ATLAS TECHNICAL CONSULTANTS, INC. – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
audited financial statements and accompanying notes included herein. This
discussion contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements contained in
this Annual Report on Form 10-K other than statements of historical fact,
including statements regarding our future operating results or financial
position, our business strategy and plans, and our objectives for future
operations, are forward-looking statements. Actual results and the timing of
events may differ materially from those contained in these forward-looking
statements due to a number of factors. Factors that could cause or contribute to
such differences include, but are not limited to, economic and competitive
conditions, regulatory changes and other uncertainties, as well as those factors
included in this Annual Report on Form 10-K, all of which are difficult to
predict. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed may not occur. We assume no obligation to
update any of these forward-looking statements.
For purposes of this section, "we," "us," "our," the "Company" and "Atlas"
refers to
Corp.
was accounted for as a reverse recapitalization where the Company was the legal
acquirer but treated as the accounting acquiree. All references to operations
prior to the Atlas Business Combination reflect the results of
Intermediate Holdings LLC
Intermediate") and its subsidiaries. Since Atlas Intermediate was determined to
be the accounting acquirer, the information included below will include the
results of Atlas Intermediate and its subsidiaries through the Atlas Business
Combination and will include the Company, including Atlas Intermediate, for
transactions occurring after the Atlas Business Combination.
This section of this Form 10-K generally discusses 2022 and 2021 items and
year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and
year-to-year comparisons between 2021 and 2020 that are not included in this
Form 10-K can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the fiscal year ended
33
OVERVIEW
named
in
acquiring, through a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization, recapitalization, or other similar business
transaction, one or more operating businesses or assets.
On
acquisition of Atlas Intermediate pursuant to the Unit Purchase Agreement, dated
as of
Agreement"), by and among the Company,
subsidiary of the Company and a
liability company,
LP
Intermediate pursuant to the Purchase Agreement together with the other
transactions contemplated by the Purchase Agreement is referred to herein as the
"Atlas Business Combination."
Following the consummation of the Atlas Business Combination, we are organized
in an "Up-C" structure in which the business of Atlas Intermediate and its
subsidiaries is held by Holdings and continues to operate through the
subsidiaries of Atlas Intermediate, and in which our only direct assets consist
of common units of Holdings (the "Holdings Units"). We are the sole manager of
Holdings in accordance with the terms of the Amended and Restated Limited
Liability Company Agreement of Holdings entered into in connection with the
consummation of the Atlas Business Combination.
Headquartered in
solutions company and a provider of professional testing, inspection,
engineering, environmental, program management and consulting services, offering
solutions to public and private sector clients in the transportation,
commercial, water, government, education, industrial, healthcare and power
markets.
With approximately 126 offices located throughout
a broad range of mission-critical technical services, helping our clients test,
inspect, plan, design, certify and manage a wide variety of projects across
diverse end markets.
We act as a trusted advisor to our clients, helping our clients design,
engineer, inspect, manage and maintain civil and commercial infrastructure,
servicing existing structures as well as helping to build new structures.
However, we do not perform any construction and do not take any direct
construction risk.
We provide a broad range of mission-critical technical services, ranging from
providing inspection services in small projects to managing significant aspects
of large, multi-year projects. For the year ended
? performed approximately 40,500 projects; and
? delivered approximately 90% of our revenue under "time & materials" and
"cost-plus" contracts.
We have long-term relationships with a diverse set of clients, providing a base
of repeating clients, projects and revenues. Approximately 90% of our revenues
were derived from clients that have used our services at least twice in the past
three years and more than 95% of our revenues were generated from client
relationships longer than ten years, with greater than 25% of revenues generated
from relationships longer than thirty years. Examples of such
long-term customers include the
Walmart Inc.,
Our services require a high degree of technical expertise, as our clients rely
on us to provide testing, inspection and quality assurance services to ensure
that structures are designed, engineered, built and maintained in accordance
with building codes, regulations and the highest safety standards. As such, our
services are delivered by a highly-skilled, technical employee base that
includes engineers, inspectors, scientists and other field experts. As of
approximately 3,450 employees. Our services are typically provided under
contracts, some of which are long-term with long lead times between when
contracts are signed and when our services are performed. As such, we have a
significant amount of contracted backlog, providing for a high degree of
visibility with respect to revenues expected to be generated from such backlog.
As of
approximately
relating to our backlog.
34
Recent Accounting Pronouncements
See Note 2 "Summary of Significant Accounting Policies," to the Consolidated
Financial Statements for a description of the recent accounting pronouncements.
HOW WE EVALUATE OUR OPERATIONS
We use a variety of financial and other information in monitoring the financial
condition and operating performance of our business. Some of this information is
financial information that is prepared in accordance with generally accepted
accounting principles ("GAAP"), while other information may be financial in
nature and may not be prepared in accordance with GAAP. Historical information
is periodically compared to budgets, as well as against industry-wide
information. We use this information for planning and monitoring our business,
as well as in determining management and employee compensation.
We evaluate our overall business performance based primarily on a combination of
four financial metrics: revenue, backlog, adjusted EBITDA and liquidity
measures. These are key measures used by our management team and Board to
understand and evaluate our operational performance, to establish budgets and to
develop short and long-term operational goals.
Revenue
Revenues for services are derived from billings under contracts (which are
typically of short duration) that provide for specific time, material and
equipment charges, or lump sum payments and are reported net of any taxes
collected from customers. We recognize revenue as it is earned at estimated
collectible amounts.
Revenue is recognized as services are performed and amounts are earned in
accordance with the terms of a contract. We generally contract for services to
customers based on either hourly rates or a fixed fee. In such contracts, our
efforts, measured by time incurred, typically are provided in less than a year
and represent the contractual milestones or output measure, which is the
contractual earnings pattern. For contracts with fixed fees, we recognize
revenues as amounts become billable in accordance with contract terms, provided
the billable amounts are consistent with the services delivered and are earned.
Expenses associated with performance of work may be reimbursed with a markup
depending on contractual terms. Revenues include the markup, if any, earned on
reimbursable expenses. Reimbursements include billings for travel and other
out-of-pocket expenses and third-party costs, such as equipment rentals,
materials, subcontractor costs and outside laboratories, which is included in
cost of revenues in the accompanying combined statement of income.
Backlog
We define backlog to include the total estimated future revenue streams
associated with fully executed contracts as well as an estimate of highly
probable revenues from recurring, task order-based contracts.
We use backlog to evaluate Company revenue growth as it typically follows growth
in backlog. As backlog is not a defined accounting term, our computation of
backlog may not be comparable with that of our peers.
Adjusted EBITDA
We view adjusted EBITDA, which is a non-GAAP financial measure, as an important
indicator of performance. We define adjusted EBITDA as net income before
interest expense, income taxes, depreciation and amortization and adjustments
for certain one- time or non-recurring items adjustments. For more information
on adjusted EBITDA, as well as a reconciliation to the most directly comparable
GAAP measure, please see "-Non-GAAP Financial Measures" below.
35
COMPONENTS AND FACTORS AFFECTING OUR OPERATING RESULTS
Revenue
We generate revenue primarily by providing infrastructure-based testing,
inspection, certification, engineering, and compliance services to a wide range
of public- and private-sector clients. Our revenue consists of both services
provided by our employees and pass-through fees from subcontractors and other
direct costs.
Subcontractor Costs and Other Costs of Revenues
Total costs of revenues reflects subcontractor costs, the cost of personnel and
specifically identifiable costs associated with revenue, and other direct costs.
Operating Expense
Total operating expense includes corporate expenses, including personnel,
occupancy, and administrative expenses, including depreciation and amortization
and changes in fair value of contingent consideration.
Interest Expense
Interest expense consists of contractual interest expense on outstanding debt
obligations including amortization of deferred financing costs and other related
financing expenses.
Income Tax Expense
Following the consummation of the Atlas Business Combination, we are organized
in an "Up-C" structure in which the business of Atlas Intermediate and its
subsidiaries is held by Holdings and will continue to operate through the
subsidiaries of Atlas Intermediate, and in which our only direct assets consist
of common units of Holdings. We are the sole manager of Holdings in accordance
with the terms of the Holdings LLC Agreement entered into in connection with the
consummation of the Atlas Business Combination.
Previously, Atlas Intermediate was treated as a partnership for federal and
state income tax purposes with all income tax liabilities and/or benefits of the
Company being passed through to the partners and members. As such, no
recognition of federal or state income taxes have been provided for in the
accompanying consolidated financial statements with the exception of income
taxes relating to the
and the State of Texas Margin tax.
Subsequent to the Atlas Business Combination, income taxes relating to the
C-Corps owned directly by Atlas Intermediate and the State of Texas Margin tax
are considered within the provision of non-controlling interest as it is
generated through the results of Atlas Intermediate and its subsidiaries.
Net Income (loss)
Net income from continuing operations reflects our operating income after taking
into account costs and expenses for a given period, while excluding any gain or
loss from discontinued operations.
Provision for Non-controlling Interest
Our ownership and voting structure are comprised of holders of our Class A
common stock that participate 100% in the results of
Consultants, Inc.
holders of our Class B common stock that participate in the results of Atlas
Intermediate and its subsidiaries until their Class B common stock is converted
to Class A common stock. In connection with the Atlas Business Combination, it
was determined that the results of Atlas Intermediate and its subsidiaries would
be fully consolidated within the results of the Company.
Due to the participation of the holders of our Class B common stock in the
results of Atlas Intermediate and subsidiaries, a non-controlling interest was
deemed to exist. Consolidated net income (loss) includes earnings attributable
to both the stockholders and the non-controlling interests.
36
The provision for non-controlling interest relates to pre-tax income subsequent
to the Atlas Business Combination and includes a pro-rata share of taxes as
federal and state income taxes relating to the C-Corps directly owned by Atlas
Intermediate and the State of Texas Margin tax as it is generated through the
results of Atlas Intermediate and its subsidiaries.
Upon the close of the Atlas Business Combination, the holders of our Class B
common stock participated in 80.6% of the results of Atlas Intermediate and its
subsidiaries. This percentage has declined since the Atlas Business Combination
due to the exchange of Atlas Intermediate units, together with Class B common
shares, for Class A common stock as contractual lock-ups have expired and the
exchange of our public and private placement warrants for Class A common stock
during November and
exchange.
Redeemable Preferred Stock Dividends
On
Combination, Holdings and
subscription agreement (the "Subscription Agreement") pursuant to which GSO
AIV-2 purchased 145,000 units of a new class of Series A Senior Preferred Units
of Holdings (the "Preferred Units") at a price per Preferred Unit of
for an aggregate cash purchase price of
original issue discount on the Preferred Units (such purchase, the "GSO
Placement").
The GSO Placement was made pursuant to the exemption from registration contained
in Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities
Act"), and/or Regulation D promulgated thereunder.
On
Holdings, entered into Amendment No. 1 to the Holdings LLC Agreement to allow
Holdings, at the direction of the Board, to redeem all of the Preferred Units at
any time using the proceeds from the refinancing of the Atlas Credit Agreement
(as defined below) and entry into the Credit Agreements (as defined below).
On
LLC Agreement, Holdings elected to redeem all of the 145,000 Preferred Units
then outstanding and held by GSO AIV-2 for
total redemption price of
of
Preferred Units are no longer deemed outstanding, (ii) all dividends on the
Preferred Units ceased to accrue, and (iii) all rights of the holders thereof as
holders of Preferred Units ceased and terminated, except for the right to
receive payment under the Redemption.
Net Income (loss) Attributable to Class A Common Stock (Previously Members)
Net income (loss) attribution to holders of our Class A common stock represents
our results after the provision for non-controlling interest, the effect of all
taxes under the Up-C structure for the period subsequent to the Atlas Business
Combination, and dividends due on redeemable preferred stock.
Net income (loss) for the historical results of Atlas Intermediate prior to the
Atlas Business Combination are also reported within this line item.
37
RESULTS OF OPERATIONS
Overview of Financial Results
During the year ended
strategy increasing revenues by 12% compared to the year ended
2021
infrastructure and environmental professional services, continue to win larger
projects and benefit from our expanded service capabilities with two new
acquisitions in 2022. We also maintained our gross margins rates compared to the
prior year. As the Company grows, we continue to see economies of scale with our
efficient overhead structure which has resulted in significantly higher
operating income compared to the prior year.
We are focusing on providing infrastructure and environmental professional
services without undertaking direct construction risk. Our environmental
technical expertise continues to position us to assist our clients in addressing
their ongoing Environmental, Social and Governance ("ESG") objectives and
maintaining compliance with local laws and regulations.
Backlog has grown to a record
government and power contracts.
Merger Agreement
On
and the Merger Sub. Pursuant to the Merger Agreement, Merger Sub will be merged
with and into the Company, with the Company continuing as the surviving company
in the Merger. Parent and Merger Sub are controlled by investment funds advised
by
The Company's board of directors (the "Board") has unanimously determined that
the Merger Agreement is in the best interests of the Company and its
stockholders, and declared it advisable, to enter into the Merger Agreement and
consummate the Merger, approved and declared advisable the Merger Agreement and
the transactions contemplated thereby, including the Merger, directed that the
adoption of the Merger Agreement be submitted for consideration by the Company's
stockholders at a meeting thereof and resolved to recommend that the Company's
stockholders adopt the Merger Agreement.
Solicitation
From and after
non-solicitation restrictions, except that the Company may engage in
discussions, negotiations and other otherwise prohibited activities with any
party from which the Company receives an unsolicited competing acquisition
proposal that the Board determines constitutes, or would reasonably likely lead
to, a Superior Proposal (as defined in the Merger Agreement) and if the failure
to take such action would reasonably be expected to be inconsistent with the
directors' fiduciary duties.
Subject to certain exceptions, the Board is required to recommend that the
Company's stockholders adopt the Merger Agreement and may not withhold,
withdraw, amend, qualify or modify in a manner adverse to Parent such
recommendation or take certain similar actions that are referred to in the
Merger Agreement as a "Company Board Recommendation Change". However, the Board
may, before the adoption of the Merger Agreement by the Company's stockholders,
make a Company Board Recommendation Change in connection with a Superior
Proposal or Intervening Event (as defined in the Merger Agreement) if the
Company complies with certain notice and other requirements set forth in the
Merger Agreement. Upon closing, the Company will no longer be a publicly traded
company.
Financing
Funds advised by
equity contribution of
forth in the equity commitment letter, and have each agreed to fund certain
other obligations of Parent and Merger Sub in connection with the Merger,
including payment of a termination fee of
the terms and conditions set forth in that certain limited guarantee agreement
in favor of the Company. The net proceeds contemplated by the equity commitment
letter will in the aggregate be sufficient for Parent and Merger Sub to pay the
aggregate Per Share Price, the equity award consideration and any other amount
(including fees or expenses) required to be paid by Parent or Merger Sub in
connection with the consummation of the Merger and the transactions contemplated
by the Merger Agreement.
38
Consolidated Results of Operations
The following table represents our selected results of operations for the
periods indicated (in thousands, except per share data).
For the Year Ended
December 30, December 31,
2022 2021
Revenues $ 604,765 $ 538,799
Subcontractor costs (127,691 ) (102,035 )
Other costs of revenues (198,332 ) (181,967 )
Gross Profit 278,742 254,797
Operating expenses:
Personnel costs and benefits (137,130 ) (128,612 )
Selling, general and administrative (70,912 ) (72,026 )
Change in fair value of earnouts 1,518 (2,823 )
Depreciation and amortization (32,177 ) (23,700 )
Total Operating expenses (238,701 ) (227,161 )
Operating income (loss) 40,041 27,636
Interest expense (46,363 ) (54,817 )
Loss before income taxes (6,322 ) (27,181 )
Income tax expense (1,748 ) (2,524 )
Net loss (8,070 ) (29,705 )
Provision for non-controlling interest 565 13,216
Redeemable preferred stock dividends - (5,899 )
Net loss attributable to Class A common stock
shareholders/members $ (7,505 ) $ (22,388 )
(Loss) Per Class A common share $ (0.21 ) $ (0.81 )
Weighted average of shares outstanding:
Class A common shares (basic and diluted) 36,308,926 27,799,511
39
Comparison of the Year Ended
2021
Revenue
Revenue for the year ended
12.2%, to
prior year period. The acquisitions of
Additionally, we have experienced growth in revenues in transportation projects
as we expand our services across new geographies and expand our range of
services to existing customers and have been successful in updating and
increasing our pricing with customers to mitigate greater
Subcontractor Costs
Subcontractor costs for the year ended
million
corresponding prior year period. The increase is due to the increase in revenues
and the timing of work where subcontractor costs are required. During the year
ended
subcontractor costs compared to revenues from 18.9% in the prior year to 21.1%
in the current year. This percentage varies from period to period based on the
timing of large projects that require higher percentage subcontractor use but
has historically been 20% over a number of periods.
Other Costs of Revenues and Gross Profit
Other costs of revenue for the year ended
million
corresponding prior year period. The increase in other cost of revenues was due
to the increase in revenues and was consistent as a percentage of revenues for
each year. The company has been able to achieve consistent gross margins with a
significant amount of work done on a cost reimbursable basis along with other
projects where pricing increases have been achieved.
Operating Expense
Operating expense for the year ended
million
corresponding prior year period. For the year ended
expense, as a percentage of revenue, decreased to 39.5% from 42.2% for the year
ended
manage costs. Depreciation and amortization expense increased due to the
additional intangible assets recorded in connection with the acquisitions
completed since
Interest Expense
Interest expense for the year ended
or -15.4%, to
prior year period. The prior year period included a write-off of deferred
financing costs of
Agreement, which were completed in 2021. Excluding this from the prior period
results in interest expense increasing
related to the costs of the acquisitions completed since
well as an approximate 2% increase in the average borrowing rate as the
Company's debt is partly based on LIBOR rates which have increased over the
prior period.
40
Income Tax Expense
Income tax expense for the year ended
compared to income tax expense of
2021
loss position and does not have prior year income taxes to apply the losses to
and recover prior taxes.
Provision for Non-controlling Interest
The provision for non-controlling interest for the year ended
decreased by
corresponding period as a function of the level of participation of the
non-controlling interests which was 5.9% in the current period compared to 22.7%
in the prior period.
Redeemable Preferred Stock Dividends
We redeemed the Preferred Units in
preferred stock dividends for the year ended
preferred stock dividends for the year ended
million
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
We view adjusted EBITDA, which is a non-GAAP financial measure, as an important
indicator of performance. We define adjusted EBITDA as net income before
interest expense, provision for income taxes, depreciation, and amortization,
further adjusted to reflect non-cash equity compensation as well as certain
one-time or non-recurring items.
We believe adjusted EBITDA is a useful performance measure because it allows for
an effective evaluation of our operating performance when compared to our peers,
without regard to our financing methods or capital structure. We exclude the
items listed above from net income in arriving at adjusted EBITDA because these
amounts are either non-recurring or can vary substantially within the industry
depending upon accounting methods and book values of assets, capital structures
and the method by which the assets were acquired. Adjusted EBITDA should not be
considered as an alternative to, or more meaningful than, net income determined
in accordance with GAAP. Certain items excluded from adjusted EBITDA are
significant components in understanding and assessing a company's financial
performance, such as a company's cost of capital and tax structure, as well as
the historic costs of depreciable assets, none of which are reflected in
adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as
an indication that results will be unaffected by the items excluded from
adjusted EBITDA. Our computations of adjusted EBITDA may not be identical to
other similarly titled measures of other companies.
41
The following table presents reconciliations of adjusted EBITDA to net income,
our most directly comparable financial measure calculated and presented in
accordance with GAAP.
For the Year Ended
December 30, December 31,
2022 2021
(in millions)
Net (loss) income $ (8.1 ) $ (29.7 )
Interest(1) 46.4 54.8
Taxes 1.7 2.5
Depreciation and amortization 33.0 23.7
EBITDA 73.0 51.3
One time legal/transaction costs and other non-recurring
charges(2)
4.2 10.3 Non-cash change in fair value of contingent consideration 1.5 5.8 Non-cash equity compensation(3) 8.5 5.8 Adjusted EBITDA $ 87.2 $ 73.2
(1) Includes
the year endedDecember 31, 2021 .
(2) Includes costs associated with lease accruals related to moving to a hybrid
workforce, employee separation charges, professional service-related fees
such as legal, accounting, tax, valuation and other consulting as well as
other M&A activity. Additionally, it includes costs related to the COVID-19
pandemic and other non-recurring expenses.
(3) Includes the amortization of unvested restricted share units, performance
share units and stock options granted in 2020, 2021 and 2022 to key
management personnel and our compensation to our Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity and capital resources are our cash and cash
equivalents balances, cash flow from operations, borrowings under the Credit
Agreements (as defined below), and access to financial markets. Our principal
uses of cash are operating expenses, working capital requirements, capital
expenditures, repayment of debt and acquisition expenditures. We believe our
sources of liquidity, including cash flow from operations, existing cash and
cash equivalents and borrowing capacity under the Credit Agreements will be
sufficient to meet projected cash requirements for at least the next twelve
months.
As of
liquidity of
The Company has experienced increased working capital outflows relating to the
increase in interest charges and from overall growth in operations.
On
Long-Term Debt" to the consolidated financial statements to hedge against the
risk of Adjusted LIBOR exceeding 3%.
On
Agreement to increase the revolving credit facility to
described in "Note 6 - Long-Term Debt" to the consolidated financial statements.
Cash Flows
The following table sets forth our cash flows for the periods indicated.
For the Year Ended
December 30 , December 31,
2022 2021
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
(38,120 ) (36,547 ) Net cash provided by financing activities 31,024 4,078
Net decrease in cash and cash equivalents
42
Comparison of the Year Ended
2021
Cash and Cash Equivalents.
At
million
Operating Activities
Cash flow from operating activities is primarily generated from operating income
from our professional and technical testing, inspection, engineering and
consulting services.
Net cash provided by operating activities was
2021
and a higher use of cash related to working capital.
Investing Activities
Net cash used in investing activities was
2021
Alliance in
included the cash cost of the AEL and O'Neill acquisitions which were slightly
higher cash outflows compared to the current period acquisitions.
Financing Activities
Net cash provided by financing activities was
activities was due to borrowings on the Term Loan and Line of Credit to fund the
2022 acquisitions described above and to fund operations.
Working Capital
Working capital, or current assets less current liabilities, increased by
million
Debt Arrangements
On
credit facilities consisting of (i) a
closing and, subject to the satisfaction of certain terms and conditions, a
committed delayed draw term loan facility to be used for future acquisitions,
within 18 months of
aggregate principal amount of up to
(no remaining amounts are available as the 18 month period has expired), and an
uncommitted incremental term loan facility that may be incurred after closing
(the "Term Loan") pursuant to a Credit Agreement dated
among Holdings, Atlas Intermediate,
administrative agent and collateral agent, and certain lenders thereto,
including certain
Credit Advisors LP
of their respective funds, accounts, clients managed, advised or sub-advised, or
any of their respective affiliates (the "Term Loan Agreement") and (ii) a
million
increased, subject to the satisfaction of certain terms and conditions,
including obtaining commitments therefor, by up to
"Revolver") pursuant to the Credit Agreement dated
among Holdings, Intermediate,
agent, swingline lender, issuing bank, lender, sole bookrunner and sole lead
arranger (the "ABL Revolver Agreement," and together with the Term Loan
Agreement, collectively the "Credit Agreements"). The Term Loan Agreement
refinances the Credit Agreement dated as of
Capital Funding LLC
Agreement"), which repayment was effectuated partially in cash and partially by
way of a cashless exchange of existing term loans and preferred equity for Term
Loans.
The Term Loan Agreement and ABL Revolver Agreement are collectively referred to
as the "Credit Agreements" by the Company.
The initial Term Loan will mature on
mature on
On
(collectively with Holdings and Intermediate, the "Loan Parties") and the
Administrative Agent (as defined below) entered into the First Amendment to
Credit Agreement (the "Credit Agreement Amendment"), which amends that certain
Credit Agreement, dated as of
and
issuing bank, lender, sole bookrunner and sole lead arranger (the
"Administrative Agent"). The Credit Agreement Amendment amended the Credit
Agreement to, among other matters, increase the revolving credit facility
thereunder by
43
Interest on any outstanding borrowings is payable monthly under the ABL Revolver
Agreement, quarterly under the Term Loan Agreement or, in each case, at the end
of the applicable interest period in arrears. The cash interest rates under the
Term Loan Agreement will be equal to either (i) the Adjusted LIBO Rate (as
defined in the Term Loan Agreement), plus 5.50%, or (ii) an Alternate Base Rate
(as defined in the Term Loan Agreement), plus 4.50%. In addition, the term loan
requires an additional 2.0% interest that can be made at the option of the
Company in cash or payment-in-kind (PIK). The interest rates under the ABL
Revolver Agreement will be equal to either (i) the Adjusted LIBO Rate (as
defined in the ABL Revolver Agreement), plus 2.50%, or (ii) the ABR (as defined
in the ABL Revolver Agreement), plus 1.50%.
The Credit Agreements are guaranteed by Holdings and secured by (i) in the case
of the ABL Revolver Agreement, a first priority security interest in the current
assets, including accounts receivable, of Holdings, Intermediate and its
subsidiaries and (ii) in the case of the Term Loan Agreement, a pledge of the
equity interests of the subsidiaries of Holdings and Intermediate, and subject
to the first lien security interest on current assets under the Revolver, a
first priority lien on substantially all other assets of Holdings, Intermediate
and all of their direct and indirect subsidiaries.
The Term Loan Agreement contains a financial covenant which requires Holdings,
Atlas Intermediate and all of their direct and indirect subsidiaries on a
consolidated basis to maintain a Total Net Leverage Ratio (as defined in each of
the Credit Agreements) tested on a quarterly basis that does not exceed (i) 8.25
to 1.00 with respect to the fiscal quarters ending on
2021
2022
quarters ending
fiscal quarters ending
to 1.00 for
The ABL Revolver Agreement contains a "springing" financial covenant which
requires Holdings, Intermediate and all their direct and indirect subsidiaries
on a consolidated basis to maintain a Fixed Charge Coverage Ratio (as defined in
the ABL Revolver Agreement) of no less than 1.10 to 1.00 when the outstanding
principal amount of loans under the Revolver exceeds
exposure for letters of credit under the Revolver exceeds
The Company has been in compliance with the terms of the Credit Agreements as of
Our debt balances are summarized as follows:
December 30, December 31,
2022 2021
(in thousands)
Credit Agreements $ 511,218 $ 473,392
Less: Loan costs, net (6,951 ) (7,593 )
Less current maturities of long-term debt (4,930 ) (3,606 )
Long-term debt $ 499,337 $ 462,193
The following table presents, in thousands, scheduled maturities of the
Company's debt as of
2023$ 4,930 2024 4,930 2025 4,930 2026 4,930 2027 4,930 Thereafter 486,568$ 511,218
The Credit Agreements require annual amortization of principal amounts of 1% or
2.5% depending on certain ratios. The Company is currently within the ratio that
requires 1% annual amortization. Principal repayments commenced during the
second quarter 2022.
44
Effective Interest Rate
Our average effective interest rate on our total debt, exclusive of amortization
of deferred debt issuance costs, during the year ended
Interest expense, inclusive of amortization of deferred debt issuance costs, in
the consolidated statements for the year ended
31, 2021
of deferred debt issuance costs were excluded, interest expense would be
million
2021
Interest Rate Cap
In
which limits the Adjusted LIBOR rate noted above to 3%. The interest rate cap
hedges
monthly at an annual rate of 0.69% or approximately
three-year period. As a result, the Company initially recorded an asset and a
corresponding liability for
as of
change in fair value as a component of stockholders' equity. The fair value of
the interest rate cap as of
therefore there was a gain of
liability is recorded as an other current liability of
long-term liability of
cap has already provided benefit to the Company with LIBOR rates exceeding 3% as
of
Other Commitments and Contingencies
In connection with our acquisitions, we may be required to pay earnout bonuses
upon the achievement of certain performance targets. This amount may be paid in
installments over the first, second and third anniversaries of the acquisitions
and may be paid in cash or stock. We have currently accrued
fair value of that liability within our Consolidated Balance Sheet at
30, 2022
As part of our self-insurance policies, we are required to furnish standby
letters of credit to our reinsurers. We had
credit in effect as of
The Company enters into operating leases relating to office space and equipment
leases in the ordinary course of business. Remaining amounts due, in thousands,
as of
2023$ 12,164 2024 8,069 2025 4,085 2026 2,654 2027 1,334 Thereafter 2,513$ 30,819
During 2020, the Company entered into an agreement with its fleet management
company pursuant to which it would receive rebates of
over three years at an interest rate of 2.85% per annum. The rebates were
secured by title to selected vehicles within the Company's owned fleet of
vehicles in
During the fourth quarter of the year ended
entered into a similar agreement with its fleet management company in which it
would receive
for the O'Neill transaction were similar to the agreement entered into during
2020.
Remaining payments are as follows (in millions):
2023$ 0.7 2024 0.5$ 1.2 45
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in
America
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Revenue Recognition
Our accounting policies establish principles for recognizing revenue upon the
transfer of control of promised goods or services to customers. We generally
recognize revenues over time as performance obligations are satisfied. In the
course of providing these services, we may subcontract for services and incur
other direct costs on behalf of our clients. These costs are passed through to
clients, and in accordance with accounting rules, are included in our revenue
and cost of revenue. Please refer to Note 2 "Summary of Significant Accounting
Policies," to the Consolidated Financial Statements for further information.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
financial statements.
Off-Balance Sheet Arrangements
As of
Effects of Inflation
Based on the analysis of the periods presented, we believe that inflation has
not had a material effect on our operating results for the year ended
30, 2022
interest expense expected to be paid over the next twelve months will be higher
than the previous twelve months. For every 1% increase in LIBOR, we would
experience
interest rate cap entered into during the second quarter of 2022). In addition,
the Company has experienced higher costs to replace comparable employees as
certain labor markets have tightened and for employees opting to return to work
post COVID-19.
Bill would require insurers to cover gender-affirming care [Las Vegas Review-Journal]
New Insurance Findings Has Been Reported by Investigators at University of California Los Angeles (UCLA) (Readmissions and Postdischarge Mortality By Race and Ethnicity Among Medicare Beneficiaries With Multimorbidity): Insurance
Advisor News
- I started using AI, but what now?
- How to support an entrepreneur client with multiple businesses
- Could a narrower focus help grow your practice?
- U.S. debt hits $40 trillion: how to support concerned clients
- Flourish brings private-bank-like cash solution to MassMutual’s network
More Advisor NewsAnnuity News
- MassMutual Expands Lending Options With New Secured Credit Line
- Corebridge Financial Introduces Progressive Trigger, a First-of-Its-Kind Index Annuity Strategy Designed to Turn Missed Years into Future Opportunity
- Insurer proposes $1.1M deal to resolve CA teachers’ annuity fee lawsuit
- IMOs get frustrated with slow carrier adoption of faster technology
- New class-action lawsuit targets Delaware Life over annuity disclosures
More Annuity NewsHealth/Employee Benefits News
- Health insurance hits municipal budgets, taxpayers hard
- Minnesota seniors face tough choices for health plans
- Recent Findings from New York University (NYU) Langone Health Provide New Insights into Managed Care (State Medicaid Body Mass Index Requirements for Solid Organ Transplant Coverage: A 50-State Policy Review): Managed Care
- After booting 760K off ACA health plans, the Trump administration adds some people back
- New Findings from University of Hawaii at Manoa in the Area of Science Reported (Expanded Medi-Cal Coverage and Persisting Access Barriers for Latino Immigrants in California): Science
More Health/Employee Benefits NewsLife Insurance News