TIDMPPHC
RNS Number : 2334M
Public Policy Holding Company, Inc.
13 September 2023
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 as it forms part of
UK domestic law by virtue of the European Union (Withdrawal) Act
2018 ('MAR'). Upon the publication of this announcement via a
Regulatory Information Service ('RIS'), this inside information is
now considered to be in the public domain.
Public Policy Holding Company, Inc.
("PPHC", the "Company" or the "Group")
Unaudited interim results for the six months ended 30 June
2023
Strong growth within target margin levels; on track to meet full
year expectations
Public Policy Holding Company, Inc., the leading government
relations and public affairs group of companies providing a
comprehensive range of advisory services, today announces its
interim results for the six months ended 30 June 2023
("2023H1").
Summary
Group revenue increased 27% to $65.7m, with a strong Q2 as
encouraging trends returned following the delayed formation of the
majority leadership in the United States House of Representatives
in the early part of this year. PPHC continues to pursue its stated
M&A strategy to add certain complementary specialisations to
its portfolio, as well as to expand its footprint both in the US
and into the EU and UK. The strong momentum in Q2 has positioned
the Group well for the remainder of the year and the Group remains
on track to meet full year expectations for FY23, with management
retaining immediate and long-term confidence in the Group's growth
and margin prospects.
2023H1 2022H1 Change
-------------------------- -------- ---------- ---------
Group Revenue $65.7m $51.7m +27%
Underlying EBITDA $16.9m $14.4m +17%
Underlying EBITDA margin 25.8% 27.9% (2.2)pt
Underlying Profit after
Tax $12.7m $10.7m +18%
Underlying EPS basic 11.4c 9.9c +15%
Underlying EPS fully
diluted 11.1c 9.9c +12%
Interim Dividend $0.0460 $0.0450 +2%
Net Debt / (Cash) at
period-end $9.1m -$(17.8)m $(27.0)m
Financial Highlights
-- 2023H1 Group revenue increased 27% to $65.7m (2022H1: $51.7m), with organic growth of 4%.
-- Underlying EBITDA of $16.9m is up 17% year-on-year and was
achieved at a 25.8% margin, in line with the Group's ongoing
intention to manage the business between 25% and 30% at margin
level.
-- Underlying Profit after Tax of $12.7m was 18% ahead of
2022H1, while Underlying EPS (basic) increased by 15%.
-- The Group continued to generate cash, supporting ongoing
M&A ambitions and the wider capital allocation policy. At
period-end, Net Debt totalled $9.1m (2022FY: Net Cash of $17.8m),
with the movement a result of the use of debt to fund the EPS
accretive acquisition of MultiState Associates, Inc. ("MultiState")
in March 2023.
-- The Board retains strong confidence in the Group's ongoing
prospects and has declared an Interim Dividend of $0.046 per Common
Outstanding Share.
Operational Highlights
-- The Group advanced its strategy of supplementing organic
growth with M&A, acquiring MultiState Associates on 1 March
2023. The integration process is ongoing and MultiState is
performing ahead of internal expectations. Alongside the
acquisition of KP Public Affairs in October 2022, the Group now has
seven operating companies providing a greater range of services in
more US geographies.
-- Diversification of revenue continues with the top 10 Group
clients representing 8.0% of total revenue in 2023H1, versus 10.0%
at the end of FY22 and 13.1% for FY21.
-- Revenue distribution by segment reflects the inclusion of new
business lines following the MultiState acquisition, while existing
lines remained stable: Government Relations 71% (2022H1: 73%);
Public Affairs 25% (2022H1: 27%); and Diversified Services 4%
(2022H1: Nil).
-- A broadening client base is supported by sustained high
retention rates, with the Group now directly representing almost
40% of the Fortune 100 (and 22% of the Fortune 500), in addition to
many more via their trade associations that the Group serves.
o New Group clients include The Aluminium Association, General
Electric, Hertz, Life Science Logistics, Morton's Salt, Veterinary
Medical Association and Rain Industries.
o Client retention rate (based on # of clients) in 2023H1 was
80%, with Government Relations above 90% and Public Affairs between
65% and 70%.
o Each of the Group's business lines (Government Relations,
Public Affairs and Diversified Services) achieved growth when
compared to 2022H1.
-- The quality of PPHC's operating companies continues to be
reflected in the 2023 Lobbying Disclosure Act rankings, with Group
agencies, when aggregated, topping the rankings as the US market
leader in both Q1 and Q2 2023, as well as for the whole of
FY22.
-- Strengthening of the management team with Roel Smits being
promoted to CFO in July as part of the executive succession
planning process and retention of Bill Chess as an Executive
Director in the newly created position of Chief Administrative
Officer.
Outlook and medium-term guidance
-- The strong performance delivered in H1 has set the Group up
well for the remainder of the year.
o The Group is on track to meet full year market
expectations.
o Revenue growth between 20% and 30%, with the FY23 organic
growth rate expected to be similar to H1 and supported by the
better-than-expected performance of recently acquired
companies.
o The Underlying EBITDA margin for H2 is expected to be around
the same level as in H1.
-- The focus in H2 will be on driving client retention rates,
new business generation and the continued cross-selling of services
across the Group's broad operating company base to support organic
growth prospects.
-- The market for public affairs and professional lobbying
services in key geographies remains fragmented and the Board
continues to view the Group as a natural consolidator in the sector
with favourable bipartisan positioning.
-- The pipeline of acquisition opportunities under development
in the US, UK and Mainland Europe remains strong in an active
market for the strategic communications sector. The Group is
actively seeking to expand its portfolio of operating companies
internationally while adding complementary specialisations.
-- The Board retains its confidence in the ongoing prospects for
the Group and reiterates its medium-term guidance to achieve:
o organic revenue growth between 5% and 10%;
o incremental growth from future M&A; and
o an Underlying EBITDA margin between 25% and 30%.
Stewart Hall, CEO of PPHC, commented:
"We are a very well-placed business, with increasingly
diversified operating companies and growing capabilities at a time
of massive change in the interplay of business and government
around the world. Corporates, charities, NGOs and other client
organisations are increasing their spend in the specific advisory
areas that we specialise in, and our high-quality operating
companies generate excellent client retention rates and provide
high quality earnings.
"Even though the delayed formation of Congress slowed the start
of Q1, clients returned leading to improved Q2 trading and setting
the Group up well for H2. Our lobbying operations continue to be
market leading in the US, consistently at the top of the Lobbying
Disclosure Act rankings, while demand for our specialist public
affairs advisory work continues to increase.
"The two recent acquisitions are successfully integrating and
benefiting from their association with the Group. Acquisitions are
an important part of our strategy as they enable us to effectively
diversify the client offering into new areas while increasing our
geographical reach. This, in time, supports our ongoing ability to
generate a good level of organic growth as we have greater reach
and more sought-after services to cross-refer clients. The markets
we operate in remain highly fragmented and we are a natural sector
consolidator, with a well advanced and exciting pipeline of
acquisition opportunities in the US, UK and Mainland Europe.
"Our people continue to be the lifeblood of the business, and we
are proud that they consistently generate work that achieves
incredible results on behalf of clients. Their knowledge and depth
of experience attracts high levels of premier new business, and we
now directly retain well over a fifth of the Fortune 500 as
clients.
"These interim results show that in a difficult macro-economic
environment, we remain well positioned to deliver good growth at
target margin levels and can continue to capitalise on the clear
market opportunity. The runway for growth and expansion remains
significant, and we look forward to continuing to achieve for our
people, clients, wider stakeholders and investors in the second
half and beyond."
Enquiries
Public Policy Holding Company Inc.
Stewart Hall, CEO
Roel Smits, CFO
Thomas Gensemer, Chief Strategy Officer +1 (202) 688 0020
Stifel (Nominated Adviser & Broker)
Fred Walsh, Tom Marsh +44 (0) 20 7710 7600
Buchanan Communications (Media Enquiries) +44 (0) 20 7466 5000
Chris Lane, Toto Berger pphc@buchanan.uk.com
About PPHC
Incorporated in 2014, PPHC is a US-based government relations
and public affairs group providing clients with a fully integrated
and comprehensive range of services including government and public
relations, research, and digital advocacy campaigns. Engaged by
over 1000 clients, including companies, trade associations and
non-governmental organisations, the Group is active in all major
sectors of the U.S. economy, including healthcare and
pharmaceuticals, financial services, energy, technology, telecoms
and transportation. PPHC's services support clients to enhance and
defend their reputations, advance policy goals, manage regulatory
risk, and engage with US federal and state-level policy makers,
stakeholders, media, and the public.
PPHC operates a holding company structure and currently has
seven operating entities comprising Crossroads Strategies, Forbes
Tate Partners, Seven Letter, O'Neill & Associates, Alpine Group
Partners, KP Public Affairs and MultiState Associates. Operating in
the strategic communications market, the Group has a strong track
record of organic and acquisitive growth, the latter focused on
enhancing its capabilities and to establish new verticals, either
within new geographies or new related offerings.
For more information, see www.pphcompany.com .
Operational Review
Introduction
The Group made good progress in the first half of the year,
delivering on its stated growth strategy which includes organic
growth, the pursuit of further acquisition targets, the expansion
of its existing service capabilities and the broadening of its
geographic footprint into key US state capitals and metropolitan
areas.
Clients
PPHC provides a comprehensive range of government relations and
public affairs services to its clients. As of 31 June 2023, the
Group had c.1,200 clients. The strong growth from the c.850 clients
reported for FY22 is a result of sustained organic growth and
acquisitions. The Group's core lobbying offering remains strong, as
evidenced by all three of the Group's lobbying firms, when
combined, maintaining their number one position in the listing of
Federal lobbyists, as according to quarterly and annual disclosures
as required by US Federal law and available to the public.
The Group's operating companies achieved strong new business
performances and high client retention rates throughout another
turbulent period of change of partisan power in Congress, with the
results of the November 2022 mid-term elections resulting in
divided government and a prolonged campaign for Speaker of the
House in early 2023.
PPHC's emphasis on retained clients with greater than or equal
to $100,000 annual spending is ongoing. The Group ended FY22 with
382 clients spending $100,000 or more, and is on track report
growth in this KPI for FY23. This is supported by the internal
referral awards and compensation programmes that are based on
Group-wide performance . Central to this growth strategy is the
introduction of premium non-lobbying services (Diversified
Services), which are increasingly key to client success. Such
offerings include compliance services for Federal and state-level
lobbying, policy and trade research, stakeholder research, and a
wide range of grant writing and procurement-related expertise.
The Group now directly represents almost 40% of the Fortune 100
and 22% of the Fortune 500, in addition to many more via their
trade associations that the Group serves.
Investing to accelerate growth
PPHC successfully completed the acquisition of MultiState, a
provider of state-based government affairs strategies and other
related services to a large number of corporate clients, on 1 March
2023. This was the Group's second acquisition since IPO, the first
being Sacramento-based KP Associates, which completed on 1 October
2022. Both acquisitions are integrating successfully and are
over-delivering on their respective projections.
The Group's pipeline of M&A opportunities remains strong in
the US, UK and Mainland Europe, with further M&A pipeline
development supported by additional corporate capacity, in-region
advisors, and by the increased public profile of the Group. The
strategic communications market remains active around the world and
the Group is seeking to capitalise on the current opportunities and
to expand its portfolio of operating companies, both in the US and
internationally, while adding complementary specialisations.
Talent
The Group ended 2022 with 244 employees. By the end of 2023H1,
this number had increased to 322, which includes 75 from the
acquisition of MultiState. The Group's average employee count
during 2023H1 was 294 (2022H1: 192). Annualised revenue per
employee reduced by 17% to $447k (2022H1: $539k/employee), albeit
this was impacted by the very different productivity figures at
recent acquisitions KP Public Affairs and MultiState Associates
given the nature of those businesses, as well as by bringing
in-house the digital supplier Engage. On a company-by-company
basis, however, these measures remain relevant and the Group is
tracking them carefully.
As part of the Group's executive succession planning process,
Roel Smits succeeded Bill Chess as Chief Financial Officer as of 3
July 2023. Roel served as PPHC's Deputy CFO since May 2022 and adds
extensive experience in M&A and CFO leadership experience from
his years at Kantar and WPP.
Bill remains an Executive Director in the newly created role of
Chief Administrative Officer, reporting directly to the CEO, where
he is driving internal efficiency and collaboration.
Outlook and medium-term guidance
The Group's outlook for FY23 remains unchanged and is as
follows:
-- The strong performance delivered in H1 has set the Group up
well for the remainder of the year:
o The Group is on track to meet full year market
expectations.
o Revenue growth between 20% and 30%, with the organic growth
rate expected to be similar to H1 and supported by the
better-than-expected performance of recently acquired
companies.
o The Underlying EBITDA margin for H2 is expected to be around
the same level as in H1.
-- The Board retains its confidence in the ongoing prospects for
the Group and reiterates its medium-term guidance to achieve:
o organic revenue growth between 5% and 10%;
o incremental growth from future M&A; and
o an Underlying EBITDA margin between 25% and 30%.
Financial Review
In the first half year of 2023, demonstrating the stability of
the Group's core business operations, the dedication of our
management teams across our operating companies, the success of our
acquisitions, and the critical importance of our work to our
clients, revenue grew 27% to $65.7 million.
All in $ million, unless 2023H1 2022H1 Change
otherwise noted
-------------------------- -------- --------- ---------
Group Revenue $65.7 $51.7 +27%
Underlying EBITDA $16.9m $14.4m +17%
Underlying EBITDA margin 25.8% 27.9% -2.2pt
Underlying Profit after
Tax $12.7m $10.7m +18%
Underlying EPS basic 11.4c 9.9c +15%
Underlying EPS fully
diluted 11.1c 9.9c +12%
Interim Dividend $0.0460 $0.0450 +2%
Net Debt at period-end $9.1m - $17.8m - $27.0m
All areas of the Group's business lines (government relations,
public affairs advisory and diversified services) achieved growth
when compared to 2022H1.
Equally important, our underlying profitability was healthy,
with Underlying EBITDA for the period of $16.9m, up 17% over 2022H1
($14.4m) at a margin of 25.8% (2022H1: 27.9%), within our guided
range of between 25% and 30%.
The Group's cash position at the end of the period was $4.5m,
offset by bank debt of $13.6m, resulting in a net debt position of
$9.1m (2022H1: net cash $17.8m). The increase in debt relates to
the acquisition of MultiState Associates and earnout payments to
the prior owners of KP Public Affairs.
Underlying Profit & Loss Statement
All in $'000, unless otherwise
noted 2023H1 2022H1 change
Revenue 65,712 51,739 27%
Operational expenses (48,789) (37,299) 31%
EBITDA (Underlying) 16,923 14,439 17%
EBITDA margin (Underlying) 25.8% 27.9% -2.2
Depreciation (58) (58)
EBIT (Underlying) 16,865 14,381 17%
Interest (384) (8)
Taxes (3,788) (3,635)
Net Income (Underlying) 12,692 10,738 18%
Net income margin (Underlying) 19.3% 20.8% -1.4
Bridge from Underlying to Reported Results
All in $'000, unless otherwise
noted 2023H1 2022H1 change
Net Income (Underlying) 12,692 10,738 18%
Share-based accounting charge (15,431) (15,576)
Post-combination compensation charge (3,016) 0
Long Term Incentive Program charges (654) (61)
Amortization intangibles (1,924) (942)
Gain on bargain purchase, net of
deferred taxes 4,836 0
Net Income (Reported) (3,496) (5,841) -40%
Please refer to the section 'basis of preparation' for an
explanation of the non-cash items excluded from Underlying Net
Income
Revenue
The Group's total revenue for 2023H1 increased by 27.0% to $65.7
million (2022H1: $51.7 million). The organic growth rate was 3.9%
and the remainder was driven by the acquisitions of KP Public
Affairs and MultiState Associates.
Organic growth of 3.9% was resilient, given 2022H1 included a
period political uncertainty that caused clients to display a
cautious and moderated approach to adhoc project spending, while
retained revenues remained strong, aided by high client
retention.
Looking at the Group's revenue profile: in 2023H1, client
concentration continued its declining trend, as the largest client
represented 1.4% of total revenue, down from 1.6% in 2022. Also, in
2023H1, the Government Relations business increased by 24% (4%
organically) as the Group supported clients in managing their risks
and opportunities. The Public Affairs division increased by 17% (3%
organically).
With the acquisition of MultiState in March 2023, the Group
incorporated new service lines, such as legislative tracking and
lobbying compliance, into the portfolio. Going forward, these will
be reported under a new business line called Diversified
Services.
Profit
Underlying EBITDA of $16.9 million was achieved at a margin of
25.8%, in line with the Group's historic performance and ongoing
guidance that margins will typically move within the range of 25%
to 30%.
Long term Underlying
EBITDA 2018 2019 2020 2021 2022 2022H1 2023H1
Underlying EBITDA ($m) 9.3 13.5 21.5 32.0 31.2 14.4 16.9
Underlying EBITDA as
% of Revenue 27.4% 24.4% 27.8% 32.2% 28.7% 27.9% 25.8%
Since 2022, Underlying EBITDA has been impacted by the
additional expenses relating to the Group's status as a public
company, M&A related expenses, investments in staff at the
holding company level and in talent acquisition. As previously
communicated, we expect to make further investments in 2023 to
build out the platform.
At an after-tax level, 2023H1 Underlying Net Income amounted to
$12.7m, up 18% from 2022H1's $10.7m. This metric constitutes the
basis of our dividend calculation.
Other
The Group's net finance costs for the year were $384k (2022H1:
$8k), illustrating the incorporation of debt on the Group's balance
sheet at the time of the MultiState acquisition on 1 March
2023.
The tax accrual for 2023H1 amounted to $3.8 million, which
represents a blended charge of 23.0% to Underlying Profit. This
implied an improvement over the 25.3% effective rate in 2022H1.
Balance sheet and cash flow
The Group's net debt position as of 30 June 2023 was $9.1
million (31 December 2021: $17.8 million net cash), taking into
account the $4.5 million cash position at that time.
Cash Flow Statement summary
All in $'000, unless otherwise
noted 2023H1 2022H1
Net income (3,496) (5,841)
Add back: Share based compensation 15,431 15,576
Add back: Acquisition related
charges (2,741) 0
Add back: LTIP 654 61
Add back: Amortization 3,809 2,376
Add back: Depreciation 58 58
All other changes in Working
Capital (11,787) (11,491)
Operational Cash flow 1,927 739
Capex (108) 0
Acquisitions (21,243) 0
Investment Cash flow (21,352) 0
Change in Debt balance 13,820 (13)
Debt issuance costs (451) 0
Dividend payment (10,642) (703)
Financing Cash Flow 2,728 (717)
Cash generated (16,698) 22
The generation of Operational Cash Flow in the first half year
tends to be muted as a result of the payment of annual bonuses
across the Group in Q1 and seasonal working capital trends. Similar
to prior years, management continues to expect the majority of
Operational Cash Flow to be generated in H2.
Dividend
The Board of Directors of the Company has declared an Interim
Dividend for 2023 of $0.046 per Common Share, which equates to an
aggregate amount, based on the current number of outstanding Common
Shares, of approximately $5.2 million, payable to the holders of
record of all of the issued and outstanding shares of the Company's
Common Stock as of the close of business on the record date, 22
September 2023. The ex-dividend date is 21 September 2023. The
dividend will be paid no later than 20 October 2023.
This interim payment is in line with the Company's intention to
pay approximately one third of the expected total dividend for the
year as an Interim Dividend. Also in the future, the Group will
continue to weigh the dividend payout against the need to preserve
cash for M&A purposes and debt repayment.
Information per share
2023H1 2022H1 change
# weighted avg shares - GAAP
- basic and fully diluted '000 108,484 108,229 0%
# weighted avg shares - Legally
outstanding - basic '000 111,324 108,228 3%
# weighted avg shares - Legally
outstanding - fully diluted '000 114,729 108,921 5%
EPS - GAAP reported (basic
and fully diluted) $ (0.0322) (0.0540) -40%
EPS - Underlying (basic) $ 0.1140 0.0992 15%
EPS - Underlying (fully diluted) $ 0.1106 0.0986 12%
DPS - based on # shares at
time of payment $ 0.0460 0.0450 2%
For the purpose of giving investors a useful view on Earnings
Per Share, the Group computed EPS not only on a GAAP Reported
Profit basis, but also on an Underlying Profit basis. As explained
in the section below, for the latter calculation the Group includes
in the denominator those shares that have been issued in relation
to post-IPO acquisitions. While those shares are still subject to
vesting rules, and therefore not part of the Common Outstanding
share count per GAAP definition, they entitle the recipients to
dividends and voting rights.
Basis of preparation
The Company was incorporated on 4 February 2021, and was
admitted to trading on the AIM market of the London Stock Exchange
on 16 December 2021 (the "IPO"). The financial statements have been
prepared in accordance with US GAAP (Generally Accepted Accounting
Principles).
When the Company purchases services or goods on behalf of its
clients (for example in the case of media purchases, or external
lobbyist firms), the Group does not recognize the purchased goods
as net revenue, but only the net fees earned on the purchases.
Therefore, purchases on behalf of clients do not materially impact
the top-line or the margins.
Management believes that Underlying EBITDA and Underlying Net
Income are more useful performance indicators than the reported Net
Income. Five elements distinguish our Underlying Net Income from
our Reported Net Income:
(1) Share-based accounting charge: As already mentioned previous
reports, the shares retained by employee shareholders following the
IPO are subject to a vesting schedule; Also, their employment
agreements contain certain provisions which enable cash derived
from the sale of shares at the time of the IPO to be clawed back
and forfeited on certain events of termination of employment. These
items create a share-based accounting noncash charge in accordance
with accounting guidance under US GAAP (Accounting Standards
Codification, 718- 10-S99-2, compensation-stock compensation).
Based on the value of the Company at the time of admission ($197
million) and taking into account the 14.6% of pre-admission
employee shares sold in 2021, the 2023H1 non-cash charge is $15.4
million (2022H1: $15.6 million). This share-based accounting
non-cash charge has no impact on either tax or Company
operations.
(2) Post-combination compensation charge: In 2022 and 2023, the
Group completed the acquisitions of KP Public Affairs on 1 October
2022 and MultiState Associates on 1 March 2023. Also, the Engage
team was brought in-house (digital services supplier to Forbes Tate
Partners) on 1 November 2022. To protect the interests of the
Group, the shares issued as part of these two transactions were
made subject to vesting schedules.
And also, to a certain degree, the cash paid as part of these
transactions can be clawed back and forfeited on certain events of
termination of employment. The addition of these provisions to
purchase price paid creates a post-combination compensation charge
in accordance with accounting guidance under US GAAP (Accounting
Standards Codification, ASC 805-10-55-25). The 2023H1 charge is
$3.0 million (2022H1: $0 million). Again, this is non-cash charge
and has no impact on either tax or Company operations.
(3) LTIP charges. In 2022 and 2023, the Group issued stock-based
compensation units under the Omnibus Plan. This plan was introduced
at the time of the IPO and allows the Group to issue up to a
certain number of stock-related units. In 2022 and HY23, PPHC has
issued 6.4 million stock stock-related units in a mix of options
and restricted stock. The options were issued at a premium exercise
price (market price at time of grant plus 20%), exercisable at the
3(rd) anniversary of the grant. Restricted stock units were issued
under a gradual 3 year vesting schedule. The charges relating to
these issues, $0.7 million in 2023H1 (2022H1: $0.1 million) as
reflected in our P&L, were computed using the Black Scholes
method.
(4) Amortization of intangibles: The non-cash amortization
charge of $1.9 million in 2023H1 (2022H1: $0.9 million) relates to
the amortization of customer relationships per ASC 805.
(5) Bargain purchase: As laid out in point 2, because a
significant part of the purchase price of the acquisition of
MultiState Associates is tied to continued employment, this part
has been accounted for as post-combination compensation. As a
consequence, the book purchase price is much lower than the tax
purchase price. The reason for the bargain purchase gain is tied
directly to the tax purchase price significantly exceeding the book
purchase price and is not a reflection of a true bargain purchase
of the actual intangible and tangible assets of MultiState
Associates.
For the calculation of Earnings per Share (EPS) based on GAAP
Profit, as a denominator, the Group uses the weighted average
number of Common Outstanding shares during the period. For the
calculation of Earnings per Share (EPS) based on Underlying Profit,
as a denominator, the Group uses the weighted average number of
Legally Issued shares during the period. This comprehends all the
Common Outstanding shares, as well as those shares that were yet
unvested but entitled the owner to dividends and voting rights
(e.g. shares issued in relation to one of our post-IPO
acquisitions). Consequently, the weighted average number of legally
issued shares in 2023H1 was 111,323,766 (2022H1: 108,228,513) and
on a fully diluted basis (taking into account any issued stock
instrument, regardless of exercise price), this number was
114,728,537 (2022H1: 108,920,722).
Note to Investors :
In accordance with a letter provided to shareholders by Link,
certain IRS forms are required to be completed.
More details and links to these forms can be found at
https://pphcompany.com/notice-to-investors/
Consolidated Balance Sheets
Unaudited Unaudited
at at Audited at
December
June 30, June 30, 31,
2023 2022 2022
------------------ ------------------ ---------------------------
Assets
Current assets:
Cash $ 4,504,950 $ 18,057,698 $ 21,202,456
Accounts receivable, net 17,637,146 11,737,244 12,149,803
Amounts due from related parties 1,038,569 - -
Prepaid post-combination compensation,
current portion 3,293,838 - 441,852
Prepaid expenses and other
current assets 1,701,453 1,060,909 1,411,421
------------- -------------- -----------------------
Total current assets 28,175,956 30,855,851 35,205,532
Property and equipment, net 738,870 730,636 688,313
Note receivable - related
party, long term 513,000 513,000 513,000
Operating lease right of use
asset 23,324,777 14,474,803 16,239,667
Goodwill 47,909,832 44,893,532 47,909,832
Other intangible assets, net 28,824,164 11,935,161 18,575,116
Deferred income tax asset 7,706,000 - 2,278,400
Prepaid post-combination compensation,
long term 5,761,506 - 515,500
Other long-term assets 221,918 732,289 118,887
------------- -------------- -----------------------
Total assets $ 143,176,023 $ 104,135,272 $ 122,044,247
=== ============= ============== =======================
Liabilities
Current liabilities:
Accounts payable and accrued
expenses $ 13,282,751 $ 8,218,970 $ 12,336,324
Income taxes payable 522,017 113,119 4,150,389
Amounts owed to related parties - 1,539,397 1,276,479
Deferred revenue 3,117,997 2,500,738 2,860,889
Operating lease liability
due within one year 3,515,876 3,489,218 3,907,543
Contingent consideration,
current portion 592,000 - 1,779,000
Other liability, current portion - - 1,821,600
Notes payable, net, current
portion 3,370,421 19,590 20,664
------------- -------------- -----------------------
Total current liabilities 24,401,062 15,881,032 28,152,888
Notes payable, net, long term 9,259,637 203,797 189,975
Line of credit 1,000,000 - -
Deferred income tax liability - 2,613,400 -
Contingent consideration,
long term 4,616,390 - 2,466,000
Other liability, long term 1,356,252 - 435,060
Operating lease liability,
long term 22,761,705 13,599,017 14,815,236
------------- -------------- -----------------------
Total liabilities 63,395,046 32,297,246 46,059,159
Stockholders' equity
Common stock, $0.001 par value,
1,000,000,000 shares authorized,
113,083,017, 109,346,480 and
108,240,250 shares issued
and outstanding, respectively 108,721 108,199 108,024
Additional paid-in capital 138,646,823 102,530,075 120,713,626
Accumulated deficit (58,974,567) (30,800,248) (44,836,562)
------------- -------------- -----------------------
Total stockholders' equity 79,780,977 71,838,026 75,985,088
------------- -------------- -----------------------
Total liabilities and stockholders'
equity $ 143,176,023 $ 104,135,272 $ 122,044,247
=== ============= ============== =======================
Consolidated Statements of Operations
Unaudited Unaudited
six six
months Audited
months ended ended year
June 30, June 30, ended
December
2023 2022 31, 2022
--------------- --- ------------- --- -------------
Revenue $ 65,711,955 $ 51,738,804 $ 108,814,491
Expenses:
Personnel cost 34,398,546 25,272,856 52,252,267
Employee bonuses 5,999,863 5,144,896 11,010,439
General and administrative
expenses 5,921,584 5,060,981 10,432,781
Occupancy expense 2,469,262 1,820,763 3,933,014
Depreciation and amortization
expense 1,981,485 1,000,368 2,229,197
Long term incentive program
charges 654,000 61,494 317,679
--------------- --- ------------- --- -------------
Total expenses before share-based
accounting (ASC 718-10-S99-2)
charge
and post-combination compensation
(ASC 805-10-55-25) charge 51,424,740 38,361,358 80,175,377
Income from operations before
share-based
accounting (ASC 718-10-S99-2)
charge
and post-combination compensation
(ASC 805-10-55-25) charge 14,287,215 13,377,446 28,639,114
Share-based accounting (ASC
718-10-S99-2) charge 15,430,500 15,575,773 33,392,300
Post-combination compensation
(ASC 805-10-55-25) charge 3,016,024 - 2,441,052
--------------- --- ------------- --- -------------
Loss from operations (4,159,309) (2,198,327) (7,194,238)
Gain on bargain purchase,
net of deferred taxes 4,835,777 - -
Interest expense (384,469) (8,150) (16,873)
--------------- --- ------------- --- -------------
Net income (loss) before income
taxes 291,999 (2,206,477) (7,211,111)
Income tax expense 3,788,400 3,634,800 7,797,600
--------------- --- ------------- --- -------------
Net loss $ (3,496,401) $ (5,841,277) $ (15,008,711)
==== =============== === ============= === =============
Net loss per share attributable
to common
stockholders, basic and diluted $ (0.03) $ (0.05) $ (0.14)
==== =============== === ============= === =============
Weighted average common shares
outstanding,
basic and diluted $ 108,483,598 108,228,513 108,136,853
==== =============== === ============= === =============
Consolidated Statements of Stockholders' Equity
Common Stock
---
Shares Amount Additional Total
Paid-In Accumulated Stockholders'
Capital Deficit Equity
------------------------ ------------ ---------------- ------------------ -----------------
June 30, 2022
Balance as of
December 31, 2021 108,240,050 $ 108,240 $ 86,892,903 $ (24,255,813) $ 62,745,330
Stock option expense - - 61,494 - 61,494
Dividends - - - (703,294) (703,294)
Forfeiture of
unvested restricted
stock (136,147) (136) - 136 -
Share-based
accounting (ASC
718-10-S99-2)
charge 95,202 95 15,575,678 - 15,575,773
Net loss - - - (5,841,277) (5,841,277)
------------------------ ------------ ---------------- ------------------ -----------------
Balance as of June
30, 2022 108,199,105 $ 108,199 $ 102,530,075 $ (30,800,248) $ 71,838,026
======================== ======== ============ ============== ===
June 30, 2023
Balance as of
December 31, 2022 108,024,388 $ 108,024 $ 120,713,626 $ (44,836,562) $ 75,985,088
Stock option expense - - 583,000 - 583,000
Dividends - - - (10,641,674) (10,641,674)
Forfeiture of
unvested restricted
stock (69,576) (70) - 70 -
Issuance of common
stock for
acquisition 767,401 767 1,231,233 - 1,232,000
Share-based
accounting (ASC
718-10-S99-2)
charge - - 15,430,500 - 15,430,500
Post-combination
compensation (ASC
805-55-10-25)
charge-shares - - 688,464 - 688,464
Net loss - - - (3,496,401) (3,496,401)
------------------------ ------------ ---------------- ------------------ -----------------
Balance as of June
30, 2023 108,722,213 $ 108,721 $ 138,646,823 $ (58,974,567) $ 79,780,977
======================== ======== ============ ============== === ============
Consolidated Statements of Cash Flows
Unaudited Unaudited
six six Audited year
months ended months ended ended
December
June 30, June 30, 31,
2023 2022 2022
----------------- ----------------- ------------------
Cash flows from operating activities
Net loss $ (3,496,401) $ (5,841,277) $ (15,008,711)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation 57,932 57,962 100,285
Amortization expense - intangibles 1,923,553 942,406 2,128,912
Amortization of right of use
assets 1,834,971 1,433,768 3,115,249
Amortization of debt discount 50,081 - -
Provision for deferred income
taxes (336,200) (301,200) (589,961)
Share-based accounting (ASC 718-10-S99-2)
charge 15,430,500 15,575,773 33,392,300
Stock-based compensation 654,000 61,494 317,679
Amortization of prepaid post-combination
compensation (ASC 805-55-10-25) 1,406,008 - 73,648
Post-combination compensation
(ASC 805-55-10-25) charge-shares 688,464 - 110,744
Gain on bargain purchase (4,835,777) - -
(Increase) decrease in
Accounts receivable, net (5,023,678) (3,523,242) (3,935,801)
Other assets (201,886) (748,529) (368,068)
Increase (decrease) in
Accounts payable and accrued
expenses 875,427 (111,385) 3,805,605
Income taxes payable (3,695,693) (409,381) 3,627,889
Deferred revenue (4,424,296) 558,202 682,806
Operating lease liability (1,613,192) (1,549,367) (3,362,168)
Other liability 921,192 - 2,256,660
Transactions with members/related
parties 1,711,514 (5,406,548) (5,669,466)
----------------- ----------------- ------------------
Net cash provided by operating
activities 1,926,519 738,676 20,677,602
Cash flows from investing activities
Purchases of property and equipment (108,489) - -
Payment of contingent consideration (3,643,200) - -
Cash paid for acquisitions and
prepaid post-combination compensation,
net of cash acquired (17,600,000) - (11,912,460)
----------------- ----------------- ------------------
Net cash used in investing
activities (21,351,689) - (11,912,460)
Cash flows from financing activities
Proceeds from notes payable 14,000,000 - -
Payment of debt issuance costs (450,729) - -
Proceeds from line of credit 1,000,000 (13,325) (26,073)
Principal payments on notes payable (1,179,933) - -
Distributions (10,641,674) (703,294) (5,572,254)
----------------- ----------------- ------------------
Net cash provided by (used in)
financing activities 2,727,664 (716,619) (5,598,327)
----------------- ----------------- ------------------
Net increase (decrease) in cash
and cash equivalents (16,697,506) 22,057 3,166,815
Cash and cash equivalents as
of beginning of year 21,202,456 18,035,641 18,035,641
----------------- ----------------- ------------------
Cash and cash equivalents as
of end of year $ 4,504,950 $ 18,057,698 $ 21,202,456
--- ------------ --- ------------ --- -------------
Supplemental disclosure of cash
flow information
Cash paid for interest $ 334,388 $ 8,150 $ 16,873
=== ============ === ============ === =============
Cash paid for income taxes $ 7,822,459 $ 4,345,381 $ 4,770,409
=== ============ === ============ === =============
Right of use assets obtained
with lease liabilities $ 8,858,106 $ - $ 3,447,345
=== ============ === ============ === =============
Contingent consideration issued
for acquisitions $ 2,784,990 $ - $ 4,245,000
=== ============ === ============ === =============
Common stock issued for acquisition $ 1,232,000 $ - $ -
=== ============ === ============ === =============
Increase in deferred revenue
from acquisitions $ 4,681,404 $ - $ 235,547
=== ============ === ============ === =============
Increase in accounts payable
and accrued expenses from acquisitions $ - $ - $ 201,364
=== ============ === ============ === =============
Increase in other assets from
acquisitions $ 4,681,404 $ - $ 117,571
=== ============ === ============ === =============
Notes to Consolidated Financial Statements
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation:
Public Policy Holding Company, Inc. ("PPHC-Inc.") was
incorporated on February 4, 2021. From PPHC-Inc.'s incorporation
until December 10, 2021 (the "Conversion Date"), all of the issued
and outstanding shares of stock of PPHC-Inc. were owned by Public
Policy Holding Company, LLC ("PPHC-LLC"), which (i) was organized
as a Delaware limited liability company on July 1, 2014, and (ii)
owned certain wholly-owned operating subsidiaries, all organized as
Delaware limited liability companies (the "Subsidiaries," and
collectively with PPHC-Inc., the "Company"). On the Conversion
Date, PPHC-LLC contributed and assigned substantially all of its
assets and liabilities (including all of the Subsidiaries, but
excluding certain specified assets and liabilities) to PPHC-Inc. in
exchange for the issuance by PPHC-Inc. of 100,000,000 shares (the
"Contribution Shares") of Common Stock, par value $0.001 per share
("Common Stock") of PPHC-Inc. Pursuant to a formula approved by the
Executive Board and General Board of PPHC-LLC (the "Waterfall"),
PPHC LLC then liquidated and distributed the Contribution Shares to
each of PPHC-LLC's owners who (other than The Alpine Group, Inc.),
in turn, distributed such shares to their respective owners in
accordance with the Waterfall (collectively, the "Company
Conversion").
The Company provides Governmental Relations Consulting, Public
Affairs Consulting and Diversified Services exclusively in the
United States of America ("U.S.").
These unaudited interim consolidated financial statements for
the six months ended June 30, 2023 have been prepared in accordance
with the accounting policies set out in the Annual Report and
Financial statements of the Company for the year ended December 31,
2022 using the recognition and measurement principles in conformity
with generally accepted accounting principles in the United States
of America ("GAAP"). Such consolidated financial statements reflect
all adjustments that are, in management's opinion, necessary to
present fairly, in all material respects, the Company's financial
position, results of operations and cash flows, and are presented
in U.S. Dollars. All material intercompany transactions and
balances have been eliminated in consolidation.
Principles of Consolidation:
The consolidated financial statements include all of the
accounts of the entities listed below:
Parent company:
Public Policy Holding Company, Inc.
Wholly owned operating subsidiaries:
Crossroads Strategies, LLC
Forbes Tate Partners, LLC
Blue Engine Message & Media, LLC, doing business as Seven
Letter
O'Neill & Partners LLC, doing business as O'Neill &
Associates
Alpine Group Partners, LLC
KP Public Affairs, LLC
MultiState Associates, Inc.
On January 1, 2020, the Company formed Seven Letter ONA to do
business in the State of Massachusetts. Revenue and expense from
Seven Letter ONA will be allocated to Seven Letter and O'Neill
& Associates.
Initial Public Offering:
On December 16, 2021, PPHC-Inc. completed an initial public
offering and placement ("IPO") of its shares of Common Stock, and
the admission of Common Stock to trading on the AIM market of the
London Stock Exchange.
The PPHC-LLC Limited Liability Company Agreement ("LLC
Agreement") provided for the payment of a "Holdings Distribution
Discount" in connection with a sale or IPO of the Company,
amounting to $4,462,540 (excluding an interest accrual which is
being waived). The Holdings Distribution Discount represents the
difference between an operating subsidiary paying three percent of
its revenues annually to PPHC-LLC (which has historically been paid
by all operating subsidiaries other than Crossroads Strategies, LLC
and Forbes Tate Partners, LLC), and each of Crossroads Strategies,
LLC and Forbes Tate, LLC, which, as the founding businesses
acquired by PPHC-LLC, have paid approximately five percent of their
respective revenues annually to PPHC-LLC. Historically, PPHC-LLC
and its members viewed this obligation of PPHC-LLC (triggered by
the IPO) as an obligation to refund Crossroads Strategies, LLC and
Forbes Tate, LLC, their relative overpayments (compared to the
other operating subsidiaries) because had those overpayments not
been made to PPHC-LLC, those amounts could have been paid as
additional bonuses or distributions to the owners of Crossroads
Strategies, LLC and Forbes Tate, LLC. This obligation of PPHC-LLC
has been contributed and assigned to and assumed by the Company as
part of the Contribution Agreement entered into in connection with
the Company Conversion. Upon the Company's payment of the Holdings
Distribution Discount to Crossroads Strategies, LLC and Forbes
Tate, LLC, it is anticipated that Crossroads Strategies, LLC and
Forbes Tate, LLC will, in turn, distribute such amounts to their
respective owners including but not limited to Stewart Hall and
Zachary Williams. As of June 30, 2022, the Holdings Distribution
Discount of approximately $1,539,000 is included in the amounts
owed to related parties in the Company's Consolidated Balance
Sheets. This amount was paid in full prior to December 31,
2022.
During 2021, all the ultimate owners of PPHC-LLC ("Group
Executives") entered into Executive Employment Agreements. The
Group Executives sold some of their Common Stock in conjunction
with the IPO ("Liquidated Pre-IPO Shares") but retained the
majority of their shares ("Retained Pre-IPO Shares"). The Retained
Pre-IPO Shares are subject to a vesting schedule under which the
Common Stock held by each Group Executive will vest in equal
installments on the first five anniversaries of the effective date
of the IPO, provided that the Group Executive remains continuously
employed by the employer; this vesting schedule applies to all the
Company's employees holding Common Stock at the time of the IPO. In
the event that a Group Executive's employment terminates (other
than on death or "disability", or by the employer without "cause",
or by the Group Executive for what is deemed to be for a "good
reason") then the unvested proportion of the Retained Pre-IPO
Shares which have not vested, will not vest and will be
automatically forfeited and clawed back as of the date of such
termination. In the event a Group Executive's employment terminates
on death or "disability," or by the employer without "cause," or by
the Group Executive for what is deemed to be "good reason," then
all unvested shares will vest automatically as of the date of such
termination. The Executive Employment Agreements also contain
certain provisions which enable cash derived from the sale of
Liquidated Pre-IPO Shares and Retained Pre-IPO Shares that have
vested to be clawed back and forfeited on certain events of
termination of employment or breaches of certain provisions of the
Executive Employment Agreements. Pursuant to the Executive
Employment Agreements for Group Executives employed by Alpine Group
Partners, a pro-rata portion of the Retained Pre-IPO Shares held by
(and the Liquidated Pre-IPO Shares sold by) The Alpine Group Inc.
are subject to vesting, forfeiture and claw back based on the
employment of certain of those Group Executives.
The addition of the vesting provisions to previously issued
shares creates a share-based accounting charge in accordance with
the accounting guidance in Accounting Standards Codification
("ASC") 718-10-S99-2, Compensation-Stock Compensation. See Note
6.
Revenue Recognition:
The Company generates the majority of its revenue by providing
consulting services related to Government Relations, Public Affairs
and Diversified Services. In determining the method and amount of
revenue to recognize, the Company has to make judgments and
estimates. Specifically, complex arrangements with nonstandard
terms and conditions may require management's judgment in
interpreting the contract to determine the appropriate accounting,
including whether the promised services specified in an arrangement
are distinct performance obligations and should be accounted for
separately, and how to allocate the transaction price, including
any variable consideration, to the separate performance
obligations. When a contract contains multiple performance
obligations, the Company allocates the transaction price to each
performance obligation based on its estimate of the stand-alone
selling price. Other judgments include determining whether
performance obligations are satisfied over-time or at a
point-in-time and the selection of the method to measure progress
towards completion.
The Company's general practice is to establish an agreement with
a client with a fixed monthly payment at the beginning of each
month for the month's service to be performed. Most of the
consulting service contracts are based on one of the following
types of contract arrangements:
-- Fixed-fee arrangements require the client to pay a fixed fee
in exchange for a predetermined set of professional services. The
Company recognizes revenue at the beginning of the month for that
month's services.
-- Additional services include items such as 1) advertisement
placement and management, 2) video production, and 3) website
development, in which third-party companies may be engaged to
achieve specific business objectives. These services are either in
a separate contract or within the fixed-fee consulting contract, in
which the Company usually receives a markup on the cost incurred by
the Company. The Company recognizes revenues earned to date in an
amount that is probable or unlikely to reverse and by applying the
proportional performance method when the criteria for revenue
recognition is met. Any out-of-pocket administrative expenses
incurred are billed at cost.
Certain services provided by the Company include the utilization
of a third-party in the delivery of those services. These services
are primarily related to the production of an advertising campaign
or media buying services. The Company has determined that it acts
as an agent and is solely arranging for the third-parties to
provide services to the customer. Specifically, the Company does
not control the specified services before transferring those
services to the customer, and is not primarily responsible for the
performance of the third-party services, nor can the Company
redirect those services to fulfill any other contracts. The Company
does not have discretion in establishing the third-party pricing in
its contracts with customers. For these performance obligations for
which the Company acts as an agent, the Company records revenue as
the net amount of the gross billings less amounts remitted to the
third-party.
The revenue for the six months ended June 30, 2022 was
reclassified to conform with the presentation of the six months
ended June 30, 2023. The following table provides disaggregated
revenue by revenue type for the periods ended:
Six months Six months 12 months ended
ended June ended June December 31,
30, 2023 30, 2022 2022
--------------- --------------- ------------------
Government Relations
Consulting $ 46,529,662 $ 37,571,400 $ 78,177,680
Public Affairs Consulting 16,507,022 14,167,404 30,636,811
Diversified Services 2,675,271 - -
---------------
Total revenue $ 65,711,955 $ 51,738,804 $ 108,814,491
=========== =========== === =============
See the Segment Reporting Note 11 for a description of the
principal activities, by reportable segment, from which the Company
generates revenue.
As of January 1, 2023 and 2022, the accounts receivable, net and
deferred revenue was approximately $11,585,000 and $2,861,000 and
$8,214,000 and $1,943,000, respectively. The following table
provides information about receivables, contract assets and
contract liabilities from contracts with customers as of:
June 30, June 30, December
2023 2022 31, 2022
----------- ------------ -----------
Accounts receivable, net $16,206,378 $ 11,119,762 $11,585,267
Other receivables 1,430,768 617,482 564,536
Contract liabilities (deferred
revenue) 3,117,997 2,500,738 2,860,889
Contract liabilities relate to advance consideration received
from customers under the terms of the Company's contracts primarily
related to retainer fees and reimbursements of third-party
expenses, both of which are generally recognized shortly after
billing. Deferred revenue of approximately $2,861,000 and
$1,943,000 from December 31, 2022 and 2021 is expected to be
recognized as revenue in 2023 and 2022, respectively.
Cash and Cash Equivalents:
The Company considers all cash investments with original
maturities of three months or less to be cash equivalents. At
times, the Company maintains cash accounts that exceed federally
insured limits, but management does not believe that this results
in any significant credit risk.
Accounts Receivable:
The Company provides for an allowance for doubtful accounts
based on management's best estimate of possible losses determined
principally on the basis of historical experience and specific
allowances for known troubled accounts, if needed. Accounts are
generally considered past due after the contracted payment terms,
which are generally net 30 day terms. All accounts or portions
thereof that are deemed to be uncollectible or that require an
excessive collection cost are written off to the allowance for
doubtful accounts. As of June 30, 2023, June 30, 2022 and December
31, 2022, the balance of allowance for doubtful accounts
approximated $427,000, $250,000 and $595,000, respectively.
Leases:
A lease is defined as a contract that conveys the right to
control the use of identified property, plant or equipment for a
period of time in exchange for consideration. The Company accounts
for its leases in accordance with the guidance in Accounting
Standards Codification ("ASC") 842 ("ASC 842"). Substantially all
of the leases in which the Company is the lessee are comprised of
real estate property for remote office spaces and corporate office
space. Substantially all of the leases are classified as operating
leases.
As of June 30, 2023, June 30, 2022 and December 31, 2022, the
Company had approximately $23,325,000, $14,475,000 and $16,240,000,
respectively, of operating lease ROU assets and $26,278,000,
$17,088,000 and $18,723,000, respectively of operating lease
liabilities on the Company's Consolidated Balance Sheets. The
Company has elected not to recognize right-of-use ("ROU") assets
and lease liabilities arising from short-term leases, leases with
initial terms of twelve months or less, or equipment leases (deemed
immaterial) on the Consolidated Balance Sheets.
These leases may contain terms and conditions of options to
extend or terminate the lease, which are recognized as part of the
ROU assets and lease liabilities when an economic benefit to
exercise the option exists and there is a significant probability
that the Company will exercise the option. If these criteria are
not met, the options are not included in the Company's ROU assets
and lease liabilities. Variable lease payment amounts that cannot
be determined at the commencement of the lease, such as common area
maintenance expenses and increases in lease payments based on
changes in index rates, are not included in the ROU assets or
liabilities. These variable lease payments are expensed as
incurred.
As of June 30, 2023, these leases do not contain material
residual value guarantees or impose restrictions or covenants
related to dividends or the Company's ability to incur additional
financial obligations.
The discount rate for operating leases was based on market rates
from a bank for obligations with comparable terms effective at the
lease inception date. The following table presents lease costs,
future minimum lease payments and other lease information as of
June 30, 2023:
July 1, 2023 to June 30,
2024................................................................................. $ 4,619,237
July 1, 2024 to June 30,
2025................................................................................. 5,497,074
July 1, 2025 to June 30,
2026................................................................................. 5,583,853
July 1, 2026 to June 30,
2027................................................................................. 5,051,079
July 1, 2027 to June 30,
2028................................................................................. 4,509,861
Thereafter.........................................................................................
...................... 5,480,000
---------------
Total future minimum lease payments 30,741,104
Amount representing interest (4,463,523)
---------------
Present value of future minimum lease payments $26,277,581
===============
During 2023, the Company entered into a lease amendment to lease
additional space for one of its current offices. The lease for the
additional space had not commenced as of June 30, 2023 and a
corresponding right-of-use asset and lease liability has not been
recorded. The lease commencement date for this lease is expected to
occur within the next 12 months. The estimated future payments for
this lease amendment total approximately $1,016,000.
Lease Cost
June 30, June 30, December
2023 2022 31, 2022
----------- ----------- -----------
Operating lease cost (cost resulting
from lease payments) $2,381,525 $1,913,537 $4,011,764
Variable lease cost (cost excluded
from lease payments) 247,867 82,829 264,179
Sublease income (224,653) (206,045) (396,000)
----------- ----------- -----------
Net lease cost $2,404,739 $1,790,321 $3,879,943
=========== =========== ===========
Operating lease - operating cash
flows
(fixed payments) $2,050,685 $2,032,661 $4,264,516
=========== =========== ===========
Weighted average lease term -
operating leases 5.8 years 5.6 years 5.2 years
Weighted average discount rate
- operating leases 5.20% 4.70% 4.80%
The Company subleases office space to third parties under
separate sublease agreements, which are generally month-to-month
leases. The amount of future sublease income from subtenants as of
June 30, 2023 is immaterial.
Property and equipment:
Property and equipment consist of furniture, equipment and
leasehold improvements and is carried at cost less accumulated
depreciation. Depreciation is provided generally on a straight-line
method over the estimated useful lives of the related assets
ranging from 5 to 15 years.
Business Combination
In a business combination, the acquisition method of accounting
requires that the assets acquired and liabilities assumed be
recorded as of the date of the acquisition at their respective fair
values with limited exceptions. Assets acquired and liabilities
assumed in a business combination that arise from contingencies are
generally recognized at fair value. If fair value cannot be
determined, the asset or liability is recognized if probable and
reasonably estimable; if these criteria are not met, no asset or
liability is recognized. Transaction costs are expensed as
incurred. The operating results of the acquired business are
reflected in the Company's consolidated financial statements after
the date of acquisition.
Goodwill and indefinite-lived intangible assets:
Goodwill represents the excess of the purchase price over the
fair value of assets acquired and liabilities assumed in business
combinations and is allocated to the appropriate reporting unit
when acquired. Acquired intangible assets are recorded at fair
value.
Goodwill is evaluated for impairment annually during the fourth
quarter, or more frequently if an event occurs, or circumstances
change that could more likely than not reduce the fair value of a
reporting unit below its carrying value. Goodwill is typically
assigned to the reporting unit, which consolidates the acquisition.
Components within the same reportable segment are aggregated and
deemed a single reporting unit if the components have similar
economic characteristics. As of June 30, 2023, the Company's
reporting units consisted of Government Relations Consulting,
Public Affairs Consulting and Diversified Services. Goodwill is
evaluated for impairment using either a qualitative or quantitative
approach for each of the Company's reporting units. Generally, a
qualitative approach is first performed to determine whether a
quantitative goodwill impairment test is necessary. If management
determines, after performing an assessment based on qualitative
factors, that the fair value of the reporting unit is more likely
than not less than the carrying amount or that a fair value of the
reporting unit substantially in excess of the carrying amount
cannot be assured, then a quantitative goodwill impairment test
would be required. The quantitative test for goodwill impairment is
performed by determining the fair value of the related reporting
units. Fair value is measured based on the discounted cash flow
method, which requires management to estimate a number of factors
for each reporting unit, including projected future operating
results, anticipated future cash flows and discount rates.
Management has performed its evaluation and determined the fair
value of each reporting unit is greater than the carrying amount
and, accordingly, the Company has not recorded any impairment
charges related to goodwill for the six months ended June 30, 2023
and 2022 and the year ended December 31, 2022.
Indefinite-lived intangible assets are tested for impairment
annually during the fourth quarter, or more frequently if an event
occurs or circumstances change that could more likely than not
reduce the fair value below its carrying value. The Company's
indefinite-lived intangible assets consist of trademarks acquired
through various business acquisitions. The Company has the option
to first assess qualitative factors to determine whether events or
circumstances indicate it is more likely than not that the fair
value of the trademarks is greater than the carrying amount, in
which case a quantitative impairment test is not required.
Management has performed its evaluation and determined that the
trademarks are not impaired for the six months ended June 30, 2023
and 2022 and the year ended December 31, 2022.
Customer relationship asset:
The Company's definite-lived intangible asset consists of
customer relationships that have been acquired through various
acquisitions. The Company is amortizing these assets over their
estimated useful lives.
Impairment of long-lived assets :
Long-lived assets subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized for an amount
by which the carrying amount of the asset exceeds the fair value of
the asset. The Company has not recorded any impairment charges
related to long-lived assets for the for the six months ended June
30, 2023 and 2022 and the year ended December 31, 2022.
Deferred revenue:
Deferred revenue represents prepayment by the customers for
services that have yet to be performed. As of June 30, 2023, June
30, 2022 and December 31, 2022, deferred revenue was approximately
$3,118,000, $2,501,000 and $2,861,000, respectively. Deferred
revenue is expected to be recognized as revenue within a year.
Accounts payable and accrued expenses:
Accounts payable and accrued expenses consist of the following
as of:
June 30, June 30, December
2023 2022 31, 2022
--------------- ----------- ----------------
Accounts payable $ 5,733,663 $1,702,628 $ 1,199,130
Bonus payable 5,559,928 4,910,912 9,425,261
Other accrued expenses 1,989,160 1,605,430 1,711,933
--------------- ----------- ----------------
Total $13,282,751 $8,218,970 $12,336,324
=============== =========== ================
Marketing and advertising costs:
The Company expenses marketing and advertising costs as
incurred. Marketing and advertising expense for the six months
ended June 30, 2023 and 2022 and the year ended December 31, 2022
was approximately $81,000, $56,000 and $182,000, respectively.
Income taxes:
Prior to the Conversion Date, PPHC-LLC was a limited liability
company whereby the tax attributes were passed through to and
reported on the members of PPHC-LLC's tax returns.
After the Conversion Date, the Company utilizes the asset and
liability method in the Company's accounting for income taxes.
Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted
tax rates and laws that are expected to be in effect when the
differences are expected to reverse. The Company records a
valuation allowance against deferred tax assets when realization of
the tax benefit is uncertain.
A valuation allowance is recorded, if necessary, to reduce net
deferred taxes to their realizable values if management believes it
is more likely than not that the net deferred tax assets will not
be realized.
The Company may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities based on
the technical merits of the position. The tax benefits recognized
in the financial statements from such a position are measured based
on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement.
Estimates:
The preparation of consolidated financial statements in
conformity wit h GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Share-based accounting charge and stock option expense:
The Company accounts for its share-based accounting (ASC
718-10-S99-2) charge using the fair value method. The fair value
method requires the Company to estimate the grant-date fair value
of its share-based awards and amortize this fair value to expense
over the requisite service period or vesting term. For restricted
and nonvested stock awards, the grant-date fair value is based upon
the market price of the Company's common stock on the date of the
grant. For stock options, the grant-date fair value is based on the
Black-Scholes Option Pricing Model. For stock appreciation rights
("SARs") recorded as a liability, the Company adjusts the value of
the SARs based on the fair value at each reporting date, which is
calculated based on the Black-Scholes Option Pricing Model. The
Company records forfeitures as they occur.
Segment information:
GAAP requires segmentation based on an entity's internal
organization and reporting of revenue and operating income based
upon internal accounting methods commonly referred to as the
"management approach." Operating segments are defined as components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker ("CODM"), or decision-making group, in deciding how
to allocate resources and in assessing performance. The Company's
CODM is its Chief Executive Officer. The Company's operations are
conducted in three reportable segments. These segments consist of
Government Relations Consulting, Public Affairs Consulting and
Diversified Services.
Basic and diluted earnings (loss) per share:
The Company computes earnings (loss) per share in accordance
with ASC 260, Earnings per Share, which requires presentation of
both basic and diluted earnings per share on the face of the
consolidated statements of operations. Basic earnings (loss) per
share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of outstanding shares
during the period. Diluted earnings (loss) per share gives effect
to all dilutive potential common shares outstanding during the
period. Due to their anti-dilutive effect, the calculation of
diluted net loss per share for the six months ended June 30, 2023
and 2022 and the year ended December 31, 2022 does not include the
common stock equivalent shares below:
June 30, June 30, December
2023 2022 31, 2022
------------ ------------ ------------
Common shares outstanding 108,722,213 108,199,105 108,024,388
Nonvested shares outstanding 4,360,804 - 1,322,092
------------ ------------ ------------
Legally outstanding shares 113,083,017 108,199,105 109,346,480
Stock options and RSUs outstanding 4,774,445 2,644,859 2,718,809
Total fully diluted shares 117,857,462 110,843,964 112,065,289
============ ============ ============
The following table includes the weighted average shares
outstanding for each respective period:
June 30, June 30, December
2023 2022 31, 2022
------------ ------------ ------------
Common shares, weighted average 108,483,598 108,228,513 108,136,853
Nonvested shares, weighted average 2,840,168 - 339,584
------------ ------------ ------------
Legally outstanding shares, weighted
average 111,323,766 108,228,513 108,476,437
Stock options and RSUs, weighted
average 3,404,771 692,209 1,670,203
Total fully diluted, weighted
average 114,728,537 108,920,722 110,146,640
============ ============ ============
Fair value of financial instruments:
The carrying values of cash, accounts receivable, and accounts
payable and accrued expenses at June 30, 2023, June 30, 2022 and
December 31, 2022 approximated their fair value due to the short
maturity of these instruments.
Reclassification:
Certain categorizations of the June 30, 2022 and December 31,
2022 segment disclosures have been reclassified to conform to the
June 30, 2023 presentation. These reclassifications had no impact
on the total results or net assets of the Company.
Restatement:
During the preparation and review of the Company's consolidated
financial statements for the six months ended June 30, 2023, it was
determined that certain typographical errors were made in the
Company's previously issued (unaudited) consolidated financial
statements for the six months ended June 30, 2022. These errors
were immaterial and did not impact the Company's overall financial
position or net loss presented. However, these errors have been
corrected for presentation in these consolidated financial
statements. The corrections were a change in the balance sheet for
the accounts payable and accrued expenses balance from $8,418,970
to $8,218,970, a change in the cash flow statement for the change
in the amortization of the right-of-use assets from $1,432,768 to
$1,433,768 and the change in accounts payable and accrued expenses
from $110,385 to $111,385, and a change in the net loss reported in
the statement of equity from ($5,887,954) to ($5,841,277).
Subsequent events:
Management has evaluated the subsequent events for disclosure in
these consolidated financial statements.
NOTE 2: ACQUISITIONS
KP Public Affairs LLC
On October 1, 2022, the Company entered into an Asset Purchase
Agreement ("KP Agreement") and acquired certain assets and assumed
certain liabilities of KP Public Affairs LLC ("Seller" or "KP LLC")
through the creation of a wholly-owned subsidiary, KP Public
Affairs, LLC ("KP"). At the closing of the transaction, the Company
paid the Seller cash in the amount of $10,306,800 ("KP Closing Cash
Payment") and issued 739,589 shares of the Company's common stock
("KP Closing Share Payment") to Seller at an aggregate fair value
of $1,145,200.
During the six months ended June 30, 2023, the Company paid the
Seller an additional amount of consideration totaling $4,048,000
("KP Closing True-Up Payment") based on the specific operating
results of KP through December 31, 2022. The payment of the KP
Closing True-Up Payment was pro-rated as $3,643,200 in cash and
245,389 shares of common stock ("KP True-Up Shares") at an
aggregate fair value of $404,000. There are additional contingent
payments that the Seller can earn in the future depending on
certain operating results that are achieved. The total amount of
consideration that the Company could be required to pay to the
Seller in the amount of cash and stock ("Seller Shares") is
$35,000,000. The equity component of the contingent payments ranges
between 20% and 35%.
The KP Agreement provides certain forfeiture provisions
applicable to any future cash or share payments owed, which
generally require the owners of KP LLC ("Owner" or "Owners") to
remain employed by the Company for a certain period of time to
receive the full amount of those future payments. There are certain
exceptions to the forfeiture provisions if termination of
employment occurs under certain permitted events ("Acceleration
Event") as defined in the KP Agreement.
In addition, under certain circumstances outlined in the KP
Agreement, the Company can claw back a portion of certain payments
previously paid if an Owner is not employed by the Company as of
December 31, 2026.
If an Owner's employment is terminated as a result of an
Acceleration Event, a percentage of the unvested Seller Shares
(representing such Owner's ownership percentage in Seller) shall
become fully vested. The Seller Shares issued have some
restrictions but they also have certain legal rights consistent
with the Company's other shares of Common Stock outstanding,
including certain voting rights and the rights to dividends paid by
the Company. In addition, the KP Agreement contains certain
provisions requiring the forfeiture of a percentage of all cash and
shares received by Seller if certain restrictive covenants are
breached by an Owner.
Reasons for the Acquisition
The Company acquired KP LLC to expand its governmental and
public affairs consulting services provided to state and local
governments. Specifically, KP LLC provides significant services to
companies and organizations doing business in the state of
California.
Accounting for the Acquisition
The acquisition of Seller was accounted for as a business
combination and reflects the application of acquisition accounting
in accordance with ASC 805, Business Combinations ("ASC 805"). The
acquired assets, including identifiable intangible assets and
liabilities assumed, have been recorded at their estimated fair
values with the excess purchase price assigned to goodwill.
Purchase Consideration
The Company determined that certain consideration provided to
Sellers in the KP Agreement does not qualify as purchase
consideration in accordance with the guidance of ASC 805. The
Company determined that the purchase consideration consists of the
amount of cash payments owed to Sellers that are not subject to a
vesting or claw back provision that is directly linked to the
continued employment of Sellers. The total purchase consideration
consisted of the following amounts:
KP Closing Cash Payment $ 10,306,800
Contingent consideration 4,245,000
---------------
Total purchase consideration $ 14,551,800
===========
The contingent consideration consists of the estimated fair
value of future payments that are not subject to vesting or claw
back provisions tied to continued employment.
Purchase Price Allocation
The allocation of the purchase consideration resulted in the
following amounts being allocated to the assets acquired and
liabilities assumed as of the purchase date of October 1, 2022
based on their respective estimated fair values is summarized
below:
Cash $ 139,547
Other current assets 69,000
Right of use assets 3,273,766
Tradename 1,091,000
Noncompete agreements 306,000
Customer relationship 5,861,000
Deferred income tax asset 4,277,500
Goodwill 3,016,300
Other current liabilities (208,547)
Lease liability (3,273,766)
---------------
Total estimated purchase price $ 14,551,800
===========
The identified definite-lived intangible assets were as
follows:
Definite-lived intangible Weighted-average
assets useful life (in years) Amount
--------------------------- ------------------------ -----------
Customer relationships 7 $5,861,000
Noncompete agreements 5 $306,000
The fair value of customer relationships was determined using
the income approach, which requires management to estimate a number
of factors for each reporting unit, including projected future
operating results, anticipating future cash flows and discount
rates. The fair value of noncompete agreements was determined using
an income approach method, which requires management to estimate a
number of factors related to the expected future cash flows of KP
LLC and the potential impact and probability of competition,
assuming such noncompete agreements were not in place. The primary
factors that contributed to the goodwill recognized from the KP LLC
acquisition include the key employees of KP LLC combined with
additional synergies expected from increasing the Company's service
capabilities.
Engage LLC
On November 1, 2022, the Company (through its wholly-owned
subsidiary, Forbes Tate Partners, LLC) entered into an Asset
Purchase Agreement ("Engage Agreement") and acquired certain assets
and assumed certain liabilities of Engage LLC ("Engage"). At the
closing of the transaction, the Company paid Engage cash in the
amount of $1,925,000 ("Engage Cash Payment") and issued 487,301
shares of the Company's common stock ("Engage Restricted Shares")
at an aggregate fair value of $825,000.
A portion of the Engage Cash Payment was designated to certain
owners ("Junior Principal(s)") of Engage and the remaining of the
Engage Cash Payment was designated to the other owners ("Senior
Principal(s)") of Engage. In addition, all of the Engage Restricted
Shares were issued to the Senior Principals. There are no vesting
requirements or claw back provisions linked to continuing
employment for the Engage Cash Payment paid to the Junior
Principals. There are vesting requirements and claw back provisions
linked to continuing employment of the Senior Principals for the
Engage Cash Payment paid and Engage Restricted Shares issued to the
Senior Principals.
Each of the Senior Principals will vest in the Engage Restricted
Shares as long as they remain continuously employed through each
applicable vesting date, except if the termination occurs under
certain permitted events ("Engage Acceleration Event") as defined
in the Engage Agreement. If one of the Senior Principals is
terminated as a result of an Engage Acceleration Event, all of such
Senior Principal's unvested Engage Restricted Shares shall become
fully vested.
The Engage Restricted Shares issued have some restrictions but
they also have certain legal rights consistent with the Company's
other shares of Common Stock outstanding, including certain voting
rights and the rights to dividends paid by the Company.
With respect to the Engage Cash Payment, each of the Senior
Principals have a vesting requirement related to their respective
cash payment. If any of the Senior Principals is terminated as a
result of an Engage Acceleration Event, all of such Senior
Principal's unvested Engage Cash Payment shall become fully
vested.
In addition, the Engage Agreement contains certain provisions
requiring the forfeiture of a respective Senior Principal's Engage
Restricted Shares and a portion of the Engage Cash Payment made to
both the Junior Principals and Senior Principals if certain
restrictive covenants are breached by the respective Junior
Principal or Senior Principal.
Reasons for the Acquisition
The Company acquired Engage to expand its governmental and
public affairs consulting services provided within the U.S.
Accounting for the Acquisition
The acquisition of Engage was accounted for as a business
combination and reflects the application of acquisition accounting
in accordance with ASC 805, Business Combinations ("ASC 805"). The
acquired assets, including identifiable intangible assets and
liabilities assumed, have been recorded at their estimated fair
values with the excess purchase price assigned to goodwill.
Purchase Consideration
The Company determined that certain consideration provided to
Engage in the Engage Agreement does not qualify as purchase
consideration in accordance with the guidance of ASC 805. The
Company determined that the purchase consideration consists of the
amount of Engage Cash Payment paid to the Junior Principals and the
Engage Cash Payment to the Senior Principals that is not subject to
vesting or claw back linked to continuing employment, which totaled
$894,000. The value of the Engage Restricted Shares of $825,000 and
the remaining Engage Cash Payment amount of $1,031,000 ("Prepaid
Post-Combination Compensation") will be recognized as a charge to
expense in accordance with ASC 805-10-55-25 (See Note 6).
Purchase Price Allocation
The provisional allocation of the purchase consideration
resulted in the following amounts being allocated to the assets
acquired and liabilities assumed as of the purchase date of
November 1, 2022 based on their respective estimated fair values is
summarized below:
Cash $ 179,793
Other current assets 48,571
Right of use assets 173,579
Tradename 14,000
Noncompete agreements 140,000
Customer relationship 414,461
Deferred income tax asset 325,539
Other current liabilities (228,364)
Lease liability (173,579)
------------
Total estimated purchase price $ 894,000
========
In 2023, during the measurement period, the Company determined
that an adjustment to increase the Company's deferred tax asset of
$281,000 was necessary and a corresponding gain on bargain purchase
was recorded.
The identified definite-lived intangible assets were as
follows:
Definite-lived intangible Weighted-average
assets useful life (in years) Amount
--------------------------- ------------------------ ---------
Customer relationships 7 $414,461
Noncompete agreements 4 $140,000
The fair value of customer relationships was determined using
the income approach, which requires management to estimate a number
of factors for each reporting unit, including projected future
operating results, anticipating future cash flows and discount
rates. The fair value of noncompete agreements was determined using
an income approach method, which requires management to estimate a
number of factors related to the expected future cash flows of
Engage and the potential impact and probability of competition,
assuming such noncompete agreements were not in place.
MultiState Associates, Inc.
On March 1, 2023, the Company entered into an Asset Purchase
Agreement ("MultiState Agreement") and acquired certain assets and
assumed certain liabilities of MultiState Associates, Inc. ("MS
Seller" or "MultiState Inc") through the creation of a wholly-owned
subsidiary, MultiState Associates, LLC ("MS LLC"). At the closing
of the transaction, the Company paid the Seller cash in the amount
of $17,600,000 ("MS Closing Cash Payment") and issued 2,740,717
shares of the Company's common stock ("MS Closing Share Payment")
to Seller at an aggregate fair value of $4,400,000, of which,
1,973,316 shares have vesting requirements ("MS Vesting
Shares").
In addition, there are additional contingent payments that the
MS Seller can earn in the future depending on certain operating
results that are achieved. The total amount of consideration that
the Company could be required to pay to the MS Seller in the amount
of cash and stock ("MS Seller Shares") is $70,000,000. The equity
component of the contingent payments is 50%.
The MultiState Agreement provides certain forfeiture provisions
applicable to any future cash or share payments owed, which
generally require certain owners of MS LLC ("MS Owner" or "MS
Owners") to remain employed by the Company for a certain period of
time to receive the full amount of those future payments. There are
certain exceptions to the forfeiture provisions if termination of
employment occurs under certain permitted events ("MS Acceleration
Event") as defined in the MultiState Agreement.
In addition, under certain circumstances outlined in the
MultiState Agreement, the Company can claw back a portion of
certain payments previously paid if an MS Owner is not employed by
the Company as of certain future dates.
If an MS Owner's employment is terminated as a result of an MS
Acceleration Event, a percentage of the unvested MS Seller Shares
(representing such MS Owner's ownership percentage in MS Seller)
shall become fully vested. The MS Seller Shares issued have some
restrictions but they also have certain legal rights consistent
with the Company's other shares of Common Stock outstanding,
including certain voting rights and the rights to dividends paid by
the Company. In addition, the MultiState Agreement contains certain
provisions requiring the forfeiture of a percentage of all cash and
shares received by MS Seller if certain restrictive covenants are
breached by an MS Owner.
Reasons for the Acquisition
The Company acquired MultiState Inc to expand the scope of its
consulting services provided in respect of federal, state and local
governments. Specifically, MultiState Inc provides lobbying
compliance, legislative activity tracking, lobbying brokerage and
other consulting services to Fortune 500 companies, non-profit
organizations, elected officials and leading advocacy and trade
associations throughout the United States.
Accounting for the Acquisition
The acquisition of MS Seller was accounted for as a business
combination and reflects the application of acquisition accounting
in accordance with ASC 805, Business Combinations ("ASC 805"). The
acquired assets, including identifiable intangible assets and
liabilities assumed, have been recorded at their estimated fair
values.
Purchase Consideration
The Company determined that certain consideration provided to MS
Sellers in the MultiState Agreement does not qualify as purchase
consideration in accordance with the guidance of ASC 805. The
Company determined that the purchase consideration consists of the
amount of cash and share payments owed to MS Sellers that are not
subject to a vesting or claw back provision that is directly linked
to the continued employment of MS Sellers. The total purchase
consideration consisted of the following amounts:
MS Closing Cash Payment $ 8,096,000
MS Closing Share Payment 1,232,000
Contingent consideration 2,784,990
---------------
Total purchase consideration $ 12,112,990
===========
The contingent consideration consists of the estimated fair
value of future payments that are not subject to vesting or claw
back provisions tied to continued employment.
Purchase Price Allocation
The provisional allocation of the purchase consideration
resulted in the following amounts being allocated to the assets
acquired and liabilities assumed as of the purchase date of March
1, 2023 based on their respective estimated fair values is
summarized below:
Receivable from MS Sellers $ 4,026,562
Other current assets 654,842
Right of use assets 61,976
Tradename 2,202,000
Noncompete agreements 525,000
Customer relationships 5,507,600
Developed technology 3,938,000
Deferred income tax asset 4,743,079
Deferred revenue (4,681,404)
Lease liability (309,888)
---------------
Net assets acquired 16,667,767
Less estimated purchase price (12,112,990)
---------------
Gain on bargain purchase $ 4,554,777
=== ==========
The identified definite-lived intangible assets were as
follows:
Definite-lived intangible Weighted-average
assets 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.
NOTE 3: RELATED PARTY TRANSACTIONS
As of June 30, 2023, the amounts due from related parties of
approximately $1,039,000 include the amount expected to be paid to
the Company related to working capital adjustments associated with
the MultiState acquisition. As of June 30, 2022, the amounts owed
to related parties consisted of the Holding Distribution Discount
of approximately $1,539,000. See Note 1. As of December 31, 2022,
the amounts owed to related parties totaling approximately
$1,276,000 include the amounts expected to be refunded to the
owners of KP LLC and Engage related to the working capital
adjustments associated with those acquisitions.
During December 2021, the Company entered into a term note
agreement ("2021 Note") with The Alpine Group, Inc. ("Alpine Inc").
The 2021 Note provided Alpine Inc with the ability to request a
one-time borrowing of up to $750,000 from the Company at any time
prior to December 31, 2022. The purpose of the 2021 Note was to
provide Alpine Inc with funds to cover certain federal and state
income taxes to be owed by Alpine Inc in connection with the sale
of shares of the Company's common stock in the IPO. During April
2022, the Company advanced $513,000 to Alpine Inc in accordance
with the terms of the 2021 Note. The interest rate on the 2021 Note
is equal to the Prime Rate as published in the Wall Street Journal.
The 2021 Note requires an annual payment of accrued and unpaid
interest on the last business day of December each year and through
the maturity date of January 16, 2025. The note receivable balance
as of June 30, 2023, June 30, 2022 and December 31, 2022 was
$513,000 and the amount of accrued interest is immaterial.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is an indefinite lived asset with balances as follows
as of:
June 30, June 30, December
2023 2022 31, 2022
------------ ------------ -----------
Goodwill $ 47,909,832 $ 44,893,532 $47,909,832
As of June 30, 2023, June 30, 2022 and December, 31, 2022, there
have been no impairments to goodwill. During the last six months of
2022, goodwill increased by approximately $3,015,000 as a result of
the acquisition of KP LLC and Engage. See Note 2.
Goodwill is allocated to each segment as follows, as of:
June 30, June 30, December
2023 2022 31, 2022
--------------- --------------- ---------------
Goodwill
Government Relations Consulting $ 35,274,832 $ 33,356,532 $ 35,274,832
Public Affairs Consulting 12,635,000 11,537,000 12,635,000
Diversified Services - - -
--------------- --------------- ---------------
Total $ 47,909,832 $ 44,893,532 $ 47,909,832
=========== =========== ===========
Intangible Assets
The Company's intangible assets consist of customer relationship
assets acquired through various acquisitions as well as developed
technology and noncompete agreements acquired through the
acquisition of MS LLC, KP LLC and Engage, which are definite lived
assets and are amortized over their estimated useful lives. The
estimated useful lives for the customer relationship and developed
technology assets range from 7 to 9 years and the estimated useful
lives for the noncompete agreements range from 4 to 5 years. In
addition, intangible assets consist of tradenames, which are
indefinite lived assets and evaluated for impairment on an annual
basis or more frequently as needed. The cost of the Company's
tradenames, customer relationships, developed technology and
noncompete agreements, and the accumulated amortization of the
Company's customer relationships, developed technology and
noncompete agreements is as follows as of:
December 31,
June 30, 2023 June 30, 2022 2022
--------------- --------------- --------------
Customer relationships $ 27,103,861 $ 15,320,800 $ 21,596,261
Developed technology 3,938,000 - -
Noncompete agreements 971,000 - 446,000
Accumulated amortization (10,308,697) (7,198,639) (8,385,145)
--------------- --------------- --------------
Total indefinite lived assets,
net 21,704,164 8,122,161 13,657,116
Tradenames 7,120,000 3,813,000 4,918,000
--------------- --------------- --------------
Total intangible assets,
net $ 28,824,164 $ 11,935,161 $ 18,575,116
=========== =========== ==========
Amortization expense for customer relationship, developed
technology and noncompete agreement assets approximated $1,924,000,
$942,000 and $2,129,000 for the six months ended June 30, 2023 and
2022 and the year ended December 31, 2022, respectively.
The approximate estimated future amortization expense is as
follows:
Amortization
--------------
July 1, 2023 to December 31, 2023....................................................................... $ 1,955,000
2024....................................................................................................................... 3,910,000
2025....................................................................................................................... 3,894,000
2026....................................................................................................................... 3,742,000
2027....................................................................................................................... 3,692,000
Thereafter.............................................................................................................. 4,511,000
--------------
Total $ 21,704,000
==========
NOTE 5: LINE OF CREDIT AND NOTES PAYABLE
A) Bank credit facility
On February 28, 2023, the Company entered into a $17,000,000
credit facility with a bank ("Credit Facility"). The Credit
Facility has two components, Facility 1 is a Senior Secured Line of
Credit in the amount of $3,000,000 and Facility 2 is a Senior
Secured Term Loan in the amount of $14,000,000. The interest rate
on Facility 1 and Facility 2 is the Bloomberg Short-Term Bank Yield
Index plus 225 basis points. The Credit Facility is collateralized
by substantially all of the net assets of the Company. The Credit
Facility matures on January 31, 2026. The Company has drawn
$14,000,000 from Facility 2 and utilized those funds as part of the
consideration to acquire MultiState Inc. and $1,000,000 from
Facility 1. The Company paid approximately $451,000 in debt
issuance costs for the Credit Facility and has recorded this amount
as a debt discount and is amortizing the debt discount to interest
expense over the term of the Credit Facility using the
straight-line method, which approximates the effective interest
method.
The Company is required to make monthly payments of principal of
$291,667 plus interest beginning in March 2023 through the maturity
date of January 31, 2026 for the Facility 2. The principal payment
for Facility 1 is due on the maturity date for that facility, which
is January 31, 2026. Periodic interest-only payments are due on
Facility 1 through the maturity date. The Company incurred interest
expense of approximately $376,000 for the Credit Facility during
the six months ended June 30, 2023, which consisted of $326,000 of
cash interest and $50,000 of non-cash amortization of debt
discount.
The Company's Facility 2 consists of the following as of June
30, 2023:
Facility 2 $12,833,334
Less unamortized debt issuance costs 400,648
-------------
Total debt, net of unamortized debt issuance costs 12,432,686
Less current portion 3,349,757
-------------
Total Facility 2, long-term $ 9,082,929
=========
As of June 30, 2023, the balance of Facility 1 is $1,000,000 and
is classified as a long-term liability.
As of June 30, 2023, the future maturities of Facility 2 is as
follows:
July 1, 2023 to December 31, 2023....................................................................... $ 1,750,000
2024...................................................................................................................
.... 3,500,000
2025...................................................................................................................
.... 3,500,000
2026...................................................................................................................
.... 4,083,334
Total $12,833,334
===============
B) Note payable - landlord
The Company executed a lease amendment on March 23, 2018, and
received a loan of approximately $316,000 to fund certain tenant
improvements. The Company shall repay the loan in equal monthly
principal and interest installments over the lease term at an
interest rate of 8%, with the final payment due on March 1, 2029.
Notwithstanding the foregoing, the Company may submit a notice to
the landlord to prepay the outstanding balance upon terms to be
agreed upon by the landlord and the Company. The balance on the
loan as of June 30, 2023, June 30, 2022 and December 31, 2022, was
approximately $198,000, $223,000 and $211,000, respectively.
Interest expense on the note payable - landlord for the six months
ended June 30, 2023 and 2022 and the year ended December 31, 2022
was approximately $8,000, $9,000 and $17,000, respectively.
As of June 30, 2023, the the future maturities of the note
payable - landlord is as follows:
July 1, 2023 to December 31, 2023....................................................................... $ 13,807
2024...................................................................................................................
.... 29,321
2025...................................................................................................................
.... 31,755
2026...................................................................................................................
.... 34,390
2027...................................................................................................................
.... 37,245
Thereafter.............................................................................................................
. 50,854
------------
Total $197,372
============
NOTE 6: STOCKHOLDERS' EQUITY AND SHARE-BASED ACCOUNTING CHARGE
As of June 30, 2023, the authorized capital of the Company
consists of 1,100,000,000 shares of capital stock, $0.001 par value
per share, of which 1,000,000,000 shares are designated as common
stock and 100,000,000 shares are designated as preferred stock.
There are no shares of preferred stock outstanding.
As of June 30, 2023, June 30, 2022 and December 31, 2022, the
number of the Company's shares of common stock outstanding for
legal purposes was greater than the number of shares of common
stock outstanding for accounting purposes. Therefore, the
difference between the legally outstanding shares of common stock
on the face of the balance sheet and the amount outstanding on the
statement of equity consists of shares issued with restrictions
(collectively "Restricted Shares") as follows:
June 30, June 30, December
2023 2022 31, 2022
----------- ----------- -----------
Statement of Equity 108,722,213 108,199,105 108,024,388
Restricted Shares:
KP Closing Share Payment 739,589 - 739,589
KP Earnout Shares 245,389 - -
Engage Restricted Shares 487,301 - 487,301
MS Vesting Shares 1,973,316 - -
Other Restricted Shares 915,209 - 95,202
----------- ----------- -----------
Total Restricted Shares 4,360,804 - 1,322,092
----------- ----------- -----------
Legally Outstanding Shares 113,083,017 108,199,105 109,346,480
Stock Options Outstanding 3,274,445 2,644,859 2,718,809
RSUs Outstanding 1,500,000 - -
----------- ----------- -----------
Fully Diluted Shares Outstanding 117,857,462 110,843,964 112,065,289
The weighted-average common shares outstanding, basic and
diluted reported on the consolidated statement of operations is
108,483,598, 108,228,513 and 108,136,853, which is different from
the 108,722,213, 108,199,105 and 108,024,388 ending shares as of
June 30, 2023, June 30, 2022 and December 31, 2022 due to the first
number representing an average during the period compared to the
amount outstanding at the end of the period.
Other Restricted Shares consists of restricted stock awards
issued in 2023 to employees (see Note 7) and in 2022 to convert a
consultant of the Company to a full-time employee ("Consultant
Award"). The Consultant Award was valued at approximately $178,000
and vests equally on each of January 1, 2023, January 1, 2024 and
January 1, 2025.
ASC 718-10-S99-2 Charge
As discussed in Note 1, during 2021 the Company entered into
Executive Employment Agreements with Group Executives. As a result,
the addition of the vesting provisions to previously issued shares
created a share-based accounting charge in accordance with the
accounting guidance in ASC 718-10-S99-2, Compensation-Stock
Compensation. As a result, the Company recorded a share-based
accounting (ASC 718-10-S99-2) charge of approximately $15,431,000,
$15,576,000 and $33,392,000 for the six months ended June 30, 2023
and 2022 and the year ended December 31, 2022, respectively.
As of June 30, 2023, there were 83,340,513 Retained Pre-IPO
Shares subject to vesting requirements and 21,084,981 of these
shares were fully vested. These shares were issued in 2021 and the
weighted-average grant date fair value of these shares was $1.82 as
of the grant date. As of June 30, 2023, the unrecognized
compensation cost from these restricted shares was approximately
$105,270,000, which is expected to be recognized over a
weighted-average period of 3.5 years.
ASC 805-10-55-25 Charge
During 2022 and 2023, the Company acquired KP LLC, Engage and MS
LLC (see Note 2) for a combination of cash, shares of Company
Common Stock and future contingent payments ("Acquisition
Payments"). As described in Note 2, a portion of the Acquisition
Payments are subject to vesting and/or claw back provisions that
are directly linked to the continuing employment of the Owners of
KP LLC, Senior Principals of Engage or MS Owners, respectively
("Post-Combination Payments"). As a result, in accordance with the
guidance of ASC 805-10-55-25, Business Combinations, the
Post-Combination Payments are not considered part of the purchase
consideration for these acquisitions and the fair value of the
Post-Combination Payments is being recognized as a charge for
post-combination compensation over the period of the applicable
vesting requirement or the period over which the claw back rights
linked to employment lapse.
The total other liability of approximately $1,356,000 and
$2,257,000 as of June 30, 2023 and December 31, 2022 consists of
amounts expected to be paid in cash or stock in the future for
post-combination compensation. For the six months ended June 30,
2023 and the year ended December 31, 2022, the post-combination
compensation charge recorded by the Company was approximately
$3,016,000 and $2,441,000, respectively. Approximately $921,000 and
$2,257,000 of this amount was included as other liability at June
30, 2023 and December 31, 2022, respectively. Approximately
$688,000 and $111,000 of the post-combination compensation charge
is from the issuance of Common Stock that vested as of June 30,
2023 and December 31, 2022 and the remaining approximately
$1,406,000 and $74,000 was from the amortization of the prepaid
post-combination compensation asset for the six months ended June
30, 2023 and the year ended December 31, 2022, respectively. As of
June 30, 2023, the unrecognized post-combination compensation
charge was approximately
$24,500,000, which is expected to be recognized over a
weighted-average period of 2.2 years. The actual amount of
Post-Combination Payments is subject to significant estimates and
could change materially in the future.
NOTE 7: OMNIBUS INCENTIVE PLAN
During 2021, the Company adopted the Public Policy Holding
Company, Inc. 2021 Omnibus Incentive Plan (the "Omnibus Plan"),
under which Options (both nonqualified options, and incentive stock
options subject to favorable U.S. income tax treatment), restricted
stock units, restricted stock, unrestricted stock, SARs, cash-based
awards and dividend equivalent rights may be issued. An award may
not be granted if the number of common shares committed to be
issued under that award exceeds ten percent of the ordinary shares
of the Company in issue immediately before that day, when added to
the number of common shares which have been issued, or committed to
be issued, to satisfy awards under the Omnibus Plan, or options or
awards under any other employee share plan operated by the Company,
granted in the five previous years.
As of June 30, 2023, the total amount of shares authorized by
the Board of Directors under the Omnibus Plan was 11,201,762, with
a total of 5,607,310 available for issuance. During the six months
ended June 30, 2023, the Company granted 652,000 Options, 1,500,000
restricted stock units ("RSUs"), and 820,007 restricted stock
awards ("RSAs"). During the six months ended June 30, 2022, the
Company granted 2,644,859 Options and for the year ended December
31, 2022 a total of 2,794,859 Options were granted. The Options
have a contractual term of ten years and vest three years after
their issuance. The RSUs vest over a three-year period with
one-third vesting each year after the grant date. The RSAs vest on
December 31, 2023 and include voting and dividend rights prior to
vesting.
Options
Determining the appropriate fair value model and the related
assumptions requires judgment. The fair value of each Option
granted is estimated using a Black-Scholes option-pricing model on
the date of grant as follows:
Six months Six months 12 months
ended June ended June ended December
30, 2023 30, 2022 31, 2022
----------- ----------- ---------------
Estimated dividend yield 6.00% 6.00% 6.00%
Expected stock price volatility 60.00% 60.00% 60.00%
Risk-free interest rate 3.76% 3.01% 2.7% to 4.1%
Expected life of option (in years) 6.50 6.50 6.50
Weighted-average fair value per share $0.54 $0.58 $0.58
The expected volatility rates are estimated based on the actual
volatility of comparable public companies over the expected term.
The expected term represents the average time that options that
vest are expected to be outstanding. Due to limited historical
data, the Company calculates the expected life based on the
midpoint between the vesting date and the contractual term, which
is in accordance with the simplified method. The risk-free rate is
based on the United States Treasury yield curve during the expected
life of the option.
The following summarizes the Option activity:
Weighted
Weighted Average
Average Contractual Aggregate
Number
of Exercise Term Intrinsic
Shares Price (in years) Value
---------- ----------- ------------ ------------
Outstanding as of December
31, 2022 2,718,809 $ 2.13* - $ -
Granted 652,000 2.02* - -
Exercised - - - -
Cancelled/Forfeited (96,364) 2.23* - -
---------- ----------- ------------ ------------
Outstanding as of June 30,
2023 3,274,445 2.19* 9.1 -
Exercisable as of June 30,
2023 - - - -
---------- ----------- ------------ ------------
Vested and expected to vest
as of June 30, 2023 3,274,445 $ 2.19* 9.1 $ -
---------- --- ------ ------------ ----- -----
Weighted
Weighted Average
Average Contractual Aggregate
Number
of Exercise Term Intrinsic
Shares Price (in years) Value
---------- ------------ ------------ ------------
Outstanding as of December -
31, 2021 $ - - $ -
Granted 2,644,859 2.20* - -
Exercised - - - -
Cancelled - - - -
---------- ------------ ------------ ------------
Outstanding as of June
30, 2022 2,644,859 2.20* 9.9 -
Exercisable as of June 30,
2022 - - - -
Vested and expected to vest
as of June 30, 2022 2,644,859 2.20* 9.9 -
========== ============ ============ ============
Weighted
Weighted Average
Average Contractual Aggregate
Number
of Exercise Term Intrinsic
Shares Price (in years) Value
---------- ----------- ------------ ------------
Outstanding as of December
31, 2021 - $ - - $ -
Granted 2,794,859 2.13* - -
Exercised - - - -
Cancelled/Forfeited (76,050) 2.13* - -
---------- ----------- ------------ ------------
Outstanding as of December
31, 2022 2,718,809 2.13* 9.4 -
Exercisable as of December
31, 2022 - - - -
---------- ----------- ------------ ------------
Vested and expected to vest
as of December 31, 2022 2,718,809 $ 2.13* 9.4 $ -
========== === ====== ============ ===== =====
The following table summarizes certain information about the
stock options outstanding and exercisable as of June 30, 2023:
Number of Options Weighted-Average Number of Options
Exercise Price Outstanding Remaining Life Exercisable
----------------- ----------------- ---------------- -----------------
$ 2.02* 652,000 9.9 -
2.20* 100,000 9.3 -
2.23* 2,472,445 8.9 -
2.25* 50,000 9.1 -
3,274,445 -
================= =================
*The applicable exercise prices have been adjusted based on the
applicable exchange rate of GBP to U.S. Dollars at the end of each
period presented.
Option expense for the six months ended June 30, 2023 and 2022
and the year ended December 31, 2022 was approximately $269,000,
$61,000, and $318,000, respectively. As of June 30, 2023, there was
approximately $1,252,000 of total unrecognized compensation cost
related to non-vested Option arrangements, which is expected to be
recognized over a weighted-average period of 2.1 years.
RSUs
During the six months ended June 30, 2023, the Company issued
1,500,000 RSUs to employees. The Company had not issued any RSUs
prior to 2023. Determining the appropriate fair value model and the
related assumptions requires judgment. The fair value of each RSU
granted is estimated using a Black-Scholes option-pricing model on
the date of grant as follows:
Six months
ended June
30, 2023
------------
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 3.9% to 4.7%
Expected life of option (in years) 1 to 3 years
Weighted-average fair value per share $ 1.47
Activity in the Company's non-vested RSUs for the six months
ended June 30, 2023 was as follows:
Weighted
Average
Grant Date
Number
of Fair
RSUs Value
---------- --------------
Nonvested as of December 31, 2022 - $ -
Granted 1,500,000 1.47
Vested - -
Cancelled/Forfeited - -
---------- --------------
Nonvested as of June 30, 2023 1,500,000 $ 1.47
========== ==== ========
RSU expense for the six months ended June 30, 2023 was
approximately $83,000. As of June 30, 2023, there was approximately
$2,127,000 of total unrecognized compensation cost related to
non-vested RSU arrangements, which is expected to be recognized
over a weighted-average period of 1.9 years.
RSAs
During the six months ended June 30, 2023, the Company issued
820,007 RSAs to employees. The Company had not issued any RSAs
prior to 2023. Determining the appropriate fair value model and the
related assumptions requires judgment. The fair value of each RSA
granted is estimated using a Black-Scholes option-pricing model on
the date of grant as follows:
Six months
ended June
30, 2023
-----------
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 4.9%
Expected life of option (in years) 0.5 years
Weighted-average fair value per share $ 1.61
Activity in the Company's non-vested RSAs for the six months
ended June 30, 2023 was as follows:
Weighted
Average
Grant Date
Number
of Fair
RSAs Value
-------- --------------
Nonvested as of December 31, 2022 - $ -
Granted 820,007 1.61
Vested - -
Cancelled/Forfeited - -
-------- --------------
Nonvested as of June 30, 2023 820,007 $ 1.61
======== ==== ========
RSA expense for the six months ended June 30, 2023 was
approximately $231,000. As of June 30, 2023, there was
approximately $1,089,000 of total unrecognized compensation cost
related to non-vested RSA arrangements, which is expected to be
recognized over a weighted-average period of 0.5 years.
SARs
During the six months ended June 30, 2023, the Company issued
1,825,000 SARs to employees. SARs are not issued shares or
committed shares to be issued and therefore do not count against
the total number of shares that can be issued under the Omnibus
Plan. Upon exercise of a SAR, the Company shall pay the grantee in
cash an amount equal to the excess of the fair market value of a
share of stock on the effective date of exercise in excess of the
exercise price of the SAR. This cash settlement feature requires
the SARs to be classified as a liability and marked to market at
each reporting period. The SARs vest over a three-year period with
one-third vesting each year after the grant date. The Company had
not issued any SARs prior to 2023. Determining the appropriate fair
value model and the related assumptions requires judgment. The fair
value of each SAR granted is estimated using a Black-Scholes
option-pricing model and the fair value is adjusted at each
reporting period. Each SAR has a cash settlement feature and is
recorded as a liability in the Company's consolidated balance
sheets. As of June 30, 2023, the total liability was $71,000. The
fair value of the SARs was calculated as follows for the six months
ended June 30, 2023:
Six months
ended June
30, 2023
------------
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 4.1% to 4.2%
4.4 to 5.4
Expected life of option (in years) years
Weighted-average fair value per share $ 0.59
Weighted
Average
Number
of Exercise
Shares Price
---------- -----------
Outstanding as of December 31, 2022 - $ -
Granted 1,825,000 1.66
Exercised - -
Cancelled/Forfeited (50,000) 1.66
---------- -----------
Outstanding as of June 30, 2023 1,775,000 1.66
Exercisable as of June 30, 2023 - -
---------- -----------
Vested and expected to vest
as of June 30, 2023 1,775,000 $ 1.66
========== === ======
SAR expense for the six months ended June 30, 2023 was
approximately $71,000. The amount of the future expense for all
SARs issued will depend upon the value of the Company's common
stock and other factors at each future reporting date.
NOTE 8: INCOME TAXES
Prior to December 10, 2021, the net income (loss) related to the
Company's operations were reported as part of a partnership income
tax return for federal and state income tax purposes. Because the
partnership entity was not subject to income tax at the Company
level, no provision for income taxes was required for periods prior
to December 10, 2021.
Due to the Company Conversion that occurred on December 10,
2021, an initial net deferred tax liability was recorded in
conjunction with the Company's operations that would be taxable at
the corporate entity level. An initial deferred tax liability in
the amount of $2,942,400 was recorded, with a corresponding
adjustment to stockholders' equity.
The Company recorded the following income tax expense (benefit)
for the six months ended June 30, 2023 and 2022 and the year ended
December 31, 2022:
Six months Six months 12 months
ended June ended June ended December
30, 2023 30, 2022 31, 2022
----------- ----------- ---------------
Current tax expense:
Federal $2,926,200 $2,822,400 $5,944,400
State 1,198,400 1,113,600 2,443,100
----------- ----------- ---------------
4,124,600 3,936,000 8,387,500
Deferred tax expense (benefit):
Federal (258,800) (235,800) (475,500)
State (77,400) (65,400) (114,400)
----------- ----------- ---------------
(336,200) (301,200) (589,900)
----------- ----------- ---------------
Total Provision for Income Taxes: $3,788,400 $3,634,800 $7,797,600
=========== =========== ===============
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. None of the goodwill that was acquired prior to June
30, 2022 is deductible for income tax purposes. The acquisitions of
KP LLC, Engage and MS LLC are taxable asset acquisitions. As such,
the purchase consideration for these acquisitions will generate
tax-deductible goodwill in the combined amount of approximately
$34,123,000. A deferred tax asset has been recorded in relation to
the excess of the tax deductible goodwill as compared to the GAAP
carrying value of goodwill. Of the $34,123,000 of tax deductible
goodwill, approximately $10,362,000 is eligible to begin being
amortized for tax purposes during the 2022 tax year and an
additional $9,477,000 is eligible to begin being amortized for tax
purposes during the 2023 tax year.
Significant components of the Company's deferred tax assets and
liabilities are as follows as of:
Six months Six months 12 months
ended June ended June ended December
30, 2023 30, 2022 31, 2022
------------- ------------ -----------------
Deferred tax assets:
Other assets $ 196,000 $ 104,900 $ 197,600
Deferred revenue 1,277,000 - -
Goodwill 8,279,000 - 4,797,000
ASC 842 Lease liability 7,154,000 4,622,000 5,107,000
------------- ------------ -----------------
Total deferred income tax assets 16,906,000 4,726,900 10,101,600
Deferred tax liabilities:
Other (380,000) (198,000) (469,200)
Intangible assets (2,503,000) (3,228,000) (2,924,000)
Right of use asset (6,317,000) (3,914,300) (4,430,000)
------------- ------------ -----------------
Total deferred income tax liabilities (9,200,000) (7,340,300) (7,823,200)
------------- ------------ -----------------
Total Net Deferred Tax Asset (Liability): $ 7,706,000 $(2,613,400) $ 2,278,400
========= =========== =============
A reconciliation for the difference between actual income tax
expense (benefit) compared to the amount computed by applying the
statutory federal income tax rate to net loss before income tax for
the six months ended June 30, 2023 and 2022, and the year ended
December 31, 2022, is as follows:
December 31,
June 30, 2023 June 30, 2022 2022
----------------------------- ------------------------ -------------------------
% of Pretax % of Pretax % of Pretax
Amount Earnings Amount Earnings Amount Earnings
---------------- ----------- ----------- ----------- ------------ -----------
Federal income tax
expense (benefit)
at statutory rate $ 34,000 21.0 $(473,200) (21.0) $(1,514,300) (21.0)
State income taxes,
net of federal income
tax benefit 10,200 6.3 (136,200) (6.0) (452,800) (6.3)
Nondeductible expenses 3,790,800 2,341.8 4,241,800 192.2 9,775,100 135.6
Other (46,600) (28.8) 2,400 0.1 (10,400) (0.1)
---------------- ----------- ----------- ----------- ------------ -----------
Total Provision for
Income Taxes $ 3,788,400 2,340.3 $ 3,634,800 165.3 $ 7,797,600 108.2
================ =========== =========== =========== ============ ===========
As of June 30, 2023, there are no known items that would result
in a material liability related to uncertain tax positions, as
such, there are no unrecognized tax benefits. The Company's policy
is to recognize interest and penalties related to uncertain tax
positions in the provision for income taxes. As of June 30, 2023,
the Company had no accrued interest or penalties related to
uncertain tax positions. The Company's 2021 and 2022 tax years are
open under the statute of limitations for examination by the taxing
authorities.
NOTE 9: RETIREMENT PLAN
Effective January 1, 2020, the Company established the Public
Policy Holding Company, LLC 401(k) Plan ("PPHC Plan"). The PPHC
Plan covers employees that reach certain age and length of service
requirements. Eligible employees can contribute into the plans
through salary deferral. The PPHC Plan does not have any employer
contribution and expenses are immaterial.
NOTE 10: CONCENTRATION OF CREDIT RISK
Geographic location
Most of the Company's assets are located in the Washington D.C.
metropolitan area. Therefore, the Company is subject to certain
economic risks resulting from the majority of its revenue being
derived from one geographic location.
NOTE 11: SEGMENT REPORTING
As of June 30, 2023, the Company has three reportable segments;
Government Relations Consulting, Public Affairs Consulting and
Diversified Services. Government Relations Consulting services
include federal and state advocacy, strategic guidance, political
intelligence and issue monitoring. Public Affairs Consulting
services include crisis communications, community relations, social
and digital podcasting, public opinion research, branding and
messaging, relationship marketing and litigation support.
Diversified Services were introduced with the acquisition of MS
LLC, and currently include Lobbying Compliance services and
Legislative Tracking.
Other is primarily comprised of depreciation, amortization,
interest expense, taxes, share-based accounting charges,
post-combination compensation charges, long term incentive program
charges, and gain on bargain purchase. The Company's CODM does not
evaluate these items at the segment level.
The Company measures the results of its segments using, among
other measures, each segment's net revenue and contribution margin,
which excludes depreciation, amortization, interest expense, taxes
and other non-cash charges. The Company's CODM does not evaluate
these items or total assets and liabilities at the segment level
but rather evaluates these items on a consolidated basis.
Information for the Company's segments, as well as for other,
including the reconciliation to net income (loss) is provided in
the following tables:
For the Six Months Ended June 30, 2023
Government Public Diversified
Relations Affairs Services Other Total
------------- --------------- -------------- ---------------- ----------------
Revenue $ 46,529,662 $ 16,507,022 $ 2,675,271 $ - $ 65,711,955
Contribution
Margin $ 13,631,400 $ 2,636,300 $ 655,000 $ - $ 16,922,700
Depreciation - - - (57,932) (57,932)
Interest - - - (384,469) (384,469)
Taxes - - - (3,788,400) (3,788,400)
Share-based
accounting
charge - - - (15,430,500) (15,430,500)
Post-combination
compensation
charge - - - (3,016,024) (3,016,024)
Long term incentive
program charges - - - (654,000) (654,000)
Amortization
of intangibles - - - (1,923,553) (1,923,553)
Gain on bargain
purchase, net
of taxes - - - 4,835,777 4,835,777
------------- --------------- -------------- ---------------- ----------------
Net income
(loss) $ 13,631,400 $ 2,636,300 $ 655,000 $(20,419,101) $ (3,496,401)
Goodwill at
end of period $ 35,274,832 $ 12,635,000 $ - $ - $ 47,909,832
For the Six Months Ended June 30, 2022
Government Public Diversified
Relations Affairs Services Other Total
------------- --------------- -------------- ---------------- ----------------
Revenue $ 37,571,400 $ 14,167,404 $ - $ - $ 51,738,804
Contribution
Margin $11,497,308 $ 2,942,000 $ - $ - $ 14,439,308
Depreciation - - - (57,962) (57,962)
Interest - - - (8,150) (8,150)
Taxes - - - (3,634,800) (3,634,800)
Share-based
accounting charge - - - (15,575,773) (15,575,773)
Long term incentive
program charges - - - (61,494) (61,494)
Amortization
of intangibles - - - (942,406) (942,406)
------------- --------------- -------------- ---------------- ----------------
Net income
(loss) $11,497,308 $ 2,942,000 $ - $(20,280,585) $ (5,841,277)
Goodwill at
end of period $33,356,532 $ 11,537,000 $ - $ - $ 44,893,532
For the Year Ended December 31, 2022
Government Public Diversified
Relations Affairs Services Other Total
------------- --------------- -------------- ---------------- -----------------
Revenue $ 78,177,680 $ 30,636,811 $ - $ - $ 108,814,491
Contribution
Margin $24,439,790 $ 6,746,000 $ - $ - $ 31,185,790
Depreciation - - - (100,285) (100,285)
Interest - - - (16,873) (16,873)
Taxes - - - (7,797,400) (7,797,400)
Share-based
accounting charge - - - (33,392,300) (33,392,300)
Post-combination
compensation
charge - - - (2,441,052) (2,441,052)
Long term incentive
program charges - - - (317,679) (317,679)
Amortization
of intangibles - - - (2,128,912) (2,128,912)
Gain on bargain
purchase, net
of taxes - - - - -
------------- --------------- -------------- ---------------- -----------------
Net income
(loss) $24,439,790 $ 6,746,000 $ - $(46,194,501) $ (15,008,711)
Goodwill at
end of period $35,274,832 $ 12,635,000 $ - $ - $ 47,909,832
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END
IR SFIESEEDSEEU
(END) Dow Jones Newswires
September 13, 2023 02:00 ET (06:00 GMT)
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