REG - Public Policy Hldg - Unaudited preliminary results
12/03/2025 07:00
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RNS Number : 2713A Public Policy Holding Company, Inc. 12 March 2025
Public Policy Holding Company, Inc.
("PPHC", the "Company" or the "Group")
Unaudited preliminary results for the year ended 31 December 2024
Strong performance in line with expectations and strategic progress with
international expansion
Public Policy Holding Company, Inc., the leading government relations and
public affairs group, today announces its unaudited preliminary results for
the year ended 31 December 2024 ("FY2024" or the "Period").
Financial Highlights
· Revenue increased 11% to $149.6m (FY2023: $135.0m), with organic
growth contributing 3% and the balance driven by accretive acquisitions
completed in the Period and in 2023.
· Underlying EBITDA of $36.1m, up 3% year-on-year, was achieved at a
24.2% margin. This margin performance was achieved after the Group expended
$3.1m in M&A related costs and start-up investment in Concordant over the
level it incurred in 2023. Adjusted for these incremental costs, the margin
would have been 26.2%. Underlying Net Income of $27.7m was up 5% (FY2023:
$26.5m) with an increase in finance costs offset by a more favourable
effective tax rate.
· EPS of $0.2345 was flat relative to the prior year, with increased
earnings being offset by a 5% increase in the number of shares in issue.
· The Group's balance sheet remains robust, underpinned by strong free
cash flow of $22.2m, up 4% year-on-year (FY2023: $21.4m), enabling strategic
progress via organic investment and earnings-enhancing M&A.
· Net Debt at period-end of $17.5m (FY2023: net cash $3.4m) reflects
a prudent leverage ratio and the deployment of $25m of new debt into two
earnings-accretive acquisitions in FY2024.
· The Board retains strong confidence in the Group's outlook and has
declared a final dividend of $0.0470 per Common Outstanding Share, bringing
the total dividend for FY2024 to $0.0940. This is in line with the updated
dividend policy announced in January 2025, which enables the retention of more
capital and for the Group to act decisively on accretive M&A
opportunities, thus driving long-term shareholder returns and value creation.
FY2024 FY2023 Change Change Adj (*)
Group Revenue $149.6m $135.0m +11% +11%
Underlying EBITDA $36.1m $35.1m +3% +12%
Underlying EBITDA margin 24.2% 26.0% -1.8pts 0.2pts
Underlying Net Income $27.7m $26.5m +5% +14%
Underlying EPS basic 23.45c 23.54c 0% +8%
Underlying EPS fully diluted 22.22c 22.71c -2% +6%
Dividend per share 9.40c 14.30c -34% -34%
Free Cash Flow $22.2m $21.4m +4% +15%
Net Debt / (Cash) at period-end $(17.5)m $3.4m $(20.9)m $(20.9)m
(*) For presentation purposes only, the Group also presents "Adjusted Change",
adjusting for an exceptional increase in M&A costs and Concordant Start-up
costs of $3.1m in 2024 (going from $0.5m in FY2023 to $3.6m in FY2024)
Operational Highlights
· The Period showcased the Group's ability to successfully execute
its stated growth strategy, with ten operating companies providing an enhanced
and complementary range of services to a now global client base:
o Organic growth of 3% was achieved in a year that saw major elections, and
therefore political disruption, across many of the world's largest economies
including the US and UK.
o This was supplemented by the continued execution of the Group's inorganic
growth strategy, with the acquisitions of California-based Lucas Public
Affairs ("LPA") and London-based Pagefield Communications ("Pagefield")
completed in the Period.
o LPA broadens the Group's presence in a state that is characterised by high
regulation and would register as the world's fifth largest economy; and
Pagefield established an operational presence outside of the US for the first
time.
o The integration of LPA has completed and the integration of Pagefield is
being delivered as expected, with both companies benefitting from client
referrals via the wider PPHC network.
· Revenue diversification further enhanced with the top 10 Group
clients representing 8.7% of revenue in FY2024 versus 10.8% in FY2023 ((**)),
and increasing international revenue contribution.
· By segment:
o The Group's largest division, Government Relations, grew strongly at 7%
(4% organically). The Group ended FY2024 again as the top federal lobbying
business in the US as defined by the Lobbying Disclosure Act. PPHC has
maintained this position for five consecutive years.
o Public Affairs increased by 13% (-5% organically), with the negative
organic growth a consequence of pending elections impacting client project
spend in H1. In H2, organic growth in the division returned at +4%.
o The Group's newest division, Diversified Services (Research and
Compliance), grew strongly at 47% (23% organically), albeit from a lower base.
o The revenue share of each division as a proportion of the Group's total
remained broadly similar to last year, with Government Relations at 69%
(FY2023: 71%), Public Affairs at 24% (FY2023: 24%), and Diversified Services
at 7% (FY2023: 5%).
· A broader 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 more than a quarter of the Fortune 500, in
addition to many more via trade associations. The number of clients spending
more than $100,000 increased by 15% to 503 ((**)) and the number of clients
spending more than $250,000 increased by 16% to 137.
· 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 Q3 and
Q4 2024, as well as for the previous 16 consecutive quarters.
(**) Historic client data has been re-stated based on client-consolidation
analysis.
Current Trading and Outlook
· The Group has strong trading momentum in FY2025, with organic
growth rates year-to-date well ahead of FY2024. The strong strategic execution
and robust results achieved during FY2024 give the Board confidence in FY2025.
· Following the US elections, management has observed significant
new business activity in the United States.
· Strategic execution continues in 2025, and the Group announced the
earnings-accretive acquisition of Texas-based TrailRunner International LLC
("TrailRunner") for initial consideration of $33m in January 2025, with
closing foreseen for April 1, 2025. TrailRunner operates with a global team
across offices in Texas, New York, Nashville, and Northern California, London,
Shanghai, Abu Dhabi, and Dubai.
· 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, as reflected in its stated ambition to achieve $500 million in
profitable revenues in the medium term, 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:
"2024 demonstrated the resilience and adaptability of PPHC. Public Affairs
navigated a challenging environment with clients adopting a traditionally more
cautious approach to project spending in a US presidential election year.
However, we saw a decisive turnaround in the second half as clients prepared
for 2025. Government Relations continued to perform strongly and the high
quality of our operations in this sphere is renowned, while Diversified
Services showed exceptional growth, highlighting the value of our balanced
portfolio approach.
"The M&A we achieved in FY2024 reflects significant milestones in our
growth strategy, expanding our geographic reach and service capabilities. With
M&A continuing in FY2025, via TrailRunner International, we have a
sun-to-sunset presence with global operations. The addition of TrailRunner
significantly enhances our global communications capabilities and client
offerings across key markets in the US and Asia.
"We remain extremely well positioned to capitalise on increased policy
activity following the US election cycle and growing demand for our services
internationally. The strong finish to FY2024, coupled with robust new business
activity and M&A, gives us confidence in delivering accelerated growth in
the year ahead as we progress towards our ambition to reach $500 million
revenue in the medium-term".
This announcement contains inside information under the UK Market Abuse
Regulation. The person responsible for arranging for the release of this
announcement on behalf of the Company is Roel Smits, CFO.
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, Brough Ransom, 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, Jesse McNab
About PPHC
Incorporated in 2014, PPHC is a US-based government relations, public affairs
and strategic communications 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. 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/) .
Chairman's Statement
On behalf of the Board of Directors, I am pleased to report on a
transformative year for PPHC in 2024, marked by strategic international
expansion and a resilient financial performance across our increasingly
diversified operations. The Group has demonstrated its ability to navigate
market challenges while executing on growth opportunities, particularly
evidenced by our successful entry into the UK market with Pagefield and nearly
finalised acquisition of TrailRunner, which extends our reach into key Asian
and Middle East markets.
FY2024 was characterised by distinct halves, with challenging conditions in
Public Affairs during the first six months followed by encouraging momentum in
H2. This recovery, combined with the consistent strength of our Government
Relations practice and exceptional growth in Diversified Services, underscores
the fundamental strength of our business model and its ability to perform
through different market cycles.
2024 has been pivotal in advancing our strategic vision of becoming the
world's premier provider of government relations and related services. The
acquisitions of LPA and Pagefield represented significant steps in expanding
our geographic footprint and service capabilities. The announced acquisition
of TrailRunner in early 2025 further accelerates this strategy, adding
significant global communications capabilities and geographic expansion.
The Group's management has demonstrated commendable operational discipline
throughout the year, maintaining robust margins while continuing to invest in
growth initiatives and successfully integrating acquired businesses. Their
focused approach to cost management positions us well for the future. The
integration of recent acquisitions and the launch of new service offerings
reflect the deep expertise and operational excellence across our operating
companies.
As we move into 2025, the expertise of our teams across policy,
communications, and public affairs has never been more relevant. In an
environment characterised by complex regulatory changes, technological
advancement, and evolving stakeholder expectations, our ability to help
clients navigate challenges and seize opportunities sets us apart. The
strengthening momentum we saw in the latter part of 2024, combined with our
expanded global capabilities, gives us confidence in our ability to deliver
enhanced value for our clients and shareholders in the year ahead.
Dividend
The Board of Directors of the Company has declared a total dividend for 2024
of $0.094 per Common Share, which equates to an aggregate amount, based on the
anticipated number of outstanding Common Shares, of approximately $11.4m.
Because $0.047 per Common Share was paid as interim dividend in October 2024,
a final dividend of $0.047 per Common Share remains payable to the holders of
record of all the issued and outstanding shares of the Company's Common Stock
as of the close of business on the record date, 25 April 2025. The ex-dividend
date is 24 April 2025. The final dividend will be paid no later than 23 May
2025.
This proposed final dividend reflects the intended dividend reduction
announced in January 2025, aimed at retaining more of the Group's strong cash
flow, and enabling the Group to continue pursuing accretive M&A and drive
long-term growth
Board Update
The Group's former Chief Administrative Officer and Chief Financial Officer,
Bill Chess, transitioned from an Executive Director role to a Non-Executive
Director role, effective as of his retirement from his full-time executive
career on 30 June 2024. The Board remains focused on ensuring strong
governance and strategic oversight as PPHC continues to grow and expand its
capabilities.
Simon Lee
Chair of the Board
March 2025
Chief Executive Officer's report
As we reflect on 2024, I want to express my gratitude to our investors,
clients, employees, and partners who have been integral to our journey.
2024 has been a year of strategic expansion and resilient performance for
PPHC. Despite market challenges, we've strengthened our position as the
leading advisory firm in our core markets while successfully executing our
international growth strategy.
Our Government Relations segment, representing 69% of Group revenue, delivered
organic growth of 4% and maintained, for the fifth consecutive year, its
position as the leading provider of federal lobbying services in the US. This
performance demonstrates the enduring value of our services during periods of
policy change and complexity. Experience shows that times of transition create
increased demand for sophisticated government relations advice, as
organisations seek to understand and adapt to evolving policy dynamics.
A defining milestone in this strategy has been our expansion into strategic
communications and corporate affairs, furthering our ability to serve clients
navigating high-stakes regulatory, reputational, and policy challenges. The
acquisitions of Pagefield in the UK and LPA in California, complemented by
our recently announced acquisition of TrailRunner International, represent a
major step forward in our goal to build a global, integrated advisory
platform.
In our Public Affairs segment (24% of revenue), we saw a marked turnaround
from -13% organic growth in H1 to +4% in H2 as project work returned following
the conclusion of various elections. Meanwhile, our Diversified Services
segment demonstrated exceptional organic growth of 23%, validating our
investment in specialised capabilities across AI regulation, energy
transition, and strategic communications.
As we enter the second decade of PPHC's operations, our founding vision has
evolved from providing sophisticated government relations services at scale to
building a truly global platform supporting clients across markets and policy
areas. There is significant global opportunity in our operating spheres, and
as a group, we consider ourselves ideally positioned to capitalise on the
opportunities ahead. The successful integration of recent acquisitions
represents significant progress toward this goal.
Looking ahead, we see substantial opportunities in the evolving political and
policy landscape. To our team of c.400 professionals, thank you for your
continued excellence. And to our more than 1,200 clients, we remain committed
to helping you navigate an increasingly complex global environment with
clarity and confidence.
Sincerely,
G. Stewart Hall
Chief Executive Officer
Operational Review
Introduction
PPHC continued to make strong progress in 2024. The Group's diversified
service offerings, long-standing client relationships, and ability to provide
fully integrated solutions across government relations and public affairs have
enabled it to navigate election-year uncertainties while maintaining steady
growth.
Clients
PPHC provides a comprehensive suite of Government Relations and Public Affairs
services to its clients. In 2024, the Group serviced over 1,200 clients,
demonstrating the resilience and continued demand for its expertise. Client
retention remains strong, with an annual renewal rate of ~71% and revenue
retention between 80% to 85% in line with historic norms.
The Group's divisions experienced varied performance in 2024:
· Government Relations: the largest division grew revenue by 7%, of
which 4% was organic, underpinned by robust demand for regulatory and
legislative support. All three of PPHC's lobbying firms maintained their
leading position in the Federal lobbyist rankings, as reflected in public
disclosures mandated by U.S. federal law.
· Public Affairs: revenue increased 13%, largely driven by the
acquisitions of Lucas Public Affairs and Pagefield. The organic performance of
-5% reflects a weaker H1 of -13% followed by a return to good growth of 4% in
H2 as project work rebounded with clients responding to clearer political
direction.
· Diversified Services: the fastest-growing division, up 47%
year-over-year, with 23% organic growth. While coming from a lower base, the
division's expansion reflects increasing demand for specialised services,
including compliance, grant writing, and research-driven policy insights.
PPHC's strategy continues to focus on clients with annual spending above
$100,000, a critical growth metric. The Group ended FY2024 with 503 such
clients, reflecting a 15% increase compared to 437 in FY2023 (restated for
client consolidation). Similarly, the clients spending above $250,000
increased from 118 in FY2023 to 137 in FY2024, reflecting a 16% increase.
This expansion has been supported by:
· Internal referral incentives and Group-wide performance-linked
compensation.
· Concordant, which provides clients a single touchpoint for strategic
communications integrated with PPHC's full service offerings.
· Expanded premium non-lobbying services, including state and federal
compliance, stakeholder research, and procurement-related expertise.
PPHC now directly represents nearly half of the Fortune 100 and more than a
quarter of the Fortune 500, in addition to serving many more via numerous
trade associations.
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 expertise in critical sectors including technology, green energy,
and healthcare. 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
M&A pipeline remains strong across the US, UK, and mainland Europe, with
the Group actively evaluating opportunities to expand into strategic political
geographies and adjacent service areas.
Current Trading and Outlook
The FY2024 results reaffirm the Group's strong positioning. The client
pipeline for FY2025 is significantly stronger, driven by post-election policy
shifts and increased government and corporate spending on regulatory and
public affairs services.
The Board reiterates its medium-term guidance:
· organic revenue growth between 5% and 10%;
· incremental growth from future M&A; and
· underlying EBITDA margin between 25% and 30%.
With a strong balance sheet, continued expansion, and a diversified service
offering, PPHC is well-positioned for sustained long-term growth. The Group
has a stated ambition to achieve $500 million in profitable revenues in the
medium term.
Financial Review
The financial information contained in this preliminary announcement is
unaudited. The audit of the financial statements for the year ended 31
December 2024 is substantially complete, pending finalisation of certain
procedures. The statutory accounts for 2024 will be finalised on completion of
the audit, consistent with the process for prior years. This is the first year
that ForvisMazars has conducted the audit, and the transition has progressed
smoothly.
Underlying Profit & Loss Statement
All in $m, unless otherwise noted FY2024 FY2023 change
Revenue 149.6 135.0 11%
EBITDA (Underlying) 36.1 35.1 3%
EBITDA margin (Underlying) 24.2% 26.0% -1.8pts
Depreciation (0.1) (0.1) -14%
EBIT (Underlying) 36.0 34.9 3%
Interest (1.7) (0.9) -83%
EBT (Underlying) 34.3 34.0 1%
Taxes (6.5) (7.5) 13%
Effective tax rate -19.1% -22.1% 3.0pts
Net Income (Underlying) 27.7 26.5 5%
Net income margin (Underlying) 18.5% 19.6% -1.1pts
EPS - Underlying ($) (basic) 23.45c 23.54c 0%
EPS - Underlying ($) (fully diluted) 22.22c 22.71c -2%
DPS 9.40c 14.30c -34%
Bridge from Underlying to Reported Results
All in $m, unless otherwise noted FY2024 FY2023 change
Net Income (Underlying) 27.7 26.5 5%
Share-based accounting charge (31.8) (30.9) -3%
M&A: Post-combination comp (11.6) (6.3) -84%
M&A: bargain purchase 2.5 4.8 49%
M&A: change in contingent consideration (1.9) (1.7) -12%
Long Term Incentive Program charges (4.2) (2.8) -49%
Amortization intangibles (4.7) (3.9) -20%
Net Loss (Reported) (24.0) (14.2) -68%
Please refer to the section 'basis of preparation' for an explanation of the
non-cash items excluded from Underlying Net Income.
Revenue
FY2024 revenue increased by 11% to $149.6m (FY2023: $135.0m), with organic
growth contributing 3% and the balance driven by the acquisitions of Lucas
Public Affairs on 1 May 2024, of Pagefield Communications on 7 June 2024, as
well as the annualisation of MultiState's contribution which was acquired on 1
March 2023. Organic growth of 3% was the outcome of slower organic growth of
1% in H1, followed by stronger organic growth of 4% in H2, especially fuelled
by a return of project work (and growth) on the Public Affairs side. By
segment, for FY2024 the Group saw organic growth of 4% in Government
relations, of -5% in Public Affairs and of 23% in Diversified Services.
All in $m, unless otherwise noted FY2024 % of total Reported growth Organic growth
H1 H2 FY H1 H2 FY
Government Relations 102.5 69% 8% 6% 7% 4% 3% 4%
Public Affairs 36.4 24% -6% 33% 13% -13% 4% -5%
Diversified Services 10.7 7% 97% 19% 47% 32% 19% 23%
Total 149.6 100% 8% 13% 11% 1% 4% 3%
In FY2024, 69% of the Group's revenues stemmed from Government relations
(FY2023: 71%), 24% came from Public Affairs (FY2023: 24%), and 7% from
Diversified Services (FY2023: 5%).
In 2024, 3% of revenue was generated outside of the US, pursuant to the
acquisition of Pagefield in the UK in June 2024.
All in $m, unless otherwise noted FY2024 % of total Reported growth Organic growth
H1 H2 FY H1 H2 FY
U.S. 145.6 97% 7% 8% 8% 1% 4% 3%
Outside U.S. 4.0 3%
Total 149.6 100% 8% 13% 11% 1% 4% 3%
With non-US$ denominated operations, in future periods the Group intends to
report growth numbers on a constant currency basis in addition to its reported
basis. For FY2024 the difference between 'constant currency' and actually
reported was negligible and therefore not explicitly illustrated.
Profit
Underlying EBITDA increased 3% to $36.1m and was achieved at a margin of
24.2%, close to the Group's historic performance and guidance that margins
will typically range between 25% and 30%. In 2024 the Group incurred $3.6m in
exceptional expenses which was $3.1m more than in 2023 (2023: $0.5m). Of the
$3.1m increase, $2.1m was from M&A related expenses (especially driven by
the Group's first international acquisition) and $0.9m from additional
start-up losses at Concordant. Adjusting for the $3.1m in incremental
exceptional expenses, Group margin was 26.2%.
Long term Underlying EBITDA 2018 2019 2020 2021 2022 2023 2024 2024 adj
Underlying EBITDA ($m) 9.3 13.5 21.5 32.0 31.2 35.1 36.1 39.2
Underlying EBITDA margin 27.4% 24.4% 27.8% 32.2% 28.7% 26.0% 24.2% 26.2%
After interest and taxes, the Group's Underlying Net Income for FY2024
amounted to $27.7, up 5% from $26.5m in FY2023.
Other
The Group's net finance costs for FY2024 were $1.7m (FY2023: $0.9m),
reflecting the $25.0m additional debt acquired in support of the LPA and
Pagefield acquisitions in Q2 2024.
The tax provision for FY2024 was $6.5m (FY2023: $7.5m), reflecting a blended
tax rate of 19.1% on Underlying Profit before Tax, down from 22.1% in FY2023.
The decrease is primarily due to temporary differences between tax and
accounting profit, mainly related to goodwill treatment
The Group ended 2023 with 333 employees and at 31 December 2024 this had
increased to 367, primarily as a result of the acquisitions of LPA and
Pagefield. The Group's average employee count during the year was 349 (FY2023:
308).
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 in this filing. Management
emphasises 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, some of 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, the Group has decided to 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 also continues to provide a non-GAAP summary
of Cash Flows. In this non-GAAP summary, all acquisition-related payments have
been clustered and reported under 'Cash Flow from Investments'. In addition,
the Group 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 $22.3m
(FY2023: $21.6m), and Free Cash Flow of $22.2m increased to the same degree
(FY2023: $21.4m). Similar to prior years, the Group generated most Free Cash
Flow in the second half, as a result of the payment of annual bonuses across
the Group in Q1 and seasonal working capital trends.
GAAP Centralize Acquisition Payments Adjusted (non-GAAP)
All in $m, unless otherwise noted FY2024 FY2023* FY2024 FY2023 FY2024 FY2023 change
EBITDA (Underlying) 36.1 35.1 36.1 35.1 3%
Interest (1.7) (0.9) (1.7) (0.9) -83%
Taxes (6.5) (7.5) (6.5) (7.5) 13%
Changes in working capital (11.5) (16.4) 5.9 11.4 (5.6) (5.0) -11%
Cash flow from Operations 16.4 10.2 5.9 11.4 22.3 21.6 3%
Capital expenditure (0.1) (0.2) (0.1) (0.2) 76%
Cash paid for acquisitions, net of cash acquired (19.8) (8.1) (6.6) (13.1) (26.4) (21.2) -24%
Note receivable to related parties 0.4 (1.8) 0.4 (1.8) 120%
Cash flow from Investments (19.5) (10.1) (6.6) (13.1) (26.1) (23.2) -13%
Change in Debt balance 21.1 11.1 21.1 11.1 -91%
Debt issuance costs (0.2) (0.5) (0.2) (0.5) 52%
Dividend payment (16.8) (15.8) (16.8) (15.8) -6%
Cash paid for acquisitions, financing (0.7) (1.8) 0.7 1.8 0.0 0.0
Cash flow from Financing 3.3 (7.0) 0.7 1.8 4.1 (5.2) NM
FX impact on cash (0.1) 0.0 (0.1) 0.0
Cash generated 0.2 (6.9) 0.0 0.0 0.2 (6.9) NM
*2023 GAAP Cash Flow statement was re-stated, as explained in Note B to the
GAAP financials and explanation in this section
Conversion Cash flow from Operations to Free Cash Flow
All in $m, unless otherwise noted FY2024 FY2023 change
Cash flow from Operations (Adjusted) 22.3 21.6 3%
Capex (0.1) (0.2) 76%
Free Cash Flow 22.2 21.4 4%
Balances end of period
The Group's debt position at the end of the Period was $32.0m, offset by cash
of $14.5m, resulting in a Net Debt position of $17.5m (FY2023: net cash
$3.4m). Debt increased following the Q2 2024 acquisitions of Lucas Public
Affairs and Pagefield Communications, but the Company's strong cash generation
allows for the steady repayment of debt.
All in $m, unless otherwise noted FY2024 FY2023 change
Cash balance 14.5 14.3 1%
Debt balance (32.0) (10.9) 193%
Net cash / (debt) balance (17.5) 3.4 NM
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
$15.8m 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 $44.1m, of which $24.6m 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
$97.1, of which $57.4m 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 3.7 3.3 3.1 13.5 1.1 24.6
Expected earnout payments in PPHC stock 0.6 3.3 1.6 13.5 0.6 19.5
Expected earnout payments - total 4.3 6.5 4.7 27.0 1.7 44.1
Maximum earnout payments in Cash 4.2 8.4 12.6 18.8 13.4 57.4
Maximum earnout payments in PPHC stock 0.7 6.0 6.3 18.8 8.0 39.7
Maximum earnout payments - total 4.9 14.4 18.9 37.5 21.4 97.1
Note that these earnout liabilities do not yet include the anticipated
acquisition of Trailrunner.
Information per share
FY2024 FY2023 Change
# weighted avg shares - GAAP - basic and fully diluted '000 111,827 108,606 3%
# weighted avg shares - Legally outstanding - basic '000 118,217 112,597 5%
# weighted avg shares - Legally outstanding - fully diluted '000 124,792 116,693 7%
EPS - GAAP reported (basic and fully diluted) $ -21.42c -13.12c -63%
EPS - Underlying (basic) $ 23.45c 23.54c 0%
EPS - Underlying (fully diluted) $ 22.22c 22.71c -2%
DPS - Interim $ 9.40c 14.30c -34%
Free Cash Flow per share - Underlying (basic) $ 18.81c 18.98c -1%
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 (1) those shares that have
been issued in relation to post-IPO acquisitions but have not yet vested and
(2) unvested Restricted Stock Awards (RSA's). 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 FY2024 (5%
basic, 7% fully diluted) was not only driven by customary drivers such as LTIP
issuance and M&A related issuances, but also importantly by the one-off
issue of 2.1m shares in the fourth quarter of 2023 in relation to the Alpine
remediation plan. It should also be noted that the dilution pool - impacting
the fully diluted statistics - includes stock options that are currently
'under water' versus the share price in February 2025.
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 FY2024
non-cash charge is $31.8m (FY2023: $30.9m). The increase has primarily been
driven by the acceleration of vesting of the shares of William Chess at his
retirement as CFO. 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, to a large extent the shares
issued as part of these transactions were made subject to vesting schedules.
To a similar degree, also 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
FY2024 charge was $11.6m (FY2023: $6.3m). 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 FY2024, PPHC issued 0.3m (FY2023: 0.7m)
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 2.9m restricted stock units (FY2023: 2.3m), and 0.7m restricted stock
awards (FY2023: 3.0m, of which 2.1m in relation to the Alpine re-investment
plan). No stock appreciation rights were awarded (FY2023: 1.9m) as they are
getting phased out. The charges relating to these issuances, $4.2m in FY2024
(FY2023: $2.8m), as reflected in our P&L were computed using the Black
Scholes method.
(4) Amortization of intangibles: The non-cash amortization charge of $4.7m
(FY2023: $3.9m) 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 $2.5m in FY2024
(FY2023: $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 $1.9m in FY2024
(FY2023: 1.7m).
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 FY2024 was 118,217,173 (FY2023:
112,596,711) and on a fully diluted basis (taking into account any issued
stock instrument, regardless of exercise price), this number was 124,791,886
(FY2023: 116,692,759).
PUBLIC POLICY HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2024 and 2023
Consolidated Balance Sheets
December 31,
2024 2023
ASSETS
Current assets:
Cash $ 14,535,943 $ 14,341,376
Contract receivables, net 18,284,530 14,063,469
Amounts due from related parties - 1,054,231
Notes receivable - related parties, current portion 863,000 350,000
Income taxes receivable 3,185,120 975,050
Prepaid post-combination compensation, current portion 6,070,073 3,426,318
Prepaid expenses and other current assets 2,726,320 2,694,149
Total current assets 45,664,986 36,904,593
Property and equipment, net 750,620 801,355
Notes receivable - related parties, long term 1,050,000 1,913,000
Operating lease right of use asset 18,428,307 21,434,360
Goodwill 64,308,106 47,909,832
Other intangible assets, net 32,143,666 26,869,331
Deferred income tax asset 11,037,500 7,737,200
Prepaid post-combination compensation, long term 888,184 3,954,034
Other long-term assets 189,085 162,473
$ 174,460,454 $ 147,686,178
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 20,044,302 $ 18,593,014
Amounts owed to related parties 556,396 -
Deferred revenue 3,149,957 2,197,220
Operating lease liability, current portion 4,826,715 4,181,155
Contingent consideration, current portion 2,092,597 1,444,110
Other liability, current portion 1,134,675 534,540
Notes payable, current portion, net 6,031,204 3,370,421
Total current liabilities 37,835,846 30,320,460
Notes payable, long term, net 26,014,133 7,570,951
Contingent consideration, long term 8,803,464 5,475,515
Other liability, long term 3,744,925 1,585,294
Operating lease liability, long term 16,807,668 20,665,349
Total liabilities 93,206,036 65,617,569
Common stock, $0.001 par value, 1,000,000,000
shares authorized, 120,087,982 and 115,271,961 shares
issued and outstanding, respectively 114,002 109,542
Additional paid-in capital 197,397,482 156,884,144
Accumulated deficit (115,721,104) (74,925,077)
Accumulated other comprehensive loss (535,962) -
Total stockholders' equity 81,254,418 82,068,609
Total liabilities and stockholders' equity $ 174,460,454 $ 147,686,178
Consolidated Statements of Operations and Other Comprehensive Loss
Year Ended
December 31,
2024 2023
Revenue $ 149,563,307 $ 134,985,822
Expenses:
Personnel cost 81,824,942 70,782,459
Employee bonuses 10,374,636 13,178,302
General and administrative expenses 15,660,905 10,929,617
Occupancy expense 5,574,150 5,027,501
Depreciation and amortization expense 4,807,299 3,998,073
Long term incentive program charges 4,162,000 2,796,000
Share-based accounting charge 31,803,600 30,904,000
Post-combination compensation charge 11,598,647 6,295,060
Change in fair value of contingent consideration 1,909,750 1,711,235
Gain on bargain purchase (2,463,927) (4,835,777)
Total operating expenses 165,252,002 140,786,470
Loss from operations (15,688,695) (5,800,648)
Interest income 176,537 17,955
Interest expense (1,899,986) (958,779)
Net loss before income taxes (17,412,144) (6,741,472)
Income tax expense 6,544,800 7,502,800
Net loss $ (23,956,944) $ (14,244,272)
Net loss per share attributable to common
stockholders, basic and diluted $ (0.21) $ (0.13)
Weighted average common shares outstanding,
basic and diluted $ 111,826,822 $ 108,606,133
Comprehensive loss:
Net loss $ (23,956,944) $ (14,244,272)
Foreign currency translation loss $ (535,962) $ -
Total comprehensive loss $ (24,492,906) $ (14,244,272)
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2024 and 2023
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 charge - - 30,904,000 - - 30,904,000
Post-combination compensation 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
Long term incentive program charges - - 3,784,000 - - 3,784,000
Dividends - - - (16,835,962) - (16,835,962)
Vesting of stock issued from Multistate acquisition 936,571 937 - (937) - -
Vesting of stock issued from KP Public Affairs acquisition 492,488 492 - (492) - -
Vesting of stock issued from Engage acquisition 324,868 325 - (325) - -
Vesting of stock issued to consultant 63,468 63 - (63) - -
Vesting of restricted stock units and restricted stock awards 1,303,579 1,304 - (1,304) - -
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 1,442,422 - - 1,443,320
Post-combination compensation charge-shares - - 2,792,757 - - 2,792,757
Share-based accounting charge - - 31,803,600 - - 31,803,600
Foreign currency translation gain (loss) - - - - (535,962) (535,962)
Net loss - - - (23,956,944) - (23,956,944)
Balance as of December 31, 2024 114,002,266 $ 114,002 $ 197,397,482 $ (115,721,104) $ (535,962) $ 81,254,418
Consolidated Statements of Cash Flows
Year Ended
December 31,
2024 2023*
Cash flows from operating activities:
Net loss $ (23,956,944) $ (14,244,272)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 136,121 119,688
Amortization expense - intangibles 4,671,178 3,878,386
Amortization of right of use assets 4,070,635 3,725,388
Amortization of prepaid post-combination compensation 5,061,895 3,081,000
Accretion of other liability 3,742,313 1,684,774
Amortization of debt discount 181,596 125,203
Provision for deferred income taxes (1,294,100) (367,400)
Share-based accounting charge 31,803,600 30,904,000
Long-term incentive program charges 4,162,000 2,648,000
Post-combination compensation charge-shares 2,792,757 1,529,286
Change in fair value of contingent consideration 1,909,750 1,711,235
Gain on bargain purchase (2,463,927) (4,835,777)
(Increase) decrease in:
Accounts receivable, net (3,117,809) (2,478,202)
Prepaid post-combination expense (4,639,800) (9,504,000)
Prepaid expenses and other assets 572,613 (570,601)
Increase (decrease) in:
Accounts payable and accrued expenses (2,052,883) 6,114,690
Income taxes payable/receivable (2,218,740) (5,192,760)
Deferred revenue 958,600 (5,345,073)
Contingent consideration (268,563) (42,600)
Operating lease liability (4,276,703) (3,044,269)
Other liability (981,750) (1,821,600)
Transactions with members/related parties 1,610,627 2,159,517
Net cash provided by operating activities 16,402,466 10,234,613
Cash flows from investing activities:
Purchases of property and equipment (55,854) (232,730)
Proceeds issued for notes receivable - related parties - (1,750,000)
Proceeds received for notes receivable - related parties 350,000 -
Cash paid for acquisitions, net of cash acquired (19,783,750) (8,096,000)
Net cash used in investing activities (19,489,604) (10,078,730)
Cash flows from financing activities:
Proceeds from notes payable 25,000,000 14,000,000
Payment of debt issuance costs (214,992) (450,729)
Proceeds from line of credit - 1,000,000
Payment of line of credit - (1,000,000)
Principal payment of notes payable (3,862,639) (2,943,741)
Payment of contingent consideration (749,687) (1,779,000)
Distributions (16,835,962) (15,843,493)
Net cash provided by (used in) financing activities 3,336,720 (7,016,963)
Effect of exchange rate changes on cash and cash equivalents (55,015) -
Net increase (decrease) in cash and cash equivalents 194,567 (6,861,080)
Cash and cash equivalents as of beginning of period 14,341,376 21,202,456
Cash and cash equivalents as of end of period $ 14,535,943 $ 14,341,376
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,718,390 $ 833,576
Cash paid for income taxes $ 10,048,970 $ 12,427,539
Right of use assets obtained with lease liabilities $ 1,064,582 $ 8,858,106
Contingent consideration issued for acquisitions $ 3,798,077 $ 2,784,990
Common stock issued for acquisitions $ 1,443,320 $ 1,232,000
Increase in deferred revenue and other assets from acquisition of
Multistate, Inc. $ - $ 4,681,404
Stock issued for settlement of contingent consideration $ 691,000 $ -
*see Note K
PUBLIC POLICY HOLDING COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2024 and 2023
Note A - Organization and Significant Accounting Policies
1 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.
The Company has prepared the accompanying consolidated financial statements 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, 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.
2 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
PPHC International LLC
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
3 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.
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.
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 F).
4 Revenue recognition:
The Company generates the majority of its revenue by providing consulting
services through fixed-fee arrangements related to Government Relations,
Public Affairs and Diversified Services. 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 ("Retainer") 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.
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.
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, 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:
2024 2023
Government relations revenue $ 102,463,869 $ 95,476,619
Public affairs revenue 36,405,430 32,256,518
Diversified services revenue 10,694,008 7,252,685
Total revenue $ 149,563,307 $ 134,985,822
The following table provides information about receivables, contract assets
and contract liabilities from contracts with customers as of:
2024 2023
Accounts receivable $ 19,161,501 $ 14,248,444
Unbilled receivables 225,073 609,163
Allowance for credit losses (1,102,044) (794,138)
Total contract receivables, net 18,284,530 14,063,469
Contract liabilities (deferred revenue) 3,149,957 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
$3,150,000 and $2,197,000 from December 31, 2024 and 2023 is expected to be
recognized as revenue in 2025 and 2024, respectively.
5 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.
6 Contract receivables:
The Company provides for an allowance for credit losses; it is management's
best estimate of possible losses based on 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 credit losses. As of December 31, 2024 and 2023 the
balance of the allowance for credit losses approximated $1,102,000 and
$794,000.
7 Leases:
The Company determines if a contract is a leasing arrangement at inception.
Operating lease assets represent the Company's right to control the use of an
identified asset for the lease term and lease liabilities represent the
Company's obligation to make lease payments arising from the lease.
Operating lease assets and liabilities are recognized on the Consolidated
Balance Sheets at the commencement date based on the present value of lease
payments over the lease term. The Company uses the incremental borrowing
rate on the commencement date in determining the present value of its lease
payments. The Company recognizes lease expense for its operating leases on a
straight-line basis over the lease term.
The Company leases office space and equipment under non-cancelable operating
leases, which may include renewal or termination options that are reasonably
certain of exercise. Most leases include one or more options to renew. The
exercise of lease renewal options is at the Company's sole discretion.
Certain of the Company's lease agreements include rental payments that are
adjusted periodically for inflation. The Company's lease agreements do not
contain any material residual value guarantees or material restrictive
covenants.
Leases with an initial term of 12 months or less are not recorded on the
Consolidated Balance Sheets and are expensed on a straight-line basis.
8 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.
9 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.
10 Goodwill and indefinite-lived intangible assets:
Goodwill represents the excess of the purchase price in a business combination
over the fair value of the net tangible and intangible assets acquired and the
indefinite-lived intangible assets which consists of trademarks. In accordance
with ASC 350, Intangibles - Goodwill and Other, ("ASC 350"), Goodwill and
indefinite-lived intangible assets are not amortized but tested for impairment
annually and whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
The Company assesses goodwill for impairment at the reporting unit level. A
reporting unit is an operating segment or a business one level below that
operating segment if discrete financial information is available and regularly
reviewed by the chief operating decision maker ("CODM").
The Company tests its goodwill and indefinite-lived intangible assets for
impairment annually as of the end of the fourth quarter using the qualitative
assessment. Based on the results of the Company's qualitative assessment,
there was no goodwill of indefinite-lived intangible asset impairment for the
years ended December 31, 2024 and 2023.
11 Other intangible assets:
The Company's definite-lived intangible assets consist 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.
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 years ended
December 31, 2024 and 2023.
12 Deferred revenue:
Deferred revenue represents prepayment by the customers for services that have
yet to be performed. As of December 31, 2024 and 2023, deferred revenue was
approximately $3,150,000 and $2,197,000, respectively.
13 Accounts payable and accrued expenses:
Accounts payable and accrued expenses consist of the following as of December
31:
2024 2023
Accounts payable $ 4,753,171 $ 4,348,493
Bonus payable 9,926,791 12,389,037
Other accrued expenses 5,364,340 1,855,484
Total $ 20,044,302 $ 18,593,014
14 Marketing and advertising costs:
The Company expenses marketing and advertising costs as incurred. Marketing
and advertising expense for the years ended December 31, 2024 and 2023 was
approximately $534,000 and $216,000 respectively.
15 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 consolidated 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.
16 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.
17 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.
18 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 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. See Note K for more information regarding the
Company's segment disclosures.
19 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
and Other Comprehensive Loss. 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 years ended December 31,
2024 and 2023 does not include the common stock equivalent shares below:
December 31,
2024 2023
Common shares outstanding 114,002,266 109,542,220
Nonvested shares outstanding 6,085,716 5,729,741
Legally outstanding shares 120,087,982 115,271,961
Stock options and RSUs outstanding 7,730,192 5,314,056
Total fully diluted shares 127,818,174 120,586,017
The following table includes the weighted average shares outstanding for each
respective period:
December 31,
2024 2023
Common shares, weighted average 111,826,822 108,606,133
Nonvested shares, weighted average 6,390,351 3,990,578
Legally outstanding shares, weighted average 118,217,173 112,596,711
Stock options and RSUs, weighted average 6,574,713 4,096,048
Total fully diluted, weighted average 124,791,886 116,692,759
20 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 significance 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, contract receivables, and accounts payable and
accrued expenses at December 31, 2024 and 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 ("KP LLC"), Multistate Associates Inc. ("MultiState Inc"), Lucas Public
Affairs, Inc. ("LPA"), and Pagefield Communications Limited ("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 1,711,235
Balance at December 31, 2023 6,919,625
Fair value at issuance 3,798,077
Cash and stock payout of contingent consideration (1,709,250)
Change in fair value 1,909,750
Effect of currency translation adjustment (22,141)
Balance at December 31, 2024 $ 10,896,061
The change in fair value of the contingent consideration of approximately
$1,910,000 for the year ended December 31, 2024, consisted of an increase in
the fair value of the contingent consideration for MultiState Inc and KP LLC
offset by a decrease in the fair value of the contingent consideration for LPA
and Pagefield. 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 December 31, 2024
Valuation Methodology Significant Unobservable Input Range
Contingent consideration Monte Carlo Simulation Method Discount rate for credit risk and time value 5.2% to 5.4%
Discount rate for future profit after tax 11.5% to 21.3%
Expected volatility of future annual profit after tax 29.0% to 34.0%
Forecasted growth rate 4.9% to 70.8%
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 the Company's 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 the Company's estimated fair
value calculations of the contingent consideration.
21 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 and Other
Comprehensive Loss. 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.
22 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 B and
Note F) 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.
23 New accounting pronouncements:
Recently Adopted Accounting Standards
During 2023, the Company adopted Accounting Standards Update ("ASU") 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 contract receivables. However, the adoption of ASU 2016-13 did
not have a material impact to the Company's valuation of its contract
receivables.
During November 2023, the Financial Accounting Standards Board ("FASB") issued
ASU No. 2023-07, Segment Reporting (Topic 280). ASU No. 2023-07 was issued
to improve the disclosures about a public entity's reportable segments and
requires more detailed information about a reportable segment's expenses.
The primary focus of ASU No. 2023-07 is enhanced disclosures about significant
segment expenses. The guidance is applicable and effective for fiscal years
beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024. The Company has adopted the provisions of
ASU No. 2023-07 for the fiscal year ended December 31, 2024 and has updated
the disclosure information provided in its segment footnote reporting
accordingly.
Accounting Standards Not Yet Adopted
During December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):
Improvements to Income Tax Disclosures, which expands annual disclosures in an
entity's income tax rate reconciliation table and requires annual disclosures
regarding cash taxes paid both in the U.S. (federal, state and local) and
foreign jurisdictions. The amendments in this ASU are effective for annual
periods beginning after December 31, 2024, although early adoptions is
permitted. The Company is evaluating the potential impact of this guidance
on its consolidated financial statement disclosures.
During November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting
Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):
Disaggregation of Income Statement Expenses. The guidance requires public
companies to disclose, in the notes to financial statements, specified
information about certain costs and expenses at each interim and annual
reporting period. This guidance is effective for public business entities for
annual reporting periods beginning after December 15, 2026, and interim
reporting periods beginning after December 15, 2027. The Company expects to
adopt this guidance in its fiscal year beginning January 1, 2027. The Company
is evaluating the potential impact of this guidance on its consolidated
financial statement disclosures.
Note B - Acquisitions
1 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.
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%.
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 was recorded as
post-combination expense and equity over the required vesting terms for the
shares issued.
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 Useful Life (in Years) Amount
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%
2 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 F).
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 Useful Life (in Years) Amount
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.
3 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 year ended December 31, 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 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 Useful Life (in Years) Amount
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%
4 Doherty Law Group:
On February 1, 2024, the Company entered into an Asset Purchase Agreement
("Doherty Agreement") and acquired certain assets and assumed certain
liabilities of John Francis Doherty and Doherty Law Group (collectively, the
'Seller" or "Doherty"). At the closing of the transaction, the Company paid
the Seller cash in the amount of $270,000 ("Doherty Closing Cash Payment") and
issued 62,637 shares of the Company's common stock ("Doherty Closing Share
Payment") to Seller at an aggregate fair value of approximately $90,000, of
which, all the shares have vesting requirements ("Doherty 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 $195,000 of cash ("Doherty Earnout Cash Payment") and
$195,000 of stock ("Doherty Earnout Shares") for total additional
consideration of up to $390,000. This combined with the closing payments
already made could require total payments of up to $750,000 to the Seller.
The Doherty Agreement provides certain forfeiture provisions applicable to any
future cash or share payments owed, which generally require John Doherty
("Doherty 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 ("Doherty Acceleration Event") as defined in
the Doherty Agreement.
In addition, under certain circumstances outlined in the Doherty Agreement,
the Company can claw back a portion of certain payments previously paid if
Doherty Owner is not employed by the Company as of certain future dates.
If Doherty Owner is terminated as a result of a Doherty Acceleration Event, a
percentage of the unvested Doherty Owner Shares (representing such Doherty
Owner's ownership percentage in Seller) shall become fully vested. The
Doherty 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 Doherty Agreement contains certain
provisions requiring the forfeiture of a percentage of all cash and shares
received by Doherty Owner if certain restrictive covenants are breached by a
Doherty Owner.
Reasons for the acquisition
The Company acquired Doherty to enhance the scope of services provided by KP
LLC.
Accounting for the acquisition
The acquisition of Doherty 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 Doherty in the
Doherty 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
Doherty that are not subject to a vesting or claw back provision that is
directly linked to the continued employment of Doherty Owners. The total
preliminary purchase consideration consisted of the following amounts:
Doherty closing cash payment $ 70,200
Contingent consideration 17,200
Total purchase consideration $ 87,400
The Doherty Closing Cash Payment and contingent consideration allocated as
preliminary purchase consideration consists of the amount of the Doherty
Closing Cash Payment and estimated fair value of future payments that are not
subject to vesting or claw back provisions tied to continued employment.
Purchase price allocation
The allocation of the purchase consideration resulted in the following amounts
being allocated to the assets acquired and liabilities assumed as of the
purchase date of February 1, 2024 based on their respective estimated fair
values is summarized below:
Customer relationships $ 77,000
Noncompete agreement 7,400
Deferred income tax asset 111,000
Net assets acquired 195,400
Less estimated purchase price 87,400
Gain on bargain purchase $ 108,000
The identified definite-lived intangible assets were as follows:
Definite-Lived Intangible Assets Weighted-Average Useful Life (in Years) Amount
Customer relationships 7 $ 77,000
Noncompete agreement 4 $ 7,400
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 Doherty 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 Doherty
acquisition include the requirement for the Doherty Owner to stay an employee
of the Company for a significant period of time.
The fair value of the contingent consideration was calculated by estimating
the amount of taxes subject to clawback on both the Doherty Closing Cash
Payment and Doherty Earnout Cash Payment. The fair value of the Doherty
Earnout Cash Payment 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 5.1%
Discount rate applicable to future revenue 14.9%
Expected volatility of future revenue 20.0%
Forecasted growth rate 9.5%
5 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.
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 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 purchase consideration
consisted of the following amounts:
LPA Closing Cash Payment $ 1,560,000
Contingent consideration 377,073
Total purchase consideration $ 1,937,073
The LPA Closing Cash Payment and contingent consideration allocated as
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.
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 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 fair value of the identified definite-lived intangible assets was as
follows:
Definite-Lived Intangible Assets Weighted-Average Useful Life (in Years) Amount
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%
6 Pagefield Communications Limited ("Pagefield"):
On June 7, 2024, the Company entered into a Share Purchase Agreement
("Pagefield Agreement") and acquired the stock of Pagefield Communications
Limited ("Pagefield") from the owners of Pagefield ("Seller" or "Sellers")
through the creation of a wholly-owned subsidiary, PPHC International Ltd.
("PPHC LTD"). At the closing of the transaction, the Company paid the
Sellers cash in the amount of 14,992,868 GBP, which was approximately
$19,209,000 USD ("Pagefield Closing Cash Payment") and issued 897,640 shares
of the Company's common stock ("Pagefield Closing Share Payment") to Sellers
at an aggregate fair value of approximately $1,443,000.
In addition, there are additional contingent payments that the Sellers 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 Sellers 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 Sellers.
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 Sellers ("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.
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.
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 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 one of the Sellers. The total
purchase consideration consisted of the following amounts:
Pagefield closing cash payment $ 19,208,862
Pagefield closing share payment 1,443,320
Contingent consideration 3,403,441
Total purchase consideration $ 24,055,623
The contingent consideration allocated as 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 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 June 7, 2024 based on their respective estimated fair values
is summarized below:
Cash acquired $ 1,055,312
Contract receivables 1,128,390
Other current assets 2,259,782
Property and equipment 30,584
Customer relationships 5,183,735
Tradename 1,548,971
Noncompete agreements 954,494
Accounts payable and accrued expenses (2,720,673)
Other current liabilities (463,118)
Deferred income tax liability (1,701,049)
Net assets acquired 7,276,428
Less estimated purchase price (24,055,623)
Goodwill* $ 16,779,195
*Based on the exchange rate in effect at the acquisition date
The fair value of the identified definite-lived intangible assets was as
follows:
Definite-Lived Intangible Assets Weighted-Average Useful Life (in Years) Amount
Customer relationships 7 $ 5,183,735
Noncompete agreements 3 $ 954,494
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 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%
7 Acquisition and post-combination compensation payments:
The cash payments (including post-combination compensation) made for the
acquisitions at their respective closing date and subsequent earn-out payments
made are as follows:
Year Ended
December 31,
2024 2023
MS closing cash payment $ - $ 17,600,000
KP true-up cash payment - 3,643,200
LPA closing cash payment 6,000,000 -
Pagefield closing cash payment 19,208,862 -
MS first interim cash payment 2,000,000 -
Doherty closing cash payment 270,000 -
Total acquisition payments 27,478,862 21,243,200
Pagefield cash acquired (1,055,312) -
Total cash payments, net of cash acquired $ 26,423,550 $ 21,243,200
8 Acquisition and post-combination compensation payments:
These cash payments (including post-combination compensation) are included in
the Consolidated Statements of Cash Flows as follows:
Year Ended
December 31,
2024 2023
Cash flows from operating activities $ 5,890,113 $ 11,368,200
Cash flows from investing activities 19,783,750 8,096,000
Cash flows from financing activities 749,687 1,779,000
Total cash payments, net of cash acquired $ 26,423,550 $ 21,243,200
The stock payments (including post-combination compensation) made for the
acquisitions at their closing date and subsequent earn-out payments made
consisted of the following:
Year Ended
December 31,
2024 2023
MS closing share payment $ - $ 4,400,000
KP true-up share payment - 404,800
LPA closing share payment 1,500,000 -
Pagefield closing share payment 1,441,524 -
MS first interim share payment 2,000,000 -
Doherty closing share payment 90,000 -
Total share payments $ 5,031,524 $ 4,804,800
Note C - Goodwill and Intangible Assets
1 Goodwill:
Goodwill is an indefinite lived asset with balances as follows as of December
31:
2024 2023
Goodwill $ 64,308,106 $ 47,909,832
As of December 31, 2024 and 2023, there have been no impairments to
goodwill. During 2024, goodwill increased by approximately $16,779,000 as a
result of the acquisition of Pagefield. (see Note B).
2 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. 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:
December 31, 2024
Useful Life Gross Book Value Accumulated Amortization Net
(in Years)
Book Value
Customer relationships 7 to 9 $ 33,556,240 $ (15,277,159) $ 18,279,081
Developed technology 7 to 9 3,938,000 (1,031,382) 2,906,618
Noncompete agreements 3 to 5 2,069,904 (767,109) 1,302,795
Total definite lived assets 39,564,144 (17,075,650) 22,488,494
Tradenames 9,655,172 - 9,655,172
Total intangible assets $ 49,219,316 $ (17,075,650) $ 32,143,666
December 31, 2023
Useful Life Gross Book Value Accumulated Amortization Net
(in Years)
Book Value
Customer relationships 7 to 9 $ 27,262,400 $ (15,277,159) $ 15,672,513
Developed technology 7 to 9 3,938,000 (1,031,382) 3,469,190
Noncompete agreements 4 to 5 971,000 (363,372) 607,628
Total definite lived assets 32,171,400 (12,422,069) 19,749,331
Tradenames 7,120,000 - 7,120,000
Total intangible assets $ 39,291,400 $ (12,422,069) $ 26,869,331
Amortization expense for customer relationship, noncompete agreement and
developed technology assets approximated $4,671,000, and $3,878,000 for the
years ended December 31, 2024 and 2023, respectively. The approximate
estimated future amortization expense for the next five years is as follows:
Amortization
Year
2025 $ 5,143,000
2026 4,984,000
2027 4,752,000
2028 3,194,000
2029 2,936,000
Thereafter 1,479,000
Total $ 22,488,000
Note D - leases
1 As of December 31, 2024 and 2023 the Company had approximately
$18,428,000 and $21,434,000, respectively, of operating lease ROU assets and
$21,634,000 and $24,847,000, respectively of operating lease liabilities on
the Company's Consolidated Balance Sheets.
The incremental borrowing 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 December 31:
Year Amount
2025 $ 5,781,524
2026 5,696,077
2027 4,785,234
2028 4,208,240
2029 2,509,995
Thereafter 1,407,361
Total future minimum lease payments 24,388,431
Amount representing interest (2,754,048)
Present value of net future minimum lease payments $ 21,634,383
2 Lease cost:
Year Ended
December 31,
2024 2023
Operating lease cost (cost resulting from lease payments) $ 5,322,444 $ 4,898,528
Variable lease cost (cost excluded from lease payments) 434,587 428,064
Sublease income (336,812) (410,879)
Net lease cost $ 5,420,219 $ 4,915,713
Cash paid for amounts included in the measurement of lease liabilities $ 5,467,595 $ 3,968,498
Weighted average lease term - operating leases 4.5 years 5.4 years
Weighted average discount rate - operating leases 5.25% 5.30%
The Company subleases office space to third parties under separate sublease
agreements, which are generally month-to-month leases.
Note E - Line of Credit and Notes Payable
1 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,
2023 Facility 1 is a Senior Secured Line of Credit in the amount of up to
$3,000,000 and 2023 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 2023 Facility 1 and 2023 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 Company
determined that the Amended Credit Agreements qualify as a debt modification
in accordance with ASC 470-50, Debt‑Modifications and Extinguishments. As
a result, the third party fees incurred in conjunction with the modification
totaling approximately $585,000 were expensed during 2024 and the fees
incurred directly with the lender of approximately $201,000 have been recorded
as a debt discount and are being amortized to expense over the term of the
Amended Credit Agreements using the straight-line method, which approximates
the effective interest method.
The loans under the Credit Agreement and Amended Credit Agreements are
collateralized by substantially all of the net assets of the Company. The
2023 Facility 2 matures on January 31, 2026. The Company has drawn
$14,000,000 from 2023 Facility 2 and utilized those funds as part of the
consideration to acquire MultiState Inc. During 2023, the Company utilized
$1,000,000 from 2023 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 was required to make monthly payments of principal of $291,667
plus interest beginning in March 2023 through the maturity date of January 31,
2026 for the 2023 Facility 2. The principal payment for 2023 Facility 1 is
due on the maturity date for that facility, which is January 31, 2026.
Periodic interest-only payments are due on 2023 Facility 1 through the
maturity date. The Company was 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 was 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. During January 2025,
the Company entered into the Third Amendment, which modified the future
required payments. See Note M.
As of December 31, 2024 and 2023, the 2023 Facility 1 had been repaid in
full. The Company is able to re-borrow up to $3,000,000, less any
outstanding letters of credit, under 2023 Facility 1 or 80% of the Company's
eligible receivables, whichever is less.
The Company's 2023 Facility 1, 2023 Facility 2, 2024 Term Loan A, and 2024
Term Loan B consist of the following as of December 31:
Original Loan Amount 2024 2023
2023 Facility 1 $ 3,000,000 $ - $ -
2023 Facility 2 14,000,000 7,875,000 11,083,333
2024 Term Loan A 6,000,000 5,850,000 -
2024 Term Loan B 19,000,000 18,525,000 -
Less: unamortized debt issuance costs 651,962 358,923 325,527
Total debt, net of unamortized issuance costs $ 41,348,038 31,891,077 10,757,806
Less: current portion 5,999,449 3,349,757
Total debt, long-term $ 25,891,628 $ 7,408,049
As of December 31, 2024, after the Third Amendment, the future principal
maturities of these loans are as follows:
2023 Facility 2 2024 Term Loan A 2024 Term Loan B Total
2025 $ 2,450,000 $ 900,000 $ 2,850,000 $ 6,200,000
2026 2,100,000 900,000 2,850,000 5,850,000
2027 2,100,000 900,000 2,850,000 5,850,000
2028 1,225,000 3,150,000 9,975,000 14,350,000
Total $ 7,875,000 $ 5,850,000 $ 18,525,000 $ 32,250,000
As of December 31, the total approximate interest expense incurred for these
loans was as follows:
2024 2023
Cash interest $ 1,693,000 $ 797,000
Debt discount amortization 182,000 125,000
Total interest expense $ 1,875,000 $ 922,000
The Credit Agreement and Amended Credit Agreements contain certain
non-financial and financial covenants that the Company is required to comply
with and submit a compliance certificate to the bank on a quarterly basis.
The financial covenants include a total leverage ratio and fixed coverage
ratio. The Company was in compliance with all covenants during 2023 and
2024.
Note F - Stockholders' Equity and Share-Based Accounting Charge
As of December 31, 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. During May 2024 and October 2024, the Company issued dividends
of $0.097 and $0.047 per share, respectively. During June 2023 and October
2023, the Company issued dividends of $0.095 and $0.046 per share,
respectively.
As of December 31, 2024 and 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
Consolidated Balance Sheets and the amount outstanding on the Consolidated
Statements of Stockholders' Equity consists of shares issued with restrictions
(collectively "Restricted Shares") as follows:
December 31,
2024 2023
Consolidated Statements of Stockholders' Equity $ 114,002,266 $ 109,542,220
Restricted Shares:
KP Closing Share Payment 369,795 739,589
KP Earnout Shares 122,695 245,389
Engage Restricted Shares 162,433 487,301
MS Closing Vesting Shares 1,315,544 1,973,316
MS First Interim Vesting Shares 557,598 -
Lucas Public Affairs Closing Shares 958,371 -
Other restricted shares 2,599,280 2,284,146
Total restricted Shares 6,085,716 5,729,741
Stock options outstanding 3,383,542 3,089,056
Unvested RSUs outstanding 4,346,650 2,225,000
Total stock options and unvested RSUs outstanding 7,730,192 5,314,056
Fully Diluted Shares Outstanding $ 127,818,174 $ 120,586,017
The weighted-average common shares outstanding, basic and diluted reported on
the Consolidated Statements of Operations and Other Comprehensive Loss is
111,826,822 and 108,606,133, which is different from the 114,002,266 and
109,542,220 ending shares as December 31, 2024 and 2023 on the Consolidated
Statements of Stockholders' 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 December 31:
Other Restricted Shares: 2024 2023
Unvested restricted stock awards, primarily granted to Alpine Inc. $ 2,397,452 $ 2,188,944
Other unvested stock awards 201,828 95,202
Total other restricted shares $ 2,599,280 $ 2,284,146
1 ASC 718-10-S99-2 charge:
As discussed in Note A, 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
$31,804,000 and $30,904,000 for the years ended December 31, 2024 and 2023,
respectively.
As of December 31, 2024, there were 80,387,410 Retained Pre-IPO Shares, held
by current employees and subject to vesting requirements, and 50,714,152 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 December 31, 2024, the unrecognized compensation cost from
these restricted shares was approximately $57,862,000, which is expected to be
recognized over a weighted-average period of 2.0 years.
2 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 B, 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 years ended December 31, 2024 and 2023, the post-combination
compensation charge recorded by the Company was approximately $11,599,000 and
$6,295,000, respectively. This amount consists of the following components:
For the Years Ended December 31,
2024 2023
Additions to other liability $ 4,028,000 $ 1,685,000
Vesting of common stock 2,509,000 1,529,000
Amortization of prepaid post-combination compensation 5,062,000 3,081,000
Total $ 11,599,000 $ 6,295,000
As of December 31, 2024, the unrecognized post-combination compensation charge
was approximately $21,962,000, which is expected to be recognized over a
weighted-average period of 2.1 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 Consolidated Balance Sheets 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 B). 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 December 31, 2024, the table below highlights the other liability and
contingent consideration recorded on the Company's Consolidated Balance Sheets
(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, December 31, 2024:
Other liability, current $ 1,134,675
Other liability, long term 3,744,925
Contingent consideration, current 2,092,597
Contingent consideration, long term 8,803,464
Total liabilities recorded on balance sheet, December 31, 2024** $ 15,775,661
Undiscounted potential future payments*:
Potential cash future payments: Estimated^ Maximum#
2025 $ 3,728,000 $ 4,209,000
2026 3,250,000 8,406,000
2027 3,053,000 12,595,000
2028 13,481,000 18,750,000
2029 1,112,000 13,434,000
Total potential cash future payments $ 24,624,000 $ 57,394,000
Potential stock future payments*:
2025 $ 580,000 $ 700,000
2026 3,250,000 5,983,000
2027 1,610,000 6,295,000
2028 13,481,000 18,750,000
2029 599,000 7,956,000
Total potential stock future payments $ 19,520,000 $ 39,684,000
Total potential future payments $ 44,144,000 $ 97,078,000
Total liabilities recorded on balance sheet, December 31, 2024 15,775,661 15,775,661
Total remaining difference $ 28,368,339 $ 81,302,339
*Includes estimate for future Pagefield payments based on December 31, 2024
exchange rate of GBP/USD **At fair value.
^Management's estimate as of December, 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 G - 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 December 31, 2024, the total amount of shares authorized by the Board of
Directors under the Omnibus Plan was 18,013,197 with a total of 5,761,967
available for issuance. During the years ended December 31, 2024 and 2023
the Company granted 425,000 and 652,000 Options to employees. In addition,
during the year ended December 31, 2024, the Company granted 2,930,000 RSUs
and 703,737 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, 17,438 vested on July 1, 2024; 442,301 vested on
October 2024; 35,490 vested on December 31, 2024; 686,299 vest in May 2025;
and 1,711,153 RSAs vest over a remaining four year period beginning with
approximately 428,000 per year starting in October 2025, with 1,569,196 fully
vested by October 2028 and 141,957 fully vested by December 2028. The RSAs
include voting and dividend rights prior to vesting.
1 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:
For the Year Ended December 31,
2024 2023
Estimated dividend yield 4.00% to 10.00% 6.00%
Expected stock price volatility 40.00% 60.00%
Risk-free interest rate 4.3% to 4.4% 3.8%
Expected life of option (in years) 6.50 6.50
Weighted-average fair value per share $0.25 $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 years ended
December 31, 2024 and 2023:
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 3,089,056 $ 2.21* £ 1.74 8.9 $ -
Granted 425,000 2.02* 1.62 - -
Exercised - - - -
Cancelled/Forfeited (130,514) 2.14* 1.71 - -
Outstanding as of December 31, 2024 3,383,542 2.15* 1.72 7.8 -
Exercisable as of December 31, 2024 50,000 2.20 1.76 - -
Vested and expected to vest as of
December 31, 2024 3,383,542 $ 2.15* £ 1.72 7.8 $ -
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 2.04* 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 December 31, 2024:
Exercise Price Number of Options Outstanding Weighted-Average Remaining Life Number of Options Exercisable
$ 1.97* $80,000 9.8 $ -
2.00* 566,750 8.4 -
2.04* 335,000 9.5 -
2.17* 100,000 7.8 -
2.21* 2,251,792 7.4 50,000
2.23* 50,000 7.6 -
$ 3,383,542 $ 50,000
*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 years ended December 31, 2024 and 2023 was
approximately $550,000 and $518,000, respectively. As of December 31, 2024,
there was approximately $410,000 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 0.8 years.
2 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:
Year Ended December 31,
2024 2023
Estimated dividend yield 10.00% 6.00%
Expected stock price volatility 40.00% to 50.00% 60.00%
Risk-free interest rate 4.5% to 5.1% 3.9% to 5.4%
Expected life of instrument (in years) 1 to 3 years 1 to 3 years
Weighted-average fair value per share $1.47 $1.41
Activity in the Company's non-vested RSUs for the years ended December 31,
2024 and 2023 was as follows:
Weighted Average Grant
Number of Date 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
Granted 2,930,000 1.41
Vested (808,350) 1.49
Cancelled/Forfeited - -
4,346,650 $ 1.40
Nonvested as of December 31, 2024*
RSU expense for the years ended December 31, 2024 and 2023, was approximately
$1,974,000 and $553,000, respectively. As of December 31, 2024, there was
approximately $4,810,000 of total unrecognized compensation cost related to
non-vested RSU arrangements, which is expected to be recognized over a
weighted-average period of 1.1 years.
3 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:
Year Ended December 31,
2024 2023
Estimated dividend yield 0.00% 6.00%
Expected stock price volatility 40.00% 60.00%
Risk-free interest rate 5.1% to 5.2% 4.9% to 5.4%
Expected life of instrument (in years) 1 year 1 to 5 years
Weighted-average fair value per share $1.43 $1.31
Activity in the Company's non-vested RSAs ended December 31, 2023 was as
follows:
Weighted Average Grant
Number of Date 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
Granted 703,737 1.43
Vested (495,229) 1.34
Cancelled/Forfeited - -
2,397,452 $ 1.23
Nonvested as of December 31, 2024
RSA expense for the years ended December 31, 2024 and 2023, was approximately
$1,260,000 and $1,435,000, respectively. As of December 31, 2024, there was
approximately $2,250,000 of total unrecognized compensation cost related to
non-vested RSA arrangements, which is expected to be recognized over a
weighted-average period of 2.6 years.
4 Stock Appreciation Rights ("SARs"):
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 December 31,
2024 and 2023, the total liability recorded was $668,000 and $290,000,
respectively. The fair value of the SARs was calculated as follows as of:
Year Ended December 31,
2024 2023
Estimated dividend yield 4.00% 6.00%
Expected stock price volatility 45.00% 60.00%
Risk-free interest rate 4.4% to 4.5% 4.7%
Expected life of instrument (in years) 2.9 to 3.9 years 4.5 to 5.5 years
Weighted-average fair value per share $0.51 $0.46
Weighted
Number of Average
Shares Exercise Price
Outstanding as of December 31, 2022 - $ -
Granted 1,850,000 1.70
Exercised - -
Cancelled/Forfeited (90,000) 1.70
Outstanding as of December 31, 2023 1,760,000 $ 1.70
Granted - -
Exercised - -
Cancelled/Forfeited (55,000) 1.67
Outstanding as of December 31, 2024 1,705,000 1.61
Exercisable as of December 31, 2024 568,354 1.67
Vested and expected to vest
as of December 31, 2024 1,705,000 $ 1.61
SAR expense for the years ended December 31, 2024 and 2023, was approximately
$378,000 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 H - Income Taxes
The components of income tax expense attributable to income before income
taxes for the years ended December 31, 2024 and 2023, consisted of the
following:
2024 2023
Current tax expense:
Federal $ 5,587,700 $ 5,861,100
State 2,251,200 2,274,500
Foreign - -
7,838,900 8,135,600
Deferred tax expense (benefit):
Federal (1,252,000) (491,700)
State (216,000) (141,100)
Foreign 173,900 -
(1,294,100) (632,800)
Total provision for income taxes $ 6,544,800 $ 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, Doherty and LPA were taxable asset acquisitions.
As such, the purchase consideration for these acquisitions generated
tax-deductible goodwill in the combined amount of approximately $47,253,000.
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 approximately $47,253,000 of tax deductible goodwill, approximately
$32,724,000 is eligible for amortization for tax purposes during the 2024 tax
year. None of the goodwill recorded in connection with the acquisition of
Pagefield is deductible for tax purposes.
As of December 31, 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 December 31, 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.
The Company has $4,348,000 of foreign net operating losses that carry forward
indefinitely. There are no domestic federal or state net operating loss
carryforwards as of December 31, 2024.
The Tax Cuts and Jobs Act of 2017 subjects a U.S. shareholder to tax on global
intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries.
The Company has elected to account for GILTI in the year the tax is incurred.
The Company recorded a GILTI inclusion of approximately $642,000 during the
year ended December 31, 2024. No GILTI inclusion was recorded for the year
ended December 31, 2023.
Significant components of the Company's deferred tax assets and liabilities
are as follows as of December 31:
2024 2023
Deferred tax assets:
Other assets $ 318,200 $ 244,900
Foreign operating losses 1,087,000 -
Long term incentive plan 717,400 847,700
Foreign equity compensation and accrual 392,000 -
Goodwill 10,997,900 8,082,100
Lease liability 5,810,000 6,764,200
Total deferred income tax assets 19,322,500 15,938,900
Deferred tax liabilities:
Other (183,700) (218,200)
Intangible assets (3,152,300) (2,148,200)
Right of use asset (4,949,000) (5,835,300)
Total deferred income tax liabilities (8,285,000) (8,201,700)
Total net deferred tax asset $ 11,037,500 $ 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 years ended December 31,
2024 and 2023, is as follows:
December 31, 2024 December 31, 2023
Amount % of Pretax Earnings Amount % of Pretax Earnings
Federal income tax benefit at statutory rate $ (3,656,900) (21.0) $(1,415,700) (21.0)
State income taxes, net of federal income tax benefit (1,167,700) (6.7) (419,600) (6.2)
Nondeductible share-based accounting charge 8,541,100 49.1 8,413,400 124.8
Prepaid post-combination compensation expense 3,106,900 17.8 1,713,800 25.4
Foreign rate differential 101,100 0.6 - -
Other (379,700) (2.2) (789,100) (11.7)
Total provision for income taxes $ 6,544,800 37.6 $ 7,502,800 111.3
Note I - 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 J - Segment Reporting
The Company has three reportable segments: Government Relations Consulting,
Public Affairs Consulting and Diversified Services. The Company organizes
its segments based on the nature of services provided. 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 include
Lobbying Compliance services and Legislative Tracking.
The Company's Chief Operating Decision Maker ("CODM") is its Chief Executive
Officer. The CODM uses Adjusted Pre-Bonus EBITDA to allocate resources and
assess performance for each of the segments. Adjusted Pre-Bonus EBITDA is
defined as net income excluding allocations of bonuses, corporate level
expenses, depreciation, interest expense, interest income, income taxes,
share-based accounting charges, post-combination compensation charges,
long-term incentive program charges, changes in contingent consideration,
amortization of intangibles and gains on bargain purchase.
The CODM is not regularly provided assets on a segment basis since it is not
used to allocate resources and assess performance for each of the segments;
therefore, such information is not presented. In addition, for the years ended
December 31, 2024 and 2023, revenues in each of the three segments were
primarily attributable the Unites States operations as there were no other
country from which the Company derived revenues that exceeded 10%.
The following tables present segment information by revenues, significant
expenses consisting of staff costs and non-staff costs and Adjusted Pre-Bonus
EBITDA by segment, and a reconciliation to the consolidated net loss before
income taxes. For the year ended December 31, 2023, the segment information
has been recast to conform to the 2024 segment information.
For the Year Ended December 31, 2024
Government Public Diversified
Relations Affairs Services Total
Revenue $102,463,869 $36,405,430 $10,694,008 $149,563,307
Less signficant expenses:
Staff costs 47,341,565 23,419,061 4,893,449 75,654,075
Non-staff costs 8,172,581 5,202,751 702,469 14,077,801
Segment Adjusted Pre-Bonus EBITDA 46,949,723 7,783,618 5,098,090 59,831,431
Reconciliation to net loss before income taxes:
Unallocated bonuses (10,374,636)
Unallocated corporate level expenses (13,328,121)
Depreciation (136,121)
Interest, net (1,723,449)
Share-based accounting charge (31,803,600)
Post-combination compensation charges (11,598,647)
Long term incentive program charges (4,162,000)
Change in contingent consideration (1,909,750)
Amortization of intangibles (4,671,178)
Gain on bargain purchase 2,463,927
Net loss before income taxes $(17,412,144)
For the Year Ended December 31, 2023
Government Public Diversified
Relations Affairs Services Total
Revenue $95,476,619 $32,256,518 $7,252,685 $134,985,822
Less significant expenses:
Staff costs 41,963,175 19,989,995 3,547,726 65,500,896
Non-staff costs 7,594,041 3,516,641 565,604 11,676,286
Segment Adjusted Pre-Bonus EBITDA 45,918,877 8,750,408 3,139,355 57,808,640
Reconciliation to net loss before income taxes:
Unallocated bonuses (13,178,302)
Unallocated corporate level expenses (9,562,394)
Depreciation (119,688)
Interest, net (940,824)
Share-based accounting charge (30,904,000)
Post-combination compensation charges (6,295,060)
Long term incentive program charges (2,796,000)
Change in contingent consideration (1,711,235)
Amortization of intangibles (3,878,386)
Gain on bargain purchase 4,835,777
Net loss before income taxes $(6,741,472)
Note K - Adjustment to Previously Issued Financial Statements
During the Company's preparation of its consolidated financial statements,
management determined that certain cash flow items had been incorrectly
classified within the Consolidated Statements of Cash Flows for the year ended
December 31, 2023. These errors did not impact the Company's total assets,
liabilities, equity or net loss as of December 31, 2023 or during the year
then ended.
During 2023, the Company made a cash payment of $17,600,000 for the
acquisition of MultiState Associates, Inc. (see Note B). The Company
classified this payment as a cash flow from investing activities in its
consolidated financial statements for 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 year
ended December 31, 2023 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 LLC (see Note B). The Company
classified this payment as a cash flow from investing activities in its
consolidated financial statements for 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 Sheets. 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 Sheets. However, this payment was not made within three months of
the acquisition date of KP 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 year ended December 31, 2023 in this interim filing for
these items.
The total impact to the Company's consolidated financial statements for the
year ended December 31, 2023 is as follows:
Audited year ended December 31, 2023 Adjustment Unaudited December 31, 2023 As Adjusted
Accretion of other liability $ - $ 1,684,774 $ 1,684,774
Prepaid post-combination compensation - (9,504,000) (9,504,000)
Contingent consideration - (42,600) (42,600)
Other liability 1,684,774 (3,506,374) (1,821,600)
Net cash provided by operating activities 21,602,813 (11,368,200) 10,234,613
Payment of contingent consideration and other liability (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)
acquired
Net cash used in investing activities (23,225,930) 13,147,200 (10,078,730)
Payment of contingent consideration - (1,779,000) (1,779,000)
Net cash used in financing activities $ (5,237,963) $ (1,779,000) $ (7,016,963)
Net decrease in cash and cash equivalents $ (6,861,080) $ - $ (6,861,080)
Note L - Related Party Transactions
As of December 31, 2024, the amounts owed to related parties of approximately
$556,000 consists primarily of a working capital loan of approximately
$569,000 from the sellers of LPA to the Company, which will be repaid in early
2025. As of and December 31, 2023, the amounts due from related parties of
approximately $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 year ended December 31, 2024, the working capital
loan and adjustments with Multistate were settled.
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 balance as of December
31, 2024 and 2023 was $513,000. The 2021 Note was classified as a current
asset as of December 31, 2024, and a non-current asset as of December 31,
2023. The amount of accrued interest and interest revenue from the 2021 Note
is not material. 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. During February 2025, the 2021 Note plus
accrued interest totaling approximately $532,000 was repaid through the
transfer of 316,779 shares of PPHC-Inc common stock from Alpine Inc to the
Company, which shares have been retired.
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
December 31, 2024 and 2023, the 2023 Notes were recorded in notes receivable -
related parties with $350,000 classified as a current asset and $1,050,000 and
$1,400,000, respectively, classified as a non-current asset. The amount of
accrued interest and interest revenue from the 2023 Notes is not material.
Note M - Subsequent Events
During January 2025, the Company entered into the Third Amendment to Credit
Agreement ("Third Amendment"). The Third Amendment will provide the Company
with an additional term loan of up to $24,000,000 ("Second Supplemental Term
Facility"). The Company is required to make monthly principal payments on
the first day of the month following the month in which the Company draws
under the Second Supplemental Term Facility ("2025 Term Loan C"). Through
March 1, 2026, the Company is required to make equal monthly installments of
principal equal to 0.83% of the unpaid principal balance as of the funding
date, plus interest. The Company is then required to make equal monthly
installments of principal equal to 1.25% of the unpaid principal as of the
funding date, plus interest, through the loan's maturity date of March 31,
2029. The interest rate on the 2025 Term Loan C is SOFR plus 2.60% per
annum.
The Third Amendment also extends the maturity date of 2023 Facility 2 from
January 31, 2026 to March 31, 2029 and reduces the annual principal repayments
from $291,667 to $175,000. The Company is required to make monthly payments
of principal of $175,000 beginning March 28, 2025 through the maturity date of
March 31, 2029 for the 2023 Facility 2.
During January 2025, the Company entered into an Asset Purchase Agreement
("Trailrunner Agreement") to acquire Trailrunner International LLC and its
international entites (collectively, the "Trailrunner Seller"). At the
closing of the transaction, the Company has agreed to pay the Trailrunner
Seller cash in the amount of $28,050,000 and issue 2,966,138 shares of the
Company's common stock to the Trailrunner Seller at an aggregate fair value of
approximately $4,950,000.
In addition, there are additional contingent payments that the Trailrunner
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 Trailrunner Seller is $37,000,000. The
transaction is expected to close in April 2025.
Management has evaluated the subsequent events for disclosure in these
consolidated financial statements through March 11, 2025, the date these
consolidated financial statements were available for issuance, and determined
that no other events have occurred that would require adjustment to or
disclosure in these consolidated financial statements.
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