REG - Public Policy Hldg - Interim Results
13/09/2023 07:15
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RNS Number : 2334M Public Policy Holding Company, Inc. 13 September 2023
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constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this
announcement via a Regulatory Information Service ('RIS'), this inside
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Public Policy Holding Company, Inc.
("PPHC", the "Company" or the "Group")
Unaudited interim results for the six months ended 30 June 2023
Strong growth within target margin levels; on track to meet full year
expectations
Public Policy Holding Company, Inc., the leading government relations and
public affairs group of companies providing a comprehensive range of advisory
services, today announces its interim results for the six months ended 30 June
2023 ("2023H1").
Summary
Group revenue increased 27% to $65.7m, with a strong Q2 as encouraging trends
returned following the delayed formation of the majority leadership in the
United States House of Representatives in the early part of this year. PPHC
continues to pursue its stated M&A strategy to add certain complementary
specialisations to its portfolio, as well as to expand its footprint both in
the US and into the EU and UK. The strong momentum in Q2 has positioned the
Group well for the remainder of the year and the Group remains on track to
meet full year expectations for FY23, with management retaining immediate and
long-term confidence in the Group's growth and margin prospects.
2023H1 2022H1 Change
Group Revenue $65.7m $51.7m +27%
Underlying EBITDA $16.9m $14.4m +17%
Underlying EBITDA margin 25.8% 27.9% (2.2)pt
Underlying Profit after Tax $12.7m $10.7m +18%
Underlying EPS basic 11.4c 9.9c +15%
Underlying EPS fully diluted 11.1c 9.9c +12%
Interim Dividend $0.0460 $0.0450 +2%
Net Debt / (Cash) at period-end $9.1m -$(17.8)m $(27.0)m
Financial Highlights
· 2023H1 Group revenue increased 27% to $65.7m (2022H1: $51.7m),
with organic growth of 4%.
· Underlying EBITDA of $16.9m is up 17% year-on-year and was
achieved at a 25.8% margin, in line with the Group's ongoing intention to
manage the business between 25% and 30% at margin level.
· Underlying Profit after Tax of $12.7m was 18% ahead of 2022H1,
while Underlying EPS (basic) increased by 15%.
· The Group continued to generate cash, supporting ongoing M&A
ambitions and the wider capital allocation policy. At period-end, Net Debt
totalled $9.1m (2022FY: Net Cash of $17.8m), with the movement a result of the
use of debt to fund the EPS accretive acquisition of MultiState Associates,
Inc. ("MultiState") in March 2023.
· The Board retains strong confidence in the Group's ongoing
prospects and has declared an Interim Dividend of $0.046 per Common
Outstanding Share.
Operational Highlights
· The Group advanced its strategy of supplementing organic growth
with M&A, acquiring MultiState Associates on 1 March 2023. The integration
process is ongoing and MultiState is performing ahead of internal
expectations. Alongside the acquisition of KP Public Affairs in October 2022,
the Group now has seven operating companies providing a greater range of
services in more US geographies.
· Diversification of revenue continues with the top 10 Group
clients representing 8.0% of total revenue in 2023H1, versus 10.0% at the end
of FY22 and 13.1% for FY21.
· Revenue distribution by segment reflects the inclusion of new
business lines following the MultiState acquisition, while existing lines
remained stable: Government Relations 71% (2022H1: 73%); Public Affairs 25%
(2022H1: 27%); and Diversified Services 4% (2022H1: Nil).
· A broadening client base is supported by sustained high retention
rates, with the Group now directly representing almost 40% of the Fortune 100
(and 22% of the Fortune 500), in addition to many more via their trade
associations that the Group serves.
o New Group clients include The Aluminium Association, General Electric,
Hertz, Life Science Logistics, Morton's Salt, Veterinary Medical Association
and Rain Industries.
o Client retention rate (based on # of clients) in 2023H1 was 80%, with
Government Relations above 90% and Public Affairs between 65% and 70%.
o Each of the Group's business lines (Government Relations, Public Affairs
and Diversified Services) achieved growth when compared to 2022H1.
· The quality of PPHC's operating companies continues to be
reflected in the 2023 Lobbying Disclosure Act rankings, with Group agencies,
when aggregated, topping the rankings as the US market leader in both Q1 and
Q2 2023, as well as for the whole of FY22.
· Strengthening of the management team with Roel Smits being
promoted to CFO in July as part of the executive succession planning process
and retention of Bill Chess as an Executive Director in the newly created
position of Chief Administrative Officer.
Outlook and medium-term guidance
· The strong performance delivered in H1 has set the Group up well
for the remainder of the year.
o The Group is on track to meet full year market expectations.
o Revenue growth between 20% and 30%, with the FY23 organic growth rate
expected to be similar to H1 and supported by the better-than-expected
performance of recently acquired companies.
o The Underlying EBITDA margin for H2 is expected to be around the same
level as in H1.
· The focus in H2 will be on driving client retention rates, new
business generation and the continued cross-selling of services across the
Group's broad operating company base to support organic growth prospects.
· The market for public affairs and professional lobbying services
in key geographies remains fragmented and the Board continues to view the
Group as a natural consolidator in the sector with favourable bipartisan
positioning.
· The pipeline of acquisition opportunities under development in
the US, UK and Mainland Europe remains strong in an active market for the
strategic communications sector. The Group is actively seeking to expand its
portfolio of operating companies internationally while adding complementary
specialisations.
· The Board retains its confidence in the ongoing prospects for the
Group and reiterates its medium-term guidance to achieve:
o organic revenue growth between 5% and 10%;
o incremental growth from future M&A; and
o an Underlying EBITDA margin between 25% and 30%.
Stewart Hall, CEO of PPHC, commented:
"We are a very well-placed business, with increasingly diversified operating
companies and growing capabilities at a time of massive change in the
interplay of business and government around the world. Corporates, charities,
NGOs and other client organisations are increasing their spend in the specific
advisory areas that we specialise in, and our high-quality operating companies
generate excellent client retention rates and provide high quality earnings.
"Even though the delayed formation of Congress slowed the start of Q1, clients
returned leading to improved Q2 trading and setting the Group up well for H2.
Our lobbying operations continue to be market leading in the US, consistently
at the top of the Lobbying Disclosure Act rankings, while demand for our
specialist public affairs advisory work continues to increase.
"The two recent acquisitions are successfully integrating and benefiting from
their association with the Group. Acquisitions are an important part of our
strategy as they enable us to effectively diversify the client offering into
new areas while increasing our geographical reach. This, in time, supports our
ongoing ability to generate a good level of organic growth as we have greater
reach and more sought-after services to cross-refer clients. The markets we
operate in remain highly fragmented and we are a natural sector consolidator,
with a well advanced and exciting pipeline of acquisition opportunities in the
US, UK and Mainland Europe.
"Our people continue to be the lifeblood of the business, and we are proud
that they consistently generate work that achieves incredible results on
behalf of clients. Their knowledge and depth of experience attracts high
levels of premier new business, and we now directly retain well over a fifth
of the Fortune 500 as clients.
"These interim results show that in a difficult macro-economic environment, we
remain well positioned to deliver good growth at target margin levels and can
continue to capitalise on the clear market opportunity. The runway for growth
and expansion remains significant, and we look forward to continuing to
achieve for our people, clients, wider stakeholders and investors in the
second half and beyond."
Enquiries
Public Policy Holding Company Inc. +1 (202) 688 0020
Stewart Hall, CEO
Roel Smits, CFO
Thomas Gensemer, Chief Strategy Officer
Stifel (Nominated Adviser & Broker) +44 (0) 20 7710 7600
Fred Walsh, Tom Marsh
Buchanan Communications (Media Enquiries) +44 (0) 20 7466 5000
pphc@buchanan.uk.com (mailto:pphc@buchanan.uk.com)
Chris Lane, Toto Berger
About PPHC
Incorporated in 2014, PPHC is a US-based government relations and public
affairs group providing clients with a fully integrated and comprehensive
range of services including government and public relations, research, and
digital advocacy campaigns. Engaged by over 1000 clients, including companies,
trade associations and non-governmental organisations, the Group is active in
all major sectors of the U.S. economy, including healthcare and
pharmaceuticals, financial services, energy, technology, telecoms and
transportation. PPHC's services support clients to enhance and defend their
reputations, advance policy goals, manage regulatory risk, and engage with US
federal and state-level policy makers, stakeholders, media, and the public.
PPHC operates a holding company structure and currently has seven operating
entities comprising Crossroads Strategies, Forbes Tate Partners, Seven Letter,
O'Neill & Associates, Alpine Group Partners, KP Public Affairs and
MultiState Associates. Operating in the strategic communications market, the
Group has a strong track record of organic and acquisitive growth, the latter
focused on enhancing its capabilities and to establish new verticals, either
within new geographies or new related offerings.
For more information, see www.pphcompany.com (http://www.pphcompany.com/) .
Operational Review
Introduction
The Group made good progress in the first half of the year, delivering on its
stated growth strategy which includes organic growth, the pursuit of further
acquisition targets, the expansion of its existing service capabilities and
the broadening of its geographic footprint into key US state capitals and
metropolitan areas.
Clients
PPHC provides a comprehensive range of government relations and public affairs
services to its clients. As of 31 June 2023, the Group had c.1,200 clients.
The strong growth from the c.850 clients reported for FY22 is a result of
sustained organic growth and acquisitions. The Group's core lobbying offering
remains strong, as evidenced by all three of the Group's lobbying firms, when
combined, maintaining their number one position in the listing of Federal
lobbyists, as according to quarterly and annual disclosures as required by US
Federal law and available to the public.
The Group's operating companies achieved strong new business performances and
high client retention rates throughout another turbulent period of change of
partisan power in Congress, with the results of the November 2022 mid-term
elections resulting in divided government and a prolonged campaign for Speaker
of the House in early 2023.
PPHC's emphasis on retained clients with greater than or equal to $100,000
annual spending is ongoing. The Group ended FY22 with 382 clients spending
$100,000 or more, and is on track report growth in this KPI for FY23. This is
supported by the internal referral awards and compensation programmes that are
based on Group-wide performance. Central to this growth strategy is the
introduction of premium non-lobbying services (Diversified Services), which
are increasingly key to client success. Such offerings include compliance
services for Federal and state-level lobbying, policy and trade research,
stakeholder research, and a wide range of grant writing and
procurement-related expertise.
The Group now directly represents almost 40% of the Fortune 100 and 22% of the
Fortune 500, in addition to many more via their trade associations that the
Group serves.
Investing to accelerate growth
PPHC successfully completed the acquisition of MultiState, a provider of
state-based government affairs strategies and other related services to a
large number of corporate clients, on 1 March 2023. This was the Group's
second acquisition since IPO, the first being Sacramento-based KP Associates,
which completed on 1 October 2022. Both acquisitions are integrating
successfully and are over-delivering on their respective projections.
The Group's pipeline of M&A opportunities remains strong in the US, UK and
Mainland Europe, with further M&A pipeline development supported by
additional corporate capacity, in-region advisors, and by the increased public
profile of the Group. The strategic communications market remains active
around the world and the Group is seeking to capitalise on the current
opportunities and to expand its portfolio of operating companies, both in the
US and internationally, while adding complementary specialisations.
Talent
The Group ended 2022 with 244 employees. By the end of 2023H1, this number had
increased to 322, which includes 75 from the acquisition of MultiState. The
Group's average employee count during 2023H1 was 294 (2022H1: 192). Annualised
revenue per employee reduced by 17% to $447k (2022H1: $539k/employee), albeit
this was impacted by the very different productivity figures at recent
acquisitions KP Public Affairs and MultiState Associates given the nature of
those businesses, as well as by bringing in-house the digital supplier Engage.
On a company-by-company basis, however, these measures remain relevant and the
Group is tracking them carefully.
As part of the Group's executive succession planning process, Roel Smits
succeeded Bill Chess as Chief Financial Officer as of 3 July 2023. Roel served
as PPHC's Deputy CFO since May 2022 and adds extensive experience in M&A
and CFO leadership experience from his years at Kantar and WPP.
Bill remains an Executive Director in the newly created role of Chief
Administrative Officer, reporting directly to the CEO, where he is driving
internal efficiency and collaboration.
Outlook and medium-term guidance
The Group's outlook for FY23 remains unchanged and is as follows:
· The strong performance delivered in H1 has set the Group up well
for the remainder of the year:
o The Group is on track to meet full year market expectations.
o Revenue growth between 20% and 30%, with the organic growth rate expected
to be similar to H1 and supported by the better-than-expected performance of
recently acquired companies.
o The Underlying EBITDA margin for H2 is expected to be around the same
level as in H1.
· The Board retains its confidence in the ongoing prospects for the
Group and reiterates its medium-term guidance to achieve:
o organic revenue growth between 5% and 10%;
o incremental growth from future M&A; and
o an Underlying EBITDA margin between 25% and 30%.
Financial Review
In the first half year of 2023, demonstrating the stability of the Group's
core business operations, the dedication of our management teams across our
operating companies, the success of our acquisitions, and the critical
importance of our work to our clients, revenue grew 27% to $65.7 million.
All in $ million, unless otherwise noted 2023H1 2022H1 Change
Group Revenue $65.7 $51.7 +27%
Underlying EBITDA $16.9m $14.4m +17%
Underlying EBITDA margin 25.8% 27.9% -2.2pt
Underlying Profit after Tax $12.7m $10.7m +18%
Underlying EPS basic 11.4c 9.9c +15%
Underlying EPS fully diluted 11.1c 9.9c +12%
Interim Dividend $0.0460 $0.0450 +2%
Net Debt at period-end $9.1m - $17.8m - $27.0m
All areas of the Group's business lines (government relations, public affairs
advisory and diversified services) achieved growth when compared to 2022H1.
Equally important, our underlying profitability was healthy, with Underlying
EBITDA for the period of $16.9m, up 17% over 2022H1 ($14.4m) at a margin of
25.8% (2022H1: 27.9%), within our guided range of between 25% and 30%.
The Group's cash position at the end of the period was $4.5m, offset by bank
debt of $13.6m, resulting in a net debt position of $9.1m (2022H1: net cash
$17.8m). The increase in debt relates to the acquisition of MultiState
Associates and earnout payments to the prior owners of KP Public Affairs.
Underlying Profit & Loss Statement
All in $'000, unless otherwise noted 2023H1 2022H1 change
Revenue 65,712 51,739 27%
Operational expenses (48,789) (37,299) 31%
EBITDA (Underlying) 16,923 14,439 17%
EBITDA margin (Underlying) 25.8% 27.9% -2.2
Depreciation (58) (58)
EBIT (Underlying) 16,865 14,381 17%
Interest (384) (8)
Taxes (3,788) (3,635)
Net Income (Underlying) 12,692 10,738 18%
Net income margin (Underlying) 19.3% 20.8% -1.4
Bridge from Underlying to Reported Results
All in $'000, unless otherwise noted 2023H1 2022H1 change
Net Income (Underlying) 12,692 10,738 18%
Share-based accounting charge (15,431) (15,576)
Post-combination compensation charge (3,016) 0
Long Term Incentive Program charges (654) (61)
Amortization intangibles (1,924) (942)
Gain on bargain purchase, net of deferred taxes 4,836 0
Net Income (Reported) (3,496) (5,841) -40%
Please refer to the section 'basis of preparation' for an explanation of the
non-cash items excluded from Underlying Net Income
Revenue
The Group's total revenue for 2023H1 increased by 27.0% to $65.7 million
(2022H1: $51.7 million). The organic growth rate was 3.9% and the remainder
was driven by the acquisitions of KP Public Affairs and MultiState Associates.
Organic growth of 3.9% was resilient, given 2022H1 included a period political
uncertainty that caused clients to display a cautious and moderated approach
to adhoc project spending, while retained revenues remained strong, aided by
high client retention.
Looking at the Group's revenue profile: in 2023H1, client concentration
continued its declining trend, as the largest client represented 1.4% of total
revenue, down from 1.6% in 2022. Also, in 2023H1, the Government Relations
business increased by 24% (4% organically) as the Group supported clients in
managing their risks and opportunities. The Public Affairs division increased
by 17% (3% organically).
With the acquisition of MultiState in March 2023, the Group incorporated new
service lines, such as legislative tracking and lobbying compliance, into the
portfolio. Going forward, these will be reported under a new business line
called Diversified Services.
Profit
Underlying EBITDA of $16.9 million was achieved at a margin of 25.8%, in line
with the Group's historic performance and ongoing guidance that margins will
typically move within the range of 25% to 30%.
Long term Underlying EBITDA 2018 2019 2020 2021 2022 2022H1 2023H1
Underlying EBITDA ($m) 9.3 13.5 21.5 32.0 31.2 14.4 16.9
Underlying EBITDA as % of Revenue 27.4% 24.4% 27.8% 32.2% 28.7% 27.9% 25.8%
Since 2022, Underlying EBITDA has been impacted by the additional expenses
relating to the Group's status as a public company, M&A related expenses,
investments in staff at the holding company level and in talent acquisition.
As previously communicated, we expect to make further investments in 2023 to
build out the platform.
At an after-tax level, 2023H1 Underlying Net Income amounted to $12.7m, up 18%
from 2022H1's $10.7m. This metric constitutes the basis of our dividend
calculation.
Other
The Group's net finance costs for the year were $384k (2022H1: $8k),
illustrating the incorporation of debt on the Group's balance sheet at the
time of the MultiState acquisition on 1 March 2023.
The tax accrual for 2023H1 amounted to $3.8 million, which represents a
blended charge of 23.0% to Underlying Profit. This implied an improvement over
the 25.3% effective rate in 2022H1.
Balance sheet and cash flow
The Group's net debt position as of 30 June 2023 was $9.1 million (31 December
2021: $17.8 million net cash), taking into account the $4.5 million cash
position at that time.
Cash Flow Statement summary
All in $'000, unless otherwise noted 2023H1 2022H1
Net income (3,496) (5,841)
Add back: Share based compensation 15,431 15,576
Add back: Acquisition related charges (2,741) 0
Add back: LTIP 654 61
Add back: Amortization 3,809 2,376
Add back: Depreciation 58 58
All other changes in Working Capital (11,787) (11,491)
Operational Cash flow 1,927 739
Capex (108) 0
Acquisitions (21,243) 0
Investment Cash flow (21,352) 0
Change in Debt balance 13,820 (13)
Debt issuance costs (451) 0
Dividend payment (10,642) (703)
Financing Cash Flow 2,728 (717)
Cash generated (16,698) 22
The generation of Operational Cash Flow in the first half year tends to be
muted as a result of the payment of annual bonuses across the Group in Q1 and
seasonal working capital trends. Similar to prior years, management
continues to expect the majority of Operational Cash Flow to be generated in
H2.
Dividend
The Board of Directors of the Company has declared an Interim Dividend for
2023 of $0.046 per Common Share, which equates to an aggregate amount, based
on the current number of outstanding Common Shares, of approximately $5.2
million, payable to the holders of record of all of the issued and outstanding
shares of the Company's Common Stock as of the close of business on the record
date, 22 September 2023. The ex-dividend date is 21 September 2023. The
dividend will be paid no later than 20 October 2023.
This interim payment is in line with the Company's intention to pay
approximately one third of the expected total dividend for the year as an
Interim Dividend. Also in the future, the Group will continue to weigh the
dividend payout against the need to preserve cash for M&A purposes and
debt repayment.
Information per share
2023H1 2022H1 change
# weighted avg shares - GAAP - basic and fully diluted '000 108,484 108,229 0%
# weighted avg shares - Legally outstanding - basic '000 111,324 108,228 3%
# weighted avg shares - Legally outstanding - fully diluted '000 114,729 108,921 5%
EPS - GAAP reported (basic and fully diluted) $ (0.0322) (0.0540) -40%
EPS - Underlying (basic) $ 0.1140 0.0992 15%
EPS - Underlying (fully diluted) $ 0.1106 0.0986 12%
DPS - based on # shares at time of payment $ 0.0460 0.0450 2%
For the purpose of giving investors a useful view on Earnings Per Share, the
Group computed EPS not only on a GAAP Reported Profit basis, but also on an
Underlying Profit basis. As explained in the section below, for the latter
calculation the Group includes in the denominator those shares that have been
issued in relation to post-IPO acquisitions. While those shares are still
subject to vesting rules, and therefore not part of the Common Outstanding
share count per GAAP definition, they entitle the recipients to dividends and
voting rights.
Basis of preparation
The Company was incorporated on 4 February 2021, and was admitted to trading
on the AIM market of the London Stock Exchange on 16 December 2021 (the
"IPO"). The financial statements have been prepared in accordance with US GAAP
(Generally Accepted Accounting Principles).
When the Company purchases services or goods on behalf of its clients (for
example in the case of media purchases, or external lobbyist firms), the Group
does not recognize the purchased goods as net revenue, but only the net fees
earned on the purchases. Therefore, purchases on behalf of clients do not
materially impact the top-line or the margins.
Management believes that Underlying EBITDA and Underlying Net Income are more
useful performance indicators than the reported Net Income. Five elements
distinguish our Underlying Net Income from our Reported Net Income:
(1) Share-based accounting charge: As already mentioned previous reports, the
shares retained by employee shareholders following the IPO are subject to a
vesting schedule; Also, their employment agreements contain certain provisions
which enable cash derived from the sale of shares at the time of the IPO to be
clawed back and forfeited on certain events of termination of employment.
These items create a share-based accounting noncash charge in accordance with
accounting guidance under US GAAP (Accounting Standards Codification, 718-
10-S99-2, compensation-stock compensation). Based on the value of the Company
at the time of admission ($197 million) and taking into account the 14.6% of
pre-admission employee shares sold in 2021, the 2023H1 non-cash charge is
$15.4 million (2022H1: $15.6 million). This share-based accounting non-cash
charge has no impact on either tax or Company operations.
(2) Post-combination compensation charge: In 2022 and 2023, the Group
completed the acquisitions of KP Public Affairs on 1 October 2022 and
MultiState Associates on 1 March 2023. Also, the Engage team was brought
in-house (digital services supplier to Forbes Tate Partners) on 1 November
2022. To protect the interests of the Group, the shares issued as part of
these two transactions were made subject to vesting schedules.
And also, to a certain degree, the cash paid as part of these transactions can
be clawed back and forfeited on certain events of termination of employment.
The addition of these provisions to purchase price paid creates a
post-combination compensation charge in accordance with accounting guidance
under US GAAP (Accounting Standards Codification, ASC 805-10-55-25). The
2023H1 charge is $3.0 million (2022H1: $0 million). Again, this is non-cash
charge and has no impact on either tax or Company operations.
(3) LTIP charges. In 2022 and 2023, the Group issued stock-based compensation
units under the Omnibus Plan. This plan was introduced at the time of the IPO
and allows the Group to issue up to a certain number of stock-related units.
In 2022 and HY23, PPHC has issued 6.4 million stock stock-related units in a
mix of options and restricted stock. The options were issued at a premium
exercise price (market price at time of grant plus 20%), exercisable at the
3(rd) anniversary of the grant. Restricted stock units were issued under a
gradual 3 year vesting schedule. The charges relating to these issues, $0.7
million in 2023H1 (2022H1: $0.1 million) as reflected in our P&L, were
computed using the Black Scholes method.
(4) Amortization of intangibles: The non-cash amortization charge of $1.9
million in 2023H1 (2022H1: $0.9 million) relates to the amortization of
customer relationships per ASC 805.
(5) Bargain purchase: As laid out in point 2, because a significant part of
the purchase price of the acquisition of MultiState Associates is tied to
continued employment, this part has been accounted for as post-combination
compensation. As a consequence, the book purchase price is much lower than
the tax purchase price. The reason for the bargain purchase gain is tied
directly to the tax purchase price significantly exceeding the book purchase
price and is not a reflection of a true bargain purchase of the actual
intangible and tangible assets of MultiState Associates.
For the calculation of Earnings per Share (EPS) based on GAAP Profit, as a
denominator, the Group uses the weighted average number of Common Outstanding
shares during the period. For the calculation of Earnings per Share (EPS)
based on Underlying Profit, as a denominator, the Group uses the weighted
average number of Legally Issued shares during the period. This comprehends
all the Common Outstanding shares, as well as those shares that were yet
unvested but entitled the owner to dividends and voting rights (e.g. shares
issued in relation to one of our post-IPO acquisitions). Consequently, the
weighted average number of legally issued shares in 2023H1 was 111,323,766
(2022H1: 108,228,513) and on a fully diluted basis (taking into account any
issued stock instrument, regardless of exercise price), this number was
114,728,537 (2022H1: 108,920,722).
Note to Investors:
In accordance with a letter provided to shareholders by Link, certain IRS
forms are required to be completed.
More details and links to these forms can be found at
https://pphcompany.com/notice-to-investors/
(https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fpphcompany.com%2Fnotice-to-investors%2F&data=05%7C01%7Callison.sedberry%40pphcompany.com%7C314e9afc3cc540f4b81908dbb3af5182%7Cd89047a20db846939b061697f2e8c9b8%7C0%7C0%7C638301337797949402%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=1BvwReP1aIIPuFdnrNNtZl%2FBiQ9K1hwhvJrSUbQys6I%3D&reserved=0)
Consolidated Balance Sheets
Unaudited at Unaudited at Audited at
June 30, June 30, December 31,
2023 2022 2022
Assets
Current assets:
Cash $ 4,504,950 $ 18,057,698 $ 21,202,456
Accounts receivable, net 17,637,146 11,737,244 12,149,803
Amounts due from related parties 1,038,569 - -
Prepaid post-combination compensation, current portion 3,293,838 - 441,852
Prepaid expenses and other current assets 1,701,453 1,060,909 1,411,421
Total current assets 28,175,956 30,855,851 35,205,532
Property and equipment, net 738,870 730,636 688,313
Note receivable - related party, long term 513,000 513,000 513,000
Operating lease right of use asset 23,324,777 14,474,803 16,239,667
Goodwill 47,909,832 44,893,532 47,909,832
Other intangible assets, net 28,824,164 11,935,161 18,575,116
Deferred income tax asset 7,706,000 - 2,278,400
Prepaid post-combination compensation, long term 5,761,506 - 515,500
Other long-term assets 221,918 732,289 118,887
Total assets $ 143,176,023 $ 104,135,272 $ 122,044,247
Liabilities
Current liabilities:
Accounts payable and accrued expenses $ 13,282,751 $ 8,218,970 $ 12,336,324
Income taxes payable 522,017 113,119 4,150,389
Amounts owed to related parties - 1,539,397 1,276,479
Deferred revenue 3,117,997 2,500,738 2,860,889
Operating lease liability due within one year 3,515,876 3,489,218 3,907,543
Contingent consideration, current portion 592,000 - 1,779,000
Other liability, current portion - - 1,821,600
Notes payable, net, current portion 3,370,421 19,590 20,664
Total current liabilities 24,401,062 15,881,032 28,152,888
Notes payable, net, long term 9,259,637 203,797 189,975
Line of credit 1,000,000 - -
Deferred income tax liability - 2,613,400 -
Contingent consideration, long term 4,616,390 - 2,466,000
Other liability, long term 1,356,252 - 435,060
Operating lease liability, long term 22,761,705 13,599,017 14,815,236
Total liabilities 63,395,046 32,297,246 46,059,159
Stockholders' equity
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 113,083,017, 108,721 108,199 108,024
109,346,480 and 108,240,250 shares issued and outstanding, respectively
Additional paid-in capital 138,646,823 102,530,075 120,713,626
Accumulated deficit (58,974,567) (30,800,248) (44,836,562)
Total stockholders' equity 79,780,977 71,838,026 75,985,088
Total liabilities and stockholders' equity $ 143,176,023 $ 104,135,272 $ 122,044,247
Consolidated Statements of Operations
Unaudited six Unaudited six Audited year
months ended months ended ended
June 30, June 30, December 31, 2022
2023 2022
Revenue $ 65,711,955 $ 51,738,804 $ 108,814,491
Expenses:
Personnel cost 34,398,546 25,272,856 52,252,267
Employee bonuses 5,999,863 5,144,896 11,010,439
General and administrative expenses 5,921,584 5,060,981 10,432,781
Occupancy expense 2,469,262 1,820,763 3,933,014
Depreciation and amortization expense 1,981,485 1,000,368 2,229,197
Long term incentive program charges 654,000 61,494 317,679
Total expenses before share-based 51,424,740 38,361,358 80,175,377
accounting (ASC 718-10-S99-2) charge
and post-combination compensation (ASC 805-10-55-25) charge
Income from operations before share-based 14,287,215 13,377,446 28,639,114
accounting (ASC 718-10-S99-2) charge
and post-combination compensation (ASC 805-10-55-25) charge
Share-based accounting (ASC 718-10-S99-2) charge 15,430,500 15,575,773 33,392,300
Post-combination compensation (ASC 805-10-55-25) charge 3,016,024 - 2,441,052
Loss from operations (4,159,309) (2,198,327) (7,194,238)
Gain on bargain purchase, net of deferred taxes 4,835,777 - -
Interest expense (384,469) (8,150) (16,873)
Net income (loss) before income taxes 291,999 (2,206,477) (7,211,111)
Income tax expense 3,788,400 3,634,800 7,797,600
Net loss $ (3,496,401) $ (5,841,277) $ (15,008,711)
Net loss per share attributable to common $ (0.03) $ (0.05) $ (0.14)
stockholders, basic and diluted
Weighted average common shares outstanding, $ 108,483,598 108,228,513 108,136,853
basic and diluted
Consolidated Statements of Stockholders' Equity
Common Stock Additional Accumulated Total
Paid-In Deficit Stockholders'
Capital Equity
Shares Amount
June 30, 2022
Balance as of December 31, 2021 108,240,050 $ 108,240 $ 86,892,903 $ (24,255,813) $ 62,745,330
Stock option expense - - 61,494 - 61,494
Dividends - - - (703,294) (703,294)
Forfeiture of unvested restricted stock (136,147) (136) - 136 -
Share-based accounting (ASC 718-10-S99-2) charge 95,202 95 15,575,678 - 15,575,773
Net loss - - - (5,841,277) (5,841,277)
Balance as of June 30, 2022 108,199,105 $ 108,199 $ 102,530,075 $ (30,800,248) $ 71,838,026
June 30, 2023
Balance as of December 31, 2022 108,024,388 $ 108,024 $ 120,713,626 $ (44,836,562) $ 75,985,088
Stock option expense - - 583,000 - 583,000
Dividends - - - (10,641,674) (10,641,674)
Forfeiture of unvested restricted stock (69,576) (70) - 70 -
Issuance of common stock for acquisition 767,401 767 1,231,233 - 1,232,000
Share-based accounting (ASC 718-10-S99-2) charge - - 15,430,500 - 15,430,500
Post-combination compensation (ASC 805-55-10-25) charge-shares - - 688,464 - 688,464
Net loss - - - (3,496,401) (3,496,401)
Balance as of June 30, 2023 108,722,213 $ 108,721 $ 138,646,823 $ (58,974,567) $ 79,780,977
Consolidated Statements of Cash Flows
Unaudited six Unaudited six Audited year
months ended months ended ended
June 30, June 30, December 31,
2023 2022 2022
Cash flows from operating activities
Net loss $ (3,496,401) $ (5,841,277) $ (15,008,711)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation 57,932 57,962 100,285
Amortization expense - intangibles 1,923,553 942,406 2,128,912
Amortization of right of use assets 1,834,971 1,433,768 3,115,249
Amortization of debt discount 50,081 - -
Provision for deferred income taxes (336,200) (301,200) (589,961)
Share-based accounting (ASC 718-10-S99-2) charge 15,430,500 15,575,773 33,392,300
Stock-based compensation 654,000 61,494 317,679
Amortization of prepaid post-combination compensation (ASC 805-55-10-25) 1,406,008 - 73,648
Post-combination compensation (ASC 805-55-10-25) charge-shares 688,464 - 110,744
Gain on bargain purchase (4,835,777) - -
(Increase) decrease in
Accounts receivable, net (5,023,678) (3,523,242) (3,935,801)
Other assets (201,886) (748,529) (368,068)
Increase (decrease) in
Accounts payable and accrued expenses 875,427 (111,385) 3,805,605
Income taxes payable (3,695,693) (409,381) 3,627,889
Deferred revenue (4,424,296) 558,202 682,806
Operating lease liability (1,613,192) (1,549,367) (3,362,168)
Other liability 921,192 - 2,256,660
Transactions with members/related parties 1,711,514 (5,406,548) (5,669,466)
Net cash provided by operating activities 1,926,519 738,676 20,677,602
Cash flows from investing activities
Purchases of property and equipment (108,489) - -
Payment of contingent consideration (3,643,200) - -
Cash paid for acquisitions and prepaid post-combination compensation, net of (17,600,000) - (11,912,460)
cash acquired
Net cash used in investing activities (21,351,689) - (11,912,460)
Cash flows from financing activities
Proceeds from notes payable 14,000,000 - -
Payment of debt issuance costs (450,729) - -
Proceeds from line of credit 1,000,000 (13,325) (26,073)
Principal payments on notes payable (1,179,933) - -
Distributions (10,641,674) (703,294) (5,572,254)
Net cash provided by (used in) financing activities 2,727,664 (716,619) (5,598,327)
Net increase (decrease) in cash and cash equivalents (16,697,506) 22,057 3,166,815
Cash and cash equivalents as of beginning of year 21,202,456 18,035,641 18,035,641
Cash and cash equivalents as of end of year $ 4,504,950 $ 18,057,698 $ 21,202,456
Supplemental disclosure of cash flow information
Cash paid for interest $ 334,388 $ 8,150 $ 16,873
Cash paid for income taxes $ 7,822,459 $ 4,345,381 $ 4,770,409
Right of use assets obtained with lease liabilities $ 8,858,106 $ - $ 3,447,345
Contingent consideration issued for acquisitions $ 2,784,990 $ - $ 4,245,000
Common stock issued for acquisition $ 1,232,000 $ - $ -
Increase in deferred revenue from acquisitions $ 4,681,404 $ - $ 235,547
Increase in accounts payable and accrued expenses from acquisitions $ - $ - $ 201,364
Increase in other assets from acquisitions $ 4,681,404 $ - $ 117,571
Notes to Consolidated Financial Statements
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation:
Public Policy Holding Company, Inc. ("PPHC-Inc.") was incorporated on February
4, 2021. From PPHC-Inc.'s incorporation until December 10, 2021 (the
"Conversion Date"), all of the issued and outstanding shares of stock of
PPHC-Inc. were owned by Public Policy Holding Company, LLC ("PPHC-LLC"), which
(i) was organized as a Delaware limited liability company on July 1, 2014, and
(ii) owned certain wholly-owned operating subsidiaries, all organized as
Delaware limited liability companies (the "Subsidiaries," and collectively
with PPHC-Inc., the "Company"). On the Conversion Date, PPHC-LLC contributed
and assigned substantially all of its assets and liabilities (including all of
the Subsidiaries, but excluding certain specified assets and liabilities) to
PPHC-Inc. in exchange for the issuance by PPHC-Inc. of 100,000,000 shares (the
"Contribution Shares") of Common Stock, par value $0.001 per share ("Common
Stock") of PPHC-Inc. Pursuant to a formula approved by the Executive Board and
General Board of PPHC-LLC (the "Waterfall"), PPHC LLC then liquidated and
distributed the Contribution Shares to each of PPHC-LLC's owners who (other
than The Alpine Group, Inc.), in turn, distributed such shares to their
respective owners in accordance with the Waterfall (collectively, the "Company
Conversion").
The Company provides Governmental Relations Consulting, Public Affairs
Consulting and Diversified Services exclusively in the United States of
America ("U.S.").
These unaudited interim consolidated financial statements for the six months
ended June 30, 2023 have been prepared in accordance with the accounting
policies set out in the Annual Report and Financial statements of the Company
for the year ended December 31, 2022 using the recognition and measurement
principles in conformity with generally accepted accounting principles in the
United States of America ("GAAP"). Such consolidated financial statements
reflect all adjustments that are, in management's opinion, necessary to
present fairly, in all material respects, the Company's financial position,
results of operations and cash flows, and are presented in U.S. Dollars. All
material intercompany transactions and balances have been eliminated in
consolidation.
Principles of Consolidation:
The consolidated financial statements include all of the accounts of the
entities listed below:
Parent company:
Public Policy Holding Company, Inc.
Wholly owned operating subsidiaries:
Crossroads Strategies, LLC
Forbes Tate Partners, LLC
Blue Engine Message & Media, LLC, doing business as
Seven Letter
O'Neill & Partners LLC, doing business as O'Neill
& Associates
Alpine Group Partners, LLC
KP Public Affairs, LLC
MultiState Associates, Inc.
On January 1, 2020, the Company formed Seven Letter ONA to do business in the
State of Massachusetts. Revenue and expense from Seven Letter ONA will be
allocated to Seven Letter and O'Neill & Associates.
Initial Public Offering:
On December 16, 2021, PPHC-Inc. completed an initial public offering and
placement ("IPO") of its shares of Common Stock, and the admission of Common
Stock to trading on the AIM market of the London Stock Exchange.
The PPHC-LLC Limited Liability Company Agreement ("LLC Agreement") provided
for the payment of a "Holdings Distribution Discount" in connection with a
sale or IPO of the Company, amounting to $4,462,540 (excluding an interest
accrual which is being waived). The Holdings Distribution Discount represents
the difference between an operating subsidiary paying three percent of its
revenues annually to PPHC-LLC (which has historically been paid by all
operating subsidiaries other than Crossroads Strategies, LLC and Forbes Tate
Partners, LLC), and each of Crossroads Strategies, LLC and Forbes Tate, LLC,
which, as the founding businesses acquired by PPHC-LLC, have paid
approximately five percent of their respective revenues annually to PPHC-LLC.
Historically, PPHC-LLC and its members viewed this obligation of PPHC-LLC
(triggered by the IPO) as an obligation to refund Crossroads Strategies, LLC
and Forbes Tate, LLC, their relative overpayments (compared to the other
operating subsidiaries) because had those overpayments not been made to
PPHC-LLC, those amounts could have been paid as additional bonuses or
distributions to the owners of Crossroads Strategies, LLC and Forbes Tate,
LLC. This obligation of PPHC-LLC has been contributed and assigned to and
assumed by the Company as part of the Contribution Agreement entered into in
connection with the Company Conversion. Upon the Company's payment of the
Holdings Distribution Discount to Crossroads Strategies, LLC and Forbes Tate,
LLC, it is anticipated that Crossroads Strategies, LLC and Forbes Tate, LLC
will, in turn, distribute such amounts to their respective owners including
but not limited to Stewart Hall and Zachary Williams. As of June 30, 2022, the
Holdings Distribution Discount of approximately $1,539,000 is included in the
amounts owed to related parties in the Company's Consolidated Balance
Sheets. This amount was paid in full prior to December 31, 2022.
During 2021, all the ultimate owners of PPHC-LLC ("Group Executives") entered
into Executive Employment Agreements. The Group Executives sold some of their
Common Stock in conjunction with the IPO ("Liquidated Pre-IPO Shares") but
retained the majority of their shares ("Retained Pre-IPO Shares"). The
Retained Pre-IPO Shares are subject to a vesting schedule under which the
Common Stock held by each Group Executive will vest in equal installments on
the first five anniversaries of the effective date of the IPO, provided that
the Group Executive remains continuously employed by the employer; this
vesting schedule applies to all the Company's employees holding Common Stock
at the time of the IPO. In the event that a Group Executive's employment
terminates (other than on death or "disability", or by the employer without
"cause", or by the Group Executive for what is deemed to be for a "good
reason") then the unvested proportion of the Retained Pre-IPO Shares which
have not vested, will not vest and will be automatically forfeited and clawed
back as of the date of such termination. In the event a Group Executive's
employment terminates on death or "disability," or by the employer without
"cause," or by the Group Executive for what is deemed to be "good reason,"
then all unvested shares will vest automatically as of the date of such
termination. The Executive Employment Agreements also contain certain
provisions which enable cash derived from the sale of Liquidated Pre-IPO
Shares and Retained Pre-IPO Shares that have vested to be clawed back and
forfeited on certain events of termination of employment or breaches of
certain provisions of the Executive Employment Agreements. Pursuant to the
Executive Employment Agreements for Group Executives employed by Alpine Group
Partners, a pro-rata portion of the Retained Pre-IPO Shares held by (and the
Liquidated Pre-IPO Shares sold by) The Alpine Group Inc. are subject to
vesting, forfeiture and claw back based on the employment of certain of those
Group Executives.
The addition of the vesting provisions to previously issued shares creates a
share-based accounting charge in accordance with the accounting guidance in
Accounting Standards Codification ("ASC") 718-10-S99-2, Compensation-Stock
Compensation. See Note 6.
Revenue Recognition:
The Company generates the majority of its revenue by providing consulting
services related to Government Relations, Public Affairs and Diversified
Services. In determining the method and amount of revenue to recognize, the
Company has to make judgments and estimates. Specifically, complex
arrangements with nonstandard terms and conditions may require management's
judgment in interpreting the contract to determine the appropriate accounting,
including whether the promised services specified in an arrangement are
distinct performance obligations and should be accounted for separately, and
how to allocate the transaction price, including any variable consideration,
to the separate performance obligations. When a contract contains multiple
performance obligations, the Company allocates the transaction price to each
performance obligation based on its estimate of the stand-alone selling price.
Other judgments include determining whether performance obligations are
satisfied over-time or at a point-in-time and the selection of the method to
measure progress towards completion.
The Company's general practice is to establish an agreement with a client with
a fixed monthly payment at the beginning of each month for the month's service
to be performed. Most of the consulting service contracts are based on one of
the following types of contract arrangements:
· Fixed-fee arrangements require the client to pay a fixed fee in
exchange for a predetermined set of professional services. The Company
recognizes revenue at the beginning of the month for that month's services.
· Additional services include items such as 1) advertisement placement
and management, 2) video production, and 3) website development, in which
third-party companies may be engaged to achieve specific business objectives.
These services are either in a separate contract or within the fixed-fee
consulting contract, in which the Company usually receives a markup on the
cost incurred by the Company. The Company recognizes revenues earned to date
in an amount that is probable or unlikely to reverse and by applying the
proportional performance method when the criteria for revenue recognition is
met. Any out-of-pocket administrative expenses incurred are billed at cost.
Certain services provided by the Company include the utilization of a
third-party in the delivery of those services. These services are primarily
related to the production of an advertising campaign or media buying
services. The Company has determined that it acts as an agent and is solely
arranging for the third-parties to provide services to the customer.
Specifically, the Company does not control the specified services before
transferring those services to the customer, and is not primarily responsible
for the performance of the third-party services, nor can the Company redirect
those services to fulfill any other contracts. The Company does not have
discretion in establishing the third-party pricing in its contracts with
customers. For these performance obligations for which the Company acts as
an agent, the Company records revenue as the net amount of the gross billings
less amounts remitted to the third-party.
The revenue for the six months ended June 30, 2022 was reclassified to conform
with the presentation of the six months ended June 30, 2023. The following
table provides disaggregated revenue by revenue type for the periods ended:
Six months ended June 30, 2023 Six months ended June 30, 2022 12 months ended December 31, 2022
Government Relations Consulting $ 46,529,662 $ 37,571,400 $ 78,177,680
Public Affairs Consulting 16,507,022 14,167,404 30,636,811
Diversified Services 2,675,271 - -
Total revenue $ 65,711,955 $ 51,738,804 $ 108,814,491
See the Segment Reporting Note 11 for a description of the principal
activities, by reportable segment, from which the Company generates revenue.
As of January 1, 2023 and 2022, the accounts receivable, net and deferred
revenue was approximately $11,585,000 and $2,861,000 and $8,214,000 and
$1,943,000, respectively. The following table provides information about
receivables, contract assets and contract liabilities from contracts with
customers as of:
June 30, 2023 June 30, 2022 December 31, 2022
Accounts receivable, net $16,206,378 $ 11,119,762 $11,585,267
Other receivables 1,430,768 617,482 564,536
Contract liabilities (deferred revenue) 3,117,997 2,500,738 2,860,889
Contract liabilities relate to advance consideration received from customers
under the terms of the Company's contracts primarily related to retainer fees
and reimbursements of third-party expenses, both of which are generally
recognized shortly after billing. Deferred revenue of approximately
$2,861,000 and $1,943,000 from December 31, 2022 and 2021 is expected to be
recognized as revenue in 2023 and 2022, respectively.
Cash and Cash Equivalents:
The Company considers all cash investments with original maturities of three
months or less to be cash equivalents. At times, the Company maintains cash
accounts that exceed federally insured limits, but management does not believe
that this results in any significant credit risk.
Accounts Receivable:
The Company provides for an allowance for doubtful accounts based on
management's best estimate of possible losses determined principally on the
basis of historical experience and specific allowances for known troubled
accounts, if needed. Accounts are generally considered past due after the
contracted payment terms, which are generally net 30 day terms. All accounts
or portions thereof that are deemed to be uncollectible or that require an
excessive collection cost are written off to the allowance for doubtful
accounts. As of June 30, 2023, June 30, 2022 and December 31, 2022, the
balance of allowance for doubtful accounts approximated $427,000, $250,000 and
$595,000, respectively.
Leases:
A lease is defined as a contract that conveys the right to control the use of
identified property, plant or equipment for a period of time in exchange for
consideration. The Company accounts for its leases in accordance with the
guidance in Accounting Standards Codification ("ASC") 842 ("ASC 842").
Substantially all of the leases in which the Company is the lessee are
comprised of real estate property for remote office spaces and corporate
office space. Substantially all of the leases are classified as operating
leases.
As of June 30, 2023, June 30, 2022 and December 31, 2022, the Company had
approximately $23,325,000, $14,475,000 and $16,240,000, respectively, of
operating lease ROU assets and $26,278,000, $17,088,000 and $18,723,000,
respectively of operating lease liabilities on the Company's Consolidated
Balance Sheets. The Company has elected not to recognize right-of-use ("ROU")
assets and lease liabilities arising from short-term leases, leases with
initial terms of twelve months or less, or equipment leases (deemed
immaterial) on the Consolidated Balance Sheets.
These leases may contain terms and conditions of options to extend or
terminate the lease, which are recognized as part of the ROU assets and lease
liabilities when an economic benefit to exercise the option exists and there
is a significant probability that the Company will exercise the option. If
these criteria are not met, the options are not included in the Company's ROU
assets and lease liabilities. Variable lease payment amounts that cannot be
determined at the commencement of the lease, such as common area maintenance
expenses and increases in lease payments based on changes in index rates, are
not included in the ROU assets or liabilities. These variable lease payments
are expensed as incurred.
As of June 30, 2023, these leases do not contain material residual value
guarantees or impose restrictions or covenants related to dividends or the
Company's ability to incur additional financial obligations.
The discount rate for operating leases was based on market rates from a bank
for obligations with comparable terms effective at the lease inception date.
The following table presents lease costs, future minimum lease payments and
other lease information as of June 30, 2023:
July 1, 2023 to June 30, $ 4,619,237
2024.................................................................................
July 1, 2024 to June 30, 5,497,074
2025.................................................................................
July 1, 2025 to June 30, 5,583,853
2026.................................................................................
July 1, 2026 to June 30, 5,051,079
2027.................................................................................
July 1, 2027 to June 30, 4,509,861
2028.................................................................................
Thereafter............................................................................................................... 5,480,000
Total future minimum lease payments 30,741,104
Amount representing interest (4,463,523)
Present value of future minimum lease payments $26,277,581
During 2023, the Company entered into a lease amendment to lease additional
space for one of its current offices. The lease for the additional space had
not commenced as of June 30, 2023 and a corresponding right-of-use asset and
lease liability has not been recorded. The lease commencement date for this
lease is expected to occur within the next 12 months. The estimated future
payments for this lease amendment total approximately $1,016,000.
Lease Cost
June 30, 2023 June 30, 2022 December 31, 2022
Operating lease cost (cost resulting from lease payments) $2,381,525 $1,913,537 $4,011,764
Variable lease cost (cost excluded from lease payments) 247,867 82,829 264,179
Sublease income (224,653) (206,045) (396,000)
Net lease cost $2,404,739 $1,790,321 $3,879,943
Operating lease - operating cash flows $2,050,685 $2,032,661 $4,264,516
(fixed payments)
Weighted average lease term - operating leases 5.8 years 5.6 years 5.2 years
Weighted average discount rate - operating leases 5.20% 4.70% 4.80%
The Company subleases office space to third parties under separate sublease
agreements, which are generally month-to-month leases. The amount of future
sublease income from subtenants as of June 30, 2023 is immaterial.
Property and equipment:
Property and equipment consist of furniture, equipment and leasehold
improvements and is carried at cost less accumulated depreciation.
Depreciation is provided generally on a straight-line method over the
estimated useful lives of the related assets ranging from 5 to 15 years.
Business Combination
In a business combination, the acquisition method of accounting requires that
the assets acquired and liabilities assumed be recorded as of the date of the
acquisition at their respective fair values with limited exceptions. Assets
acquired and liabilities assumed in a business combination that arise from
contingencies are generally recognized at fair value. If fair value cannot be
determined, the asset or liability is recognized if probable and reasonably
estimable; if these criteria are not met, no asset or liability is recognized.
Transaction costs are expensed as incurred. The operating results of the
acquired business are reflected in the Company's consolidated financial
statements after the date of acquisition.
Goodwill and indefinite-lived intangible assets:
Goodwill represents the excess of the purchase price over the fair value of
assets acquired and liabilities assumed in business combinations and is
allocated to the appropriate reporting unit when acquired. Acquired intangible
assets are recorded at fair value.
Goodwill is evaluated for impairment annually during the fourth quarter, or
more frequently if an event occurs, or circumstances change that could more
likely than not reduce the fair value of a reporting unit below its carrying
value. Goodwill is typically assigned to the reporting unit, which
consolidates the acquisition. Components within the same reportable segment
are aggregated and deemed a single reporting unit if the components have
similar economic characteristics. As of June 30, 2023, the Company's reporting
units consisted of Government Relations Consulting, Public Affairs Consulting
and Diversified Services. Goodwill is evaluated for impairment using either a
qualitative or quantitative approach for each of the Company's reporting
units. Generally, a qualitative approach is first performed to determine
whether a quantitative goodwill impairment test is necessary. If management
determines, after performing an assessment based on qualitative factors, that
the fair value of the reporting unit is more likely than not less than the
carrying amount or that a fair value of the reporting unit substantially in
excess of the carrying amount cannot be assured, then a quantitative goodwill
impairment test would be required. The quantitative test for goodwill
impairment is performed by determining the fair value of the related reporting
units. Fair value is measured based on the discounted cash flow method, which
requires management to estimate a number of factors for each reporting unit,
including projected future operating results, anticipated future cash flows
and discount rates. Management has performed its evaluation and determined the
fair value of each reporting unit is greater than the carrying amount and,
accordingly, the Company has not recorded any impairment charges related to
goodwill for the six months ended June 30, 2023 and 2022 and the year ended
December 31, 2022.
Indefinite-lived intangible assets are tested for impairment annually during
the fourth quarter, or more frequently if an event occurs or circumstances
change that could more likely than not reduce the fair value below its
carrying value. The Company's indefinite-lived intangible assets consist of
trademarks acquired through various business acquisitions. The Company has the
option to first assess qualitative factors to determine whether events or
circumstances indicate it is more likely than not that the fair value of the
trademarks is greater than the carrying amount, in which case a quantitative
impairment test is not required. Management has performed its evaluation and
determined that the trademarks are not impaired for the six months ended June
30, 2023 and 2022 and the year ended December 31, 2022.
Customer relationship asset:
The Company's definite-lived intangible asset consists of customer
relationships that have been acquired through various acquisitions. The
Company is amortizing these assets over their estimated useful lives.
Impairment of long-lived assets:
Long-lived assets subject to amortization are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for an amount by which the carrying amount of
the asset exceeds the fair value of the asset. The Company has not recorded
any impairment charges related to long-lived assets for the for the six months
ended June 30, 2023 and 2022 and the year ended December 31, 2022.
Deferred revenue:
Deferred revenue represents prepayment by the customers for services that have
yet to be performed. As of June 30, 2023, June 30, 2022 and December 31, 2022,
deferred revenue was approximately $3,118,000, $2,501,000 and $2,861,000,
respectively. Deferred revenue is expected to be recognized as revenue
within a year.
Accounts payable and accrued expenses:
Accounts payable and accrued expenses consist of the following as of:
June 30, 2023 June 30, 2022 December 31, 2022
Accounts payable $ 5,733,663 $1,702,628 $ 1,199,130
Bonus payable 5,559,928 4,910,912 9,425,261
Other accrued expenses 1,989,160 1,605,430 1,711,933
Total $13,282,751 $8,218,970 $12,336,324
Marketing and advertising costs:
The Company expenses marketing and advertising costs as incurred. Marketing
and advertising expense for the six months ended June 30, 2023 and 2022 and
the year ended December 31, 2022 was approximately $81,000, $56,000 and
$182,000, respectively.
Income taxes:
Prior to the Conversion Date, PPHC-LLC was a limited liability company whereby
the tax attributes were passed through to and reported on the members of
PPHC-LLC's tax returns.
After the Conversion Date, the Company utilizes the asset and liability method
in the Company's accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. The Company records a valuation allowance
against deferred tax assets when realization of the tax benefit is uncertain.
A valuation allowance is recorded, if necessary, to reduce net deferred taxes
to their realizable values if management believes it is more likely than not
that the net deferred tax assets will not be realized.
The Company may recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement.
Estimates:
The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Share-based accounting charge and stock option expense:
The Company accounts for its share-based accounting (ASC 718-10-S99-2) charge
using the fair value method. The fair value method requires the Company to
estimate the grant-date fair value of its share-based awards and amortize this
fair value to expense over the requisite service period or vesting term. For
restricted and nonvested stock awards, the grant-date fair value is based upon
the market price of the Company's common stock on the date of the grant. For
stock options, the grant-date fair value is based on the Black-Scholes Option
Pricing Model. For stock appreciation rights ("SARs") recorded as a liability,
the Company adjusts the value of the SARs based on the fair value at each
reporting date, which is calculated based on the Black-Scholes Option Pricing
Model. The Company records forfeitures as they occur.
Segment information:
GAAP requires segmentation based on an entity's internal organization and
reporting of revenue and operating income based upon internal accounting
methods commonly referred to as the "management approach." Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker ("CODM"), or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company's CODM is its Chief
Executive Officer. The Company's operations are conducted in three reportable
segments. These segments consist of Government Relations Consulting, Public
Affairs Consulting and Diversified Services.
Basic and diluted earnings (loss) per share:
The Company computes earnings (loss) per share in accordance with ASC 260,
Earnings per Share, which requires presentation of both basic and diluted
earnings per share on the face of the consolidated statements of operations.
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of outstanding
shares during the period. Diluted earnings (loss) per share gives effect to
all dilutive potential common shares outstanding during the period. Due to
their anti-dilutive effect, the calculation of diluted net loss per share for
the six months ended June 30, 2023 and 2022 and the year ended December 31,
2022 does not include the common stock equivalent shares below:
June 30, 2023 June 30, 2022 December 31, 2022
Common shares outstanding 108,722,213 108,199,105 108,024,388
Nonvested shares outstanding 4,360,804 - 1,322,092
Legally outstanding shares 113,083,017 108,199,105 109,346,480
Stock options and RSUs outstanding 4,774,445 2,644,859 2,718,809
Total fully diluted shares 117,857,462 110,843,964 112,065,289
The following table includes the weighted average shares outstanding for each
respective period:
June 30, 2023 June 30, 2022 December 31, 2022
Common shares, weighted average 108,483,598 108,228,513 108,136,853
Nonvested shares, weighted average 2,840,168 - 339,584
Legally outstanding shares, weighted average 111,323,766 108,228,513 108,476,437
Stock options and RSUs, weighted average 3,404,771 692,209 1,670,203
Total fully diluted, weighted average 114,728,537 108,920,722 110,146,640
Fair value of financial instruments:
The carrying values of cash, accounts receivable, and accounts payable and
accrued expenses at June 30, 2023, June 30, 2022 and December 31, 2022
approximated their fair value due to the short maturity of these instruments.
Reclassification:
Certain categorizations of the June 30, 2022 and December 31, 2022 segment
disclosures have been reclassified to conform to the June 30, 2023
presentation. These reclassifications had no impact on the total results or
net assets of the Company.
Restatement:
During the preparation and review of the Company's consolidated financial
statements for the six months ended June 30, 2023, it was determined that
certain typographical errors were made in the Company's previously issued
(unaudited) consolidated financial statements for the six months ended June
30, 2022. These errors were immaterial and did not impact the Company's
overall financial position or net loss presented. However, these errors have
been corrected for presentation in these consolidated financial statements.
The corrections were a change in the balance sheet for the accounts payable
and accrued expenses balance from $8,418,970 to $8,218,970, a change in the
cash flow statement for the change in the amortization of the right-of-use
assets from $1,432,768 to $1,433,768 and the change in accounts payable and
accrued expenses from $110,385 to $111,385, and a change in the net loss
reported in the statement of equity from ($5,887,954) to ($5,841,277).
Subsequent events:
Management has evaluated the subsequent events for disclosure in these
consolidated financial statements.
NOTE 2: ACQUISITIONS
KP Public Affairs LLC
On October 1, 2022, the Company entered into an Asset Purchase Agreement ("KP
Agreement") and acquired certain assets and assumed certain liabilities of KP
Public Affairs LLC ("Seller" or "KP LLC") through the creation of a
wholly-owned subsidiary, KP Public Affairs, LLC ("KP"). At the closing of
the transaction, the Company paid the Seller cash in the amount of $10,306,800
("KP Closing Cash Payment") and issued 739,589 shares of the Company's common
stock ("KP Closing Share Payment") to Seller at an aggregate fair value of
$1,145,200.
During the six months ended June 30, 2023, the Company paid the Seller an
additional amount of consideration totaling $4,048,000 ("KP Closing True-Up
Payment") based on the specific operating results of KP through December 31,
2022. The payment of the KP Closing True-Up Payment was pro-rated as
$3,643,200 in cash and 245,389 shares of common stock ("KP True-Up Shares") at
an aggregate fair value of $404,000. There are additional contingent
payments that the Seller can earn in the future depending on certain operating
results that are achieved. The total amount of consideration that the
Company could be required to pay to the Seller in the amount of cash and stock
("Seller Shares") is $35,000,000. The equity component of the contingent
payments ranges between 20% and 35%.
The KP Agreement provides certain forfeiture provisions applicable to any
future cash or share payments owed, which generally require the owners of KP
LLC ("Owner" or "Owners") to remain employed by the Company for a certain
period of time to receive the full amount of those future payments. There
are certain exceptions to the forfeiture provisions if termination of
employment occurs under certain permitted events ("Acceleration Event") as
defined in the KP Agreement.
In addition, under certain circumstances outlined in the KP Agreement, the
Company can claw back a portion of certain payments previously paid if an
Owner is not employed by the Company as of December 31, 2026.
If an Owner's employment is terminated as a result of an Acceleration Event, a
percentage of the unvested Seller Shares (representing such Owner's ownership
percentage in Seller) shall become fully vested. The Seller Shares issued
have some restrictions but they also have certain legal rights consistent with
the Company's other shares of Common Stock outstanding, including certain
voting rights and the rights to dividends paid by the Company. In addition,
the KP Agreement contains certain provisions requiring the forfeiture of a
percentage of all cash and shares received by Seller if certain restrictive
covenants are breached by an Owner.
Reasons for the Acquisition
The Company acquired KP LLC to expand its governmental and public affairs
consulting services provided to state and local governments. Specifically,
KP LLC provides significant services to companies and organizations doing
business in the state of California.
Accounting for the Acquisition
The acquisition of Seller was accounted for as a business combination and
reflects the application of acquisition accounting in accordance with ASC 805,
Business Combinations ("ASC 805"). The acquired assets, including
identifiable intangible assets and liabilities assumed, have been recorded at
their estimated fair values with the excess purchase price assigned to
goodwill.
Purchase Consideration
The Company determined that certain consideration provided to Sellers in the
KP Agreement does not qualify as purchase consideration in accordance with the
guidance of ASC 805. The Company determined that the purchase consideration
consists of the amount of cash payments owed to Sellers that are not subject
to a vesting or claw back provision that is directly linked to the continued
employment of Sellers. The total purchase consideration consisted of the
following amounts:
KP Closing Cash Payment $ 10,306,800
Contingent consideration 4,245,000
Total purchase consideration $ 14,551,800
The contingent consideration consists of the estimated fair value of future
payments that are not subject to vesting or claw back provisions tied to
continued employment.
Purchase Price Allocation
The allocation of the purchase consideration resulted in the following amounts
being allocated to the assets acquired and liabilities assumed as of the
purchase date of October 1, 2022 based on their respective estimated fair
values is summarized below:
Cash $ 139,547
Other current assets 69,000
Right of use assets 3,273,766
Tradename 1,091,000
Noncompete agreements 306,000
Customer relationship 5,861,000
Deferred income tax asset 4,277,500
Goodwill 3,016,300
Other current liabilities (208,547)
Lease liability (3,273,766)
Total estimated purchase price $ 14,551,800
The identified definite-lived intangible assets were as follows:
Definite-lived intangible assets Weighted-average Amount
useful life (in years)
Customer relationships 7 $5,861,000
Noncompete agreements 5 $306,000
The fair value of customer relationships was determined using the income
approach, which requires management to estimate a number of factors for each
reporting unit, including projected future operating results, anticipating
future cash flows and discount rates. The fair value of noncompete
agreements was determined using an income approach method, which requires
management to estimate a number of factors related to the expected future cash
flows of KP LLC and the potential impact and probability of competition,
assuming such noncompete agreements were not in place. The primary factors
that contributed to the goodwill recognized from the KP LLC acquisition
include the key employees of KP LLC combined with additional synergies
expected from increasing the Company's service capabilities.
Engage LLC
On November 1, 2022, the Company (through its wholly-owned subsidiary, Forbes
Tate Partners, LLC) entered into an Asset Purchase Agreement ("Engage
Agreement") and acquired certain assets and assumed certain liabilities of
Engage LLC ("Engage"). At the closing of the transaction, the Company paid
Engage cash in the amount of $1,925,000 ("Engage Cash Payment") and issued
487,301 shares of the Company's common stock ("Engage Restricted Shares") at
an aggregate fair value of $825,000.
A portion of the Engage Cash Payment was designated to certain owners ("Junior
Principal(s)") of Engage and the remaining of the Engage Cash Payment was
designated to the other owners ("Senior Principal(s)") of Engage. In
addition, all of the Engage Restricted Shares were issued to the Senior
Principals. There are no vesting requirements or claw back provisions linked
to continuing employment for the Engage Cash Payment paid to the Junior
Principals. There are vesting requirements and claw back provisions linked
to continuing employment of the Senior Principals for the Engage Cash Payment
paid and Engage Restricted Shares issued to the Senior Principals.
Each of the Senior Principals will vest in the Engage Restricted Shares as
long as they remain continuously employed through each applicable vesting
date, except if the termination occurs under certain permitted events ("Engage
Acceleration Event") as defined in the Engage Agreement. If one of the
Senior Principals is terminated as a result of an Engage Acceleration Event,
all of such Senior Principal's unvested Engage Restricted Shares shall become
fully vested.
The Engage Restricted Shares issued have some restrictions but they also have
certain legal rights consistent with the Company's other shares of Common
Stock outstanding, including certain voting rights and the rights to dividends
paid by the Company.
With respect to the Engage Cash Payment, each of the Senior Principals have a
vesting requirement related to their respective cash payment. If any of the
Senior Principals is terminated as a result of an Engage Acceleration Event,
all of such Senior Principal's unvested Engage Cash Payment shall become fully
vested.
In addition, the Engage Agreement contains certain provisions requiring the
forfeiture of a respective Senior Principal's Engage Restricted Shares and a
portion of the Engage Cash Payment made to both the Junior Principals and
Senior Principals if certain restrictive covenants are breached by the
respective Junior Principal or Senior Principal.
Reasons for the Acquisition
The Company acquired Engage to expand its governmental and public affairs
consulting services provided within the U.S.
Accounting for the Acquisition
The acquisition of Engage was accounted for as a business combination and
reflects the application of acquisition accounting in accordance with ASC 805,
Business Combinations ("ASC 805"). The acquired assets, including
identifiable intangible assets and liabilities assumed, have been recorded at
their estimated fair values with the excess purchase price assigned to
goodwill.
Purchase Consideration
The Company determined that certain consideration provided to Engage in the
Engage Agreement does not qualify as purchase consideration in accordance with
the guidance of ASC 805. The Company determined that the purchase
consideration consists of the amount of Engage Cash Payment paid to the Junior
Principals and the Engage Cash Payment to the Senior Principals that is not
subject to vesting or claw back linked to continuing employment, which totaled
$894,000. The value of the Engage Restricted Shares of $825,000 and the
remaining Engage Cash Payment amount of $1,031,000 ("Prepaid Post-Combination
Compensation") will be recognized as a charge to expense in accordance with
ASC 805-10-55-25 (See Note 6).
Purchase Price Allocation
The provisional allocation of the purchase consideration resulted in the
following amounts being allocated to the assets acquired and liabilities
assumed as of the purchase date of November 1, 2022 based on their respective
estimated fair values is summarized below:
Cash $ 179,793
Other current assets 48,571
Right of use assets 173,579
Tradename 14,000
Noncompete agreements 140,000
Customer relationship 414,461
Deferred income tax asset 325,539
Other current liabilities (228,364)
Lease liability (173,579)
Total estimated purchase price $ 894,000
In 2023, during the measurement period, the Company determined that an
adjustment to increase the Company's deferred tax asset of $281,000 was
necessary and a corresponding gain on bargain purchase was recorded.
The identified definite-lived intangible assets were as follows:
Definite-lived intangible assets Weighted-average Amount
useful life (in years)
Customer relationships 7 $414,461
Noncompete agreements 4 $140,000
The fair value of customer relationships was determined using the income
approach, which requires management to estimate a number of factors for each
reporting unit, including projected future operating results, anticipating
future cash flows and discount rates. The fair value of noncompete
agreements was determined using an income approach method, which requires
management to estimate a number of factors related to the expected future cash
flows of Engage and the potential impact and probability of competition,
assuming such noncompete agreements were not in place.
MultiState Associates, Inc.
On March 1, 2023, the Company entered into an Asset Purchase Agreement
("MultiState Agreement") and acquired certain assets and assumed certain
liabilities of MultiState Associates, Inc. ("MS Seller" or "MultiState Inc")
through the creation of a wholly-owned subsidiary, MultiState Associates, LLC
("MS LLC"). At the closing of the transaction, the Company paid the Seller
cash in the amount of $17,600,000 ("MS Closing Cash Payment") and issued
2,740,717 shares of the Company's common stock ("MS Closing Share Payment") to
Seller at an aggregate fair value of $4,400,000, of which, 1,973,316 shares
have vesting requirements ("MS Vesting Shares").
In addition, there are additional contingent payments that the MS Seller can
earn in the future depending on certain operating results that are achieved.
The total amount of consideration that the Company could be required to pay to
the MS Seller in the amount of cash and stock ("MS Seller Shares") is
$70,000,000. The equity component of the contingent payments is 50%.
The MultiState Agreement provides certain forfeiture provisions applicable to
any future cash or share payments owed, which generally require certain owners
of MS LLC ("MS Owner" or "MS Owners") to remain employed by the Company for a
certain period of time to receive the full amount of those future payments.
There are certain exceptions to the forfeiture provisions if termination of
employment occurs under certain permitted events ("MS Acceleration Event") as
defined in the MultiState Agreement.
In addition, under certain circumstances outlined in the MultiState Agreement,
the Company can claw back a portion of certain payments previously paid if an
MS Owner is not employed by the Company as of certain future dates.
If an MS Owner's employment is terminated as a result of an MS Acceleration
Event, a percentage of the unvested MS Seller Shares (representing such MS
Owner's ownership percentage in MS Seller) shall become fully vested. The MS
Seller Shares issued have some restrictions but they also have certain legal
rights consistent with the Company's other shares of Common Stock outstanding,
including certain voting rights and the rights to dividends paid by the
Company. In addition, the MultiState Agreement contains certain provisions
requiring the forfeiture of a percentage of all cash and shares received by MS
Seller if certain restrictive covenants are breached by an MS Owner.
Reasons for the Acquisition
The Company acquired MultiState Inc to expand the scope of its consulting
services provided in respect of federal, state and local governments.
Specifically, MultiState Inc provides lobbying compliance, legislative
activity tracking, lobbying brokerage and other consulting services to Fortune
500 companies, non-profit organizations, elected officials and leading
advocacy and trade associations throughout the United States.
Accounting for the Acquisition
The acquisition of MS Seller was accounted for as a business combination and
reflects the application of acquisition accounting in accordance with ASC 805,
Business Combinations ("ASC 805"). The acquired assets, including
identifiable intangible assets and liabilities assumed, have been recorded at
their estimated fair values.
Purchase Consideration
The Company determined that certain consideration provided to MS Sellers in
the MultiState Agreement does not qualify as purchase consideration in
accordance with the guidance of ASC 805. The Company determined that the
purchase consideration consists of the amount of cash and share payments owed
to MS Sellers that are not subject to a vesting or claw back provision that is
directly linked to the continued employment of MS Sellers. The total
purchase consideration consisted of the following amounts:
MS Closing Cash Payment $ 8,096,000
MS Closing Share Payment 1,232,000
Contingent consideration 2,784,990
Total purchase consideration $ 12,112,990
The contingent consideration consists of the estimated fair value of future
payments that are not subject to vesting or claw back provisions tied to
continued employment.
Purchase Price Allocation
The provisional allocation of the purchase consideration resulted in the
following amounts being allocated to the assets acquired and liabilities
assumed as of the purchase date of March 1, 2023 based on their respective
estimated fair values is summarized below:
Receivable from MS Sellers $ 4,026,562
Other current assets 654,842
Right of use assets 61,976
Tradename 2,202,000
Noncompete agreements 525,000
Customer relationships 5,507,600
Developed technology 3,938,000
Deferred income tax asset 4,743,079
Deferred revenue (4,681,404)
Lease liability (309,888)
Net assets acquired 16,667,767
Less estimated purchase price (12,112,990)
Gain on bargain purchase $ 4,554,777
The identified definite-lived intangible assets were as follows:
Definite-lived intangible assets Weighted-average Amount
useful life (in years)
Customer relationships 7 $5,507,600
Developed technology 7 $3,938,000
Noncompete agreements 5 $525,000
The fair value of customer relationships was determined using the income
approach, which requires management to estimate a number of factors for each
reporting unit, including projected future operating results, anticipating
future cash flows and discount rates. The fair value of the developed
technology was determined using the relief from royalty method, which requires
management to estimate a number of factors, including the estimated future
revenues expected to be generated from the technology and a hypothetical
royalty rate attributable to the technology. The fair value of noncompete
agreements was determined using an income approach method, which requires
management to estimate a number of factors related to the expected future cash
flows of MS LLC and the potential impact and probability of competition,
assuming such noncompete agreements were not in place. The primary factors
that contributed to the gain on bargain purchase recognized from the MS LLC
acquisition include the requirement for the key employees of MS LLC to stay
employees of the Company for a significant period of time.
NOTE 3: RELATED PARTY TRANSACTIONS
As of June 30, 2023, the amounts due from related parties of approximately
$1,039,000 include the amount expected to be paid to the Company related to
working capital adjustments associated with the MultiState acquisition. As
of June 30, 2022, the amounts owed to related parties consisted of the Holding
Distribution Discount of approximately $1,539,000. See Note 1. As of
December 31, 2022, the amounts owed to related parties totaling approximately
$1,276,000 include the amounts expected to be refunded to the owners of KP LLC
and Engage related to the working capital adjustments associated with those
acquisitions.
During December 2021, the Company entered into a term note agreement ("2021
Note") with The Alpine Group, Inc. ("Alpine Inc"). The 2021 Note provided
Alpine Inc with the ability to request a one-time borrowing of up to $750,000
from the Company at any time prior to December 31, 2022. The purpose of the
2021 Note was to provide Alpine Inc with funds to cover certain federal and
state income taxes to be owed by Alpine Inc in connection with the sale of
shares of the Company's common stock in the IPO. During April 2022, the
Company advanced $513,000 to Alpine Inc in accordance with the terms of the
2021 Note. The interest rate on the 2021 Note is equal to the Prime Rate as
published in the Wall Street Journal. The 2021 Note requires an annual payment
of accrued and unpaid interest on the last business day of December each year
and through the maturity date of January 16, 2025. The note receivable balance
as of June 30, 2023, June 30, 2022 and December 31, 2022 was $513,000 and the
amount of accrued interest is immaterial.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is an indefinite lived asset with balances as follows as of:
June 30, 2023 June 30, 2022 December 31, 2022
Goodwill $ 47,909,832 $ 44,893,532 $47,909,832
As of June 30, 2023, June 30, 2022 and December, 31, 2022, there have been no
impairments to goodwill. During the last six months of 2022, goodwill
increased by approximately $3,015,000 as a result of the acquisition of KP LLC
and Engage. See Note 2.
Goodwill is allocated to each segment as follows, as of:
June 30, 2023 June 30, 2022 December 31, 2022
Goodwill
Government Relations Consulting $ 35,274,832 $ 33,356,532 $ 35,274,832
Public Affairs Consulting 12,635,000 11,537,000 12,635,000
Diversified Services - - -
Total $ 47,909,832 $ 44,893,532 $ 47,909,832
Intangible Assets
The Company's intangible assets consist of customer relationship assets
acquired through various acquisitions as well as developed technology and
noncompete agreements acquired through the acquisition of MS LLC, KP LLC and
Engage, which are definite lived assets and are amortized over their estimated
useful lives. The estimated useful lives for the customer relationship and
developed technology assets range from 7 to 9 years and the estimated useful
lives for the noncompete agreements range from 4 to 5 years. In addition,
intangible assets consist of tradenames, which are indefinite lived assets and
evaluated for impairment on an annual basis or more frequently as needed.
The cost of the Company's tradenames, customer relationships, developed
technology and noncompete agreements, and the accumulated amortization of the
Company's customer relationships, developed technology and noncompete
agreements is as follows as of:
June 30, 2023 June 30, 2022 December 31, 2022
Customer relationships $ 27,103,861 $ 15,320,800 $ 21,596,261
Developed technology 3,938,000 - -
Noncompete agreements 971,000 - 446,000
Accumulated amortization (10,308,697) (7,198,639) (8,385,145)
Total indefinite lived assets, net 21,704,164 8,122,161 13,657,116
Tradenames 7,120,000 3,813,000 4,918,000
Total intangible assets, net $ 28,824,164 $ 11,935,161 $ 18,575,116
Amortization expense for customer relationship, developed technology and
noncompete agreement assets approximated $1,924,000, $942,000 and $2,129,000
for the six months ended June 30, 2023 and 2022 and the year ended December
31, 2022, respectively.
The approximate estimated future amortization expense is as follows:
Amortization
July 1, 2023 to December 31, $ 1,955,000
2023.......................................................................
2024....................................................................................................................... 3,910,000
2025....................................................................................................................... 3,894,000
2026....................................................................................................................... 3,742,000
2027....................................................................................................................... 3,692,000
Thereafter.............................................................................................................. 4,511,000
Total $ 21,704,000
NOTE 5: LINE OF CREDIT AND NOTES PAYABLE
A) Bank credit facility
On February 28, 2023, the Company entered into a $17,000,000 credit facility
with a bank ("Credit Facility"). The Credit Facility has two components,
Facility 1 is a Senior Secured Line of Credit in the amount of $3,000,000 and
Facility 2 is a Senior Secured Term Loan in the amount of $14,000,000. The
interest rate on Facility 1 and Facility 2 is the Bloomberg Short-Term Bank
Yield Index plus 225 basis points. The Credit Facility is collateralized by
substantially all of the net assets of the Company. The Credit Facility
matures on January 31, 2026. The Company has drawn $14,000,000 from Facility
2 and utilized those funds as part of the consideration to acquire MultiState
Inc. and $1,000,000 from Facility 1. The Company paid approximately $451,000
in debt issuance costs for the Credit Facility and has recorded this amount as
a debt discount and is amortizing the debt discount to interest expense over
the term of the Credit Facility using the straight-line method, which
approximates the effective interest method.
The Company is required to make monthly payments of principal of $291,667 plus
interest beginning in March 2023 through the maturity date of January 31, 2026
for the Facility 2. The principal payment for Facility 1 is due on the
maturity date for that facility, which is January 31, 2026. Periodic
interest-only payments are due on Facility 1 through the maturity date. The
Company incurred interest expense of approximately $376,000 for the Credit
Facility during the six months ended June 30, 2023, which consisted of
$326,000 of cash interest and $50,000 of non-cash amortization of debt
discount.
The Company's Facility 2 consists of the following as of June 30, 2023:
Facility 2 $12,833,334
Less unamortized debt issuance costs 400,648
Total debt, net of unamortized debt issuance costs 12,432,686
Less current portion 3,349,757
Total Facility 2, long-term $ 9,082,929
As of June 30, 2023, the balance of Facility 1 is $1,000,000 and is classified
as a long-term liability.
As of June 30, 2023, the future maturities of Facility 2 is as follows:
July 1, 2023 to December 31, $ 1,750,000
2023.......................................................................
2024....................................................................................................................... 3,500,000
2025....................................................................................................................... 3,500,000
2026....................................................................................................................... 4,083,334
Total $12,833,334
B) Note payable - landlord
The Company executed a lease amendment on March 23, 2018, and received a loan
of approximately $316,000 to fund certain tenant improvements. The Company
shall repay the loan in equal monthly principal and interest installments over
the lease term at an interest rate of 8%, with the final payment due on March
1, 2029. Notwithstanding the foregoing, the Company may submit a notice to the
landlord to prepay the outstanding balance upon terms to be agreed upon by the
landlord and the Company. The balance on the loan as of June 30, 2023, June
30, 2022 and December 31, 2022, was approximately $198,000, $223,000 and
$211,000, respectively. Interest expense on the note payable - landlord for
the six months ended June 30, 2023 and 2022 and the year ended December 31,
2022 was approximately $8,000, $9,000 and $17,000, respectively.
As of June 30, 2023, the the future maturities of the note payable - landlord
is as follows:
July 1, 2023 to December 31, $ 13,807
2023.......................................................................
2024....................................................................................................................... 29,321
2025....................................................................................................................... 31,755
2026....................................................................................................................... 34,390
2027....................................................................................................................... 37,245
Thereafter.............................................................................................................. 50,854
Total $197,372
NOTE 6: STOCKHOLDERS' EQUITY AND SHARE-BASED ACCOUNTING CHARGE
As of June 30, 2023, the authorized capital of the Company consists of
1,100,000,000 shares of capital stock, $0.001 par value per share, of which
1,000,000,000 shares are designated as common stock and 100,000,000 shares are
designated as preferred stock. There are no shares of preferred stock
outstanding.
As of June 30, 2023, June 30, 2022 and December 31, 2022, the number of the
Company's shares of common stock outstanding for legal purposes was greater
than the number of shares of common stock outstanding for accounting
purposes. Therefore, the difference between the legally outstanding shares
of common stock on the face of the balance sheet and the amount outstanding on
the statement of equity consists of shares issued with restrictions
(collectively "Restricted Shares") as follows:
June 30, 2023 June 30, 2022 December 31, 2022
Statement of Equity 108,722,213 108,199,105 108,024,388
Restricted Shares:
KP Closing Share Payment 739,589 - 739,589
KP Earnout Shares 245,389 - -
Engage Restricted Shares 487,301 - 487,301
MS Vesting Shares 1,973,316 - -
Other Restricted Shares 915,209 - 95,202
Total Restricted Shares 4,360,804 - 1,322,092
Legally Outstanding Shares 113,083,017 108,199,105 109,346,480
Stock Options Outstanding 3,274,445 2,644,859 2,718,809
RSUs Outstanding 1,500,000 - -
Fully Diluted Shares Outstanding 117,857,462 110,843,964 112,065,289
The weighted-average common shares outstanding, basic and diluted reported on
the consolidated statement of operations is 108,483,598, 108,228,513 and
108,136,853, which is different from the 108,722,213, 108,199,105 and
108,024,388 ending shares as of June 30, 2023, June 30, 2022 and December 31,
2022 due to the first number representing an average during the period
compared to the amount outstanding at the end of the period.
Other Restricted Shares consists of restricted stock awards issued in 2023 to
employees (see Note 7) and in 2022 to convert a consultant of the Company to a
full-time employee ("Consultant Award"). The Consultant Award was valued at
approximately $178,000 and vests equally on each of January 1, 2023, January
1, 2024 and January 1, 2025.
ASC 718-10-S99-2 Charge
As discussed in Note 1, during 2021 the Company entered into Executive
Employment Agreements with Group Executives. As a result, the addition of
the vesting provisions to previously issued shares created a share-based
accounting charge in accordance with the accounting guidance in ASC
718-10-S99-2, Compensation-Stock Compensation. As a result, the Company
recorded a share-based accounting (ASC 718-10-S99-2) charge of approximately
$15,431,000, $15,576,000 and $33,392,000 for the six months ended June 30,
2023 and 2022 and the year ended December 31, 2022, respectively.
As of June 30, 2023, there were 83,340,513 Retained Pre-IPO Shares subject to
vesting requirements and 21,084,981 of these shares were fully vested. These
shares were issued in 2021 and the weighted-average grant date fair value of
these shares was $1.82 as of the grant date. As of June 30, 2023, the
unrecognized compensation cost from these restricted shares was approximately
$105,270,000, which is expected to be recognized over a weighted-average
period of 3.5 years.
ASC 805-10-55-25 Charge
During 2022 and 2023, the Company acquired KP LLC, Engage and MS LLC (see Note
2) for a combination of cash, shares of Company Common Stock and future
contingent payments ("Acquisition Payments"). As described in Note 2, a
portion of the Acquisition Payments are subject to vesting and/or claw back
provisions that are directly linked to the continuing employment of the Owners
of KP LLC, Senior Principals of Engage or MS Owners, respectively
("Post-Combination Payments"). As a result, in accordance with the guidance
of ASC 805-10-55-25, Business Combinations, the Post-Combination Payments are
not considered part of the purchase consideration for these acquisitions and
the fair value of the Post-Combination Payments is being recognized as a
charge for post-combination compensation over the period of the applicable
vesting requirement or the period over which the claw back rights linked to
employment lapse.
The total other liability of approximately $1,356,000 and $2,257,000 as of
June 30, 2023 and December 31, 2022 consists of amounts expected to be paid in
cash or stock in the future for post-combination compensation. For the six
months ended June 30, 2023 and the year ended December 31, 2022, the
post-combination compensation charge recorded by the Company was approximately
$3,016,000 and $2,441,000, respectively. Approximately $921,000 and
$2,257,000 of this amount was included as other liability at June 30, 2023 and
December 31, 2022, respectively. Approximately $688,000 and $111,000 of the
post-combination compensation charge is from the issuance of Common Stock that
vested as of June 30, 2023 and December 31, 2022 and the remaining
approximately $1,406,000 and $74,000 was from the amortization of the prepaid
post-combination compensation asset for the six months ended June 30, 2023 and
the year ended December 31, 2022, respectively. As of June 30, 2023, the
unrecognized post-combination compensation charge was approximately
$24,500,000, which is expected to be recognized over a weighted-average period
of 2.2 years. The actual amount of Post-Combination Payments is subject to
significant estimates and could change materially in the future.
NOTE 7: OMNIBUS INCENTIVE PLAN
During 2021, the Company adopted the Public Policy Holding Company, Inc. 2021
Omnibus Incentive Plan (the "Omnibus Plan"), under which Options (both
nonqualified options, and incentive stock options subject to favorable U.S.
income tax treatment), restricted stock units, restricted stock, unrestricted
stock, SARs, cash-based awards and dividend equivalent rights may be issued.
An award may not be granted if the number of common shares committed to be
issued under that award exceeds ten percent of the ordinary shares of the
Company in issue immediately before that day, when added to the number of
common shares which have been issued, or committed to be issued, to satisfy
awards under the Omnibus Plan, or options or awards under any other employee
share plan operated by the Company, granted in the five previous years.
As of June 30, 2023, the total amount of shares authorized by the Board of
Directors under the Omnibus Plan was 11,201,762, with a total of 5,607,310
available for issuance. During the six months ended June 30, 2023, the Company
granted 652,000 Options, 1,500,000 restricted stock units ("RSUs"), and
820,007 restricted stock awards ("RSAs"). During the six months ended June
30, 2022, the Company granted 2,644,859 Options and for the year ended
December 31, 2022 a total of 2,794,859 Options were granted. The Options
have a contractual term of ten years and vest three years after their
issuance. The RSUs vest over a three-year period with one-third vesting each
year after the grant date. The RSAs vest on December 31, 2023 and include
voting and dividend rights prior to vesting.
Options
Determining the appropriate fair value model and the related assumptions
requires judgment. The fair value of each Option granted is estimated using
a Black-Scholes option-pricing model on the date of grant as follows:
Six months ended June 30, 2023 Six months ended June 30, 2022 12 months ended December 31, 2022
Estimated dividend yield 6.00% 6.00% 6.00%
Expected stock price volatility 60.00% 60.00% 60.00%
Risk-free interest rate 3.76% 3.01% 2.7% to 4.1%
Expected life of option (in years) 6.50 6.50 6.50
Weighted-average fair value per share $0.54 $0.58 $0.58
The expected volatility rates are estimated based on the actual volatility of
comparable public companies over the expected term. The expected term
represents the average time that options that vest are expected to be
outstanding. Due to limited historical data, the Company calculates the
expected life based on the midpoint between the vesting date and the
contractual term, which is in accordance with the simplified method. The
risk-free rate is based on the United States Treasury yield curve during the
expected life of the option.
The following summarizes the Option activity:
Weighted
Weighted Average
Average Contractual Aggregate
Number of Exercise Term Intrinsic
Shares Price (in years) Value
Outstanding as of December 31, 2022 2,718,809 $ 2.13* - $ -
Granted 652,000 2.02* - -
Exercised - - - -
Cancelled/Forfeited (96,364) 2.23* - -
Outstanding as of June 30, 2023 3,274,445 2.19* 9.1 -
Exercisable as of June 30, 2023 - - - -
Vested and expected to vest
as of June 30, 2023 3,274,445 $ 2.19* 9.1 $ -
Weighted
Weighted Average
Average Contractual Aggregate
Number of Exercise Term Intrinsic
Shares Price (in years) Value
Outstanding as of December 31, 2021 - $ - - $ -
Granted 2,644,859 2.20* - -
Exercised - - - -
Cancelled - - - -
Outstanding as of June 30, 2022 2,644,859 2.20* 9.9 -
Exercisable as of June 30, 2022 - - - -
Vested and expected to vest
as of June 30, 2022 2,644,859 2.20* 9.9 -
Weighted
Weighted Average
Average Contractual Aggregate
Number of Exercise Term Intrinsic
Shares Price (in years) Value
Outstanding as of December 31, 2021 - $ - - $ -
Granted 2,794,859 2.13* - -
Exercised - - - -
Cancelled/Forfeited (76,050) 2.13* - -
Outstanding as of December 31, 2022 2,718,809 2.13* 9.4 -
Exercisable as of December 31, 2022 - - - -
Vested and expected to vest
as of December 31, 2022 2,718,809 $ 2.13* 9.4 $ -
The following table summarizes certain information about the stock options
outstanding and exercisable as of June 30, 2023:
Exercise Price Number of Options Outstanding Weighted-Average Remaining Life Number of Options Exercisable
$ 2.02* 652,000 9.9 -
2.20* 100,000 9.3 -
2.23* 2,472,445 8.9 -
2.25* 50,000 9.1 -
3,274,445 -
*The applicable exercise prices have been adjusted based on the applicable
exchange rate of GBP to U.S. Dollars at the end of each period presented.
Option expense for the six months ended June 30, 2023 and 2022 and the year
ended December 31, 2022 was approximately $269,000, $61,000, and $318,000,
respectively. As of June 30, 2023, there was approximately $1,252,000 of total
unrecognized compensation cost related to non-vested Option arrangements,
which is expected to be recognized over a weighted-average period of 2.1
years.
RSUs
During the six months ended June 30, 2023, the Company issued 1,500,000 RSUs
to employees. The Company had not issued any RSUs prior to 2023. Determining
the appropriate fair value model and the related assumptions requires
judgment. The fair value of each RSU granted is estimated using a
Black-Scholes option-pricing model on the date of grant as follows:
Six months ended June 30, 2023
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 3.9% to 4.7%
Expected life of option (in years) 1 to 3 years
Weighted-average fair value per share $ 1.47
Activity in the Company's non-vested RSUs for the six months ended June 30,
2023 was as follows:
Weighted
Average Grant Date
Number of Fair
RSUs Value
Nonvested as of December 31, 2022 - $ -
Granted 1,500,000 1.47
Vested - -
Cancelled/Forfeited - -
Nonvested as of June 30, 2023 1,500,000 $ 1.47
RSU expense for the six months ended June 30, 2023 was approximately $83,000.
As of June 30, 2023, there was approximately $2,127,000 of total unrecognized
compensation cost related to non-vested RSU arrangements, which is expected to
be recognized over a weighted-average period of 1.9 years.
RSAs
During the six months ended June 30, 2023, the Company issued 820,007 RSAs to
employees. The Company had not issued any RSAs prior to 2023. Determining the
appropriate fair value model and the related assumptions requires judgment.
The fair value of each RSA granted is estimated using a Black-Scholes
option-pricing model on the date of grant as follows:
Six months ended June 30, 2023
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 4.9%
Expected life of option (in years) 0.5 years
Weighted-average fair value per share $ 1.61
Activity in the Company's non-vested RSAs for the six months ended June 30,
2023 was as follows:
Weighted
Average Grant Date
Number of Fair
RSAs Value
Nonvested as of December 31, 2022 - $ -
Granted 820,007 1.61
Vested - -
Cancelled/Forfeited - -
Nonvested as of June 30, 2023 820,007 $ 1.61
RSA expense for the six months ended June 30, 2023 was approximately
$231,000. As of June 30, 2023, there was approximately $1,089,000 of total
unrecognized compensation cost related to non-vested RSA arrangements, which
is expected to be recognized over a weighted-average period of 0.5 years.
SARs
During the six months ended June 30, 2023, the Company issued 1,825,000 SARs
to employees. SARs are not issued shares or committed shares to be issued and
therefore do not count against the total number of shares that can be issued
under the Omnibus Plan. Upon exercise of a SAR, the Company shall pay the
grantee in cash an amount equal to the excess of the fair market value of a
share of stock on the effective date of exercise in excess of the exercise
price of the SAR. This cash settlement feature requires the SARs to be
classified as a liability and marked to market at each reporting period.
The SARs vest over a three-year period with one-third vesting each year after
the grant date. The Company had not issued any SARs prior to 2023. Determining
the appropriate fair value model and the related assumptions requires
judgment. The fair value of each SAR granted is estimated using a
Black-Scholes option-pricing model and the fair value is adjusted at each
reporting period. Each SAR has a cash settlement feature and is recorded as
a liability in the Company's consolidated balance sheets. As of June 30,
2023, the total liability was $71,000. The fair value of the SARs was
calculated as follows for the six months ended June 30, 2023:
Six months ended June 30, 2023
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 4.1% to 4.2%
Expected life of option (in years) 4.4 to 5.4 years
Weighted-average fair value per share $ 0.59
Weighted
Average
Number of Exercise
Shares Price
Outstanding as of December 31, 2022 - $ -
Granted 1,825,000 1.66
Exercised - -
Cancelled/Forfeited (50,000) 1.66
Outstanding as of June 30, 2023 1,775,000 1.66
Exercisable as of June 30, 2023 - -
Vested and expected to vest
as of June 30, 2023 1,775,000 $ 1.66
SAR expense for the six months ended June 30, 2023 was approximately
$71,000. The amount of the future expense for all SARs issued will depend
upon the value of the Company's common stock and other factors at each future
reporting date.
NOTE 8: INCOME TAXES
Prior to December 10, 2021, the net income (loss) related to the Company's
operations were reported as part of a partnership income tax return for
federal and state income tax purposes. Because the partnership entity was not
subject to income tax at the Company level, no provision for income taxes was
required for periods prior to December 10, 2021.
Due to the Company Conversion that occurred on December 10, 2021, an initial
net deferred tax liability was recorded in conjunction with the Company's
operations that would be taxable at the corporate entity level. An initial
deferred tax liability in the amount of $2,942,400 was recorded, with a
corresponding adjustment to stockholders' equity.
The Company recorded the following income tax expense (benefit) for the six
months ended June 30, 2023 and 2022 and the year ended December 31, 2022:
Six months ended June 30, 2023 Six months ended June 30, 2022 12 months ended December 31, 2022
Current tax expense:
Federal $2,926,200 $2,822,400 $5,944,400
State 1,198,400 1,113,600 2,443,100
4,124,600 3,936,000 8,387,500
Deferred tax expense (benefit):
Federal (258,800) (235,800) (475,500)
State (77,400) (65,400) (114,400)
(336,200) (301,200) (589,900)
Total Provision for Income Taxes: $3,788,400 $3,634,800 $7,797,600
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. None of the goodwill
that was acquired prior to June 30, 2022 is deductible for income tax
purposes. The acquisitions of KP LLC, Engage and MS LLC are taxable asset
acquisitions. As such, the purchase consideration for these acquisitions
will generate tax-deductible goodwill in the combined amount of approximately
$34,123,000. A deferred tax asset has been recorded in relation to the
excess of the tax deductible goodwill as compared to the GAAP carrying value
of goodwill. Of the $34,123,000 of tax deductible goodwill, approximately
$10,362,000 is eligible to begin being amortized for tax purposes during the
2022 tax year and an additional $9,477,000 is eligible to begin being
amortized for tax purposes during the 2023 tax year.
Significant components of the Company's deferred tax assets and liabilities
are as follows as of:
Six months ended June 30, 2023 Six months ended June 30, 2022 12 months ended December 31, 2022
Deferred tax assets:
Other assets $ 196,000 $ 104,900 $ 197,600
Deferred revenue 1,277,000 - -
Goodwill 8,279,000 - 4,797,000
ASC 842 Lease liability 7,154,000 4,622,000 5,107,000
Total deferred income tax assets 16,906,000 4,726,900 10,101,600
Deferred tax liabilities:
Other (380,000) (198,000) (469,200)
Intangible assets (2,503,000) (3,228,000) (2,924,000)
Right of use asset (6,317,000) (3,914,300) (4,430,000)
Total deferred income tax liabilities (9,200,000) (7,340,300) (7,823,200)
Total Net Deferred Tax Asset (Liability): $ 7,706,000 $ (2,613,400) $ 2,278,400
A reconciliation for the difference between actual income tax expense
(benefit) compared to the amount computed by applying the statutory federal
income tax rate to net loss before income tax for the six months ended June
30, 2023 and 2022, and the year ended December 31, 2022, is as follows:
June 30, 2023 June 30, 2022 December 31, 2022
Amount % of Pretax Earnings Amount % of Pretax Earnings Amount % of Pretax Earnings
Federal income tax expense (benefit) at statutory rate $ 34,000 21.0 $(473,200) (21.0) $(1,514,300) (21.0)
State income taxes, net of federal income tax benefit 10,200 6.3 (136,200) (6.0) (452,800) (6.3)
Nondeductible expenses 3,790,800 2,341.8 4,241,800 192.2 9,775,100 135.6
Other (46,600) (28.8) 2,400 0.1 (10,400) (0.1)
Total Provision for Income Taxes $ 3,788,400 2,340.3 $ 3,634,800 165.3 $ 7,797,600 108.2
As of June 30, 2023, there are no known items that would result in a material
liability related to uncertain tax positions, as such, there are no
unrecognized tax benefits. The Company's policy is to recognize interest and
penalties related to uncertain tax positions in the provision for income
taxes. As of June 30, 2023, the Company had no accrued interest or penalties
related to uncertain tax positions. The Company's 2021 and 2022 tax years
are open under the statute of limitations for examination by the taxing
authorities.
NOTE 9: RETIREMENT PLAN
Effective January 1, 2020, the Company established the Public Policy Holding
Company, LLC 401(k) Plan ("PPHC Plan"). The PPHC Plan covers employees that
reach certain age and length of service requirements. Eligible employees can
contribute into the plans through salary deferral. The PPHC Plan does not have
any employer contribution and expenses are immaterial.
NOTE 10: CONCENTRATION OF CREDIT RISK
Geographic location
Most of the Company's assets are located in the Washington D.C. metropolitan
area. Therefore, the Company is subject to certain economic risks resulting
from the majority of its revenue being derived from one geographic location.
NOTE 11: SEGMENT REPORTING
As of June 30, 2023, the Company has three reportable segments; Government
Relations Consulting, Public Affairs Consulting and Diversified Services.
Government Relations Consulting services include federal and state advocacy,
strategic guidance, political intelligence and issue monitoring. Public
Affairs Consulting services include crisis communications, community
relations, social and digital podcasting, public opinion research, branding
and messaging, relationship marketing and litigation support. Diversified
Services were introduced with the acquisition of MS LLC, and currently include
Lobbying Compliance services and Legislative Tracking.
Other is primarily comprised of depreciation, amortization, interest expense,
taxes, share-based accounting charges, post-combination compensation charges,
long term incentive program charges, and gain on bargain purchase. The
Company's CODM does not evaluate these items at the segment level.
The Company measures the results of its segments using, among other measures,
each segment's net revenue and contribution margin, which excludes
depreciation, amortization, interest expense, taxes and other non-cash
charges. The Company's CODM does not evaluate these items or total assets and
liabilities at the segment level but rather evaluates these items on a
consolidated basis. Information for the Company's segments, as well as for
other, including the reconciliation to net income (loss) is provided in the
following tables:
For the Six Months Ended June 30, 2023
Government Relations Public Affairs Diversified Services Other Total
Revenue $ 46,529,662 $ 16,507,022 $ 2,675,271 $ - $ 65,711,955
Contribution Margin $ 13,631,400 $ 2,636,300 $ 655,000 $ - $ 16,922,700
Depreciation - - - (57,932) (57,932)
Interest - - - (384,469) (384,469)
Taxes - - - (3,788,400) (3,788,400)
Share-based accounting charge - - - (15,430,500) (15,430,500)
Post-combination compensation charge - - - (3,016,024) (3,016,024)
Long term incentive program charges - - - (654,000) (654,000)
Amortization of intangibles - - - (1,923,553) (1,923,553)
Gain on bargain purchase, net of taxes - - - 4,835,777 4,835,777
Net income (loss) $ 13,631,400 $ 2,636,300 $ 655,000 $(20,419,101) $ (3,496,401)
Goodwill at end of period $ 35,274,832 $ 12,635,000 $ - $ - $ 47,909,832
For the Six Months Ended June 30, 2022
Government Relations Public Affairs Diversified Services Other Total
Revenue $ 37,571,400 $ 14,167,404 $ - $ - $ 51,738,804
Contribution Margin $11,497,308 $ 2,942,000 $ - $ - $ 14,439,308
Depreciation - - - (57,962) (57,962)
Interest - - - (8,150) (8,150)
Taxes - - - (3,634,800) (3,634,800)
Share-based accounting charge - - - (15,575,773) (15,575,773)
Long term incentive program charges - - - (61,494) (61,494)
Amortization of intangibles - - - (942,406) (942,406)
Net income (loss) $11,497,308 $ 2,942,000 $ - $(20,280,585) $ (5,841,277)
Goodwill at end of period $33,356,532 $ 11,537,000 $ - $ - $ 44,893,532
For the Year Ended December 31, 2022
Government Relations Public Affairs Diversified Services Other Total
Revenue $ 78,177,680 $ 30,636,811 $ - $ - $ 108,814,491
Contribution Margin $24,439,790 $ 6,746,000 $ - $ - $ 31,185,790
Depreciation - - - (100,285) (100,285)
Interest - - - (16,873) (16,873)
Taxes - - - (7,797,400) (7,797,400)
Share-based accounting charge - - - (33,392,300) (33,392,300)
Post-combination compensation charge - - - (2,441,052) (2,441,052)
Long term incentive program charges - - - (317,679) (317,679)
Amortization of intangibles - - - (2,128,912) (2,128,912)
Gain on bargain purchase, net of taxes - - - - -
Net income (loss) $24,439,790 $ 6,746,000 $ - $(46,194,501) $ (15,008,711)
Goodwill at end of period $35,274,832 $ 12,635,000 $ - $ - $ 47,909,832
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