REG - Public Policy Hldg - Interim Results
18/09/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240918:nRSR5944Ea&default-theme=true
RNS Number : 5944E Public Policy Holding Company, Inc. 18 September 2024
The information contained within this announcement is deemed by the Company to
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
information is now considered to be in the public domain.
Public Policy Holding Company, Inc.
("PPHC", the "Company" or the "Group")
Unaudited interim results for the six months ended 30 June 2024
Strategic execution delivers positive financial and operational progress; full
year expectations affirmed
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 unaudited interim results for the six months
ended 30 June 2024 ("H1 2024" or the "Period").
Financial Highlights
· H1 revenue increased 8% to $71.1m (H1 2023: $65.7m), with organic
growth contributing 1.2% and the balance driven by two earnings accretive
acquisitions completed in the Period.
· Underlying EBITDA of $17.4m, up 3%, was achieved at a 24.5%
margin. This margin performance was achieved after the Group invested $1.8m
into M&A advisory costs and further incremental investment in Concordant.
· Underlying Profit after Tax of $13.2m is up 4% (H1 2023:
$12.7m) with an increase in finance costs offset by a more favourable
effective tax rate.
· EPS of $0.113 was down 1%, primarily as a result of the average
share count increasing by 5% (or 6% on a fully diluted basis).
· The Group's balance sheet remains robust with strong free
cashflow of $6.0m (H1 2023: $1.8m), enabling strategic progress via organic
investment and earnings enhancing M&A.
· Net Debt of $28.3m (H1 2023: $9.1m) reflects a prudent leverage
ratio and the deployment of $23.7m to fund the H1 acquisitions.
· The Board retains strong confidence in the Group's outlook and
has declared an Interim Dividend of $0.047 per Common Outstanding Share, up 2%
from last year's $0.046.
H1 2024 H1 2023 Change
Group Revenue $71.1m $65.7m +8%
Underlying EBITDA $17.4m $16.9m +3%
Underlying EBITDA margin 24.5% 25.8% -1.3pt
Underlying Profit after Tax $13.2m $12.7m +4%
Underlying EPS basic 11.30c 11.40c -1%
Underlying EPS fully diluted 10.81c 11.06c -2%
Interim Dividend 4.70c 4.60c +2%
Net Debt / (Cash) at period-end $28.3m $9.1m $19.2m
Operational Highlights
· The Period showcases the Group's ability to successfully execute
its stated growth strategy, with ten operating companies providing an enhanced
complementary range of services to a now global client base:
o Acquisition of London-based Pagefield, broadening the Group's operational
presence outside of the US for the first time and providing significant
revenue opportunity via the referral to and from the pre-existing Group.
o Acquisition of California-based Lucas Public Affairs ("LPA"), expanding
the Group's presence in a state that is characterised by a highly regulatory
environment and would register as the world's fifth largest economy.
o Integration of LPA has completed and the integration of Pagefield is being
delivered as expected, with both companies already benefitting from client
referrals via the wider PPHC network.
· Revenue diversification further enhanced with the top 10 Group
clients representing 7.6% of revenue in H1 2024 versus 8.4% at the end of FY23
and 10.0% for FY22.
· By segment:
o Government Relations grew strongly at 8% (4% organically) while Public
Affairs decreased by 6% (13% organically) as a consequence of a reduction in
project-based work due to pending elections and economic concerns. Diversified
Services (Research and Compliance) grew strongly at 97% (32% organically),
albeit from a lower base.
o The revenue share of Government Relations remained stable at 71% (H1 2023:
71%); Public Affairs decreased marginally to 22% (H1 2023: 25%); and
Diversified Services grew to 7% (H1 2023: 4%).
· A broadening client base of c.1,200 Group clients is supported by
sustained high retention rates, with the Group directly representing almost
half of the Fortune 100 and a quarter of the Fortune 500, in addition to many
more via trade associations.
· The quality of PPHC's operating companies continues to be
reflected in the 2024 Lobbying Disclosure Act rankings, with Group agencies,
when aggregated, topping the rankings as the US market leader in both Q1 and
Q2 2024, as well as for the previous 14 consecutive quarters.
Current Trading and Outlook
· The performance delivered in H1 2024 has set the Group up well
for the remainder of the year and it remains on track to meet full year market
expectations, with Underlying EBITDA margin for H2 2024 expected to be at or
slightly above the H1 2024 level.
· The focus continues to be on driving client retention rates, new
business generation following the outcomes of elections in the US and UK, 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 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
government relations and strategic communications sectors. The Group is
actively seeking to expand its portfolio of operating companies
internationally with strategically and financially attractive opportunities
while adding complementary specialisations.
· The Board remains confident 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 Underlying EBITDA margin between 25% and 30%.
Stewart Hall, CEO of PPHC, commented:
"I am pleased with the progress we have achieved in the first six months of
the year as we continued to acquire excellent businesses complementing our
wider growth strategy. We began our international expansion through the
acquisition of Pagefield, giving us a foothold in the UK, while all ten of our
operating companies are well positioned to benefit from increasing demand for
their services as new governments and administrations are formed around the
world, this year and next. Our ability to deliver organic growth in a period
of impending elections is testament to the diversity of our revenue base and
our high client retention rates.
"We have an exciting and robust M&A pipeline, both in the US and
internationally, and are confident in our ability to deploy more capital to
further accelerate our growth trajectory. I look forward to updating
shareholders on our continued progress in the months ahead."
Enquiries
Public Policy Holding Company, Inc. +1 (202) 688 0020
Stewart Hall, CEO
Roel Smits, CFO
Stifel (Nominated Adviser & Joint Broker) +44 (0) 20 7710 7600
Fred Walsh, Ben Good, Sarah Wong
Zeus (Joint Broker) +44 (0) 20 3829 5000
David Foreman
Canaccord Genuity (Joint Broker) +44 (0) 20 7523 8000
Simon Bridges, Andrew Potts
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 approximately 1,200 clients, including
companies, trade associations and non-governmental organisations, the Group is
active in all major sectors of the US 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 ten operating
entities in the US and UK. 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 continued to make good progress in the first half of the year with
organic growth supplemented by two earnings accretive acquisitions. With the
Group's first international acquisition in Pagefield, we are closer to
achieving our mission to provide effective government relations and advocacy
services at a scale and sophistication level that has not previously been
achieved, with professionalism and ever-broadening geographical reach.
Clients
PPHC provides a comprehensive range of government relations and public affairs
services to its clients. As of 30 June 2024, the Group had c.1,200 clients.
Every year around 75% of these clients renew their relationship with the
Group, leading to revenue retention of c.85%. These numbers tend to be higher
in our Government Relations and Diversified Services divisions, while lower in
Public Affairs - where more work is done on a project basis.
In line with the trend we reported in 2023, we continued to see our operating
divisions develop at different paces, with Government Relations - the largest
of the Group's three divisions - increasing at 8%, of which 4% was organic,
setting the Group up well for the remainder of the year. All three of the
Group's lobbying firms, which sit within this division, maintained their
consolidated number one position in the listing of Federal lobbyists, as
according to quarterly and annual disclosures required by US Federal law and
available to the public. Public Affairs decreased 6% (or 13% on an organic
basis), primarily a result of reduced project work owing to uncertainty caused
by impending elections as well as by sustained pressures on client budgets
given the broader macro climate. The Group is extremely well positioned to
capitalise on the uptake of client project work anticipated following the
outcomes of elections and as macro pressures ease. Our newest division,
Diversified Services, showed strong revenue growth of 97%, of which 32% was
organic, albeit this does come from a low base and will moderate over time as
the division grows.
A key focus of the Group remains on retained clients with greater than or
equal to $100,000 annual spending. PPHC ended FY 2023 with 468 clients
spending $100,000 or more and is on track to report growth in this KPI for FY
2024. This is supported by the internal referral awards and compensation
programmes that are based on Group-wide performance. Other elements central to
this growth strategy are (i) the start-up of Concordant which offers clients a
single touchpoint to access a world-class strategic communications capability
supported by a suite of PPHC services across all operating companies, and (ii)
the leveraging of premium non-lobbying services - such as 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 nearly half of the Fortune 100 and quarter
of the Fortune 500, in addition to many more via their trade associations that
the Group serves.
Investing to accelerate growth
In Q2 2024, PPHC successfully completed the acquisitions of LPA and Pagefield.
These were the Group's third and fourth significant acquisitions since IPO,
the first being Sacramento-based KP Associates, which completed in 2022, and
the second being MultiState Associates, which completed in 2023. Pagefield is
a leading strategic communications and cross-party public affairs advisory
firm in the UK, which is measured as the sixth largest global economy and,
along with the EU, is at the forefront of global policy issues. LPA is a
leading public affairs agency in California, the largest state economy in the
US and is measured as the fifth largest global economy.
The acquisition of LPA strengthens the Group's position in a key US state and
increases our expertise in critical sectors including technology, green
energy, and healthcare, and the acquisition of Pagefield delivers on the
Group's ambition to enter into international political capitals. LPA has now
been fully integrated and the integration of Pagefield is progressing in line
with our expectations. Both companies are successfully utilising the newly
expanded PPHC network and have registered new business wins via intra-group
client referrals.
The government relations and strategic communications markets remain active
around the world and the Group is seeking to capitalise on the current
pipeline of opportunities as it aims to further broaden its geographic base
into key political geographies while adding complementary specialisations. The
pipeline of M&A opportunities remains strong in the US, UK and Mainland
Europe.
Current Trading and Outlook
· The performance delivered in H1 2024 has set the Group up well
for the remainder of the year and the Group is on track to meet full year
market expectations, with the Underlying EBITDA margin for H2 2024 expected to
be at or slightly above the H1 2024 level.
· 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 of 2024, revenue grew 8% to $71.1m, 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.
Underlying EBITDA for the period of $17.4m, up 3% over H1 2023 ($16.9m), was
achieved at a margin of 24.5% (H1 2023: 25.8%). As a result of the Group
including all cash expenses in the underlying profit metrics, this Underlying
EBITDA margin was impacted by an increase in M&A advisory expenses as well
as the start-up investment into Concordant, totalling a $1.8m investment or
250bps of margin.
The Group's debt position at Period end of $33.8m, offset by cash of $5.5m,
resulted in a Net Debt position of $28.3m (H1 2023: net debt $9.1m). The
increase in debt related to the acquisitions of Lucas Public Affairs and
Pagefield Communications in Q2 2024.
Underlying Profit & Loss Statement
All in $'000, unless otherwise noted H1 2024 H1 2023 change
Revenue 71.1 65.7 8%
EBITDA (Underlying) 17.4 16.9 3%
EBITDA margin (Underlying) 24.5% 25.8% -1.3pts
Depreciation (0.1) (0.1) 8%
EBIT (Underlying) 17.4 16.9 3%
Interest (0.5) (0.4) 30%
EBT (Underlying) 16.9 16.5 2%
Taxes (3.7) (3.8) -2%
Effective tax rate -22.0% -23.0% 1.0pts
Net Income (Underlying) 13.2 12.7 4%
Net income margin (Underlying) 18.5% 19.3% -0.8pts
EPS - Underlying ($) (basic) 0.1130 0.1140 -1%
EPS - Underlying ($) (fully diluted) 0.1081 0.1106 -2%
DPS 0.0470 0.0460 2%
Bridge from Underlying to Reported Results
All in $'000, unless otherwise noted H1 2024 H1 2023 change
Net Income (Underlying) 13.2 12.7 4%
Share-based accounting charge (15.2) (15.4) -2%
M&A: Post-combination comp (4.7) (3.0) 56%
M&A: bargain purchase 2.4 4.8 -51%
M&A: change in contingent consideration (2.3)
Long Term Incentive Program charges (1.4) (0.7) 108%
Amortization intangibles (2.1) (1.9) 8%
Net Income (Reported) (10.1) (3.5) 188%
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 H1 2024 increased by 8.0% to $71.1m (H1 2023:
$65.7m). The organic growth rate was 1.2% and the remainder was driven by the
acquisitions of Lucas Public Affairs and Pagefield Communications, as well as
MultiState which completed in 2023.
Organic growth of 1.2% was the outcome of strong continued organic growth in
Government Relations at 4% and Diversified Services at 32%, offset by a
reduction in Public Affairs of 13%. The segments showing growth primarily
contract through retainers and subscriptions, while the decline in Public
Affairs stems from a reduction in project work, which is inherently more
one-off in nature as described above.
In H1 2024, 71% of the Group's revenues stemmed from Government relations (H1
2023: 71%), 22% came from Public Affairs (H1 2023: 25%), and 7% from
Diversified Services (H1 2023: 4%).
Profit
Underlying EBITDA of $17.4m was achieved at a margin of 24.5%, close to the
Group's historic performance and ongoing guidance that margins will typically
range between 25% and 30%. It should be noted that this half year's profit was
impacted by $1.8m in incremental expenses with a one-off character, stemming
from an increase in M&A advisory costs and also from start-up losses of
Concordant. If adjusting for this, as has been done in the table below, the
margin would have been 27.0%.
Long term Underlying EBITDA 2018 2019 2020 2021 2022 2023 H1 2023 H1 2024 H1 2024 adj
Underlying EBITDA ($m) 9.3 13.5 21.5 32.0 31.2 35.1 16.9 17.4 19.2
Underlying EBITDA as % of Revenue 27.4% 24.4% 27.8% 32.2% 28.7% 26% 25.8% 24.5% 27.0%
After interest and taxes, the Group's Underlying Net Income for H1 2024
amounted to $13.2m, up 4% from $12.7m in H1 2023.
Other
The Group's net finance costs for H1 2024 were $0.5m (H1 2023: $0.4m),
illustrating the inclusion of additional debt on the Group's balance sheet at
the time of the LPA and Pagefield acquisitions in Q2 2024.
The tax accrual for H1 2024 amounted to $3.7m (H1 2023: $3.8m), which
represents a blended charge of 22% to Underlying Profit before Tax. This rate
represents a slight improvement over the 23% effective rate in H1 2023 and is
in line with the rate we recorded for FY 2023.
The Group ended 2023 with 333 employees and at 30 June 2024 this had increased
to 367, primarily as a result of the acquisitions of LPA and Pagefield. The
Group's average employee count during H1 was 330 (H1 2023: 294).
Cash flow
Adjustment to Presentation of Cash Flow
GAAP
During the Company's preparation of its consolidated financial statements for
the six months ended 30 June 2024, management determined that certain cash
flow items relating to payments made in respect of its acquisitions had been
incorrectly classified within the consolidated statements of cash flows for
the six months ended 30 June 2023 (unaudited) and the year ended 31 December
2023 (audited). As a result, the Company has adjusted the GAAP statement of
cash flow for its consolidated financial statements for the same periods in
this interim filing. The Group anticipates that this will also be formally
restated in its next Annual Report. Management emphasizes that these changes
did not impact the Company's total assets, liabilities, equity or net profit
or Earnings Per Share as of 30 June 2023 or 31 December 2023 or during the
period or year then ended.
The adjustments all relate to the fact that, as part of the acquisitions that
have been completed since PPHC's IPO in 2021, and in order to protect the
interests of the Group, the shares and cash payable as part of these
transactions can be clawed back and forfeited on certain events of termination
of employment. In the P&L, 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). In examining the accounting guidance in ASC 230, Classification
of Certain Cash Receipts and Cash Payments, from this interim filing onwards,
the Group will classify the cash flow impact of the post-combination
compensation charges as cash used for operational purposes and in certain
cases as cash used for financing purposes, as appropriate.
In addition, with respect to contingent consideration paid not within three
months of the acquisition date, after examining the accounting guidance of ASC
230, Classification of Certain Cash Receipts and Cash Payments, from this
interim filing onwards the Group will classify these payments as cash flow
from financing activities (for the portion up to the acquisition date fair
value of the contingent consideration liability) and cash flow from operating
activities (for the portion in excess of the acquisition date fair value of
that liability).
Non-GAAP
Notwithstanding the abovementioned adjusted GAAP presentation, as part of this
Management commentary the Group will also continue to provide a non-GAAP
summary of Cash Flows. In this non-GAAP summary, all acquisition-related
payments will be clustered and reported under 'Cash Flow from Investments'. In
addition, the Group now also presents, as part of Management commentary, the
often used measure 'Free Cash Flow'.
Cash Flow summary
The Group recorded strong (non-GAAP) Cash Flow from Operations of $6.0m (H1
2023: $1.9m). The generation of Cash Flow from Operations in the first half
of the 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 Cash Flow from
Operations to be generated in the second half of the year.
GAAP Centralize Acquisition Payments Adjusted (non-GAAP)
All in $'000, unless otherwise noted H1 2024 H1 2023* H1 2024 H1 2023 H1 2024 H1 2023 change
EBITDA (Underlying) 17.4 16.9 17.4 16.9 3%
Interest (0.5) (0.4) (0.5) (0.4) -30%
Taxes (3.7) (3.8) (3.7) (3.8) 2%
Changes in working capital (12.9) (22.2) 5.7 11.4 (7.2) (10.8) 33%
Cash flow from Operations 0.3 (9.4) 5.7 11.4 6.0 1.9 210%
Capital expenditure (0.0) (0.1) (0.0) (0.1) 96%
Cash paid for acquisitions, net of cash acquired (19.9) (8.1) (6.4) (13.1) (26.4) (21.2) -24%
Cash flow from Investments (19.9) (8.2) (6.4) (13.1) (26.4) (21.4) -24%
Change in Debt balance 23.5 13.8 23.5 13.8 70%
Debt issuance costs (0.8) (0.5) (0.8) (0.5) -74%
Dividend payment (11.2) (10.6) (11.2) (10.6) -5%
Cash paid for acquisitions, financing (0.7) (1.8) 0.7 1.8
Cash flow from Financing 10.8 0.9 0.7 1.8 11.5 2.7 323%
FX impact on cash (0.0) 0.0
Cash generated (8.9) (16.7) 0.0 0.0 (8.9) (16.7) 47%
*See footnote 2 in footnotes to financials
Conversion Cash flow from Operations to Free Cash Flow
All in $'000, unless otherwise noted H1 2024 H1 2023 change
Cash flow from Operations (Adjusted) 6.0 1.9 210%
Capex 0.0 (0.1) -96%
Free Cash Flow 6.0 1.8 228%
Balances end of period
The Group's debt position at the end of the Period was $33.8m, offset by cash
of $5.5m, resulting in a Net Debt position of $28.3m (H1 2023: net debt
$9.1m). The increase in debt relates to the acquisitions of Lucas Public
Affairs and Pagefield Communications in Q2 2024.
All in $'000, unless otherwise noted H1 2024 H1 2023 change
Cash balance 5.5 4.5 21%
Debt balance (33.8) (13.6) 148%
Net cash / (debt) balance (28.3) (9.1) 210%
Earnout obligations
As part of the typical structure applied for the acquisitions that were
completed post-IPO, the Group also committed to making certain earnout
payments. These earnout payments are based on a profit-driven formula and only
materialise if the acquired company realises profit growth after the date of
completion. Payments are typically made in a mix of cash and shares. In turn,
each of these components of earnout payments may be subject to further vesting
requirements and employment conditions, which keeps the recipients financially
committed to the Group.
In relation to these earnout payments, the Group has liabilities recorded of
$14.5m on its balance sheet, spread across the line items 'Contingent
Consideration' and 'Other Liabilities'. This number is a reflection not only
of the estimated foreseen nominal payments, but also of discount factors and
fair value estimates.
In nominal terms, over the period 2025-2029, based on expected performance of
each of the acquired companies, we anticipate having to make earnout payments
of $43.6m, of which $24.5m payable in cash and the remainder in shares. The
maximum earnout liability over that same period, which would only be reached
if each acquisition meets very aggressive profit growth targets, would be
$95.5m, of which $55.9m payable in cash and the remainder in shares.
Generally, in order for an acquisition to reach maximum earnout payments, it
would need to grow its profit by 25-30% annually over the earnout period.
Expected earnout liabilities - in nominal terms
All in $m, unless otherwise noted 2025 2026 2027 2028 2029 Total
Expected earnout payments in Cash 2.1 3.3 4.5 11.9 2.7 24.5
Expected earnout payments in PPHC stock 0.5 3.3 1.9 11.9 1.6 19.1
Expected earnout payments - total 2.7 6.5 6.4 23.8 4.3 43.6
Maximum earnout payments in Cash 2.8 8.5 12.4 18.8 13.5 55.9
Maximum earnout payments in PPHC stock 0.7 6.0 6.1 18.8 8.0 39.6
Maximum earnout payments - total 3.5 14.5 18.5 37.5 21.5 95.5
Dividend
The Board of Directors of the Company has declared an Interim Dividend for
2024 of $0.047 per Common Share, which equates to an aggregate amount, based
on the current number of outstanding Common Shares, of approximately $5.6m,
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,
27 September 2024. The ex-dividend date is 26 September 2024. The dividend
will be paid no later than 25 October 2024.
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. Going forward, 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
H1 2024 H1 2023 change
# weighted avg shares - GAAP - basic and fully diluted '000 110,741 108,484 2%
# weighted avg shares - Legally outstanding - basic '000 116,440 111,324 5%
# weighted avg shares - Legally outstanding - fully diluted '000 121,767 114,729 6%
EPS - GAAP reported (basic and fully diluted) $ 0.1188 0.1170 2%
EPS - Underlying (basic) $ 0.1130 0.1140 -1%
EPS - Underlying (fully diluted) $ 0.1081 0.1106 -2%
DPS - Interim $ 0.0470 0.0460 2%
Operating Cash Flow (GAAP) per share - Underlying (basic) $ 0.0024 -0.0811 n/m
Free Cash Flow per share - Underlying (basic) $ 0.0512 0.0163 214%
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.
Note that the growth in weighted of average number of shares in H1 2024 (5%
basic, 6% fully diluted) was not only driven by customary drivers such as LTIP
issuance and M&A related issuances, but also by the one-off issue of 2.1m
shares in the fourth quarter of 2023 in relation to the Alpine remediation
plan.
Basis of preparation
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), the Group does not recognise 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. Six elements
distinguish our Underlying Net Income from our Reported Net Income:
(1) Share-based accounting charge: As already mentioned in the previous
reports, shares issued to employee shareholders at the time of 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 ($197m) and taking into
account the 14.6% of pre-admission employee shares sold in 2021, the H1 2024
non-cash charge is $15.2m (H1 2023: $15.4m). This share-based accounting
non-cash charge has no impact on either tax or Company operations.
(2) Post-combination compensation charge: In the acquisitions that have been
completed since the IPO in 2021, the Group makes payments in cash and shares.
In order to protect the interests of the Group, the shares issued as part of
these transactions were made subject to vesting schedules. 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 H1
2024 charge was $4.7m (H1 2023: $3.0m). Again, this is a non-cash charge and
has no impact on either tax or Company operations.
(3) LTIP charges. In 2022 the Group issued the first 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
(e.g. options, restricted stock). In H1 2024, PPHC issued 0.3 million (H1
2023: 0.6 million) stock options at a premium exercise price (market price at
time of grant plus 20%), exercisable at the 3(rd) anniversary of the grant.
Also, the Group issued 2.9 million restricted stock units (H1 2023: 1.5m), 0.7
million restricted stock awards (H1 2023: 0.8m). No restricted stock
appreciation awards were awarded (H1 2023: 1.9 million) as they are getting
phased out. The charges relating to these issuances, $1.4m in H1 2024 (H1
2023: $0.7m), as reflected in our P&L were computed using the Black
Scholes method.
(4) Amortization of intangibles: The non-cash amortization charge of $2.1m (H1
2023: $1.9m) relates to the amortization of customer relationships, developed
technology, and noncompete agreements per ASC 805.
(5) Bargain purchase: As laid out in point 2, because a significant part of
the purchase price of our acquisitions is tied to continued employment, this
part has been accounted for as post-combination compensation in the Group's
P&L. As a consequence, for certain acquisitions, the remaining book
purchase price is 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 these acquisitions.
The income recorded relating to the bargain purchase was $2.4m in H1 2024 (H1
2023: $4.8m).
(6) Change in Contingent Consideration: The contingent consideration liability
recorded as part of the acquisitions is adjusted at each reporting period for
the change in the estimated fair value of that liability. The fair value
changes over time based on management assumptions, the passage of time,
payments made, and other external inputs, such as discount rates and
volatility. The change in the estimated fair value of the contingent
consideration is recorded as a non-operating expense of $2.3m in H1 2024.
There was no change in the fair value of the contingent consideration in H1
2023.
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 comprises 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 H1 2024 was 116,439,545 (H1 2023:
111,323,766) and on a fully diluted basis (taking into account any issued
stock instrument, regardless of exercise price), this number was 121,766,698
(H1 2023: 114,728,537).
Consolidated Balance Sheets
Unaudited at Unaudited at Audited at
June 30, June 30, December 31,
2024 2023 2023
Assets
Current assets:
Cash $ 5,467,586 $ 4,504,950 $ 14,341,376
Contract receivables, net 19,326,454 17,637,146 14,063,469
Amounts due from related parties - 1,038,569 1,054,231
Notes receivable - related parties, current portion 863,000 - 350,000
Income taxes receivable 1,163,953 - 975,050
Prepaid post-combination compensation, current portion 5,862,153 3,293,838 3,426,318
Prepaid expenses and other current assets 3,441,434 1,701,453 2,694,149
Total current assets 36,124,580 28,175,956 36,904,593
Property and equipment, net 773,714 738,870 801,355
Notes receivable - related parties, long term 1,400,000 513,000 1,913,000
Operating lease right of use asset 20,484,336 23,324,777 21,434,360
Goodwill 65,662,137 47,909,832 47,909,832
Other intangible assets, net 34,715,584 28,824,164 26,869,331
Deferred income tax asset 10,356,400 7,706,000 7,737,200
Prepaid post-combination compensation, long term 4,379,081 5,761,506 3,954,034
Other long-term assets 397,661 221,918 162,473
$ 174,293,493 $ 143,176,023 $ 147,686,178
Liabilities
Current liabilities:
Accounts payable and accrued expenses $ 15,780,656 $ 13,282,751 $ 18,593,014
Income taxes payable - 522,017 -
Amounts owed to related parties 780,943 - -
Deferred revenue 5,629,184 3,117,997 2,197,220
Operating lease liability, current portion 4,797,062 3,515,876 4,181,155
Contingent consideration, current portion 516,480 592,000 1,444,110
Other liability, current portion 666,740 - 534,540
Notes payable, current portion, net 5,673,940 3,370,421 3,370,421
Total current liabilities 33,845,005 24,401,062 30,320,460
Notes payable, long term, net 28,087,768 9,259,637 7,570,951
Line of credit - 1,000,000 -
Contingent consideration, long term 10,694,952 4,616,390 5,475,515
Other liability, long term 2,665,483 1,356,252 1,585,294
Operating lease liability, long term 19,144,887 22,761,705 20,665,349
Total liabilities 94,438,095 63,395,046 65,617,569
Common stock, $0.001 par value, 1,000,000,000
shares authorized, 119,771,310, 113,083,017
and 115,271,961 shares issued and
outstanding, respectively 112,503 108,721 109,542
Additional paid-in capital 176,420,047 138,646,823 156,884,144
Accumulated deficit (96,208,461) (58,974,567) (74,925,077)
Accumulated other comprehensive loss (468,691) - -
Total stockholders' equity 79,855,398 79,780,977 82,068,609
Total liabilities and stockholders' equity $ 174,293,493 $ 143,176,023 $ 147,686,178
Consolidated Statements of Operations
Unaudited Unaudited Audited
six months six months year
ended ended ended
June 30, June 30, December 31,
2024 2023 2023
Revenue $ 71,125,819 $ 65,711,955 $ 134,985,822
Expenses:
Personnel cost 39,906,494 34,398,546 70,782,459
Employee bonuses 3,433,224 5,999,863 13,178,302
General and administrative expenses 7,629,569 5,921,584 10,929,617
Occupancy expense 2,729,479 2,469,262 5,027,501
Depreciation and amortization expense 2,137,678 1,981,485 3,998,073
Long term incentive program charges 1,363,000 654,000 2,796,000
Total expenses before share-based
accounting (ASC 718-10-S99-2) charge
and post-combination compensation (ASC 805-10-55-25) charge 57,199,444 51,424,740 106,711,952
Income from operations before share-based
accounting (ASC 718-10-S99-2) charge
and post-combination compensation (ASC 805-10-55-25) charge 13,926,375 14,287,215 28,273,870
Share-based accounting (ASC 718-10-S99-2) charge 15,194,000 15,430,500 30,904,000
Post-combination compensation (ASC 805-10-55-25) charge 4,697,657 3,016,024 6,295,060
Loss from operations (5,965,282) (4,159,309) (8,925,190)
Change in fair value of contingent consideration (2,263,577) - (1,711,235)
Gain on bargain purchase, net of deferred taxes 2,355,927 4,835,777 4,835,777
Interest income 97,880 - 17,955
Interest expense (597,900) (384,469) (958,779)
Net income (loss) before income taxes (6,372,952) 291,999 (6,741,472)
Income tax expense 3,706,800 3,788,400 7,502,800
Net loss $ (10,079,752) $ (3,496,401) $ (14,244,272)
Net loss per share attributable to common
stockholders, basic and diluted $ (0.09) $ (0.03) $ (0.13)
Weighted average common shares outstanding,
basic and diluted 110,740,866 108,483,598 108,606,133
Comprehensive loss:
Net loss (10,079,752) (3,496,401) (14,244,272)
Foreign currency translation loss (468,691) - -
Total comprehensive loss $ (10,548,443) $ (3,496,401) $ (14,244,272)
Consolidated Statements of Stockholders' Equity
Accumulated
Additional Other Total
Common Stock Paid-In Accumulated Comprehensive Stockholders'
Shares Amount Capital Deficit Income (Loss) Equity
Balance as of December 31, 2022 108,024,388 $ 108,024 $ 120,713,626 $ (44,836,562) $ - $ 75,985,088
Issuance of common stock for acquisition 767,401 768 1,231,232 - - 1,232,000
Forfeiture of unvested restricted stock (69,576) (70) - 70 - -
Vesting of restricted stock awards 820,007 820 - (820) - -
Dividends - - - (15,843,493) - (15,843,493)
Long term incentive program charges - - 2,506,000 - - 2,506,000
Share-based accounting (ASC 718-10-S99-2) charge - - 30,904,000 - - 30,904,000
Post-combination compensation (ASC 805-10-55-25) charge-shares - - 1,529,286 - - 1,529,286
Net loss - - - (14,244,272) - (14,244,272)
Balance as of December 31, 2023 109,542,220 $ 109,542 $ 156,884,144 $ (74,925,077) $ - $ 82,068,609
Accumulated
Additional Other Total
Common Stock Paid-In Accumulated Comprehensive Stockholders'
Shares Amount Capital Deficit Income (Loss) Equity
June 30, 2023
Balance as of December 31, 2022 108,024,388 $ 108,024 $ 120,713,626 $ (44,836,562) $ - $ 75,985,088
Long term incentive program charges - - 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
Post-combination compensation (ASC 805-10-55-25) charge-shares - - 688,464 - - 688,464
Share-based accounting (ASC 718-10-S99-2) charge - - 15,430,500 - - 15,430,500
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
June 30, 2024
Balance as of December 31, 2023 109,542,220 $ 109,542 $ 156,884,144 $ (74,925,077) $ - $ 82,068,609
Long term incentive program charges - - 1,287,000 - - 1,287,000
Dividends - - - (11,202,010) - (11,202,010)
Vesting of stock issued from Multistate acquisition 657,772 658 - (658) - -
Vesting of stock issued from KP Public Affairs acquisition 246,244 246 - (246) - -
Vesting of stock issued from Engage acquisition 162,434 163 - (163) - -
Vesting of stock issued to consultant 63,468 63 - (63) - -
Vesting of restricted stock units 491,678 492 - (492) - -
Common stock issued to Multistate as settlement of contingent consideration 441,432 441 690,559 - - 691,000
Issuance of common stock for acquisition 897,640 898 1,439,946 - - 1,440,844
Post-combination compensation (ASC 805-10-55-25) charge-shares - - 924,398 - - 924,398
Share-based accounting (ASC 718-10-S99-2) charge - - 15,194,000 - - 15,194,000
Foreign currency translation gain (loss) - - - - (468,691) (468,691)
Net loss - - - (10,079,752) - (10,079,752)
Balance as of June 30, 2024 112,502,888 $ 112,503 $ 176,420,047 $ (96,208,461) $ (468,691) $ 79,855,398
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 consulting services in the areas of Governmental
Relations, Public Affairs and other ancillary areas, primarily in the United
States of America ("U.S."). With the acquisition of Pagefield Communications
Limited ("Pagefield"), the Company has expanded its capabilities to the United
Kingdom and parts of Europe.
These unaudited interim consolidated financial statements for the six months
ended June 30, 2024 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, 2023 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 United States
Dollars ("USD"). All intercompany transactions and balances have been
eliminated in consolidation.
The functional currency of Pagefield is the British pound sterling ("GBP").
The assets and liabilities of Pagefield are translated to USD at period end
exchange rates, while statements of operations accounts are translated at the
average exchange rate during the period. Stockholders' equity accounts are
translated at their historical exchange rate. The effects of foreign
currency translation adjustments are included in other comprehensive loss,
which is a component of other comprehensive loss in stockholders' equity.
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 holding company:
PPHC International Ltd
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.
Concordant LLC
Lucas Public Affairs, LLC
Pagefield Communications Limited
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. The Holdings
Distribution Discount of approximately $4,463,000 was paid in full during
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 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 7.
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 following table provides disaggregated revenue by revenue type for the
periods ended December 31:
Six months ended June 30, 2024 Six months ended June 30, 2023 12 months ended December 31, 2023
Lobbying Revenue $ 50,321,378 $ 46,529,662 $ 95,476,619
Public affairs Revenue 15,538,588 16,507,022 32,256,518
Diversified Services 5,265,853 2,675,271 7,252,685
Total revenue $ 71,125,819 $ 65,711,955 $ 134,985,822
See the Segment Reporting Note 11 for a description of the principal
activities, by reportable segment, from which the Company generates revenue.
The following table provides information about receivables, contract assets
and contract liabilities from contracts with customers as of:
June 30, 2024 June 30, 2023 December 31, 2023
Accounts receivable $ 19,380,584 $ 16,633,566 $ 14,248,444
Unbilled receivables 820,479 1,430,768 609,163
Allowance for credit losses (874,609) (427,188) (794,138)
Contract liabilities (deferred revenue) $ 5,629,184 $ 3,117,997 $ 2,197,220
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
$2,197,000 and $2,861,000 from December 31, 2023 and 2022 is expected to be
recognized as revenue in 2024 and 2023, 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 credit losses 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, 2024, June 30, 2023 and December 31, 2023 the balance of allowance
for credit losses approximated $875,000, $427,000 and $794,000.
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, 2024, June 30, 2023 and December 31, 2023 the Company had
approximately $20,484,000, $23,325,000, and $21,434,000, respectively, of
operating lease ROU assets and $23,942,000, $26,278,000 and $24,847,000,
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, 2024, 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, 2024:
July 1, 2024 to June 30, $5,839,589
2025……………………………………………………………
July 1, 2025 to June 30, 5,723,214
2026……………………………………………………………
July 1 2026 to June 30, 5,193,923
2027…………………………………………………………….
July 1, 2027 to June 30, 4,656,280
2028……………………………………………………………
July 1, 2028 to June 30, 3,406,429
2029……………………………………………………………
Thereafter………………………………………………………………………………... 2,504,992
Total future minimum lease payments 27,324,427
Amount representing interest (3,382,478)
Present value of net future minimum lease payments $23,941,949
Lease Cost
Six months ended June 30, 2024 Six months ended June 30, 2023 Year ended December 31,
2023
Operating lease cost (cost resulting from lease payments) $2,613,905 $2,381,525
$4,898,528
Variable lease cost (cost excluded from lease payments) 234,629 247,867
428,064
Sublease income (169,562) (224,653) (410,879)
Net lease cost $2,678,972 $2,404,739 $4,915,713
Operating lease - operating cash flows (fixed payments) $2,568,103 $2,050,685
$3,968,498
Weighted average lease term - operating leases
4.9 years 5.8 years 5.4 years
Weighted average discount rate - operating leases 5.30%
5.30% 5.20%
The Company subleases office space to third parties under separate sublease
agreements, which are generally month-to-month leases.
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, 2024, 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 annual evaluation for the
year ended December 31, 2023 and determined the fair value of each reporting
unit is greater than the carrying amount. Management has determined that no
triggering event or other change in circumstances have occurred during the six
months ended June 30, 2024 and 2023. Accordingly, the Company has not
recorded any impairment charges related to goodwill for the six months ended
June 30, 2024 and 2023 and the year ended December 31, 2023.
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 annual
evaluation for the year ended December 31, 2023 and determined the fair value
of the trademarks is greater than the carrying amount. Management has
determined that no triggering event or other change in circumstances have
occurred during the six months ended June 30, 2024 and 2023. Accordingly,
the Company has not recorded any impairment charges related to trademarks for
the six months ended June 30, 2024 and 2023 and the year ended December 31,
2023.
Other intangible assets:
The Company's definite-lived intangible assets consists of customer
relationships, developed technology and noncompete agreements that have been
acquired through various acquisitions. The Company amortizes 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 six months ended
June 30, 2024 and 2023 and the year ended December 31, 2023.
Deferred revenue:
Deferred revenue represents prepayment by the customers for services that have
yet to be performed. As of June 30, 2024, June 30, 2023 and December 31, 2023,
deferred revenue was approximately $5,629,000, $3,118,000, and $2,197,000,
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, 2024 June 30, 2023 December 31, 2023
Accounts payable $ 6,462,980 $5,733,663 $4,348,493
Bonus payable 3,138,821 5,559,928 12,389,037
Other accrued expenses 6,178,855 1,989,160 1,855,484
Total $15,780,656 $13,282,751 $18,593,014
Marketing and advertising costs:
The Company expenses marketing and advertising costs as incurred. Marketing
and advertising expense for the six months ended June 30, 2024 and 2023 and
the year ended December 31, 2023 was approximately $206,000, $81,000 and
$216,000 respectively.
Income taxes:
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, 2024 and 2023 and the year ended December 31,
2023 does not include the common stock equivalent shares below:
June 30, 2024 June 30, 2023 December 31, 2023
Common shares outstanding 112,502,888 108,722,213 109,542,220
Nonvested shares outstanding 7,268,422 4,360,804 5,729,741
Legally outstanding shares 119,771,310 113,083,017 115,271,961
Stock options and RSUs outstanding 8,013,868 4,774,445 5,314,056
Total fully diluted shares 127,785,178 117,857,462 120,586,017
The following table includes the weighted average shares outstanding for each
respective period:
Six months ended June 30, 2024 Six months ended June 30, 2023 Year ended December 31, 2023
Common shares, weighted average 110,740,866 108,483,598 108,606,133
Nonvested shares, weighted average 5,698,679 2,840,168 3,990,578
Legally outstanding shares, weighted average 116,439,545 111,323,766 112,596,711
Stock options and RSUs, weighted average 5,327,154 3,404,771 4,096,048
Total fully diluted, weighted average 121,766,699 114,728,537 116,692,759
Fair value of financial instruments:
As a basis for determining the fair value of certain of the Company's
financial instruments, the Company utilizes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs such as quoted prices in active
markets for identical assets or liabilities;
Level 2 - Observable inputs, other than Level 1 prices, such as quoted prices
for similar assets or liabilities, quoted prices in markets that are not
active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities; and
Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
This hierarchy requires the Company to use observable market data, when
available, and to minimize the use of unobservable inputs when determining
fair value. Assets and liabilities measured at fair value are classified in
their entirety based on the level of input that is significant to the fair
value measurement. The Company's assessment of the significant of a
particular input to the entire fair value measurement requires management to
make judgments and consider the factors specific to the asset or liability.
The carrying values of cash, accounts receivable, and accounts payable and
accrued expenses at June 30, 2024 and 2023 and the year ended December 31,
2023 approximated their fair value due to the short maturity of these
instruments.
The Company's financial instruments that are measured on a recurring basis
consist of contingent consideration from the acquisition of KP Public Affairs
LLC, Multistate Inc., Lucas Public Affairs, Inc., and Pagefield. The fair
value of the contingent consideration was measured using Level 3 inputs.
The following table summarized the change in fair value, as determined by
Level 3 inputs, for the contingent consideration using the unobservable Level
3 inputs:
Balance at December 31, 2022 $ 4,245,000
Fair value at issuance 2,784,990
Payout of contingent consideration (1,821,600)
Change in fair value -
Balance at June 30, 2023 5,208,390
Fair value at issuance -
Change in fair value 1,711,235
Balance at December 31, 2023 6,919,625
Fair value at issuance 3,775,544
Cash and stock payout of contingent consideration (1,709,250)
Change in fair value 2,263,577
Effect of currency translation adjustment (38,064)
Balance at June 30, 2024 $ 11,211,432
The change in fair value of the contingent consideration of approximately
$2,264,000 for the six months ended June 30, 2024 and $1,711,000 for the year
ended December 31, 2023, consisted of changes in the fair value of the
contingent consideration for MultiState Inc and KP LLC. The change in fair
value was primarily due to the effect of the change in the forecasted growth
rate of each entity.
The Company performed Monte Carlo simulations to estimate the achievement and
amount of certain future operating results. The Monte Carlo simulations
utilize estimates including; expected volatility of future operating results,
discount rates applicable to future results, and expected growth rates. The
tables below document the Monte Carlo assumptions and inputs (which are Level
3 inputs) each balance sheet date:
As of June 30, 2024
Valuation Methodology Significant Unobservable Input Range
Contingent Consideration Monte Carlo Simulation Method Discount rate for credit risk and time value 5.5% to 6.5%
Discount rate for future profit after tax 15.2% to 21.7%
Expected volatility of future annual profit after tax 28.0% to 34.5%
Forecasted growth rate 4.9% to 19.5%
As of June 30, 2023
Valuation Methodology Significant Unobservable Input Range
Contingent Consideration Monte Carlo Simulation Method Discount rate for credit risk and time value 5.7% to 7.0%
Discount rate for future profit after tax 15.9% to 22.2%
Expected volatility of future annual profit after tax 35.0% to 38.0%
Forecasted growth rate 3.0% to 14.4%
As of December 31, 2023
Valuation Methodology Significant Unobservable Input Range
Contingent Consideration Monte Carlo Simulation Method Discount rate for credit risk and time value 4.8% to 6.5%
Discount rate for future profit after tax 14.6% to 21.0%
Expected volatility of future annual profit after tax 33.0% to 37.0%
Forecasted growth rate 4.9% to 30.3%
Assumptions related to future operating performance are based on management's
annual and ongoing budgeting, forecasting and planning processes and represent
management's best estimate of the future results of the Company's operations
at a point in time. These estimates are subject to many assumptions, such as
the economic environments in which the Company operates, demand for services
and competitor actions. Estimated calculations of the future annual profit
after tax amounts are discounted to present value using a market participant,
weighted average cost of capital, which considers the risk inherent in the
probability adjusted future annual profit after tax amounts from services
provided. The financial and credit market volatility directly impacts
certain inputs and assumptions used to develop the weighted average cost of
capital such as the risk-free interest rate, industry beta, debt interest
rate, and our market capital structure. These assumptions are based on
significant inputs not observable in the market and thus represent Level 3
measurements within the fair value hierarchy. The use of different inputs
and assumptions could increase or decrease our estimated fair value
calculations of the contingent consideration.
Contingent Consideration:
The Company estimates and records the acquisition date fair value of
contingent consideration as part of purchase price consideration for
acquisitions. Additionally, each reporting period, the Company estimates
changes in the fair value of contingent consideration and recognizes any
change in fair value in the consolidated statements of operations. The
estimate of the fair value of contingent consideration requires very
subjective assumptions to be made of future operating results, discount rates
and probabilities assigned to various potential operating result scenarios.
Future revisions to these assumptions could materially change the estimate of
the fair value of contingent consideration and, therefore, materially affect
the Company's future financial results. The contingent consideration
liability is to be settled through a combination of cash and shares of common
stock based on each respective purchase agreement and the amount ultimately
paid is dependent on the achievement of certain future operating results.
Other Liability:
Other liability consists of certain future payments that the Company could be
required to make if various operating targets are achieved from the
acquisitions of KP LLC, MultiState Inc, LPA, and Pagefield (See Note 3). The
Company records post-combination business expense over the vesting or
claw-back period applicable for these future payments on a straight-line basis
with the amount accrued recorded as Other liability. The future earn-out
payments that have vesting or claw-back rights tied to employment will reduce
the amount of the Other liability when paid.
Adoption of New Accounting Pronouncement:
During 2023, the Company adopted Accounting Standards Update No. 2016-13 ("ASU
2016-13"), Financial Instruments-Credit Losses. ASU 2016-13 requires
organizations to measure all expected credit losses for instruments held at
the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. This guidance is applicable for the
Company's accounts receivable. However, the adoption of ASU 2016-13 did not
have a material impact to the Company's valuation of its accounts receivable.
Reclassification:
Categorization of the June 30, 2023 goodwill segment disclosures have been
reclassified to conform to the June 30, 2024 and December 31, 2023
presentation. These reclassifications had no impact on the total results or
net assets of the Company.
Subsequent events:
Management has evaluated the subsequent events for disclosure in these
consolidated financial statements through September 17, 2024, the date these
consolidated financial statements were available for issuance, and determined
that no events have occurred that would require adjustment to or disclosure in
these consolidated financial statements.
NOTE 2 ADJUSTMENT TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS
During the Company's preparation of its consolidated financial statements for
the six months ended June 30, 2024, management determined that certain cash
flow items had been incorrectly classified within the consolidated statements
of cash flows for the six months ended June 30, 2023 and the year ended
December 31, 2023. These errors did not impact the Company's total assets,
liabilities, equity or net loss as of June 30, 2023 or December 31, 2023 or
during the period or year then ended.
During 2023, the Company made a cash payment of $17,600,000 for the
acquisition of MultiState Associates, Inc. (see Note 3). The Company
classified this payment as a cash flow from investing activities in its
consolidated financial statements for the six months ended June 30, 2023 and
the year ended December 31, 2023. However, $9,504,000 of this payment was
recorded as prepaid post-combination expense due to the vesting and claw-back
provisions tied to continuing employment for this payment amount. In
examining the accounting guidance in ASC 230, Classification of Certain Cash
Receipts and Cash Payments, management determined that the $9,504,000 payment
should have been classified as a cash flow from operating activities. As a
result, the Company has adjusted the cash flow presentation for its
consolidated financial statements for the six months ended June 30, 2023 and
the year ended December 31, 2023 in this interim filing for this item.
During 2023, the Company made a cash payment of $3,643,200 for an earn-out
payment related to the acquisition of KP Public Affairs LLC (see Note 3).
The Company classified this payment as a cash flow from investing activities
in its consolidated financial statements for the six months ended June 30,
2023 and the year ended December 31, 2023. However, $1,821,600 of this
payment was for amounts owed that are tied to vesting or claw-back provisions
requiring continued employment. The liability recorded for this amount is an
operating liability that is recorded as Other Liability on the Company's
consolidated balance sheet. Therefore, the cash settlement payment for this
liability requires classification as a cash flow from operating activities.
In addition, the other $1,821,600 of this payment was settlement of the
contingent consideration liability recorded in the Company's consolidated
balance sheet. However, this payment was not made within three months of the
acquisition date of KP Public Affairs LLC. As such, in accordance with the
accounting guidance of ASC 230, Classification of Certain Cash Receipts and
Cash Payments, the portion of the cash payment up to the acquisition date fair
value of the contingent consideration liability of $1,779,000 should be
classified as a cash flow from financing activities and the amounts paid in
excess of the acquisition date fair value of that liability of $42,600 should
be classified as a cash flow from operating activities. As a result, the
Company has adjusted the cash flow presentation for its consolidated financial
statements for the six months ended June 30, 2023 and the year ended December
31, 2023 in this interim filing for these items.
The total impact to the Company's consolidated financial statements for the
six months ended June 30, 2023 and the year ended December 31, 2023 is as
follows:
Unaudited six months ended June 30, 2023 Adjustment Unaudited June 30, 2023 As Adjusted Audited year ended December 31, 2023 Adjustment Unaudited December 31, 2023 As Adjusted
Accretion of other liability $ - $ 921,192 $ 921,192 $ - $ 1,684,774 $ 1,684,774
Prepaid post-combination compensation - (9,504,000) (9,504,000) - (9,504,000) (9,504,000)
Contingent consideration - (42,600) (42,600) - (42,600) (42,600)
Other liability 921,192 (2,742,792) (1,821,600) 1,684,774 (3,506,374) (1,821,600)
Net cash provided by operating activities 1,926,519 (11,368,200) (9,441,681) 21,602,813 (11,368,200) 10,234,613
Payment of contingent consideration and other liability (3,643,200) 3,643,200 - (3,643,200) 3,643,200 -
Cash paid for acquisitions and prepaid post combination expense, net of cash (17,600,000) 9,504,000 (8,096,000) (17,600,000) 9,504,000 (8,096,000)
acquired
Net cash used in investing activities (21,351,689) 13,147,200 (8,204,489) (23,225,930) 13,147,200 (10,078,730)
Payment of contingent consideration - (1,779,000) (1,779,000) - (1,779,000) (1,779,000)
Net cash provided by (used in) financing activities $ 2,727,664 $(1,779,000) $ 948,664 $ (5,237,963) $(1,779,000) $(7,016,963)
Net decrease in cash and cash equivalents $(16,697,506) $ - $(16,697,506) $(6,861,080) $ - $(6,861,080)
NOTE 3 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
("Closing Cash Payment") and issued 739,589 shares of the Company's common
stock ("Closing Share Payment") to Seller at an aggregate fair value of
$1,145,200.
During the year ended December 31, 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 ("KP True-Up Cash Payment") and 245,389 shares of common
stock ("KP True-Up Share Payment") at an aggregate fair value of $404,800.
Approximately $1,822,000 of the cash paid was applied against the contingent
liability, $1,822,000 of the cash was applied against the other liability and
the remaining $404,800 worth of common stock issued will be recorded as
post-combination expense and equity over the required vesting terms for the
shares issued.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:
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 the
Closing True-Up Cash Payment, Interim Earnout Cash Payment, and Final Earnout
Cash Payment that are not subject to a vesting requirement or claw back
provision directly linked to the future employment of Owners.
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 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 relationship 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.
The fair value of the contingent consideration was performed using Monte Carlo
simulations to estimate the achievement and amount of certain future operating
results. The Monte Carlo simulations utilize estimates including; expected
volatility of future operating results, discount rates applicable to future
results, and expected growth rates. The table below provides the significant
inputs to the calculation of the contingent consideration as of the
acquisition date:
Significant Unobservable Input Range
Discount rate for credit risk and time value 5.9 % to 6.2 %
Discount rate for future profit after tax 20.0% to 22.2%
Expected volatility of future annual profit after tax 30.0% to 35.0%
Forecasted growth rate 3.0% to 17.8%
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 7).
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 November 1, 2022 based on their respective estimated fair
values 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 relationship 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 Closing 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%.
During the six months ended June 30, 2024, the Company paid the MS Seller
$2,000,000 of cash ("MS First Interim Cash Payment") and $2,000,000 of common
stock ("MS First Interim Share Payment"). Approximately $1,709,000 of the
cash and stock paid was applied against the contingent liability, $982,000 of
the cash was applied against the other liability and prepaid post-combination
expense and the remaining $1,309,000 worth of common stock issued ("MS First
Interim Vesting Shares") will be recorded as post-combination expense and
equity over the required vesting terms for the shares issued.
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 $ 4,490,227
Other current assets 191,177
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.
The fair value of the contingent consideration was performed using Monte Carlo
simulations to estimate the achievement and amount of certain future operating
results. The Monte Carlo simulations utilize estimates including; expected
volatility of future operating results, discount rates applicable to future
results, and expected growth rates. The table below provides the significant
inputs to the calculation of the contingent consideration as of the
acquisition date:
Significant Unobservable Input Range
Discount rate for credit risk and time value 5.7 % to 7.0 %
Discount rate for future profit after tax 15.9% to 16.6%
Expected volatility of future annual profit after tax 36.0% to 38.0%
Forecasted growth rate 3.0% to 14.4%
Lucas Public Affairs, Inc. ("LPA")
On May 1, 2024, the Company entered into an Asset Purchase Agreement ("LPA
Agreement") and acquired certain assets and assumed certain liabilities of
Lucas Public Affairs, Inc. ("Seller" or "LPA") through the creation of a
wholly-owned subsidiary, Lucas Public Affairs, LLC ("LPA LLC"). At the
closing of the transaction, the Company paid the Seller cash in the amount of
$6,000,000 ("LPA Closing Cash Payment") and issued 958,371 shares of the
Company's common stock ("LPA Closing Share Payment") to Seller at an aggregate
fair value of approximately $1,500,000, of which, all the shares have vesting
requirements ("LPA Vesting Shares").
In addition, there are additional contingent payments that the Seller can earn
in the future depending on certain operating results that are achieved. The
total additional amount of consideration that the Company could be required to
pay to the Seller is $9,800,000 of cash and $4,700,000 of stock ("LPA Seller
Shares") for total additional consideration of up to $14,500,000. This
combined with the closing payments already made could require total payments
of up to $22,000,000 to the Seller.
The LPA Agreement provides certain forfeiture provisions applicable to any
future cash or share payments owed, which generally require the owners of the
Seller ("LPA Owner") 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 ("LPA Acceleration Event") as defined in the
LPA Agreement.
In addition, under certain circumstances outlined in the LPA Agreement, the
Company can claw back a portion of certain payments previously paid if a LPA
Owner is not employed by the Company as of certain future dates.
If a LPA Owner's employment is terminated as a result of a LPA Acceleration
Event, a percentage of the unvested LPA Owner Shares (representing such LPA
Owner's ownership percentage in Seller) shall become fully vested. The LPA
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 LPA Agreement contains certain provisions
requiring the forfeiture of a percentage of all cash and shares received by
LPA Owner if certain restrictive covenants are breached by a LPA Owner.
Reasons for the Acquisition
The Company acquired LPA to expand the scope of its consulting services
provided in respect of federal, state and local governments. Specifically,
LPA provides significant complementary services to companies and organizations
doing business in the state of California.
Accounting for the Acquisition
The acquisition of LPA 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.
Preliminary Purchase Consideration
The Company determined that certain consideration provided to LPA in the LPA
Agreement does not qualify as purchase consideration in accordance with the
guidance of ASC 805. The Company determined that the preliminary purchase
consideration consists of the amount of cash and share payments owed to LPA
that are not subject to a vesting or claw back provision that is directly
linked to the continued employment of LPA Owners. The total preliminary
purchase consideration consisted of the following amounts:
LPA Closing Cash Payment $ 1,560,000
Contingent consideration 377,073
Total preliminary purchase consideration $ 1,937,073
The LPA Closing Cash Payment and contingent consideration allocated as
preliminary purchase consideration consists of the amount of the LPA Closing
Cash Payment and estimated fair value of future payments that are not subject
to vesting or claw back provisions tied to continued employment.
Preliminary Purchase Price Allocation
The provisional allocation of the preliminary purchase consideration resulted
in the following amounts being allocated to the assets acquired and
liabilities assumed as of the purchase date of May 1, 2024 based on their
respective estimated fair values is summarized below:
Customer relationships $ 1,150,900
Right of use assets 283,656
Tradename 1,021,400
Noncompete agreements 158,700
Deferred income tax asset 1,962,000
Lease liability (283,656)
Net assets acquired 4,293,000
Less estimated purchase price (1,937,073)
Gain on bargain purchase $ 2,355,927
The identified definite-lived intangible assets were as follows:
Definite-lived intangible assets Weighted-average Amount
useful life (in years)
Customer relationships 7 $ 1,150,900
Noncompete agreements 5 $ 158,700
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 LPA 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 LPA
acquisition include the requirement for the key employees of LPA to stay
employees of the Company for a significant period of time.
The fair value of the contingent consideration was performed using Monte Carlo
simulations to estimate the achievement and amount of certain future operating
results. The Monte Carlo simulations utilize estimates including; expected
volatility of future operating results, discount rates applicable to future
results, and expected growth rates. The table below provides the significant
inputs to the calculation of the contingent consideration as of the
acquisition date:
Significant Unobservable Input Range
Discount rate for credit risk and time value 5.2 % to 5.4 %
Discount rate for future profit after tax 15.7% to 16.4%
Expected volatility of future annual profit after tax 35.0% to 38.0%
Forecasted growth rate 9.5% to 13.4%
Pagefield Communications Limited ("Pagefield")
On June 7, 2024, the Company entered into an Asset Purchase Agreement
("Pagefield Agreement") and acquired the stock of Pagefield Communications
Limited ("Seller" or "Pagefield") through the creation of a wholly-owned
subsidiary, PPHC International Ltd. ("PPHC LTD"). At the closing of the
transaction, the Company paid the Seller cash in the amount of 14,992,868 GBP,
which was approximately $19,420,000 USD ("Pagefield Closing Cash Payment") and
issued 897,640 shares of the Company's common stock ("Pagefield Closing Share
Payment") to Seller at an aggregate fair value of approximately $1,441,000.
In addition, there are additional contingent payments that the Seller can earn
in the future depending on certain operating results that are achieved. The
total additional amount of consideration that the Company could be required to
pay to the Seller is up to 13,800,000 GBP, which includes up to 8,800,000 GBP
subject to future vesting and clawback provisions. The additional contingent
consideration combined with the closing payments already made could require
total payments of up to 30,000,000 GBP to the Seller.
The Pagefield Agreement provides certain vesting and forfeiture provisions
applicable to a portion of the future cash or share payments owed. These
provisions are specifically designated toward the continued employment of one
of the owners of the Seller ("Restricted Owner"). The Restricted Owner is
required 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 ("Pagefield Acceleration Event") as defined in
the Pagefield Agreement.
If the Restricted Owner's employment is terminated as a result of a Pagefield
Acceleration Event, a percentage of the unvested Restricted Owner Shares shall
become fully vested. The LPA 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 LPA 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 of Seller.
Reasons for the Acquisition
The Company acquired Pagefield to expand the geographic scope of its
consulting services. Specifically, Pagefield provides services to companies
and organizations doing business in the United Kingdom ("UK") while
interacting with the UK government.
Accounting for the Acquisition
The acquisition of Pagefield 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.
Preliminary Purchase Consideration
The Company determined that certain consideration provided to Pagefield in the
Pagefield Agreement does not qualify as purchase consideration in accordance
with the guidance of ASC 805. The Company determined that the preliminary
purchase consideration consists of the amount of cash and share payments owed
to Pagefield that are not subject to a vesting or claw back provision that is
directly linked to the continued employment of the sellers. The total
preliminary purchase consideration consisted of the following amounts:
Pagefield Closing Cash Payment $ 19,419,549
Pagefield Closing Share Payment 1,440,844
Contingent consideration 3,398,471
Total preliminary purchase consideration $ 24,258,864
The contingent consideration allocated as preliminary purchase consideration
consists of the amount of the estimated fair value of the projected future
payments that are not subject to vesting or claw back provisions tied to
continued employment.
Purchase Price Allocation
The provisional allocation of the preliminary purchase consideration resulted
in the following amounts being allocated to the assets acquired and
liabilities assumed as of the purchase date of June 7, 2024 based on their
respective estimated fair values is summarized below:
Cash acquired $ 1,053,771
Accounts receivable 1,082,062
Other current assets 2,332,885
Property and equipment 30,539
Customer relationships 5,176,165
Tradename 1,546,709
Noncompete agreements 953,100
Accounts payable and accrued expenses (3,907,000)
Other current liabilities (502,561)
Deferred income tax liability (1,698,565)
Net assets acquired 6,067,105
Less estimated purchase price (24,258,864)
Goodwill* $ 18,191,759
*Based on the exchange rate in effect at the acquisition date
The identified definite-lived intangible assets were as follows:
Definite-lived intangible assets Weighted-average Amount
useful life (in years)
Customer relationships 7 $ 5,176,165
Noncompete agreements 3 $ 953,100
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 Pagefield and the potential impact and probability of competition,
assuming such noncompete agreements were not in place.
The fair value of the contingent consideration was performed using Monte Carlo
simulations to estimate the achievement and amount of certain future operating
results. The Monte Carlo simulations utilize estimates including; expected
volatility of future operating results, discount rates applicable to future
results, and expected growth rates. The table below provides the significant
inputs to the calculation of the contingent consideration as of the
acquisition date:
Significant Unobservable Input Range
Discount rate for credit risk and time value 5.3% to 5.9%
Discount rate for future profit after tax 12.0% to 12.4%
Expected volatility of future annual profit after tax 34.0% to 37.0%
Forecasted growth rate 9.1% to 9.5%
Acquisition Payments
The cash payments made for the acquisitions at their respective closing date
and subsequent earn-out payments made are as follows:
Six months ended Six months ended Year ended December 31, 2023
June 30, 2024 June 30, 2023
MS Closing Cash Payment $ - $ 17,600,000 $ 17,600,000
KP True-Up Cash Payment - 3,643,200 3,643,200
LPA Closing Cash Payment 6,000,000 - -
Pagefield Closing Cash Payment 19,419,549 - -
MS First Interim Cash Payment 2,000,000 - -
Total acquisition payments 27,419,549 21,243,200 21,243,200
Pagefield cash acquired (1,053,500) - -
Total cash acquisition payments, net of cash acquired $ 26,366,049 $ 21,243,200 $ 21,243,200
These cash payments are included in the statements of cash flows as follows:
Six months ended Six months ended Year ended December 31, 2023
June 30, 2024 June 30, 2023
Cash flows from operating activities $ 1,250,313 $ - $ -
Cash flows from investing activities 24,366,049 21,243,200 21,243,200
Cash flows from financing activities 749,687 - -
Total cash acquisition payments, net of cash acquired $ 26,366,049 $ 21,243,200 $ 21,243,200
The stock payments made for the acquisitions at their closing date and
subsequent earn-out payments made consisted of the following:
Six months ended Six months ended Year ended December 31, 2023
June 30, 2024 June 30, 2023
MS Closing Share Payment $ - $ 4,400,000 $ 4,400,000
KP True-Up Share Payment - 404,000 404,000
LPA Closing Share Payment 1,500,000 - -
Pagefield Closing Share Payment 1,440,844 - -
MS First Interim Share Payment 2,000,000 - -
Total share acquisition payments $ 4,940,844 $ 4,804,000 $ 4,804,000
NOTE 4: RELATED PARTY TRANSACTIONS
As of June 30, 2023 and December 31, 2023, the amounts due from related
parties of approximately $1,039,000 and $1,054,000 include the amount expected
to be paid to the Company related to working capital loan and adjustments
associated with the MultiState acquisition. During the six months ended June
30, 2024, the working capital loan and adjustments were settled. As of June
30, 2024, the amounts owed to related parties of approximately $781,000
consists primarily of a working capital loan of $750,000 from the sellers of
LPA to the Company, which must be repaid prior to September 30, 2024.
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 2021 Note balance as of
June 30, 2024, June 30, 2023, and December 31, 2023 was $513,000. The 2021
Note was classified as a current asset as of June 30, 2024, and a non-current
asset as of June 30, 2023 and December 31, 2023. The amount of accrued
interest and interest revenue from the 2021 Note is not material.
During November 2023, the Company entered into term note agreements ("2023
Notes") with certain employees of the Alpine Group Partners, LLC totaling
$1,750,000. The interest rate on the 2023 Notes is 7.5% and the notes are
payable in annual installments of $350,000 plus all accrued and unpaid
interest beginning on November 1, 2024 with a maturity date of November 1,
2028 or the effective date of the termination of employment of the respective
employee borrower for any reason, if earlier than the maturity date. As of
June 30, 2024 and December 31, 2023, the 2023 Notes were recorded in notes
receivable - related parties with $350,000 classified as a current asset and
$1,400,000 classified as a non-current asset. The amount of accrued interest
and interest revenue from the 2023 Notes is not material.
NOTE 5: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is an indefinite lived asset with balances as follows as of:
June 30, 2024 June 30, 2023 December 31, 2023
Goodwill $ 65,662,137 $ 47,909,832 $ 47,909,832
As of June 30, 2024, June 30, 2023 and December 31, 2023, there have been no
impairments to goodwill. During 2024, goodwill increased by approximately
$17,750,000 as a result of the acquisition of Pagefield. See Note 3.
Goodwill is allocated to each segment as follows, as of :
June 30, 2024 June 30, 2023 December 31, 2023
Goodwill
Government Relations Consulting $46,430,548 $35,512,601 $35,512,601
Public Affairs Consulting 19,231,589 12,397,231 12,397,231
Diversified Services - - -
Total $65,662,137 $47,909,832 $47,909,832
Intangible Assets
The Company's intangible assets consist of customer relationship assets,
developed technology and noncompete agreements acquired through various
acquisitions, 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 3 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, 2024 June 30, 2023 December 31, 2023
Customer relationships $ 33,531,490 $ 27,103,861 $ 27,104,400
Developed technology 3,938,000 3,938,000 3,983,000
Noncompete agreements 2,072,125 971,000 971,000
Accumulated amortization (14,496,916) (10,308,697) (12,264,069)
Total definite lived assets, net 25,044,699 21,704,164 19,749,331
Tradenames 9,670,885 7,120,000 7,120,000
Total intangible assets, net $ 34,715,584 $ 28,824,164 $ 26,869,331
Amortization expense for customer relationship and noncompete agreement assets
approximated $2,075,000, $1,924,000 and $3,878,000 for the six months ended
June 30, 2024 and 2023 and the year ended December 31, 2023, respectively.
The approximate estimated future amortization expense for the next five years
is as follows:
Amortization
July 1, 2024 to December 31, $ 2,576,000
2024………………………………………………………
2025……………………………………………………………………………………… 5,136,000
2026……………………………………………………………………………………… 4,984,000
2027……………………………………………………………………………………… 4,750,000
2028……………………………………………………………………………………… 3,191,000
Thereafter………………………………………………………………………………... 4,408,000
Total $ 25,045,000
NOTE 6 LINE OF CREDIT AND NOTES PAYABLE
A) Bank credit facility
On February 28, 2023, the Company entered into a $17,000,000 credit agreement
with a bank ("Credit Agreement"). The Credit Agreement has two components,
Facility 1 is a Senior Secured Line of Credit in the amount of up to
$3,000,000 and Facility 2 is a Senior Secured Term Loan in the amount of
$14,000,000.
During April 2024 and June 2024, the Company entered into the First Amendment
to Credit Agreement and Second Amendment to Credit Agreement (collectively the
"Amended Credit Agreements"). The Amended Credit Agreements provided the
Company with an additional term loan of $6,000,000 on April 30, 2024 ("2024
Term Loan A") and an additional term loan of $19,000,000 on June 7, 2024
("2024 Term Loan B").
In accordance with the Amended Credit Agreements, the definition of the
interest rate applicable to the Facility 1 and Facility 2 changed from being
calculated based on the Bloomberg Short-Term Bank Yield Index plus 225 basis
points to the Secured Overnight Financing Rate ("SOFR") as administered by the
Federal Reserve Bank of New York plus 2.25% per annum. The interest rate for
the 2024 Term Loan A and 2024 Term Loan B (collectively the "2024 Term Loans")
is the SOFR plus 2.60% per annum.
The loans under the Credit Agreement and Amended Credit Agreements are
collateralized by substantially all of the net assets of the Company.
Facility 2 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. During 2023, the Company utilized $1,000,000 from
Facility 1 for the MultiState Inc. acquisition. The Company paid
approximately $451,000 in debt issuance costs for the Credit Agreement and has
recorded this amount as a debt discount and is amortizing the debt discount to
interest expense over the term of the Credit Agreement using the straight-line
method, which approximates the effective interest method. The Company
borrowed $6,000,000 for the 2024 Term Loan A and $19,000,000 for the 2024 Term
Loan B during April 2024 and June 2024, respectively. The Company paid
approximately $786,000 in debt issuance costs for the 2024 Term Loans and has
recorded this amount as a debt discount and is amortizing the debt discount to
interest expense over the term of the 2024 Term Loans 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 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 is
required to make interest-only payments on the 2024 Term Loans starting on May
1, 2024 through October 31, 2024. Beginning on November 1, 2024, the Company
is required to make forty-two equal monthly installments of principal each in
the amount of 1.25% of the unpaid principal balance of the 2024 Term Loans as
of October 31, 2024, plus interest on the 2024 Term Loans, until the maturity
date of the 2024 Term Loans of April 30, 2028. In addition, a final payment
of all outstanding principal and interest will be due on April 30, 2028.
The total approximate interest expense incurred for these loans was as
follows:
June 30, 2024 June 30, 2023 December 31, 2023
Cash interest $ 505,000 $ 326,000 $ 797,000
Debt discount amortization 79,000 50,000 125,000
Total interest expense $ 584,000 $ 376,000 $ 922,000
As of June 30, 2024 and December 31, 2023, the Facility 1 had been repaid in
full. The Company is able to re-borrow up to $3,000,000 under Facility 1 or
80% of the Company's eligible receivables, whichever is less.
The Company's Facility 2, 2024 Term Loan A, and 2024 Term Loan B consist of
the following as of:
June 30, 2024 June 30, 2023 December 31, 2023
Facility 2 $ 9,625,000 $ 12,833,334 $ 11,083,333
2024 Term Loan A 6,000,000 - -
2024 Term Loan B 19,000,000 - -
Less: unamortized debt issuance costs 1,032,490 400,648 325,527
Total debt, net of unamortized issuance costs 33,592,510 12,432,686 10,757,806
Less: current portion 5,653,276 3,349,757 3,349,757
Total debt, long-term $ 27,939,234 $ 9,082,929 $ 7,408,049
As of June 30, 2024, the future principal maturities of these loans are as
follows:
Facility 2 2024 Term Loan A 2024 Term Loan B Total
July 1, 2024 - December 31, $ 1,750,000 $ 150,000 $ 475,000 $ 2,375,000
2024.....................................................
2025………………………………... 3,500,000 900,000 2,850,000 7,250,000
2026………………………………... 4,375,000 900,000 2,850,000 8,125,000
2027………………………………... - 900,000 2,850,000 3,750,000
2028………………………………... - 3,150,000 9,975,000 13,125,000
Total $ 9,625,000 $ 6,000,000 $19,000,000 $ 34,625,000
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, 2024, June
30, 2023, and December 31, 2023 was approximately $169,000, $198,000 and
$184,000, respectively. Interest expense on the note payable - landlord for
the six months ended June 30, 2024 and 2023 and the year ended December 31,
2023 was approximately $7,000, $8,000 and $16,000, respectively. As of June
30, 2024, the amount included in Notes payable, current portion, net was
approximately $21,000.
As of June 30, 2024, the future maturities of this note payable is as follows:
July 1, 2024 to December 31, $ 15,012
2024……………………………………………………...
2025……………………………………………………………………………………... 31,755
2026……………………………………………………………………………………... 34,390
2027……………………………………………………………………………………… 37,245
2028……………………………………………………………………………………… 40,240
Thereafter………………………………………………………………………………... 10,555
Total $ 169,197
NOTE 7 STOCKHOLDERS' EQUITY AND SHARE-BASED ACCOUNTING
CHARGE
As of June 30, 2024, 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, 2024, June 30, 2023 and December 31, 2023, 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, 2024 June 30, 2023 December 31, 2023
Statement of Equity 112,502,888 108,772,213 109,542,220
Restricted Shares:
KP Closing Share Payment 554,692 739,589 739,589
KP Earnout Shares 184,042 245,389 245,389
Engage Restricted Shares 324,867 487,301 487,301
MS Closing Vesting Shares 1,315,544 1,973,316 1,973,316
MS First Interim Vesting Shares 836,397 - -
Lucas Public Affairs Closing Shares 958,371 - -
Other restricted shares 3,094,509 915,209 2,284,146
Total restricted Shares 7,268,422 4,360,804 5,729,741
Stock options outstanding 3,350,546 3,274,445 3,089,056
Unvested RSUs outstanding 4,663,322 1,500,000 2,225,000
Total stock options and unvested RSUs outstanding
8,013,868 4,774,445 5,314,056
Fully Diluted Shares Outstanding 127,785,178 117,857,462 120,586,017
The weighted-average common shares outstanding, basic and diluted reported on
the consolidated statement of operations is 110,740,866, 108,483,598 and
108,606,133, which is different from the 112,502,888, 108,722,213 and
109,542,220 ending shares as of June 30, 2024, June 30, 2023 and December 31,
2023 on the statement of equity due to the first numbers representing an
average during the year compared to the amount outstanding at the end of the
year.
Other Restricted Shares consists of the following as of:
Other Restricted Shares: June 30, 2024 June 30, 2023 December 31, 2023
Unvested restricted stock awards, primarily granted to Alpine Inc. 2,892,681 820,007 2,188,944
Other unvested stock awards 201,828 95,202 95,202
Total Other Restricted Shares 3,094,509 915,209 2,284,146
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
$15,194,000, $15,431,000 and $30,904,000 for the six months ended June 30,
2024 and 2023 and the year ended December 31, 2023, respectively.
As of June 30, 2024, there were 82,628,340 Retained Pre-IPO Shares, held by
current employees and subject to vesting requirements, and 36,829,997 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, 2024, the unrecognized compensation cost from
these restricted shares was approximately $74,600,000, which is expected to be
recognized over a weighted-average period of 2.5 years.
ASC 805-10-55-25 Charge
The Company has acquired various companies from 2022 to 2024 for a combination
of cash, shares of Company Common Stock and future contingent payments
("Acquisition Payments"). As described in Note 3, 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 certain owners of the
acquired companies ("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.
For the six months June 30, 2024 and 2023 and the year ended December 31,
2023, the post-combination compensation charge recorded by the Company was
approximately $4,698,000, $3,016,000 and $6,295,000, respectively. This
amount consists of the following components:
June 30, 2024 June 30, 2023 December 31, 2023
Additions to other liability $ 2,194,000 $ 922,000 $ 1,685,000
Vesting of common stock 925,000 688,000 1,529,000
Amortization of prepaid post-combination compensation
1,579,000 1,406,000 3,081,000
Total $ 4,698,000 $ 3,016,000 $ 6,295,000
As of June 30, 2024, the unrecognized post-combination compensation charge was
approximately $27,346,000, 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.
The Company's potential future payments from its acquisitions exceed the
liabilities recorded on the Company's balance sheet primarily due to the fact
that the contingent consideration liability and other liability are calculated
at fair value. The fair value calculation includes certain discount rates
and other factors that impact the value of these liabilities (see Note 3).
The calculated fair value is based on the total payments that the Company
expects to pay in the future rather than the total maximum payments that it
could be required to pay. As of June 30, 2024, the table below highlights
the other liability and contingent consideration recorded on the Company's
balance sheet (as discounted) compared to the undiscounted estimated payout
and the maximum payout of cash and stock that could occur if all future
contingent earn-out provisions from the acquisitions were achieved:
Total
Liabilities recorded on balance sheet, June 30, 2024:
Other liability, current $ 666,740
Other liability, long term 2,665,483
Contingent consideration, current 516,480
Contingent consideration, long term 10,694,952
Total liabilities recorded on balance sheet, June 30, 2024** $ 14,543,655
Undiscounted potential future payments*:
Potential cash future payments: Estimated^ Maximum#
2025……………………………………………………………………. $ 2,123,000 $ 2,800,000
2026……………………………………………………………………. 3,250,000 8,448,600
2027……………………………………………………………………. 5,414,000 12,400,000
2028……………………………………………………………………. 11,885,000 18,750,000
2029……………………………………………………………………. 1,979,000 13,512,800
Total potential cash future payments $ 24,651,000 $ 55,911,400
Potential stock future payments*:
2025……………………………………………………………………. $ 530,000 $ 700,000
2026……………………………………………………………………. 3,250,000 6,049,200
2027……………………………………………………………………. 2,077,000 6,100,000
2028……………………………………………………………………. 11,885,000 18,750,000
2029……………………………………………………………………. 1,192,000 8,008,500
Total potential stock future payments $ 18,934,000 $ 39,607,700
Total potential future payments $ 43,585,000 $ 95,519,100
Total liabilities recorded on balance sheet, June 30, 2024 14,543,655 14,493,269
Total remaining difference $ 29,041,345 $ 81,025,831
*Includes estimate for future Pagefield payments based on June 30, 2024
exchange rate of GBP/USD
**At fair value
^Management's estimate as of June 30, 2024 of the future payments of cash and
stock for earn-out payments
#The maximum amount of future payments of cash and stock for earn-out payments
NOTE 8 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), stock appreciation rights, restricted stock units,
restricted stock, unrestricted stock, 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, 2024, the total amount of shares authorized by the Board of
Directors under the Omnibus Plan was 17,965,696 with a total of 5,747,462
available for issuance. During the six months ended June, 30 2024 and 2023 the
Company granted 345,000 and 652,000 Options to employees. During the year
ended December 31, 2023 the Company granted 652,000 Options to employees. In
addition, during the six months ended June 30, 2024 and 2023 the Company
granted 2,930,000 and 1,500,000 restricted stock units ("RSUs"), and 703,737
and 820,007 restricted stock awards ("RSAs"), respectively. During the year
ended December 31, 2023, the Company granted 2,250,000 RSUs and 3,008,951
RSAs. The stock 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. 820,007 RSAs vested on
December 31, 2023, 50,000 RSAs vest in October 2024, 703,737 vest in May 2025,
and 2,138,944 RSAs vest over a five year period beginning with approximately
428,000 per year starting in October 2024, with 1,961,497 fully vested by
October 2028 and 177,447 fully vested by December 2028. The RSAs 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 Six months ended For the year ended December 31, 2023
June 30, 2024 June 30, 2023
Estimated dividend yield 10.00% 6.00% 6.00%
Expected stock price volatility 40.00% 60.00% 60.00%
Risk-free interest rate 4.4% 3.8% 3.8%
Expected life of option (in years) 6.50 6.50 6.50
Weighted-average fair value per share $ 0.21 $ 0.54 $ 0.54
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 stock option
activity for the six months ended June 30, 2024 and 2023 and the year ended
December 31, 2023:
The following summarizes the Option activity:
Weighted
Weighted Weighted Average
Average Average Contractual Aggregate
Number of Exercise Exercise Term Intrinsic
Shares Price-(USD) Price-(GBP) (in years) Value
Outstanding as of December 31, 2023 $ 2.21* 8.9 $ -
3,089,056 £ 1.74
Granted 345,000 2.06* 1.63 - -
Exercised - - - -
Cancelled/Forfeited (83,510) 2.17* 1.71 - -
Outstanding as of June 30, 2024 3,350,546 2.18* 8.3 -
1.73
Exercisable as of June 30, 2024 - - - - -
Vested and expected to vest as of
June 30, 2024 3,350,546 $ 2.18* £ 1.73 8.3 $ -
Weighted
Weighted Weighted Average
Average Average Contractual Aggregate
Number of Exercise Exercise Term Intrinsic
Shares Price-(USD) Price-(GBP) (in years) Value
Outstanding as of December 31, 2022 2,718,809 $ 2.13* £ 1.77 9.4 $ -
Granted 652,000 2.02* 1.60 - -
Exercised - - - - -
Cancelled/Forfeited (96,364) 2.23* 1.77 - -
Outstanding as of June 30, 2023 3,274,445 2.19* 9.1 -
1.74
Exercisable as of June 30, 2023 - - - - -
Vested and expected to vest as of
June 30, 2023 3,274,445 2.19* £ 1.74 9.1 $ -
Number of Shares Weighted Average Exercise Price-(USD) Weighted Average Exercise Price-(GBP) Weighted Average Contractual Term (in years) Aggregate Intrinsic Value
Outstanding as of December 31, 2022 $ 2.13* 9.4 $ -
2,718,809 £ 1.77
Granted 652,000 2.04* 1.60 - -
Exercised - - - - -
Cancelled/Forfeited (281,753) 2.21* 1.74 - -
Outstanding as of December 31, 2023 3,089,056 2.21* 1.74 8.9 -
Exercisable as of December 31, 2023 - - - - -
Vested and expected to vest as of
December 31, 2023 3,089,056 $ 2.21* £ 1.74 8.9 $ -
The following table summarizes certain information about the stock options
outstanding and exercisable as of June 30, 2024:
Exercise Price Number of Options Outstanding Weighted-Average Remaining Life Number of Options Exercisable
$2.03* 652,000 8.9 -
2.06* 345,000 10.0 -
2.20* 100,000 8.3 -
2.24* 2,203,546 7.9 -
2.25* 50,000 8.1 -
3,350,546 -
*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, 2024 and 2023 and for the
year ended December 31, 2023 was approximately $264,000, 269,000 and $518,000,
respectively. As of June 30, 2024, there was approximately $663,000 of total
unrecognized compensation cost related to non-vested stock option compensation
expense, which is expected to be recognized over a weighted-average period of
1.3 years.
Restricted Stock Units ("RSUs")
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, 2024 Six months ended June 30, 2023 Year ended December 31, 2023
Estimated dividend yield 10.00% 6.00% 6.00%
Expected stock price volatility 40.00% to 50.00% 60.00% 60.00%
Risk-free interest rate 4.5% to 5.1% 3.9% to 4.7% 3.9% to 5.4%
Expected life of instrument (in years) 1 to 3 years 1 to 3 years 1 to 3 years
Weighted-average fair value per share $ 1.41 $ 1.47 $ 1.41
Activity in the Company's non-vested RSUs for the six months ended June 30,
2024 and 2023, and the year ended December 31, 2023 was as follows:
Weighted
Average Grant Date
Number of Fair
RSUs Value
Nonvested as of December 31, 2023 2,225,000 $ 1.41
Granted 2,930,000 1.41
Vested - -
Cancelled/Forfeited (491,678) 1.56
Nonvested as of June 30, 2024 4,663,322 $ 1.40
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
Weighted
Average Grant Date
Number of Fair
RSUs Value
Nonvested as of December 31, 2022 - $ -
Granted 2,250,000 1.41
Vested - -
Cancelled/Forfeited (25,000) 1.47
Nonvested as of December 31, 2023* 2,225,000 $ 1.41
RSU expense for the six months ended June 30, 2024 and 2023 and the year ended
December 31, 2023, was approximately $567,000, $83,000 and $553,000,
respectively. As of June 30, 2024, there was approximately $6,179,000 of total
unrecognized compensation cost related to non-vested RSU arrangements, which
is expected to be recognized over a weighted-average period of 1.8 years.
Restricted Stock Awards ("RSAs")
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, 2024 Six months ended June 30, 2023 Year ended December 31, 2023
Estimated dividend yield 10.00% 6.00% 6.00%
Expected stock price volatility 40.00% 60.00% 60.00%
Risk-free interest rate 5.1% to 5.2% 4.9% 4.9% to 5.4%
Expected life of instrument (in years) 1 year 0.5 years 1 to 5 years
Weighted-average fair value per share $ 1.43 $ 1.61 $ 1.31
Activity in the Company's non-vested RSAs for the six months ended June 30,
2024 and 2023, and for the year ended December 31, 2023 was as follows:
Weighted
Average Grant Date
Number of Fair
RSAs Value
Nonvested as of December 31, 2023 2,188,944 $ 1.19
Granted 703,737 1.43
Vested - -
Cancelled/Forfeited - -
Nonvested as of June 30, 2024 2,892,681 $ 1.25
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
Weighted
Average Grant Date
Number of Fair
RSAs Value
Nonvested as of December 31, 2022 - $ -
Granted 3,008,951 1.31
Vested (820,007) 1.61
Cancelled/Forfeited - -
Nonvested as of December 31, 2023 2,188,944 $ 1.19
RSA expense for the six months ended June 30, 2024 and 2023 and for the year
ended December 31, 2023, was approximately $459,000, $231,000, and $1,435,000,
respectively. As of June 30, 2024, there was approximately $3,329,000 of
total unrecognized compensation cost related to non-vested RSA arrangements,
which is expected to be recognized over a weighted-average period of 2.2
years.
Stock Appreciation Rights ("SARs")
During the six months ended June 30, 2023, the Company issued 1,825,000 SARs
to employees. During the year ended December 31, 2023, the Company issued
1,850,000 SARs to employees. There were no SARs issued during 2024. 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. 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, 2024,
June 30, 2023, and December 31, 2023, the total liability recorded was
$366,000, $71,000 and $290,000, respectively. The fair value of the SARs was
calculated as follows as of:
Six months ended June 30, 2024 Six months ended June 30, 2023 Year ended December 31, 2023
Estimated dividend yield 10.00% 6.00% 6.00%
Expected stock price volatility 45.00% 60.00% 60.00%
Risk-free interest rate 4.4% to 4.5% 4.1% to 4.2% 4.7%
Expected life of instrument (in years) 3.4 to 4.8 years 4.4 to 5.4 years 4.5 to 5.5 years
Weighted-average fair value per share $ 0.33 $0.59 $ 0.46
Weighted
Average
Number of Exercise
Shares Price
Outstanding as of December 31, 2023 1,760,000 $ 1.70
Granted - -
Exercised - -
Cancelled/Forfeited (55,000) 1.69
Outstanding as of June 30, 2024 1,705,000 1.69
Exercisable as of June 30, 2024 560,020 1.69
Vested and expected to vest
as of June 30, 2024 1,705,000 $ 1.69
SAR expense for the six months ended June 30, 2024 and 2023 and the year ended
December 31, 2023, was approximately $76,000, $71,000 and $290,000,
respectively. 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 9 INCOME TAXES
The components of income tax expense attributable to income before income
taxes for six months ended June 30, 2024 and 2023, and the year ended December
31, 2023, consisted of the following:
Six months ended June 30, 2024 Six months ended June 30, 2023 12 months ended December 31, 2023
Current tax expense:
Federal $ 2,993,700 $ 2,926,200 $ 5,861,100
State 1,220,000 1,198,400 2,274,500
Foreign - - -
4,213,700 4,124,600 8,135,600
Deferred tax expense (benefit):
Federal (405,200) (258,800) (491,700)
State (120,100) (77,400) (141,100)
Foreign 18,400 - -
(506,900) (336,200) (632,800)
Total Provision for Income Taxes $3,706,800 $ 3,788,400 $ 7,502,800
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. The acquisitions of KP
LLC, Engage, Multistate and LPA were taxable asset acquisitions. As such, the
purchase consideration for these acquisitions generated tax-deductible
goodwill in the combined amount of approximately $41,331,000. 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
$41,331,000 of tax deductible goodwill, approximately $29,016,000 is eligible
for amortization during the 2024 tax year. None of the goodwill recorded in
connection with the acquisition of Pagefield is deductible for tax purposes.
As of June 30, 2024, 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, 2024, the Company had no accrued interest or penalties
related to uncertain tax positions.
The Company's 2021 to 2023 domestic income tax return years are open under the
statute of limitations for examination by the taxing authorities.
Additionally, the Company's income tax return for Pagefield for the years 2020
to 2023 are open under the statute of limitations for examination by the
applicable taxing authorities.
Significant components of the Company's deferred tax assets and liabilities
are as follows as of:
June 30, 2024 June 30, 2023 December 31, 2023
Deferred tax assets:
Other assets $ 263,700 $ 196,000 $ 244,900
Foreign operating losses 178,000 - -
Long term incentive plan 1,218,700 1,277,000 847,700
Foreign equity compensation and accrual 1,829,400 - -
Goodwill 9,803,400 8,279,000 8,082,100
ASC 842 Lease liability 6,517,900 7,154,000 6,764,200
Total deferred income tax assets 19,811,100 16,906,000 15,938,900
Deferred tax liabilities:
Other (201,800) (380,000) (218,200)
Intangible assets (3,676,300) (2,503,000) (2,148,200)
Right of use asset (5,576,600) (6,317,000) (5,835,300)
Total deferred income tax liabilities (9,454,700) (9,200,000) (8,201,700)
Total Net Deferred Tax Asset (Liability) $ 10,356,400 $ 7,706,000 $ 7,737,200
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, 2024 and 2023, and the year ended December 31, 2023, is as follows:
June 30, 2024 June 30, 2023 December 31, 2023
Amount % of Pretax Earnings Amount % of Pretax Earnings Amount % of Pretax Earnings
Federal income tax expense (benefit) at statutory rate $(1,336,500) (21.0) $ 34,000 21.0 $(1,415,700) (21.0)
State income taxes, net of federal income tax benefit (400,800) (6.3) 10,200 6.3 (419,600) (6.2)
Nondeductible share-based accounting charge and other nondeductible expenses 5,443,400 85.4 3,790,800 2,341.8 9,365,000 138.9
Other 700 0.0 (46,600) (28.8) (26,900) (0.4)
Total Provision for Income Taxes $ 3,706,800 58.1 $ 3,788,400 2,340.3 $ 7,502,800 111.3
NOTE 10 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 11 SEGMENT REPORTING
As of June 30, 2024, 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 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, 2024
Government Relations Public Affairs Diversified Services Other Total
Revenue $50,321,378 $ 15,538,588 $5,265,853 $ - $ 71,125,819
Contribution Margin 15,921,436 (282,565) 1,788,183 - 17,427,054
Depreciation - - - (62,519) (62,519)
Interest, net - - - (500,020) (500,020)
Taxes - - - (3,706,800) (3,706,800)
Share-based accounting charge - - - (15,194,000) (15,194,000)
Post-combination compensation charge - - - (4,697,657) (4,697,657)
Long term incentive program charges - - - (1,363,000) (1,363,000)
Change in contingent consideration - - - (2,263,577) (2,263,577)
Amortization of intangibles - - - (2,075,160) (2,075,160)
Gain on bargain purchase, net of taxes - - - 2,355,927 2,355,927
Net income (loss) $15,921,436 $ (282,565) $ 1,788,183 $ (27,506,806) $ (10,079,752)
Goodwill at end of period $46,430,548 $ 19,231,589 $ - $ - $ 65,662,137
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 $ 35,512,601 $ 12,397,231 $ - $ - $ 47,909,832
For the Year Ended December 31, 2023
Government Relations Public Affairs Diversified Services Other Total
Revenue $ 95,476,619 $ 32,256,518 $7,252,685 $ - $ 134,985,822
Contribution Margin 27,601,680 5,207,392 2,258,872 - 35,067,944
Depreciation - - - (119,688) (119,688)
Interest, net - - - (940,824) (940,824)
Taxes - - - (7,502,800) (7,502,800)
Share-based accounting charge - - - (30,904,000) (30,904,000)
Post-combination compensation charge - - - (6,295,060) (6,295,060)
Long term incentive program charges - - - (2,796,000) (2,796,000)
Change in contingent consideration - - - (1,711,235) (1,711,235)
Amortization of intangibles - - - (3,878,386) (3,878,386)
Gain on bargain purchase, net of taxes - - - 4,835,777 4,835,777
Net income (loss) $27,601,680 $ 5,207,392 $ 2,258,872 $ (49,312,216) $ (14,244,272)
Goodwill at end of period $35,512,601 $ 12,397,231 $ - $ - $ 47,909,832
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR SFSFUWELSEDURecent news on Public Policy Holding
See all newsREG - Public Policy Hldg - Share Cancellation, Vesting of RSUs and TVR
AnnouncementREG - Public Policy Hldg - Notice of AGM and Posting of Annual Report
AnnouncementREG - Public Policy Hldg - PCA Share Purchase
AnnouncementREG - Public Policy Hldg - Notification of Major Holdings
AnnouncementREG - Public Policy Hldg - Notification of Major Holdings
Announcement