TIDMPPHC
RNS Number : 8319W
Public Policy Holding Company, Inc.
20 April 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" or the "Group")
Full Year Results for the year ended 31 December 2022
Strong financial performance and sustained growth, driven by
robust market demand
Public Policy Holding Company, Inc., ("PPHC", the "Group" or the
"Company"), the government relations and public affairs group
providing clients with a fully integrated and comprehensive range
of services, is pleased to announce its Full Year Results for the
year ended 31 December 2022.
Financial Highlights
-- Revenue of $108.8m (2021: $99.3m) reflects an increase of 9.5%, and 6.6% organic growth.
-- Underlying EBITDA of $31.2m (2021: $32.0m) is in line with
guidance and was achieved at a margin of 28.7%, within our target
range of 25 to 30%. This followed a truly exceptional 2021 which
was driven by a combination of high pandemic-related spending and
the change of control in the White House
-- Underlying Profit after tax was $23.3m (2021: $23.9m), reflecting a margin of 21.4%
-- Year-end Net Cash stood at $21.0 million, an increase of 17.9%
-- Declared a final dividend of $0.095 per Common Outstanding
Share. This would take the total dividend for 2022 to $0.14 per
share.
All in $'000, unless otherwise
noted 2021 2022 change
Revenue 99,336 108,814 9.5%
EBITDA - Underlying 32,030 31,186 -2.6%
EBITDA margin - Underlying
(%) 32.2% 28.7% -3.6 pts
Net Income - Underlying 23,857 23,271 -2.5%
EPS - Underlying ($) (fully
diluted) (**) 0.220 0.211 -4.1%
Dividend 703 15,511 N/M
Free Operational Cash Flow 4,638 20,678 N/M
Net Cash at year end 17,820 21,012 17.9%
Operational highlights
-- Successful acquisition of California based KP Public Affairs
on 1 October 2022, proving attractiveness of holding company value
proposition and equity + cash offer.
-- Key talent additions into Group's founding firms, including
deepening specialisations in new/renewable energy policy, defence
contracting, financial services, and trade policy, all service
areas that are central to today's policy agenda.
-- Improved client diversification, with the top 10 Group
clients representing 9.6% of total revenue, down from 13.1% in
2021.
-- 2022 total clients greater than 850, up from over 730 in
2021; includes over 100 Fortune 500 clients and related trade
associations.
-- Number of clients spending $100,000 or greater per year was
384, a gain of 11%, and representing 43% of our total clients.
Current trading and Outlook
-- MultiState Associates acquired on 1 March 2023, elevating our
number of clients to over 1,000.
-- Continued growth into 2023, fuelled by ongoing policy debates
over government spending and the passage of historic spending
measures in 2021-22 into sectors such as healthcare, essential
manufacturing, renewable/alternative energies, and
infrastructure.
-- Management expects revenue to grow by 5 to 10% organically,
supplemented by growth from past and future M&A
transactions.
-- The Group continues to manage the business such that the
Underlying EBITDA as percentage of revenue is estimated to be
between 25% and 30%.
-- Continuing to build an attractive pipeline of strategic
acquisition opportunities in the federal and state advocacy
markets, as well as in the adjacent strategic communications and
public affairs markets in the US and abroad.
Stewart Hall, CEO, PPHC commented:
"Our first full year as a listed company saw PPHC deliver on
anticipated margins, net income and dividend for shareholders. We
have a well-defined growth strategy and are demonstrating the
successful delivery of its pillars, including selective M&A to
broaden our geographic footprint into state-based government
relations, as well as the expansion of our service offering. The
strategic communications and government affairs markets, both in
the US and internationally, remain fragmented and we are well
placed to act as a natural consolidator with a strong balance
sheet.
"Demand for PPHC's services is set to continue, driven partly by
$4+ trillion of US government spending. We anticipate this activity
will underpin ongoing organic growth. We have an attractive
pipeline of potential acquisition opportunities, in line with our
focus on broadening our reach into US state capitals and
metropolitan areas, as well as internationally.
"PPHC is well placed to deliver continued growth, both
organically and via acquisitions. We have already completed the
acquisition of MultiState, expanding our service offering and
opening new opportunities for collaboration between our operating
businesses. We look forward to continued strategic and financial
progress in 2023."
Enquiries
Public Policy Holding Company Inc.
Stewart Hall, CEO
Bill Chess, CFO
Thomas Gensemer, Chief Strategy Officer
Roel Smits, Deputy CFO +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, Harry Swinburne 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 .
Chairman's report
On behalf of the Board of Directors of PPHC, I am pleased to
introduce this report reflecting a full year of strong performance
post-IPO, a successful accretive acquisition of a market-leading
firm in California, and outstanding business development and cost
management by company leadership in the face of considerable
macro-economic challenges and tremendous partisanship and
unpredictability in the US Federal Government.
The strong performance of the Group throughout 2022, along with
the timely acquisition and early integration of KP Public Affairs,
reflects the hard work and dedication of our leaders and individual
employee-owners and staff. We rely on their shared expertise, good
judgement, and steadfast commitment to excellence, for clients and
colleagues alike. I've met so many of the talented individuals who
make up the Group and I look forward to spending more time with our
valued colleagues in the years ahead.
On behalf of my Board colleagues, I would like to thank each of
our staff, clients, business partners, advisors and shareholders
for their ongoing support.
In the eighth full year of PPHC's operations, and our first
full-year as an AIM listed business, we are proud to be reporting
strong Group-wide results, in line with our stated guidance.
With a consistent track record of growth and a revenue CAGR of
29% since 2015, the management and Board of PPHC is executing on
its focused goal to become the world's premier provider of
government relations and public affairs services to companies,
trade organisations and NGO clients.
PPHC operates a portfolio of independently branded firms, each
offering a range of public policy expertise, bi-partisan federal
and state advocacy services, public affairs, and crisis management
services to over 1,000 clients.
Clients hire PPHC firms to help enhance and defend their
reputations, inform and advance their public policy goals, manage
regulatory risk, or otherwise engage with US federal and
state-level policy makers, regulators and other key
stakeholders.
Each of the Group's firms are bi-partisan, by way of US
political associations, with founders and senior managers operating
largely in-and-around Washington DC with close professional ties to
the US Executive Branch, Congress, and/or regulatory
authorities.
According to US Federal Government lobbying reporting, in 2022,
PPHC remained the largest provider of federal contract lobbying
services in the US, with $66.4m of disclosed revenue*. This PPHC
service offering, registered federal and state lobbying, represents
approximately 72% of the Group's total for 2022. The Group's stated
strategy is to maintain this core offering while also growing
related high-margin service offerings such as public affairs,
research and media management to existing and new clients.
PPHC's acquisition of KP Public Affairs, a leading firm in the
State of California, was completed 1 October 2022, providing the
Group with an anchor in the largest US state market and an
important bellwether in US policymaking. This acquisition
represents an important step in our strategy to support our
clients' needs in multiple jurisdictions, including in other US
states and in major international capitals.
Given our performance in 2022, the Board is pleased to have
declared a final dividend of $0.095 per share, taking the total
dividend for the year to $0.14 per share. This will represent a
total aggregate dividend for the year of approximately $15.5
million, equivalent to approximately 67% of the Group's Underlying
Net Profit (based on the current number of common outstanding
shares). The final dividend of $0.095 per share is 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, 5 May 2023. The ex-dividend date is 4 May 2023.
*Source: opensecrets.org
Simon Lee
Non-executive Chairman
Chief Executive Officer's report
Across PPHC's companies, our talented policy and strategic
communications specialists committed their year to undertaking
critical, high-impact work for our clients. Working at the highest
levels of government and clients' C-suite, our teams informed,
guided, and shaped policy decisions that impact the future of the
United States and the world.
It was an extraordinary year in public policy as we saw
democratic governments, corporate leaders, and ordinary citizens
across the world face simultaneous challenges - the ongoing war in
Ukraine disrupting energy markets and supply chains, historic
levels of inflation, and the unrest and uncertainty in
politics.
Taken together, along with ongoing Covid-19 pandemic mitigations
and the 'new normal' of hybrid work, governments have responded
with historic spending measures and regulatory interventions that
impact every sector of the global economy.
In Washington, DC and across the United States, the November
2022 mid-term elections were the most expensive ever waged. Over
$10 billion was spent and the result was a very narrowly divided US
Congress (a Republican-controlled House, a Democrat-led Senate) and
likely stalemate.
Despite such partisan rancour, the Biden Administration did
achieve the narrow passage of record-breaking federal spending
bills (now totalling over $4 trillion) to fund economic priorities,
including healthcare, clean and alternative energies, public
infrastructure investments and the support of essential industries
(manufacturing of high-end semiconductors, key pharmaceuticals and
more). As such, PPHC enjoyed another strong year for revenue and
profit as our clients engaged in and responded to these challenges
and opportunities.
Group clients, now totalling over 1,000 companies, NGOs and
associations in 2023, depend on our firms - both the breadth of our
integrated services and the depth of policy and political expertise
- to navigate challenges and maximise the business opportunities of
this hyper-political era.
We have reached current scale and sophistication at an ideal
moment in history, but with that success comes an increased
responsibility and well-deserved scrutiny. Our entire organisation
takes pride in the steps we have taken to increase diversity
amongst our team and towards building a culture of equity and
inclusivity. As CEO, I take responsibility for ensuring that this
progress continues and stays a top priority.
As we begin 2023, we remain focused on a clear and
differentiated strategy, as conceived in 2014 and restated upon IPO
in 2021. The progress we made in 2022, carrying into the start of
2023, provides further confidence in the strength of our business
model and strategic ambitions. We foresee continued growth fuelled
by ongoing policy debates over government spending and the passage
of historic spending measures in 2021-22 into sectors such as
healthcare, essential manufacturing, renewable/alternative
energies, and infrastructure.
I thank each one of our colleagues, their families, our clients,
partners, advisors, and shareholders. Along with my senior
executive team at PPHC, I look forward to continuing to progress
our business strategy.
Stewart Hall
Chief Executive Officer
Financial Review
In our first full year post-IPO, demonstrating the stability of
our core business operations, the dedication of our management
teams, and the critical importance of our work to our clients,
revenue grew 9.5% to $108.8 million.
All in $'000, unless otherwise
noted 2021 2022 change
Revenue 99,336 108,814 9.5%
EBITDA (Underlying) 32,030 31,186 -2.6%
EBITDA margin (Underlying)
(%) 32.2% 28.7% -3.5 pts
Net Income (Underlying) 23,857 23,271 -2.5%
EPS (Underlying) ($) (fully
diluted) (**) 0.220 0.211 -4.0%
Dividend 703 15,511 N/M
Free Operational Cash Flow 4,638 20,678 N/M
Net Cash at year end 17,820 21,012 17.9%
PPHC's results for the year ended 31 December 2022 represent its
first full reporting year post-IPO in December 2021. Strong levels
of client engagement and activity have driven the Group's revenue
up 9.5% to $108.8m (2021: $99.3m). All areas of the Group's
business, i.e. government relations, public affairs advisory, and
strategic research, achieved growth when compared to 2021.
Equally important, underlying profit remained close to 2021
levels despite the absorption of higher costs related to being a
public company and the related increased investment in new hires,
with an underlying EBITDA for the year of $31.2m (2021: $32.0m) at
a margin of 28.7% (2021: 32.2%), within our guided range of between
25% and 30%.
The Group's cash position at the end of the year remained strong
at $21.0m (2021: $17.8m), following the generation of $20.7m
operational cash flow, the acquisition activity in Q4 2022, and the
payment of dividends.
Underlying Profit & Loss Statement
All in $'000, unless otherwise
noted 2021 2022 change
Revenue 99,336 108,814 9.5%
Operational expenses (*) (67,306) (77,629) 15.3%
EBITDA (Underlying) 32,030 31,186 -2.6%
-3.5
EBITDA margin (Underlying) 32.2% 28.7% pts
Depreciation (128) (100)
EBIT (Underlying) 31,903 31,086 -2.6%
Interest (52) (17)
Taxes (*) (7,994) (7,798)
Net Income (Underlying) 23,857 23,271 -2.5%
-2.6
Net income margin (Underlying) 24.0% 21.4% pts
(*) 2021 bonus and taxes are on a proforma
basis, using 2022 rates
Bridge from Underlying to Reported
results
Net Income (Underlying) 23,857 23,271
Share-based accounting charge (27,609) (33,392)
Post-combination compensation charge (2,441)
Long Term Incentive Program charges (318)
Amortization intangibles (1,885) (2,129)
2021 bonus actual (37,519)
2021 bonus proforma 11,401
2021 tax actual (495)
2021 tax proforma 7,994
Net Income (Reported) (24,256) (15,009)
Revenue
The Group's total revenue for 2022 increased by 9.5% to $108.8
million (2021: $99.3 million). The growth was primarily organic
(6.6%) and also benefitted from the acquisition of KP Public
Affairs on 1 October 2022.
Organic growth of 6.6% reflects the stability of our core
business operations and comes on top of 28% growth in 2021, a
banner year as a consequence of significant pandemic-related
spending and the change of control at the executive branch. Organic
growth was driven by a high degree of retention of existing clients
(typically higher in government relations and lower in public
affairs, and on average 75%, based on client count) in combination
with new business wins. New clients were typically either Fortune
500 clients or advocacy groups and coalitions.
The Group ended 2022 with over 850 clients, of which 384
accounted for a net revenue of equal or greater than $100,000 per
annum (up from 347 in 2021). Our largest client represented 1.6% of
total revenue, down from 2.5% in 2021. This success was driven by
both of our primary business lines, government relations and public
affairs. In 2022, our government relations business increased by
11% (8% organically) as we supported clients in managing their
risks and opportunities. Our public affairs division increased by
5% (2% organically), building on a very strong performance in the
previous year.
Profit
Underlying EBITDA of $31.2 million was achieved at a margin of
28.7%, consistent with the margins realised between 2018 and 2020,
and in line with our guidance that margins will typically move
within the range of 25% to 30%. The 32.2% margin of 2021 reflected
a truly exceptional year driven by a combination of high
pandemic-related spending and the change of control in the White
House.
Long term Underlying
EBITDA 2018 2019 2020 2021 2022
Underlying EBITDA ($m) 9.3 13.5 21.5 32.0 31.2
Underlying EBITDA as
% of Revenue 27.4% 24.4% 27.8% 32.2% 28.7%
In 2022, Underlying EBITDA was also impacted by previously
communicated additional expenses relating to the Group's first full
year as public company. Those incremental costs, included within
the calculation of Underlying EBITDA, amounted to approximately
$5.4 million and included legal and registration fees, compliance
costs, M&A related expenses, investments in staff at the
Group's holding company, and in talent acquisition. We expect to
make further investments in 2023 to build out our platform.
At an after-tax level, 2022 Underlying Net Income - which
constitutes the basis of our dividend calculation - amounted to
$23.3 million, slightly less than the $23.9 million for 2021 on a
proforma basis.
Employees
The Group started 2022 with 187 employees operating out of five
offices. By end of year, this number had increased to 244 people,
which includes 30 from the KP acquisition and 17 people hired when
bringing the Engage team, a supplier to Forbes Tate, in-house. On
average, during 2022 we had 206 employees.
Other
The Group's net finance costs for the year were $16k (2021:
$52k), illustrating the absence of any significant debt on the
Group's balance sheet.
Tax accrual for 2022 amounted to $7.8 million, which represents
a blended charge of 25.1% to our Underlying Profit. For comparative
purposes, we have applied the same rate when calculating the 2021
proforma Underlying Profit.
Balance sheet and cash flow
The Group's net cash position as of 31 December 2022 was $21.0
million (2021: $17.8 million), taking into account the $0.2 million
borrowings at that time. Our strong financial position enabled us
to make the interim dividend payments and allowed us to make
acquisitions, without borrowing from financial institutions.
Cash Flow Statement
Net income (24,256) (15,009)
Add back: Share-based compensation 27,609 33,392
Add back: LTIP 318
Add back: Amortization 1,885 2,129
Add back: Depreciation 128 100
All other changes in Working
Capital (728) (253)
Operational Cash flow 4,638 20,678
Acquisitions N/A (11,912)
Investment Cash flow N/A (11,912)
Debt repayment N/A (26)
Dividend payment N/A (5,572)
Financing Cash Flow N/A (5,598)
Cash generated N/A 3,167
Dividend
The Board of Directors of the Company have declared a final
dividend for 2022 of $0.095 per Common Share, which equates to an
aggregate amount, based on the current number of outstanding Common
Shares, of approximately $10.6 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, May 5,
2023. The ex-dividend date is 4 May 2023. The dividend will be paid
no later than 2 June 2023
An interim payment of $4.9 million was already made in October
2022 ($0.045 based on the outstanding Common Shares at that time),
in line with the Company's intent to pay about one third of the
expected total dividend for the year as an interim dividend.
Consequently, the Group' total dividends for the financial year
will be $0.14 per share. This represents, based on the current
number of outstanding Common Shares, a total aggregate dividend for
the year of approximately $15.5 million, equivalent to
approximately 67% of the Group's Underlying Net Profit.
Dividend
All in $'000, unless otherwise
noted 2021 2022
Net income - Underlying 23,857 23,271
Free Operational Cash Flow 4,638 20,678
Dividend 703 15,511
Pay out ratio 67%
Payable in calendar year (interim
dividend) 4,869
Payable next calendar year
(final dividend) 10,642
Per share (**)
2021 2022
# weighted avg shares outstanding
- basic 108,240 108,137 '000
# weighted avg shares outstanding
- fully diluted 108,240 110,147 '000
EPS - Reported (basic and fully
diluted) (0.2241) (0.1388) $
EPS - Underlying (basic) 0.2201 0.2152 $
EPS - Underlying (fully diluted) 0.2201 0.2113 $
Note to Investors:
In accordance with a letter provided to shareholders by Link,
certain IRS forms are required to be completed.
One of the IRS forms listed below must be completed by person/s
within your entity/organisation with appropriate knowledge and
signed by a suitably authorised person(s). If you decide another
IRS form is more appropriate, please provide it instead.
If the correct documentation is not provided, including any
additional information that might be relevant, the default rate of
30% will still apply to payments.
1. Form W-8BEN-E - titled 'Certificate of Status of Beneficial
Owner for United States Tax Withholding and Reporting (Entities)'.
This is usually for non-individuals not resident in the US.
Form W-8BEN-E and instructions can be found at:
https://www.irs.gov/pub/irs-pdf/fw8bene.pdf W-8BEN-E Form
https://www.irs.gov/pub/irs-pdf/iw8bene.pdf W-8BEN-E Instructions
Or,
2. Form W-9 - titled 'Request for Taxpayer Identification Number and Certification'.
If your mailing address is outside the US it is possible you are
a non-US branch of a US entity and accordingly you need to consider
whether a form W-9 is required. This is because FATCA, unlike the
withholding tax rules, requires an exemption code for a non-US
branch of a US entity.
Form W-9 and instructions can be found at:
https://www.irs.gov/pub/irs-pdf/fw9.pdf W-9 Form
http://www.irs.gov/pub/irs-pdf/iw9.pdf W-9 Form Instructions
Or,
3. Form W-8IMY - titled 'Certificate of Foreign Intermediary,
Foreign Flow-Through Entity, or Certain U.S. Branches for United
States Tax Withholding and Reporting'. Typically, the Intermediary
is the parent company of the shareholder nominee, and not the
nominee.
Also, you must adhere to the requirements in the box below
including the specific guidance on withholding statements.
Form W-8IMY and instructions can be found at:
www.irs.gov/pub/irs-pdf/fw8imy.pdf W-8IMY Form (Foreign Intermediaries)
www.irs.gov/pub/irs-pdf/iw8imy.pdf W-8IMY Instructions (Foreign Intermediaries)
Response and the form(s) can be scanned and sent to:
tptadvices@linkgroup.co.uk
Or by post to: Post Room, Link Group, Central Square, 29
Wellington Street, Leeds, LS1 4DL, United Kingdom.
Recent developments
As announced on 1 March 2023, the Group completed the
acquisition of MultiState Associates. This was PPHC's second
significant acquisition since IPO in December 2021. MultiState's
services at the state level are highly complementary to PPHC's with
its strength in research and compliance adding to and enhancing
PPHC's broader client offering. The initial consideration of $22
million was funded 80% ($17.6 million) in cash and 20% ($4.4
million) through the issue of new common shares in PPHC to
MultiState. Further earnout payments are contingent on MultiState
achieving profit growth targets between 2022 and 2027, promoting
alignment with the Group's growth objectives. Significant revenue
and profit synergy potential exists via the referral of existing
clients from the PPHC network. The acquisition is substantially and
immediately accretive to underlying earnings per share in 2023.
Also announced on 1 March 2023, and related to the MultiState
acquisition, PPHC entered into a $17 million credit facility with
Bank of America, N.A. Key components were:
-- Facility 1: a $3 million Senior Secured Line of Credit. The
interest rate payable on this facility is the Bloomberg Short-Term
Bank Yield Index plus 225 basis points.
-- Facility 2: $14 million Senior Secured Term Loan. The
interest rate payable on this facility is the Bloomberg Short-Term
Bank Yield Index plus 225 basis points.
-- The Credit Facility will mature on 31 January 2026.
Credit Facility 2 was deployed alongside balance sheet cash to
fund the cash element of the initial consideration in relation to
the acquisition of MultiState. The Group recognises the importance
of its ability to utilise, depending on market conditions, both the
equity and debt markets to fund its growth strategy. Maintaining
flexibility facilitates the Group's wider capital allocation
policy, which includes the payment of dividends, in a de-risked
manner.
Financial Guidance
-- Management continues to expect revenue to grow by 5 to 10%
organically, supplemented by growth from past and future M&A
transactions.
-- The Group continues to manage the business such that
Underlying EBITDA as percentage of revenue is estimated to range
between 25% and 30%.
-- We expect to make further investments in 2023 to continue to
build out our platform to support further growth.
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 2022 figures, for the
consolidated financial statements in this annual report, represent
the first full year of Public Policy Holding Company, Inc.
following its IPO. The comparative figures presented in this report
for the year ended 31 December 2021 are for Public Policy Holding
Company, LLC and its subsidiary companies, the businesses of which
were contributed to the Company immediately prior to the IPO. For
the year ended 31 December 2021, the consolidated figures represent
the results of the underlying business for the whole financial
period before and after 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), 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. Four elements distinguish our Underlying Net Income from
our Reported Net Income:
(1) Share-based accounting charge: As already mentioned in last
year's report, 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 2022 non-cash
charge is $33.4 million (2021: $27.6 million). This share-based
accounting non-cash charge has no impact on either tax or Company
operations.
(2) Post-combination compensation charge: In 2022, the Group
completed the acquisition of KP Public Affairs on 1 October 2022.
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 2022 charge is $2.4
million (2021: $0 million). Again, this is non-cash charge and has
no impact on either tax or Company operations.
(3) LTIP charges. In 2022 the Group issued the first stock-based
compensation units under the Omnibus Plan. This plan was introduced
at the time of the IPO and allows the Group to issue up to a
certain number of stock-related units (e.g. options, restricted
stock). In 2022 PPHC issued 2.8 million stock options at a premium
exercise price (market price at time of grant plus 20%),
exercisable at the 3(rd) anniversary of the grant. The charges
relating to this issue, $0.3 million in 2022, as reflected in our
P&L were computed using the Black Scholes method.
(4) Amortization of intangibles: The non-cash amortization
charge of $2.1 million relates to the amortization of customer
relationships per ASC 805.
(**) EPS Underlying Net Income for 2021 based on the average
number of shares in the post-IPO period from 16 December 2021 to 31
December 2021, being 108,240,250
Consolidated Balance Sheets
December 31, 2022 and 2021
2022 2021
-------------- ---------------
Assets
Current assets:
Cash $ 21,202,456 $ 18,035,641
Accounts receivable, net 12,149,803 8,214,002
Note receivable - related party, current
portion - 263,850
Prepaid post-combination compensation,
current portion 441,852 -
Prepaid expenses and other current assets 1,411,421 490,712
-------------- ---------------
Total current assets 35,205,532 27,004,205
Property and equipment, net 688,313 788,598
Note receivable - related party, long
term 513,000 -
Operating lease right of use asset 16,239,667 15,907,571
Goodwill 47,909,832 44,893,532
Other intangible assets, net 18,575,116 12,877,567
Deferred income tax asset 2,278,400 -
Prepaid post-combination compensation,
long term 515,500 -
Other long-term assets 118,887 553,957
-------------- ---------------
Total assets $ 122,044,247 $ 102,025,430
============== ===============
Liabilities
Current liabilities:
Accounts payable and accrued expenses $ 12,336,324 $ 8,329,355
Income taxes payable 4,150,389 522,500
Amounts owed to related parties 1,276,479 6,696,795
Deferred revenue 2,860,889 1,942,536
Operating lease liability due within
one year 3,907,543 3,374,724
Contingent consideration, current portion 1,779,000 -
Other liability, current portion 1,821,600 -
Notes payable, current portion 20,664 20,664
------------ -----------
Total current liabilities 28,152,888 20,886,574
Notes payable, long term 189,975 216,048
Deferred income tax liability - 2,914,600
Contingent consideration, long term 2,466,000 -
Other liability, long term 435,060 -
Operating lease liability, long term 14,815,236 15,262,878
------------ -----------
Total liabilities 46,059,159 39,280,100
Stockholders' equity
Common stock, $0.001 par value, 1,000,000,000
shares authorized, 109,346,480 and 108,240,250
shares
issued and outstanding, respectively 108,024 108,240
Additional paid-in capital 120,713,626 86,892,903
Accumulated deficit (44,836,562) (24,255,813)
------------- --------------
Total stockholders' equity 75,985,088 62,745,330
------------- --------------
Total liabilities and stockholders' equity $ 122,044,247 $ 102,025,430
============= ==============
Consolidated Statements of Operations
For the Years Ended December 31, 2022 and 2021
2022 2021
--------------- --------------
Revenue $ 108,814,491 $ 99,336,460
Expenses:
Personnel cost 52,252,267 44,070,612
Employee bonuses 11,010,439 17,626,133
General and administrative expenses 10,432,781 8,184,253
Occupancy expense 3,933,014 3,650,562
Depreciation and amortization expense 2,229,197 2,012,645
Long term incentive program charges 317,679 -
Profit bonuses - 19,892,634
--------------- --------------
Total expenses before share-based accounting
(ASC 718-10-S99-2) charge
and post-combination compensation (ASC 805-10-55-25)
charge 80,175,377 95,436,839
--------------- --------------
Income from operations before share based
accounting (ASC 718-10-S99-2) charge and post-combination
compensation (ASC 805-10-55-25) charge 28,639,114 3,899,621
Share-based accounting (ASC 718-10-S99-2)
charge 33,392,300 27,609,214
Post-combination compensation (ASC 805-10-55-25)
charge 2,441,052 -
--------------- --------------
Loss from operations (7,194,238) (23,709,593)
Interest expense 16,873 51,520
Net loss before income taxes (7,211,111) (23,761,113)
Income tax expense 7,797,600 494,700
--------------- --------------
Net loss $ (15,008,711) $ (24,255,813)
=============== ==============
Net loss per share attributable to common
stockholders, basic and diluted $ (0.14) $ (0.24)
=============== ==============
Weighted average common shares outstanding,
basic and diluted 108,136,853 100,338,632
=============== ==============
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2022 and 2021
Common Stock
Shares Amount Additional Members' Accumulated Total
Paid-In Equity Deficit Stockholders'
Capital Equity
----------- --------- ------------- ------------- --------------- --------------
Balance as of December 31, 2020 - $ - $ - $ 58,672,734 $ - $ 58,672,734
Distributions to members - - - (444,235) - (444,235)
Shares issued due to conversion
from
LLC to C-Corporation 100,000,000 100,000 58,128,499 (58,228,499) - -
Issuance of common shares, net
of commissions
and fees of $1,634,554 8,240,050 8,240 13,357,206 - - 13,365,446
Syndication costs - - (4,797,076) - - (4,797,076)
Income tax effect of conversion
from
LLC to C C-Corporation - - (2,942,400) - - (2,942,400)
Holdings Distribution Discount - - (4,462,540) - - (4,462,540)
Share-based accounting (ASC
718-10-S99-2)
charge - - 27,609,214 - - 27,609,214
Net loss - - - - (24,255,813) (24,255,813)
----------- --------- ------------- ------------- --------------- --------------
Balance as of December 31, 2021 108,240,050 108,240 86,892,903 - (24,255,813) 62,745,330
Stock option expense - - 317,679 - - 317,679
Dividends - - - - (5,572,254) (5,572,254)
Forfeiture of unvested
restricted stock (215,662) (216) - - 216 -
Share-based accounting (ASC
718-10-S99-2)
charge - - 33,392,300 - - 33,392,300
Post-combination compensation
(ASC
805-55-10-25) charge-shares - - 110,744 - - 110,744
Net loss - - - - (15,008,711) (15,008,711)
----------- --------- ------------- ------------- --------------- --------------
Balance as of December 31, 2022 108,024,388 $ 108,024 $ 120,713,626 $ - $ (44,836,562) $ 75,985,088
=========== ========= ============= ============= =============== ==============
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2022 and 2021
2022 2021
-------------- --------------
Cash flows from operating activities
Net loss $ (15,008,711) $ (24,255,813)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities: Depreciation 100,285 127,833
Amortization expense - intangibles 2,128,912 1,884,812
Amortization of right of use assets 3,115,249 2,943,400
Provision for deferred income taxes (589,961) (27,800)
Share-based accounting (ASC 718-10-S99-2)
charge 33,392,300 27,609,214
Stock-based compensation 317,679 -
Amortization of prepaid post-combination
compensation (ASC 805-55-10-25) 73,648 -
Post-combination compensation (ASC
805-55-10-25) charge-shares 110,744 -
(Increase) decrease in
Accounts receivable, net (3,935,801) (3,267,547)
Other assets (368,068) (378,012)
Increase (decrease) in
Accounts payable and accrued expenses 3,805,605 2,546,171
Income taxes payable 3,627,889 522,500
Deferred revenue 682,806 1,879,225
Operating lease liability (3,362,168) (2,668,786)
Other liability 2,256,660 -
Transactions with members/related
parties (5,669,466) (2,276,974)
-------------- --------------
Net cash provided by operating
activities 20,677,602 4, 638,223
Cash flows from investing activities
Purchases of property and equipment - (36,630)
Cash paid for acquisitions and
prepaid post-combination compensation,
net of cash (11,912,460) -
-------------- --------------
Net cash used in investing activities (11,912,460) (36,630)
Cash flows from financing activities
Syndication costs and other stock
issuance costs - (4,638,271)
Issuance of common stock - 13,755,665
Net proceeds (payments) from line
of credit and
notes payable (26,073) (1,382,030)
Distributions (5,572,254) (444,235)
-------------- --------------
Net cash provided by (used in)
financing activities (5,598,327) 7,291,129
-------------- --------------
Net increase in cash and cash
equivalents 3,166,815 11,892,722
Cash and cash equivalents as of
beginning of year 18,035,641 6,142,919
-------------- --------------
Cash and cash equivalents as of
end of year $ 21,202,456 $ 18,035,641
============== ==============
Supplemental disclosure of cash
flow information
Cash paid for interest $ 16,873 $ 51,520
-------------- --------------
Cash paid for income taxes $ 4,770,409 $ -
-------------- --------------
Right of use assets obtained with
lease liabilities $ 3,447,345 $ 3,057,555
-------------- --------------
Contingent consideration issued $ 4,245,000 $ -
for acquisitions
-------------- --------------
Increase in deferred revenue from $ 235,547 $ -
acquisitions
-------------- --------------
Increase in accounts payable and $ 201,364 $ -
accrued expenses from acquisitions
-------------- --------------
Increase in other assets from acquisitions $117,571 $ -
-------------- --------------
Income tax effect of conversion
of LLC to C-Corporation $ - $ 2,942,400
-------------- --------------
Holdings Distribution Discount $ - $ 4,462,540
-------------- --------------
Commissions and fees paid through
issuance of common stock $ - $ 1,244,335
-------------- --------------
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 and public affairs consulting
services exclusively in the United States of America ("U.S.").
The Company has prepared the accompanying consolidated financial
statements in conformity with generally accepted accounting
principles in the United States of America ("GAAP"). Such
consolidated financial statements reflect all adjustments that are,
in management's opinion, necessary 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
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 December 31, 2021, the Holdings
Distribution Discount of approximately $4,463,000 is included in
the amounts owed to related parties in the Company's Consolidated
Balance Sheets. This amount was paid in full during 2022.
In addition, certain assets and liabilities were not contributed
by PPHC-LLC to the Company as part of the Company Conversion. As of
December 31, 2021, the net amount owed to the PPHC-LLC members
approximates $2,234,000 and is included in amounts owed to related
parties in the Company's Consolidated Balance Sheets. This amount
was paid in full during 2022.
During 2021, all the ultimate owners of PPHC-LLC ("Group
Executives") entered into Executive Employment Agreements. The
Group Executives sold some of their Common Stock in conjunction
with the IPO ("Liquidated Pre-IPO Shares") but retained the
majority of their shares ("Retained Pre-IPO Shares"). The Retained
Pre-IPO Shares are subject to a vesting schedule under which the
Common Stock held by each Group Executive will vest in equal
installments on the first five anniversaries of the effective date
of the IPO, provided that the Group Executive remains continuously
employed by the employer; this vesting schedule applies to all the
Company's employees holding Common Stock at the time of the IPO. In
the event that a Group Executive's employment terminates (other
than on death or "disability", or by the employer without "cause",
or by the Group Executive for what is deemed to be for a "good
reason") then the unvested proportion of the Retained Pre-IPO
Shares which have not vested, will 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
7.
Revenue Recognition:
The Company generates the majority of its revenue by providing
consulting services related to lobbying and public affairs. 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 fixed 15% markup on the cost
incurred by the Company. The Company recognizes revenues earned to
date in an amount that is probable or unlikely to reverse and by
applying the proportional performance method when the criteria for
revenue recognition is met. Any out-of-pocket administrative
expenses incurred are billed at cost.
Certain services provided by the Company include the utilization
of a third-party in the delivery of those services. These services
are primarily related to the production of an advertising campaign
or media buying services. The Company has determined that it acts
as an agent and is solely arranging for the third-parties to
provide services to the customer. Specifically, the Company does
not control the specified services before transferring those
services to the customer, and is not primarily responsible for the
performance of the third-party services, nor can the Company
redirect those services to fulfill any other contracts. The Company
does not have discretion in establishing the third-party pricing in
its contracts with customers. For these performance obligations for
which the Company acts as an agent, the Company records revenue as
the net amount of the gross billings less amounts remitted to the
third-party.
The following table provides disaggregated revenue by revenue
type for the periods ended December 31:
2022 2021
--------------- --------------
Lobbying revenue $ 78,177,680 $70,125,726
Public affairs revenue 30,636,811 29,210,734
--------------- --------------
Total revenue $ 108,814,491 $99,336,460
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, 2022 and 2021, the accounts receivable, net and
deferred revenue was approximately
$8,214,000 and $1,943,000 and $6,623,000 and $1,502,000,
respectively. The following table provides information about
receivables, contract assets and contract liabilities from
contracts with customers as of December 31:
2022 2021
Accounts receivable, net $ 11,585,267 $ 8,109,353
Other receivables 564,536 104,649
Contract liabilities (deferred revenue) 2,860,889 1,942,536
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. The deferred revenue of $1,942,536 and
$1,502,176 from December 31, 2021 and 2020 was recognized as
revenue in 2022 and 2021, 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 December 31, 2022, the balance of
allowance for doubtful accounts approximated
$595,000. The Company determined that no allowance for doubtful
accounts was necessary as of December 31, 2021.
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 December 31, 2022 and 2021, the Company had approximately
$16,240,000 and $15,908,000, respectively, of operating lease ROU
assets and $18,723,000 and $18,638,000, 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 December 31, 2022, 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
December 31:
2023
.................................................................................................................................. $ 4,648,767
2024
.................................................................................................................................. 3,743,718
2025
.................................................................................................................................. 3,742,928
2026
.................................................................................................................................. 3,735,364
2027
.................................................................................................................................. 2,775,487
Thereafter........................................................................................................................
.. 2,546,780
Total future minimum lease payments 21,193,044
Amount representing interest (2,470,265)
Present value of net future minimum lease payments $18,722,779
Lease Cost
Year ending December 31:
2022 2021
------------------ -------------
Operating lease cost (cost resulting from
lease payments) $ 4,011,764 $ 3,829,749
Variable lease cost (cost excluded from lease
payments) 264,179 171,958
Sublease income (396,000) (400,890)
------------------ -------------
Net lease cost $ 3,879,943 $ 3,600,817
Operating lease - operating cash flows (fixed
payments) $ 4,264,516 $ 3,938,149
Weighted average lease term - operating leases 5.2 years 5.1 years
Weighted average discount rate - operating
leases 4.80% 3.98%
The Company subleases office space to third parties under
separate sublease agreements, which are scheduled to expire during
2023. The amount of future sublease income from subtenants as of
December 31, 2022 is immaterial.
Property and equipment:
Property and equipment consists 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 December 31, 2022, the Company's
reporting units consisted of Lobbying Consulting and Public Affairs
Consulting. 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 years ended December 31, 2022 and
2021.
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 years ended December 31, 2022
and 2021.
Customer relationship asset:
The Company's definite-lived intangible asset consists of
customer relationships that have been acquired through various
acquisitions. The Company amortized 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 years ended December 31, 2022
and 2021.
Syndication costs:
Deferred offering costs consist primarily of consulting fees
related to the initial public offering (IPO). Prior to the IPO, all
deferred offering costs were capitalized and included in the
consolidated balance sheets. During December 2021, these costs
totaling approximately $4,797,000 were recorded as a reduction to
stockholders' equity.
Deferred revenue:
Deferred revenue represents prepayment by the customers for
services that have yet to be performed. As of December 31, 2022 and
2021, deferred revenue was approximately $2,861,000 and $1,943,000,
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 December 31:
2022 2021
---------------- -------------
Accounts payable $ 1,199,130 $ 2,458,292
Bonus payable 9,425,261 3,945,621
Other accrued expenses 1,711,933 1,925,442
---------------- -------------
Total $12,336,324 $ 8,329,355
Marketing and advertising costs:
The Company expenses marketing and advertising costs as
incurred. Marketing and advertising expense for the years ended
December 31, 2022 and 2021 was approximately $182,000 and $102,000,
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.
Profit bonuses:
Prior to the IPO, annual bonus payments were paid as
compensation for services to senior executives and employees based
on the profits of the Company.
Estimates:
The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Share-based accounting charge and stock option expense:
The Company accounts for its share-based accounting (ASC
718-10-S99-2) charge using the fair value method. The fair value
method requires the Company to estimate the grant-date fair value
of its share- based awards and amortize this fair value to expense
over the requisite service period or vesting term. For restricted
and nonvested stock awards, the grant-date fair value is based upon
the market price of the Company's common stock on the date of the
grant. For stock options, the grant-date fair value is based on the
Black-Scholes Option Pricing Model. 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 two reportable segments. These segments consist of
Lobbying Consulting and Public Affairs Consulting.
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 years ended December 31, 2022
and 2021 does not include the common stock equivalent shares
below:
2022 2021
------------- -------------
Common shares outstanding 108,024,388 108,240,050
Stock options outstanding 2,718,809 -
Restricted stock 1,322,092 -
------------- -------------
Total common stock equivalents 4,040,901 -
------------- -------------
Total fully diluted shares 112,065,289 108,240,050
Fair value of financial instruments:
The carrying values of cash, accounts receivable, and accounts
payable and accrued expenses at December 31, 2022 and 2021
approximated their fair value due to the short maturity of these
instruments.
Reclassification:
Certain categorizations of the 2021 segment disclosures have
been reclassified to conform to the 2022 presentation. These
reclassifications had no impact on the total results or net assets
of the Company.
Subsequent events:
Management has evaluated the subsequent events for disclosure in
these consolidated financial statements.
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 ("Closing Cash
Payment") and issued 739,589 shares of the Company's common stock
("Closing Share Payment") to Seller at an aggregate fair value of
$1,145,200.
In addition, the Company will pay Seller an additional amount of
consideration totaling up to $4,048,000 ("Closing True-Up Payment")
based on specific operating results (as defined in the KP
Agreement) of KP through December 31, 2022. The payment of the
Closing True-Up Payment will be pro-rated as ninety percent cash
and ten percent shares of the Company's stock. There are additional
contingent payments that the Seller can earn in the future
depending on certain operating results that are achieved. The total
amount of consideration that the Company could be required to pay
to the Seller in the amount of cash and stock ("Seller Shares") is
$35,000,000. The equity component of the contingent payments ranges
between 20% and 35%.
The KP Agreement provides certain forfeiture provisions
applicable to any future cash or share payments owed, which
generally require the owners of KP LLC ("Owner" or "Owners") to
remain employed by the Company for a certain period of time to
receive the full amount of those future payments. There are certain
exceptions to the forfeiture provisions if termination of
employment occurs under certain permitted events ("Acceleration
Event") as defined in the KP Agreement.
In addition, under certain circumstances outlined in the KP
Agreement, the Company can claw back a portion of certain payments
previously paid if an Owner is not employed by the Company as of
December 31, 2026.
If an Owner's employment is terminated as a result of an
Acceleration Event, a percentage of the unvested Seller Shares
(representing such Owner's ownership percentage in Seller) shall
become fully vested. The Seller Shares issued have some
restrictions but they also have certain legal rights consistent
with the Company's other shares of Common Stock outstanding,
including certain voting rights and the rights to dividends paid by
the Company. In addition, the KP Agreement contains certain
provisions requiring the forfeiture of a percentage of all cash and
shares received by Seller if certain restrictive covenants are
breached by an Owner.
Reasons for the Acquisition
The Company acquired KP LLC to expand its governmental and
public affairs consulting services provided to state and local
governments. Specifically, KP LLC provides significant services to
companies and organizations doing business in the state of
California.
Accounting for the Acquisition
The acquisition of Seller was accounted for as a business
combination and reflects the application of acquisition accounting
in accordance with ASC 805, Business Combinations ("ASC 805"). The
acquired assets, including identifiable intangible assets and
liabilities assumed, have been recorded at their estimated fair
values with the excess purchase price assigned to goodwill.
Purchase Consideration
The Company determined that certain consideration provided to
Sellers in the KP Agreement does not qualify as purchase
consideration in accordance with the guidance of ASC 805. The
Company determined that the purchase consideration consists of the
amount of cash payments owed to Sellers that are not subject to a
vesting or claw back provision that is directly linked to the
continued employment of Sellers. The total purchase consideration
consisted of the following amounts:
Closing Cash Payment $ 10,306,800
Contingent consideration 4,245,000
Total purchase consideration $ 14,551,800
The contingent consideration consists of the estimated fair
value of the Closing True-Up Cash Payment, Interim Earnout Cash
Payment, and Final Earnout Cash Payment that are not subject to a
vesting requirement or claw back provision directly linked to the
future employment of Owners.
Purchase Price Allocation
The allocation of the purchase consideration resulted in the
following amounts being allocated to the assets acquired and
liabilities assumed as of the purchase date of October 1, 2022
based on their respective estimated fair values summarized
below:
Cash $ 139,547
Other current assets 69,000
Right of use assets 3,273,766
Tradename 1,091,000
Noncompete agreements 306,000
Customer relationship 5,861,000
Deferred income tax asset 4,277,500
Goodwill 3,016,300
Other current liabilities (208,547)
Lease liability (3,273,766)
Total estimated purchase price $14,551,800
The identified definite-lived intangible assets were as
follows:
Weighted-average
Definite-lived intangible useful life (in years) Amount
assets
------------------------------ ----------------------------- -----------------------
Customer relationship 7 $5,861,000
Noncompete agreements 5 $306,000
The fair value of customer relationships was determined using
the income approach, which requires management to estimate a number
of factors for each reporting unit, including projected future
operating results, anticipating future cash flows and discount
rates. The fair value of noncompete agreements was determined using
an income approach method, which requires management to estimate a
number of factors related to the expected future cash flows of KP
LLC and the potential impact and probability of competition,
assuming such noncompete agreements were not in place. The primary
factors that contributed to the goodwill recognized from the KP LLC
acquisition include the key employees of KP LLC combined with
additional synergies expected from increasing the Company's service
capabilities.
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 allocation of the purchase consideration resulted in the
following amounts being allocated to the assets acquired and
liabilities assumed as of the purchase date of November 1, 2022
based on their respective estimated fair values summarized
below:
Cash $ 179,793
Other current assets 48,571
Right of use assets 173,579
Tradename 14,000
Noncompete agreements 140,000
Customer relationship 414,461
Deferred income tax asset 325,539
Other current liabilities (228,364)
Lease liability (173,579)
Total estimated purchase price $ 894,000
The identified definite-lived intangible assets were as
follows:
Weighted-average
Definite-lived intangible useful life (in years) Amount
assets
------------------------------ ----------------------------- -----------------------
Customer relationship 7 $414,461
Noncompete agreements 4 $140,000
The fair value of customer relationships was determined using
the income approach, which requires management to estimate a number
of factors for each reporting unit, including projected future
operating results, anticipating future cash flows and discount
rates. The fair value of noncompete agreements was determined using
an income approach method, which requires management to estimate a
number of factors related to the expected future cash flows of
Engage and the potential impact and probability of competition,
assuming such noncompete agreements were not in place.
On November 1, 2018, PPHC-LLC advanced $833,000 to the original
members of Blue Engine Message & Media, LLC for the purchase of
the ownership interest of JDA Frontline Partners, LLC in the form
of a promissory note. The note was scheduled to mature on October
31, 2022, and required the borrowers to make 16 quarterly
installment payments of $52,063 commencing on February 15, 2019.
Interest on the note was the London Interbank Offered Rate
("LIBOR") daily floating rate plus 2.4%. The note receivable was
repaid in full in April 2022. The note receivable balance as of
December 31, 2021, was approximately $260,000 with interest
receivable of approximately $4,000, which are recorded in note
receivable - related party.
NOTE 3 RELATED PARTY TRANSACTIONS
As of December 31, 2021, the amounts owed to related parties
include the Holding Distribution Discount of approximately
$4,463,000 and the amount owed to PPHC-LLC members as part of the
Company Conversion of approximately $2,234,000. These amounts were
paid in full during 2022. 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 and
accrued interest balance as of December 31, 2022 was approximately
$526,000, which are recorded in note receivable - related party and
prepaid expenses and other assets.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is an indefinite lived asset with balances as follows
as of December 31:
2022 2021
---------------- --------------
Goodwill $ 47,909,832 $ 44,893,532
As of December, 31, 2022 and 2021, there have been no
impairments to goodwill . During 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 December
31:
2022 2021
--------------------- ----------------
Goodwill
Lobbying consulting $ 35,587,063 $ 34,286,212
Public affairs consulting 12,322,769 10,607,320
--------------------- ----------------
Total $ 47,909,832 $ 44,893,532
Intangible Assets
The Company's intangible assets consist of customer relationship
assets acquired through various acquisitions as well as noncompete
agreements acquired through the acquisition of 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 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 and noncompete agreements, and
the accumulated amortization of the Company's customer
relationships and noncompete agreements is as follows as of
December 31:
2022 2021
------------- -------------
Customer relationships $21,596,261 $15,320,800
Noncompete agreements 446,000 -
Accumulated amortization (8,385,145) (6,256,233)
------------- -------------
Total indefinite lived assets, net 13,657,116 9,064,567
Tradenames 4,918,000 3,813,000
------------- -------------
Total intangible assets, net $18,575,116 $12,877,567
============= =============
Amortization expense for customer relationship and noncompete
agreement assets approximated $2,129,000 and $1,885,000 for 2022
and 2021, respectively.
The approximate estimated future amortization expense for the
next five years is as follows:
Amortization
2023.........................................................................................................................
$ 2,667,000
2024..................................................................................................................................
2,456,000
2025..................................................................................................................................
2,440,000
2026..................................................................................................................................
2,288,000
2027..................................................................................................................................
2,237,000
NOTE 5 LINE OF CREDIT AND NOTES PAYABLE
A) Line of credit
The Company had a $2,000,000 revolving line of credit, which was
secured by all business assets. As a sub-facility under the line,
standby letters of credit could be issued up to $750,000 to secure
office leases. During 2021, the Company repaid the outstanding
balance on the line of credit and closed the line of credit.
Interest expense on the line of credit for the year ended December
31, 2021 was approximately
$41,000.
B) Note payable - landlord
The Company executed a lease amendment on March 23, 2018, and
received a loan of approximately
$316,000 to fund certain tenant improvements. The Company shall
repay the loan in equal monthly principal and interest installments
over the lease term at an interest rate of 8%, with the final
payment due on March 1, 2029. Notwithstanding the foregoing, the
Company may submit a notice to the landlord to prepay the
outstanding balance upon terms to be agreed upon by the landlord
and the Company. The balance on the loan as of December 31, 2022
and 2021, was approximately $211,000 and $237,000, respectively.
Interest expense on the note payable - landlord for the years ended
December 31, 2022 and 2021 was approximately $17,000 and $19,000,
respectively.
As of December 31, 2022, the only outstanding long-term debt is
the note payable - landlord and the future maturities of this note
payable at December 31 is as follows:
2023
................................................................................................................................... $ 27,074
2024
................................................................................................................................... 29,321
2025
................................................................................................................................... 31,755
2026
................................................................................................................................... 34,390
2027
................................................................................................................................... 37,245
Thereafter
.......................................................................................................................... 50,854
Total $ 210,639
NOTE 6 STOCKHOLDERS' EQUITY AND SHARE-BASED ACCOUNTING CHARGE
As of December 31, 2022, 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 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 of
109,346,480 shares and the amount outstanding on the statement of
equity of 108,024,388 consists of shares issued with restrictions
(collectively "Restricted Shares") as follows:
Statement of Equity, as of December 31, 2022 108,024,388
Restricted Shares:
Closing Share Payment 739,589
Engage Restricted Shares 487,301
Other Restricted Shares 95,202
Total Restricted Shares 1,322,092
Legally Outstanding Shares, as of December
31, 2022 109,346,480
The weighted-average common shares outstanding, basic and
diluted reported on the consolidated statement of operations is
108,136,853, which is different from the 108,024,388 ending shares
as of December 31, 2022 due to the first number representing an
average during the year compared to the amount outstanding at the
end of the year.
Other Restricted Shares consists of shares issued in 2022 to
convert a consultant of the Company to a full-time employee. These
shares were valued at approximately $178,000 and vest 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 $33,392,300 and $27,609,214
in 2022 and 2021, respectively.
As of December 31, 2022, the total number of Liquidated Pre-IPO
Shares subject to the claw back provisions totaled 11,328,809. As
of December 31, 2022, there were 85,320,625 Retained Pre-IPO Shares
subject to vesting requirements and 17,080,032 of these shares were
fully vested. These shares were issued in 2021 and the
weighted-average grant date fair value of these shares was $1.82 as
of the grant date. As of December 31, 2022, the unrecognized
compensation cost from these restricted shares was approximately
$120,826,000, which is expected to be recognized over a
weighted-average period of 4 years.
ASC 805-10-55-25 Charge
During 2022, the Company acquired KP LLC and Engage (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 or Senior Principals
of Engage, 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.
For the year ended December 31, 2022, the post-combination
compensation charge recorded by the Company was approximately
$2,441,000. Approximately $2,257,000 of this amount is recorded as
other liability at December 31, 2022. Approximately $111,000 of the
post-combination compensation charge is from the issuance of Common
Stock that vested as of December 31, 2022 and the remaining
approximately $74,000 was from the 2022 amortization of the prepaid
post-combination compensation asset. As of December 31, 2022, the
unrecognized post-combination compensation charge was approximately
$10,104,000, which is expected to be recognized over a
weighted-average period of 2.5 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), stock
appreciation rights, restricted stock units, restricted stock,
unrestricted stock, cash-based awards and dividend equivalent
rights may be issued. An award may not be granted if the number of
common shares committed to be issued under that award exceeds ten
percent of the ordinary shares of the Company in issue immediately
before that day, when added to the number of common shares which
have been issued, or committed to be issued, to satisfy awards
under the Omnibus Plan, or options or awards under any other
employee share plan operated by the Company, granted in the five
previous years.
As of December 31, 2021, no awards were outstanding under the
Omnibus Plan. As of December 31, 2022, the total amount of shares
authorized by the Board of Directors under the Omnibus Plan was
2,805,852. During the year ended December 31, 2022 the Company
granted 2,794,859 stock options to employees. The stock options
have a contractual term of ten years and vest three years after
their issuance.
Determining the appropriate fair value model and the related
assumptions requires judgment. The fair value of each option
granted is estimated using a Black-Scholes option-pricing model on
the date of grant as follows:
For the year
ended
December 31,
2022
Estimated dividend yield 6.00%
Expected stock price volatility 60.00%
Risk-free interest rate 2.7% to 4.1%
Expected life of option (in years) 6.50
Weighted-average fair value per share $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 stock option activity for the year
ended December 31, 2022:
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 options are exercisable in Great British Pounds ("GBP") as
the Company's shares are issued in GBP. The weighted-average
exercise price has been adjusted based on the December 31, 2022
exchange rate of GBP to U.S. Dollars of 1 GBP equals $1.21.
The following table summarizes certain information about the
stock options outstanding and exercisable as of December 31,
2022:
Number of Options Weighted-Average Number of Options
Exercise Price Outstanding Remaining Life Exercisable
------------------------ --------------------------- ------------------ -----------------------
$2.10* 100,000 9.8 -
2.13* 2,568,809 9.4 -
2.15* 50,000 9.6 -
2,718,809 -
Stock option expense for the year ended December 31, 2022 was
approximately $318,000. As of December 31, 2022, there was
approximately $1,254,000 of total unrecognized compensation cost
related to non-vested stock-based compensation arrangements, which
is expected to be recognized over a weighted-average period of 2.4
years.
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 year ended December 31, 2022 and for the period December
10, 2021 through December 31, 2021.
2022 2021
--------------- ------------
Current tax expense:
Federal $ 5,944,400 $ 375,100
State 2,443,100 147,400
--------------- ------------
8,387,500 522,500
Deferred tax expense (benefit):
Federal $ (475,500) $ (21,600)
State (114,400) (6,200)
--------------- ------------
(589,900) (27,800)
--------------- ------------
Total Provision for Income Taxes: $ 7,797,600 $ 494,700
=============== ============
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 reported on the
Consolidated Balance Sheets as of December 31, 2021 is deductible
for income tax purposes. The acquisitions of KP LLC and Engage are
taxable asset acquisitions. As such, the purchase consideration for
these acquisitions will generate tax-deductible goodwill in the
combined amount of approximately $20,760,000. 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
$20,760,000 of tax deductible goodwill, approximately $8,300,000 is
eligible to begin being amortized for tax purposes during the 2022
tax year.
Significant components of the Company's deferred tax assets and
liabilities are as follows as of December 31:
2022 2021
---------------- ----------------
Deferred income tax assets:
Other assets $ 197,600 $ 40,600
Goodwill 4,797,000 -
ASC 842 Lease liability 5,107,000 5,036,200
---------------- ----------------
Total deferred income tax assets 10,101,600 5,076,800
Deferred income tax liabilities:
Property and equipment (188,200) (213,100)
Prepaid compensation (281,000) -
Intangible assets (2,924,000) (3,479,800)
Right of use asset (4,430,000) (4,298,500)
---------------- ----------------
Total deferred income tax liabilities (7,823,200) (7,991,400)
Total Net Deferred Tax Asset (Liability): $ 2,278,400 $ (2,914,600)
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 of
($7,211,111) and ($25,778,400) for the year ended December 31, 2022
and for the period between December 10, 2021 and December 31, 2021,
is as follows:
December 10, 2021
December 31, 2022 -
December 31, 2021
----------------------------
% of Pretax % of Pretax
Amount Earnings Amount Earnings
------------- ------------ ------------- -------------
Federal income tax benefit at
statutory rate $ (1,514,300) 21.0 $ (5,413,500) 21.0
State income taxes, net of federal
income tax
benefit (452,800) 6.3 (1,552,300) 6.0
Nondeductible share-based accounting
charge 9,775,100 (135.6) 7,460,500 (28.9)
Other (10,400) 0.1 - -
------------- ------------ ------------- -------------
Total Provision for Income Taxes $ 7,797,600 108.2 $ 494,700 (1.9)
============= ============ ============= =============
As of December 31, 2022, there are no known items that would
result in a material liability related to uncertain tax positions,
as such, there are no unrecognized tax benefits. The Company's
policy is to recognize interest and penalties related to uncertain
tax positions in the provision for income taxes. As of December 31,
2022, 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 December 31, 2022, the Company has two reportable
segments; Lobbying Consulting and Public Affairs Consulting.
Lobbying 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.
Corporate is primarily comprised of selling, general and
administrative expenses. These expenses include corporate office
expenses and certain other centrally managed expenses that are not
fully allocated to operating divisions, salaries, annual bonuses
and other miscellaneous benefits for corporate office employees,
financial statement audits and legal, information technology and
other consulting services that are engaged and managed through the
corporate office, and rental expense for properties occupied by
corporate office employees.
The Company measures the results of its segments using, among
other measures, each segment's net revenue and operating income,
which includes certain corporate overhead allocations. The
Company's chief operating decision maker does not evaluate the
total assets, liabilities or income tax expenses at the segment
level but rather evaluates these items on a consolidated basis.
Information for the Company's segments, as well as for corporate
and support, including the reconciliation to income (loss) from
operations is provided in the following tables, as of December
31:
2022 2021
-------------- ---------------
Revenue
Lobbying consulting $ 78,177,680 $ 70,125,726
Public affairs consulting 30,636,811 29,210,734
-------------- ---------------
Total $ 108,814,491 $ 99,336,460
2022 2021
--------------------- ----------------
Income (loss) from operations
Lobbying consulting $ 26,065,442 $ 4,808,030
Public affairs consulting 8,252,450 878,878
Share-based accounting (ASC 718-10-S99-2)
charge (33,392,300) (27,609,214)
Post-combination compensation (ASC 805-10-55-25)
charge (2,441,052) -
Corporate (5,678,778) (1,787,287)
--------------------- ----------------
Total loss from operations $ (7,194,238) $(23,709,593)
2022 2021
------------- ------------
Depreciation and amortization
Lobbying consulting $ 1,834,519 $ 1,728,875
Public affairs consulting 313,340 202,432
Corporate 81,338 81,338
------------- ------------
Total depreciation and amortization $ 2,229,197 $ 2,012,645
============= ============
NOTE 12 SUBSEQUENT EVENTS
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 Associates, Inc.
("MultiState").
On March 1, 2023, the Company acquired MultiState for initial
consideration of $22,000,000 ("Initial Consideration"). MultiState
is a United States based state and local government relations
specialists and a provider of state-based government relations
services, state issues tracking and compliance solutions. The
MultiState Consideration consisted of $17,600,000 in cash and the
issuance of 2,740,717 new shares of the Company's common stock
valued at $4,400,000. In addition to the Initial Consideration, the
owners of MultiState could receive up to three additional payments
("Contingent Payments") based upon the achievement of certain
milestones related to profit growth targets between 2022 and 2027.
These Contingent Payments would be paid fifty percent in cash and
fifty percent in shares of the Company's common stock. The maximum
amount of consideration that the Company could pay for the
acquisition totals $70,000,000.
During March 2023, the Company entered into certain lease
amendments, which among other things, added additional square
footage of office space and extended the lease terms. The amended
leases were scheduled to expire during 2023. As a result of the
lease amendments, the Company's estimated future minimum lease
payments disclosed in Note 1 will increase by approximately
$11,000,000 through January 2031.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FKLLFXZLXBBV
(END) Dow Jones Newswires
April 20, 2023 02:00 ET (06:00 GMT)
Public Policy (LSE:PPHC)
Historical Stock Chart
From Apr 2024 to May 2024
Public Policy (LSE:PPHC)
Historical Stock Chart
From May 2023 to May 2024