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ACQUISITIONS | 6 Months Ended
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Jul. 02, 2023
Business Combinations [Abstract] |
ACQUISITIONS | ACQUISITIONS Horn Solutions On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Horn Solutions. The purchase price of $42.7 million was paid at closing with $33.9 million in cash and $3.4 million of the Company common stock (254,455 shares of the Company common stock privately placed under Section 4(a)(2) of the Securities Act of 1933, as amended), as well as a two-year convertible promissory note of $4.4 million with an annual interest rate of 6%, with interest paid quarterly. The promissory note is convertible into shares of the Company's common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $17.12 per share. The promissory note is subordinate to the Company’s senior debt. An additional portion of the purchase price, $1.0 million in cash was held back as partial security for a post-closing purchase price adjustment. The asset purchase agreement contained a provision for a “true-up” of acquired working capital within 120 days after the closing date. In May 2023, the hold back and true-up were paid, adjusting businesses acquired by $0.1 million in goodwill. The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 9 - Debt”. The acquired business was assigned to the Professional segment. The acquisition of Horn Solutions allows the Company to strengthen and expand its finance and accounting operations by providing consulting, project loan staff, interim staff, direct hire, and managed services through three complementary business units, strategic accounting and finance, information technology, and transactional accounting and office staffing. Horn Solutions provides services to clients in a variety of industries including, but not limited to energy, financial services, healthcare, real estate and construction, service, manufacturing, and software industries. For the thirteen week period ended July 2, 2023, Horn Solutions contributed $6.4 million of revenue and $0.2 million of operating loss, which included $0.9 million in amortization expense on acquisition intangibles. For the twenty-six week period ended July 2, 2023, Horn operations contributed $13.2 million of revenue and $0.4 million of operating loss, which included $1.7 million in amortization expense on acquisition intangibles. The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows (in thousands):
Accounts receivable |  | $ | 3,734 |
Prepaid expenses and other assets |  | 118 |
Property and equipment, net |  | 83 |
Right-of-use asset - operating leases |  | 1,528 |
Intangible assets |  | 13,484 |
Goodwill |  | 26,493 |
Current liabilities assumed | (1,787) |
Lease liability - operating leases |  | (1,528) |
Total net assets acquired |  | $ | 42,125 |
Cash |  | $ | 33,940 |
Hold back |  | 1,000 |
Convertible note |  | 4,368 |
Common stock |  | 3,351 |
Working capital adjustment |  | (534) |
Total fair value of consideration transferred for acquired business |  | $ | 42,125 |
The allocation of the intangible assets is as follows (in thousands):
|  | Estimated Fair Value |  | Estimated Useful Lives
Covenants not to compete |  | $ | 50 |  |  | 5 years
Client partner list |  | 13,434 |  |  | 10 years
Total |  | $ | 13,484 |  |  |
The Company incurred total costs of $0.4 million related to the Horn Solutions acquisition. These costs were expensed as incurred in selling, general and administrative expenses. Arroyo Consulting On April 24, 2023, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Arroyo Consulting for cash consideration of $6.8 million. $0.4 million was held back for certain post-closing liabilities and $0.9 million was held back for one year as partial security for any indemnification obligations. The purchase agreement further provides for contingent consideration of up to $8.5 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 9 - Debt”. The purchase agreement contained a provision for a “true up” of acquired working capital within 120 days after the closing date. The acquired business was assigned to the Professional segment. The acquisition of Arroyo Consulting allows the Company to strengthen the go-to-market cross-selling efforts providing clients a cost effective alternative offering nearshore and offshore IT resources. Arroyo Consulting provides nearshore and offshore professional workforce solutions specializing in IT and software development with operations in the United States, Colombia, and India. For the thirteen week period ended July 2, 2023, Arroyo Consulting contributed $4.1 million of revenue and $1.0 million of operating income, which included $0.2 million in amortization expense on acquisition intangibles. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows (in thousands):
Accounts receivable |  | $ | 3,452 |
Property and equipment, net |  | 170 |
Right-of-use asset - operating lease |  | 141 |
Intangible assets |  | 11,315 |
Goodwill |  | 2,879 |
Current liabilities assumed |  | (2,471) |
Lease liabilities - operating leases | (141) |
Total net assets acquired |  | $ | 15,345 |
Cash |  | $ | 6,800 |
Hold back, working capital* |  | $ | 350 |
Hold back, indemnities* |  | $ | 850 |
Working capital adjustment* |  | $ | 677 |
Fair value of contingent consideration |  | $ | 6,668 |
Total fair value of consideration transferred for acquired business |  | $ | 15,345 |
*Included in Other current liabilities |  |
The allocation of the intangible assets is as follows (in thousands):
|  | Estimated Fair Value |  | Estimated Useful Lives
Covenants not to compete |  | $ | 298 |  |  | 5 years
Client partner list |  | 11,017 |  |  | 10 years
Total |  | $ | 11,315 |  |  |
The Company incurred costs of $0.5 million related to the Arroyo Consulting acquisition. These costs were expensed as incurred in selling, general and administrative expenses. Supplemental Unaudited Pro Forma Information The Company estimates what would have been reported if the revenues and net income from continuing operations of the Horn Solutions and Arroyo Consulting acquisition had taken place on the first day of Fiscal 2022 (in thousands, except income per share):
| Thirteen Weeks Ended |  | Twenty-six Weeks Ended
| #SHEET! | #SHEET! |  | #SHEET! | June 26, 2022
Revenues | $ | 82,428 |  | $ | 86,696 |  |  | $ | 162,919 |  | $ | 166,219 |
Gross profit | $ | 30,026 |  | $ | 30,678 |  |  | $ | 58,527 |  | $ | 58,772 |
Net income (loss) | $ | 2,755 |  | $ | 4,751 |  |  | $ | (12,933) |  | $ | 7,004 |
Income (loss) per share from continuing operations: |  |  |  |  |
Basic | $ | 0.26 |  | $ | 0.45 |  |  | $ | (1.21) |  | $ | 0.67 |
Diluted | $ | 0.26 |  | $ | 0.45 |  |  | $ | (1.21) |  | $ | 0.67 |
Pro forma net income (loss) includes amortization of primarily client partner lists, interest expense on additional borrowings on the New Term Loan and the Revolving Facility (see “Note 9 - Debt”) at a rate of 2.5%. The tax benefit of the pro forma adjustments at effective tax rates of 26.6% and 24.6% for the thirteen and twenty-six week periods ended July 2, 2023, respectively, and effective tax rates of 23.7% and 24.7% for the thirteen and twenty-six week periods ended June 26, 2022, respectively. The pro forma operating results include adjustments to Horn Solutions and Arroyo Consulting related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company. Amounts set forth above are not necessarily indicative of the results that would have been attained had the Horn Solutions and Arroyo Consulting acquisitions taken place on the first day of Fiscal 2022 or the results that may be achieved by the combined enterprise in the future.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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