

Equity compensation

Adjusted operating income (non-GAAP)

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Interest expense, net

Change in fair value of contingent consideration

Depreciation of property and equipment

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Loss (gain) on foreign currency transactions

Equity compensation

Adjusted EBITDA (non-GAAP)

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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contingent consideration

Loss (gain) on foreign currency transactions

Equity compensation

Tax impact from normalized rate

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contingent consideration

Loss (gain) on foreign currency transactions

Equity compensation

Tax impact from normalized rate

Adjusted diluted net earnings per share (non-GAAP)

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows

($ in thousands):

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Operating Activities

Operating activities provided $28.3 million of cash for the fiscal year ended December 31, 2022 as compared to $0.9 million in the comparable prior year period. 

Operating activities provided $12.5 million of cash for the fiscal year ended December 30, 2023 as compared to $28.3 million in the comparable prior year period.

The major components of cash used in or provided by operating activities in the fiscal year ended December 30, 2023 and the comparable prior year period are as follows:

net income and changes in accounts receivable, the net of transit accounts payable and transit accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued payroll and related costs, and deferred revenue.

For the fiscal year ended December 31, 2022, the Company experienced net income of $20.9 million as compared to $11.0 million for the comparable prior year period. 

For the fiscal year ended December 30, 2023, the Company experienced net income of $16.8 million as compared to $20.9 million for the comparable prior year period.

An increase in accounts receivables in the fiscal year ended December 30, 2023, used $20.6 million of cash as compared to $1.5 million in the comparable prior year period.

The Company primarily attributes this increase in accounts receivables for the fiscal year ended December 31, 2022 to the increase in revenue for the fiscal fourth quarter 2022 to $70.2 million as compared to $64.9 million for fiscal fourth quarter 2021.

While highly variable, the Company’s transit accounts payable typically exceeds the Company’s transit accounts receivable, but absolute amounts and differences fluctuate significantly from quarter to quarter in the normal course of business. 

The net of transit accounts payable and transit accounts receivable was a net payable of $6.5 million as of December 31, 2022 as compared to a net payable of $1.1 million as of January 1, 2022, providing $5.4 million of cash during the fiscal year ended December 31, 2022. 

Prepaid expenses and other current assets used cash of $2.4 million for the fiscal year ended December 31, 2022 as compared to providing $1.8 million of cash for the comparable prior year period. 

The Company primarily attributes this increase in accounts receivables for the fiscal year ended December 30, 2023 to normal fluctuations in accounts receivable relative to revenue.

The net of transit accounts payable and transit accounts receivable was a net payable of $22.2 million as of December 30, 2023 as compared to a net payable of $6.5 million as of December 31, 2022, providing $15.7 million of cash during the fiscal year ended December 30, 2023.

The increase to net transit payable as of December 30, 2023 was due to several large, multiyear EPC (Engineering, Procurement and Construction) projects starting in the Company’s second fiscal quarter.

In a typical EPC contract, the Company receives significant cash upfront to fund equipment procurement and construction subcontractors throughout the project.

Prepaid expenses and other current assets provided negligible cash for the fiscal year ended December 30, 2023 as compared to using $2.4 million of cash for the comparable prior year period.

The Company attributes changes to prepaid expenses and other current assets, if any, to general timing of payments in the normal course of business.

Since certain expenses are paid before a fiscal year concludes and are amortized over the next fiscal year, prepaid expenses and other current assets generally tend to increase at the end of a fiscal year and decrease during the first three quarters of the following fiscal year.

An increase in accounts payable and accrued expenses provided cash of $4.9 million for the fiscal year ended December 31, 2022 as compared to $1.5 million for the comparable prior year period. 

A decrease in accounts payable and accrued expenses used cash of $1.5 million for the fiscal year ended December 30, 2023 as compared to providing $4.9 million for the comparable prior year period.

The Company attributes these changes to typical fluctuations in the normal course of business.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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Operating Activities (Continued)

Changes in accrued payroll and related costs provided negligible cash for the fiscal year ended December 31, 2022 as compared to $0.1 million for the fiscal year ended January 1, 2022. 

Changes in accrued payroll and related costs used $1.3 million for the fiscal year ended December 30, 2023 as compared to negligible cash for the fiscal year ended December 31, 2022.

There are four primary factors that generally impact accrued payroll and related costs:

1) there is a general correlation to operating expenses as payroll and related costs is the Company’s largest expense group, so as operating costs increase or decrease, absent all other factors, so will the accrued payroll and related costs;

2) the Company pays the majority of its payroll every two weeks and normally has thirteen weeks in a fiscal quarter, which means that the Company normally has a major payroll on the last business day of every other quarter;

2) the Company pays the majority of its payroll every two weeks and normally has thirty-nine weeks in a fiscal quarter, which means that the Company normally has a major payroll on the last business day of every other quarter;

3) the timing of various payroll related payments varies in the normal course of business;

and 4) most of the Company’s senior management participate in annual incentive plans and while progress advances are sometimes made during the fiscal year, these accrued bonus balances, to the extent they are projected to be achieved, generally accumulate throughout the year. 

A significant portion of these incentive plan accruals are typically paid at the beginning of one fiscal year, pertaining to the prior fiscal year.  

The Company’s last major payroll for the fiscal year ended December 31, 2022 was paid on December 30, 2022. 

During fiscal 2020, the Company deferred $3.3 million of employer payroll taxes under the CARES Act.

Half of these deferred payroll taxes were paid in fiscal December 2021 and the remaining portion was paid in fiscal December 2022.

Historically, the Company has experienced small deferred revenue balances. 

In fiscal 2022 and 2021, the Company’s Industrial Processing group secured several contracts with significant front-loaded payments, thereby generating larger deferred revenue balances than typically generated.

As a result, the Company’s deferred revenue balance as of December 31, 2022, was $1.1 million, compared to $3.4 million as of January 1, 2022, creating positive cash from operations of $2.3 million for the fiscal year ending December 31, 2022. 

While the Company expects to receive future upfront payments from its Industrial Processing clients, the Company cannot reasonably forecast deferred revenue balances as the timing of contract wins and front-loaded payments are typically haphazard.

A significant portion of these incentive plan accruals are typically paid at the beginning of one fiscal year, pertaining to the prior fiscal year.

The Company’s last major payroll for the fiscal year ended December 30, 2023 was paid on December 29, 2023.

Historically, the Company has experienced small deferred revenue balances.

In fiscal 2023 and 2022, the Company’s Industrial Processing group secured several contracts with significant front-loaded payments, thereby generating larger deferred revenue balances than typically generated.

As a result, the Company’s deferred revenue balance as of December 30, 2023 was $0.3 million, compared to $1.1 million as of December 31, 2022, using cash from operations of $0.8 million for the fiscal year ended December 30, 2023.

Investing Activities

Investing activities used $4.8 million of cash for the fiscal year ended December 31, 2022 and provided $6.3 million for the fiscal year ended January 1, 2022. 

Investing activities used $2.5 million of cash for the fiscal year ended December 30, 2023 and $4.8 million for the fiscal year ended December 31, 2022.

Investing activities used $2.9 million for the purchase of property and equipment in the current period as compared to $0.9 million in the prior year comparable period.

The current year period used $4.2 million for the acquisition of TalentHerder.

The prior year period includes $6.9 million in proceeds for the sale of the Company’s Canadian Power Systems business.

The fiscal years ended December 30, 2023 and December 31, 2022 both included discrete gains associated with the Company’s sale of its Canada Power Systems business unit.

The prior year period used $4.2 million for the acquisition of TalentHerder.

Financing Activities

Financing activities used $23.1 million of cash for the fiscal year ended December 31, 2022 and $7.6 million for the fiscal year ended January 1, 2022. 

The Company made net payments under its line of credit of $5.4 million during the fiscal year ended December 31, 2022 as compared to net borrowings of $2.3 million in the comparable prior year period. 

Financing activities used $3.9 million of cash for the fiscal year ended December 30, 2023 and $23.1 million for the fiscal year ended December 31, 2022.

The Company made net borrowings under its line of credit of $22.0 million during the fiscal year ended December 30, 2023 as compared to net payments of $5.4 million in the comparable prior year period.

The Company used $25.8 million to repurchase shares of its common stock in the current period as compared to $17.6 million in the comparable prior year period.

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The Company paid contingent consideration of $0.3 million in the current period as compared to $0.1 million in the comparable prior year period.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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Financing Activities (Continued)

Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing. 

These alternatives are:

(i) SOFR (Secured Overnight Financing Rate) (which replaced LIBOR (London Interbank Offered Rate) upon the phasing out of LIBOR), plus applicable margin, typically borrowed in fixed 30-day increments, plus applicable margin, typically borrowed in fixed 30-day increments or (ii) the agent bank’s prime rate generally borrowed over shorter durations. 

The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn. 

(i) SOFR (Secured Overnight Financing Rate), plus applicable margin, typically borrowed in fixed 30-day increments, plus applicable margin, typically borrowed in fixed 30-day increments or (ii) the agent bank’s prime rate generally borrowed over shorter durations.

The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn.

Unused line fees are recorded as interest expense.

The effective weighted average interest rate, including unused line fees, for the fiscal years ended December 31, 2022 and January 1, 2022 were 2.2% and 2.0%, respectively.

However, during the Company’s fiscal fourth quarter of 2022, it experienced a weighted average interest rate of 5.6%, including unused line.

The effective weighted average interest rate, including unused line fees, for the fiscal years ended December 30, 2023 and December 31, 2022 were 6.5% and 2.2%, respectively.

However, during the Company’s fiscal fourth quarter of 2023, it experienced a weighted average interest rate of 6.8%, including unused line.

The Company believes its fourth quarter interest rate is more reflective of rates expected in the near term.

All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of the stock of its subsidiaries.

The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts the Company’s ability to borrow in order to pay dividends.

As of December 31, 2022, the Company was in compliance with all covenants contained in the Revolving Credit Facility (as amended).

The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts the Company’s ability to borrow in order to pay dividends.

As of December 30, 2023, the Company was in compliance with all covenants contained in the Revolving Credit Facility .

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.

Borrowings under the line of credit as of December 31, 2022 and January 1, 2022 were $8.8 million and $14.2 million, respectively.

At both December 31, 2022 and January 1, 2022 there were letters of credit outstanding for $1.9 million.

At December 31, 2022 and January 1, 2022, the Company had availability for additional borrowings under the Revolving Credit Facility of $34.3 million and $28.9 million, respectively.

In addition to borrowings and sales of shares from its equity plans, the Company may raise capital through sales of shares of common stock under its at the market issuance program (the “ATM Program”) established under its May 2021 At Market Issuance Sales Agreement with B.

Riley Securities, Inc., as the agent (the “Agent”).

Borrowings under the line of credit as of December 30, 2023 and December 31, 2022 were $30.9 million and $8.8 million, respectively.

At December 30, 2023 and December 31, 2022, there were letters of credit outstanding for $2.0 and $1.9 million, respectively.

At December 30, 2023 and December 31, 2022, the Company had availability for additional borrowings under the Revolving Credit Facility of $12.1 million and $34.3 million, respectively.

In addition to borrowings and sales of shares from its equity plans, the Company may raise capital through sales of shares of common stock under its at-the-market issuance program (the “ATM Program”) established under its May 2021 At Market Issuance Sales Agreement with B.

Riley Securities, Inc., as the agent (the “Agent”).

The ATM Program allows the Company to offer and sell shares of the common stock having an aggregate sales price of up to $25.0 million from time to time through the Agent.

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The Company believes that it can satisfy its liquidity needs for at least the next twelve months.

The Company’s liquidity and capital resources as of December 31, 2022, included accounts receivable and total current asset balances of $50.8 million and $59.0 million, respectively.

The Company’s liquidity and capital resources as of December 30, 2023, included accounts receivable and total current asset balances of $70.7 million and $90.5 million, respectively.

Current liabilities were $58.2 million as of December 30, 2023 and were exceeded by total current assets by $32.3 million.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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Current Liquidity and Revolving Credit Facility (Continued)

The Company experiences volatility in its daily cash flow and, at times, relies on the revolving line of credit to provide daily liquidity for the Company’s financial operations.

As of December 30, 2023, the Company was in compliance with all financial covenants contained in the Revolving Credit Facility.

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.

All restricted share awards contain a dividend equivalent provision entitling holders to dividends paid between the restricted stock unit grant date and ultimate share distribution date. 

All restricted share awards contain a dividend equivalent provision entitling holders to dividends paid between the restricted stock award grant date and ultimate share distribution date.

As of December 30, 2023, there were no accrued dividends.

While the Company, at this time, has no plans to issue any future dividends, any future payment of dividends will depend upon, among other things, the Company’s earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions, and other factors that the Board of Directors deems relevant. 

The Revolving Credit Facility (as discussed above) prohibits the payment of any dividends or distributions on account of the Company’s capital stock without the prior consent of the majority of the Company’s lenders. 

Commitments and Contingencies

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Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial position, liquidity, and the results of operations.

The Company’s business strategy is to achieve growth both internally through operations and externally through strategic acquisitions.

The Company from time to time engages in discussions with potential acquisition candidates.

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In order to pursue such opportunities, the Company may be required to incur debt or issue potentially dilutive securities in the future.

No assurance can be given as to the Company’s future acquisition and expansion opportunities or how such opportunities will be financed.

The Company is exposed to various asserted claims as of December 30, 2023, where the Company believes it has a probability of loss.

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However, the Company believes that such matters will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows.

As of December 31, 2022, the Company has accrued $2.9 million for asserted claims. 

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

As of December 30, 2023, the Company has accrued $2.9 million for asserted claims.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

Commitments and Contingencies (Continued)

In April 2022, a client of the Company’s Industrial Processing Group alleged that a system partially designed by the Company is not operating as intended and that the Company is responsible.

The Company has not determined if it has any liability.

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These estimates are subject to material change.

The Company’s current commitments consist primarily of lease obligations for office space.

The Company believes that its capital resources are sufficient to meet its present obligations and those to be incurred in the normal course of business for at least the next 12 months.

The Company leases office facilities and various equipment under non-cancelable leases expiring at various dates through November 2027.

The Company leases office facilities and various equipment under non-cancelable leases expiring at various dates through October 2029.

Certain leases are subject to escalation clauses based upon changes in various factors.

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imputed interest

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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Future Contingent Payments

As of December 31, 2022, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the sellers:

1) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”), and 2) effective October 2, 2022, the Company acquired certain assets of TalentHerder LLC.

As of December 30, 2023, the Company had two acquisition agreements whereby additional contingent consideration may be earned by the sellers:

1) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC, and 2) effective October 2, 2022, the Company acquired certain assets of TalentHerder LLC.

The Company estimates future contingent payments at December 30, 2023 as follows:

Fiscal Years Ending

December 30, 2023

The four quarters following December 30, 2023

Estimated future contingent consideration payments

Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates. 

The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of December 31, 2022. 

Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates.

The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of December 30, 2023.

Contingent consideration related to acquisitions is recorded at fair value (level 3) with changes in fair value recorded in other (expense) income, net.

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Executive Severance Agreements

The Company is a party to an Executive Severance Agreement (the “Executive Severance Agreement”) with each of Bradley S.

Vizi, the Company's Executive Chairman and President (dated as of June 1, 2018), and Kevin D.

(as defined therein) or (b) there occurs a Change in Control and either (i) the executive’s employment is terminated for a reason related to the Change in Control or (ii) in the case of Mr.

Miller, the Company’s Chief Financial Officer (dated as of February 28, 2014, as amended), which set forth the terms and conditions of certain payments to be made by the Company to the executive in the event, while employed by the Company, such executive experiences (a) a termination of employment unrelated to a “Change in Control” (as defined therein) or (b) there occurs a Change in Control and either (i) the executive’s employment is terminated for a reason related to the Change in Control or (ii) in the case of Mr.

Miller, the executive remains continuously employed with the Company for a period of three months following the Change in Control.

Under the terms of the Executive Severance Agreement, if either (a) the executive is involuntarily terminated by the Company for any reason other than “Cause”

(as defined therein), “Disability”

(as defined therein) or death, or (b) the executive resigns for “Good Reason”

(as defined therein), and, in each case, the termination is not a “Termination Related to a Change in Control”

(as defined below), the executive will receive the following severance payments:

(i) an amount equal to 1.5 times the sum of (a) the executive’s annual base salary as in effect immediately prior to the termination date (before taking into account any reduction that constitutes Good Reason) (“Annual Base Salary”) and (b) the highest annual bonus paid to the executive in any of the three fiscal years immediately preceding the executive’s termination date (“Bonus”), to be paid in installments over the twelve month period following the executive’s termination date;

and (ii) for a period of eighteen months following the executive’s termination date, a monthly payment equal to the monthly COBRA premium that the executive is required to pay to continue medical, vision, and dental coverage, for himself and, where applicable, his spouse and eligible dependents.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

Under the terms of the Executive Severance Agreement, if either (a) the executive is involuntarily terminated by the Company for any reason other than “Cause” (as defined therein), “Disability” (as defined therein) or death, or (b) the executive resigns for “Good Reason” (as defined therein), and, in each case, the termination is not a “Termination Related to a Change in Control” (as defined below), the executive will receive the following severance payments:

Notwithstanding the above, if the executive has a termination as described above and can reasonably demonstrate that such termination would constitute a Termination Related to a Change in Control, and a Change in Control occurs within 120 days following the executive’s termination date, the executive will be entitled to receive the payments set forth below for a Termination Related to a Change in Control, less any amounts already paid to the executive, upon consummation of the Change in Control.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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Executive Severance Agreements (Continued)

Under the terms of the Executive Severance Agreement, if a Change in Control occurs and (a) the executive experiences a Termination Related to a Change in Control on account of (i) an involuntary termination by the Company for any reason other than Cause, death, or Disability, (ii) an involuntary termination by the Company within a specified period of time following a Change in Control (12 months for Mr.

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Miller, the executive resigns, with or without Good Reason, which results in a termination date that is the last day of the three month period following the Change in Control, then the executive will receive the following severance payments:

(1) a lump sum payment equal to two times the sum of the executive’s (a) Annual Base Salary and (b) Bonus;

and (2) a lump sum payment equal to 24 multiplied by the monthly COBRA premium cost, as in effect immediately prior to the executive’s termination date, for the executive to continue medical, dental and vision coverage, as applicable, in such Company plans for himself and, if applicable, his spouse and eligible dependents.

(1) a lump sum payment equal to two times the sum of the executive’s (a) Annual Base Salary and (b) Bonus;

Upon the occurrence of a Change in Control, the Company shall establish an irrevocable rabbi trust and contribute to the rabbi trust the applicable amounts due under the Executive Severance Agreement.

Miller receives the Change in Control Payment following his resignation at the end of the three month period following the Change in Control, he will not be eligible to receive any severance payments under his Executive Severance Agreement.

Miller’s Executive Severance Agreement provides that if Mr.

Miller remains continuously employed for three months following a Change in Control and is employed by the Company on the last day of such specified period, Mr.

Miller will receive a lump sum payment equal to two times the sum of his (a) Annual Base Salary and (b) Bonus (the “Change in Control Payment”).

Miller receives the Change in Control Payment, he will not be eligible to receive any severance payments under his Executive Severance Agreement.

Saks, along with several other members of the Company’s senior management (not including Mr.

Miller), is covered by our Change in Control Plan for Selected Executive Management (the “CIC Plan”).

Michael Saks, our Division President, Health Care Services, as well as several other members of the Company’s senior management (not including Mr.

Miller), are covered by our Change in Control Plan for Selected Executive Management (the “CIC Plan”).

Off-Balance Sheet Arrangements

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Permanent placement services are priced as a function of salary levels of the job candidates.

The Company’s business is labor intensive;

therefore, the Company has a high exposure to increasing health care benefit costs.

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The Company is continuing to review its options to further control these costs, which the Company does not believe are representative of general inflationary trends.

Otherwise, inflation has not been a meaningful factor in the Company’s operations.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

Otherwise, inflation has not been a meaningful factor in the Company’s operations.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

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119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842),  which amends the effective date of the original pronouncement for smaller reporting companies. 

2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies.

ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022.

 The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements.

CECL estimates of expected credit losses on trade receivables over their life will be required to be recorded at inception, based on historical information, current conditions, and reasonable and supportable forecasts.

The Company adopted the standard in its first quarter of 2023.

There was no material impact on the results of operations.

In March 2020, the FASB issued ASU No.

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This standard only applies to contracts and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. 

This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’

financial reporting burdens as the market transitions from the LIBOR and other interbank offered rates to alternative reference rates.

This standard only applies to contracts and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform.

This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the LIBOR and other interbank offered rates to alternative reference rates.

In December 2022, the FASB issued ASU No.

2022-06, Deferral of the sunset date of Topic 848.

This update defers the sunset date from December 31, 2022 to December 31, 2024. 

The Company may elect to apply the amendments prospectively through December 31, 2024.

The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

In November 2023, the Financial Accounting Standard Board (FASB) issued ASU 2023-07, “Segment reporting (Topic 280)”, which is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extend certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is also permitted.

We are currently evaluating the provisions of this ASU and expect to adopt them for the fiscal year ending December 28, 2024.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires the annual financial statements to include consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for the Company’s annual reporting periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, with a retrospective option.

We are currently evaluating the effect that adoption of ASU 2023-09 will have on our disclosures.

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 5. Market for Registrant’s Common Equity