ACQUISITIONS

6 Months Ended

Jun. 30, 2024

Arroyo Consulting

On April 24, 2023, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Arroyo Consulting for cash consideration of $6.8 million. Certain post-closing liabilities were held back of $0.4 million and partial security for any indemnification obligations was held back for one year of $0.9 million. The purchase agreement further provides for contingent consideration of up to $8.5 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 8 - Debt”. The purchase agreement contained a provision for a “true up” of acquired working capital, which was paid on July 1, 2024, out of the delayed draw funds under the Company's credit agreement along with the hold backs and the full year one contingent consideration payment.

The acquired business was assigned to the Professional segment. The acquisition of Arroyo Consulting allows the Company to strengthen the go-to-market cross-selling efforts providing clients a cost effective alternative offering nearshore and offshore IT resources. Arroyo Consulting provides nearshore and offshore professional workforce solutions specializing in IT and software development with operations in the United States, Colombia, and India.

The Fiscal 2023 Arroyo Consulting operations included ten weeks for $4.1 million of revenue and $1.0 million of operating income, which included $0.2 million in amortization expense on acquisition intangibles. The final purchase price has been allocated to the assets acquired and liabilities as follows (in thousands):


Accounts receivable	$	3,476
Prepaid expenses and other assets	72
Property and equipment, net	145
Right-of-use asset - operating lease	141
Intangible assets	11,760
Goodwill (no deductible tax basis)	3,400
Current liabilities assumed	(2,621)
Lease liabilities - operating leases	(85)
Total net assets acquired	$	16,288

Cash	$	6,800

Hold back, working capital*	350
Hold back, indemnities*	850
Working capital adjustment*	679
Fair value of contingent consideration	7,609
Total fair value of consideration transferred for acquired business	$	16,288
*Included in Other current liabilities

The allocation of the intangible assets is as follows (in thousands):


	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	356	5 years
Client partner list	11,234		10 years
Computer software	170		5 years
Total	$	11,760

The Company incurred total costs of $0.6 million in Fiscal 2024 and Fiscal 2023 related to the Arroyo Consulting acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

Supplemental Unaudited Pro Forma Information

The Company estimates what would have been reported if the revenues and net income of the Arroyo Consulting acquisition had taken place on the first day of Fiscal 2023 (in thousands, except income per share):


	Thirteen Weeks Ended		Twenty-six Weeks Ended
	July 2, 2023		July 2, 2023
Revenues	$	82,428	$	162,919
Gross profit	$	30,026	$	58,527
Net income (loss)	$	2,755	$	(12,933)
Income (loss) per share:
Basic	$	0.26	$	(1.21)
Diluted	$	0.26	$	(1.21)

Pro forma net income (loss) includes amortization of primarily client partner lists, interest expense on additional borrowings on the new term loan and the revolving facility (the “Revolving Facility”) (see “Note 8 - Debt”) at a rate of 7.1%. The tax benefit of the pro forma adjustments at effective tax rate of 26.6% and 24.6% for the thirteen and twenty-six week period ended July 2, 2023, respectively. The pro forma operating results include adjustments to Arroyo Consulting related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company. There were no material nonrecurring adjustments.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Arroyo Consulting acquisition taken place on the first day of Fiscal 2023 or the results that may be achieved by the combined enterprise in the future.